Tax Notes Talk Changes Coming: How the OBBBA Affects State Tax
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Aug 8, 2025 Steve Kralik, Managing Director at Armanino Advisory, dives into the One Big Beautiful Bill Act and its significant ramifications on state tax, especially the SALT deduction cap. He discusses the challenges states face in adapting to the new legislation, including financial implications for vital programs like Medicaid. Kralik also explores the political landscape surrounding these changes and how they might reshape state tax systems, highlighting the need for clearer regulations as lawmakers navigate this complex terrain.
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SALT Cap Debate And Outcome
- Congress debated whether to expand, preserve, or let the SALT cap expire, creating major political and budget tensions.
- The final law expanded the cap temporarily while leaving state pass-through workarounds intact federally.
How The PTE Workaround Began
- The pass-through entity workaround began in Connecticut as a way to preserve uncapped deductions for owners.
- That model spread and now more than 35 states have PTE taxes or similar regimes.
House-Senate PTE Negotiation
- House proposals tried to expand the SALT cap but restrict PTE benefits for certain professional firms to offset costs.
- The Senate removed that carve-out and the final law expanded the cap while preserving PTE deductibility.