SB 314 / Chamber Supports
The Senate Tax and Fiscal Policy Committee heard testimony last week on Senate Bill 314. The bill seeks to refine the state’s pass-through entity tax (PTET) and eliminate double taxation for resident business owners. Authored by Sen. Scott Baldwin (R-Noblesville), the proposal would allow pass-through entities to exclude income earned by resident owners in other states from Indiana taxable income before allocation and apportionment.
Currently, pass-through entities that elect pre-apportionment treatment taxes resident owners on their entire share of income, even if a portion is already taxed in another state. While Indiana offers a tax credit for out-of-state taxes paid, differences in rates and rules often leave owners with an additional tax burden. Senate Bill 314 would address this by enabling businesses to exclude income already taxed elsewhere, ensuring owners are taxed only once.
For example, an Indiana resident owning 50% of an LLC operating in Ohio and Indiana might currently be taxed in Indiana on their full share of the LLC’s income, even though a significant portion is taxed in Ohio. Under SB 314, the LLC could exclude the Ohio-taxed portion from Indiana’s tax base, reducing the owner’s liability.
This adjustment not only prevents double taxation but also enhances the PTET’s federal benefits, preserving the full deduction of state taxes at the entity level. The bill makes Indiana’s tax system more attractive for multi-state businesses while simplifying compliance. Though it may slightly impact state revenue, supporters argue the economic growth and improved fairness make the proposal a valuable step forward.
