Salem News – Gov. Charlie Baker wants to tax certain businesses to help their owners skirt a federal cap on deductions of state and local taxes.
Tucked into Baker’s preliminary budget is a proposed “workaround tax” allowing pass-through corporations — partnerships, limited liability companies, and S corporations — to get around the $10,000 federal cap on deductions for state and local taxes.
The measure looks to aid small businesses owners, many of whom report and pay taxes on their business income as part of their personal income taxes.
“There are businesses that would definitely see this as a beneficial way to be taxed,” said Chris Carlozzi, state director of the National Federation of Independent Businesses. “Many of these business owners have struggled greatly during the pandemic.”
Carlozzi said the changes would put Massachusetts “on a competitive playing field” with neighboring states, such as Connecticut and Rhode Island, which have already approved similar changes.
Baker’s plan would create an optional “pass-through entity tax” allowing eligible business owners to pay income taxes separately from their personal tax returns. In turn, partners and shareholders of those entities would get refundable credits for federal income taxes, equal to the amount paid.