2023 Legislative Priority
New state law championed by the Indiana Chamber will save Hoosier businesses in excess of $100 million on their federal income taxes. Governor Holcomb signed the legislation, Senate Enrolled Act 2, on February 22, 2023. The law is retroactive, making it available to use for the current tax year.
Why it was needed: In addition to reductions to the corporate income tax rate and marginal income tax rates included in the federal Tax Cuts and Jobs Act of 2017 (TCJA) was a $10,000 cap on the amount of state and local tax that can be deducted. This cap has become known as the SALT cap and led to higher taxes for many business taxpayers. Since the enactment of the TCJA, states have experimented with various methods of allowing expanded or full deductibility of state and local tax. Connecticut became the first state to enact a pass-through entity tax in 2018 and nearly 30 states (and most of Indiana’s neighbors) have passed some version of the policy. Maintaining and improving upon Indiana’s positive business tax climate is vital, especially relative to nearby states with which Indiana competes for jobs and investment.
What the new law does: It allows pass-through business owners to elect to pay state income tax at the business level rather than the individual level. This reduces their taxable income and enables the full amount of state income tax to be deducted on the federal return. The amount that was deducted on the federal return is added back on the state return and the individual receives a credit for state income tax paid by the business. In short, this bill provides an estimated $100 million in tax relief to Hoosier businesses with no impact on state revenues.
Who benefits from the new law: As the label suggests, a pass-through business does not remit tax as a business unit, but rather distributes income to the owners of the enterprise and the owners are taxed as individuals. These businesses include unincorporated partnerships, LLCs, LLPs, S-corporations and trusts.
What role the Indiana Chamber played: Since summer 2022, our vice president of taxation and public finance, David Ober, and CEO Kevin Brinegar have been gathering data, forming (and later representing) a large coalition of interested associations/parties and meeting with the Governor and state lawmakers on the matter. In conjunction with Sen. Scott Baldwin (R-Noblesville), this became a joint priority; one that was fast tracked in the state Legislature so businesses could realize the tax savings for their 2022 federal taxes.
JOIN NOW: This is just one policy example of how the Indiana Chamber, the second largest state chamber in the nation, works diligently to protect your bottom line and encourage economic prosperity in the state. We encourage you to join (if not already a member) and also review the many other membership benefits we offer.
