Last year, this post explained that Investors in Ohio Transmitting Entities (PTEs) could avoid the $10,000 State and Local Tax Deduction (SALT) cap by using the Composite Return Choice. from Ohio. Just over a year later, Ohio has put an end to any uncertainty and joined the growing number of states passing SALT cap circumvention laws specifically aimed at allowing PTE owners to circumvent the deduction cap. SALT of $10,000. See SB 246.
Similar to Ohio’s existing composite return election, SB 246 allows PTEs to elect each year to pay entity-level income taxes and claim a refundable credit on their individual returns equal to their distributive share. Ohio income taxes paid by the PTE. In Notice 2020-75, the IRS states that these optional PTE-level taxes, called specified income tax payments, are honored as entity-level taxes and avoid the SALT cap. The tax rate for the PTE election will be 5% for the 2022 tax year and will be consistent with Ohio’s rate on taxable business income for each subsequent year (currently 3%). So, for 2022, investors in qualifying PTEs will receive the federal deduction based on the higher taxes owed by the PTE, while also receiving a credit/refund for taxes paid by the PTE on income from other sources.