The bill, sponsored by state Sen. Win Stoller, R-Peoria, specifically targets the $10,000 annual cap on deductions for state and local taxes, generally known as SALT, that was imposed under tax law changes pushed through Congress by President Donald Trump.
The SALT cap has been extremely unpopular in relatively high-income states such as California, New York and Illinois, where combined state income and local property taxes alone can easily amount to more than $10,000 a year for a middle-class family.
Washington Democrats have talked about abolishing or lifting the cap, so far unsuccessfully. But according to Stoller and the Illinois Chamber of Commerce, which worked with him on the bill, the U.S. Internal Revenue Service offered a partial workaround last autumn.
Under the workaround, which now is Illinois law, shareholders in S-Corps—typically small, often family-owned businesses—and partners in partnerships will be allowed to have their taxes paid directly by their companies, presumably out of distributions. If the S-Corp or partnership does that for all of its members, the SALT limitation will not apply.
“The IRS came out with guidance last year that basically blessed the concept,” Stoller said. “It evens the playing field with C-Corps”—or big corporations.
Since the IRS gave the green light, at least 20 other states have enacted or proposed similar steps, including not only New York and Connecticut but our neighbors Wisconsin and Minnesota, said Keith Staats, executive director of the chamber’s Tax Institute. He pointed to a national group, Main Street Employers, that has been actively tracking the introduction and passage of such workaround legislation
The legislation passed both houses of the Illinois Legislature unanimously, a tribute to the fact that shorting Uncle Sam has bipartisan appeal.