SB 22-124

Senate Bill 22-124, known as the "SALT Parity Act," allows certain businesses in Colorado (like S corporations and partnerships) to pay state income taxes at the business level rather than through individual owners. This change lets these businesses claim a bigger deduction on their federal taxes for state and local taxes paid. The bill also makes this option available retroactively starting from January 1, 2018, but businesses must make the election by July 1, 2024. Since the bill has been signed into law, it is now in effect and these businesses can start taking advantage of the new tax benefits according to the specified timeline.

Official Summary

The "SALT Parity Act" was enacted in 2021 and, for income tax years commencing on or after January 1, 2022, it allowed pass-through entities to elect to pay state income tax at the entity level, which allows the entity to claim an unlimited deduction at the federal level for state and local taxes paid. While this election reduces federal taxable income for the pass-through entity, it does not reduce or increase Colorado taxable income under current law based on additions and subtractions (deductions) to the state income tax. The act converts the state income tax deductions created to keep state revenue neutrality into a tax credit and makes provisions of the "SALT Parity Act" retroactive to January 1, 2018. An S corporation or a partnership must make the retroactive election on or after September 1, 2023, but before July 1, 2024, in a composite amended tax return for all of the years for which the election is made that is filed on behalf of the S corporation or partnership and the electing pass-through entity owners. (Note: This summary applies to this bill as enacted.)

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