States’ Pass-Through Taxes Gain More Flexibility and Eligibility

With Congress still undecided about the future of the 2017 tax law’s cap on state and local deductions, states continue to tinker with the workarounds they’ve created to give some of their residents a measure of relief.

Nearly two dozen state legislatures considered bills this year creating or modifying pass-through entity taxes, which became widespread after the imposition of the $10,000 federal limit on personal deductions for state and local taxes.

Since the cap was introduced, 36 states and New York City have implemented various forms of pass-through entity taxes. These provisions allow partnerships and similar businesses to pay state ...