State & Local Tax

Oregon Legislature Addresses SALT Deduction Limitation on Federal Income Taxes

August 13, 2021

The 2017 Tax Cuts & Jobs Act (TCJA) limited the state and local tax (SALT) deduction for federal income tax returns to $10,000, impacting the ability of taxpayers in high-tax states such as Oregon to deduct the full amount of state and local taxes paid. An increasing number of states are enacting entity-level taxes for pass-through entities to provide relief from this limitation. On July 19, 2021, Governor Kate Brown signed into law Senate Bill 727, also known as the Oregon Business Alternative Tax, to provide this type of relief for Oregon taxpayers.

The new law allows pass-through entities (partnerships, multi-member LLCs, and S-corps) to elect to pay their tax liability at the entity level beginning in 2022. The individual benefit of this election is that, in certain circumstances, business owners can shift some of their tax liability to the entity, providing relief from the TCJA’s SALT limitation. This will be welcome news for individual taxpayers with significant Oregon tax liabilities and ownership rights in a pass-through entity.

The Business Alternative Tax is allowable for pass-through entities whose owners are either individuals or other pass-through entities. Pass-through entities with an Oregon filing requirement may elect to pay tax at the entity level and then provide, via an Oregon K-1, the member’s share of distributive income and tax paid on that income at the following rates:

  • 9% of first $250,000
  • 9.9% for amounts over $250,000

The owner (partner, shareholder, etc.) will then report the distributive income on their Oregon return and apply a credit against their Oregon tax liability for their share of tax paid at the entity. The credit is refundable, effectively treating their share of entity paid tax like an estimated tax payment.

All owners of the pass-through entity must consent to electing the Business Alternative Tax, and the election must be made each year on or before the return’s due date, including extensions of time to file. The Business Alternative Tax and resulting individual income tax credits are available for the 2022 and 2023 tax years.

The Biden administration has indicated that it wants Congress to repeal the SALT limitation. According to the terms of Senate Bill 727, if the federal SALT deduction limit is repealed before the end of 2023, the Business Alternative Tax will be automatically repealed. While a full repeal of the $10,000 deduction limit is being considered, it is more likely that Congress will elect to increase the limitation rather than repeal it fully. Your State and Local Tax professionals at Geffen Mesher & Co. are keeping a close eye on the situation and can provide you with up-to-date information and guidance on this important issue for Oregon businesses.


If you are an Oregon business owner with a partnership, multi-member LLC, or S-corp, the passage of Senate Bill 727 may impact your tax planning for 2022 and 2023. Learn more from our State and Local Tax team members, Penny Sweeting and Patrick Wrobel.