New Jersey is on the cusp of approving another attempt to help its taxpayers – small businesses, this time – find a way to restore a federal tax write-off that was capped by the 2017 tax law.

The federal tax code now limits individuals’ ability to deduct their state and local taxes, or SALT, crimping their ability to reduce what they owe. But that $10,000 limit doesn’t apply to businesses, so a bill now on Gov. Phil Murphy’s desk would allow pass-through entities to pay that tax to the state, rather than have the state tax the profits of each individual as income.

The bill would give S corporations, partnerships, limited liability companies and sole proprietorships the choice of how to pay their tax bills starting Jan. 1. The New Jersey Society of Certified Public Accountants estimates it could save business owners $200 million to $400 million a year.

“That’s millions of dollars that will be pumped back into the state’s economy. Furthermore, the bill is revenue neutral and won’t cost the state a dime,” said Ralph Albert Thomas, the group’s chief executive officer. “We urge Gov. Murphy to sign the legislation, which is a win-win for everyone in New Jersey.”

Alan Sobel, a CPA in Livingston and president-elect of the NJCPA, said he had long thought an entity-level tax might be a beneficial change to respond to the alternative minimum tax. When he read the federal tax changes and “became sort of incensed” by the SALT cap, he thought the idea could work.

“If we can find a way to essentially cut a business owner’s effective tax rate in New Jersey by a third, which is what this would do, it’s a pretty powerful statement for our state to send out there in terms of New Jersey’s wanting to help small business,” Sobel said.

“While this is a tax measure, that actually will not cost the state a penny,” he said. “The taxpayers will not pay another dollar in New Jersey tax but will save on the federal tax side.”

The bill was passed Monday by votes of 77-0 in the Assembly and 34-0 in the Senate. It was one of 76 bills approved and sent to Murphy Monday.

Last year, the state adopted a law that sought to create a workaround for homeowners by letting them make charitable contributions to municipal charities in each for property tax credits. The IRS blocked that approach, and the matter is in court. No charities have been created.

It’s not clear if the IRS would move to block the new small-business workaround. Jeff Kaszerman, government relations director for NJCPA, said other states have programs like that – and that New Jersey used to tax pass-through businesses that way, too.

“Up until 1993 that pass-through companies were taxed on the entity level, so the IRS can’t claim that this is something novel, that it was never done before,” Kaszerman said.

Assemblyman Dan Benson, D-Mercer, said the tax savings to small businesses could be $450 million.

Sen. Paul Sarlo, D-Bergen, said Connecticut adopted a similar law last year and that Arkansas and Wisconsin are considering similar bills.

The bill could benefit an estimated 115,000 New Jersey small businesses registered as S corporations and approximately 175,000 law firms, medical groups, accounting practices and other partnerships that were created as LLCs.

In 2015, according to a state Department of the Treasury annual report, partnership income accounted for $23.4 billion in taxable income, while S corporation income totaled $11.9 billion.

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