The Indiana Chamber of Commerce is throwing its support behind several initiatives being considered by the Indiana General Assembly this year. Among them is Senate Bill 2, which would provide a state and local tax, or SALT, deduction for many small businesses in Indiana. Chamber President and CEO Kevin Brinegar said, if passed, the bill could potentially result in an estimated $50 million in annual tax savings for business owners.
Brinegar discussed the bill Wednesday in a virtual meeting with reporters.
SB 2, authored by Republican Senators Scott Baldwin, Chris Garten and Travis Holdman, would provide the deduction for what are known as pass-through entities, which are businesses that are not subject to corporate income tax.
Examples of pass-through entities include sole proprietorships, partnerships, LLCs, and S-corporations, according to the Tax Policy Center. Brinegar said pass-through entities represent the majority of businesses in Indiana.
Instead of paying corporate income taxes or any other entity-level tax, owners or shareholders of pass-through entities pay business income taxes on their individual income tax returns.
But Brinegar said currently, business cannot fully deduct the state and local income taxes that they pay on their federal tax returns, which was the standard for decades.
“You’ll recall that the federal tax relief program in 2017 put a limit on the deductibility of state and local income taxes paid at $10,000,” he said. “This legislation would essentially be a workaround allowing those small business owners and shareholders to fully deduct.”
Brinegar said Hoosier businesses are excited about the prospect the amount they will save if the bill becomes law.
“We’re looking at an estimated $50 million a year that businesses will have to invest in their employees, in machinery and equipment, and things that will allow them to stay competitive,” he said. “So, it’s very competitive to our small businesses. Indiana is a small business state; we’re not really a corporate headquarters state. So, the vast majority of businesses in Indiana are pass-through entities that would be able to take advantage of this new taxing arrangement under Senate Bill 2.”
The chamber is also supporting Gov. Eric Holcomb’s efforts to secure a second round of $500 million in funding for the Regional Economic Acceleration and Development Initiative, or READI.
The first round of funding came from the American Rescue Plan Act of 2021. A second round would have to be approved by the legislature as part of the state’s next two-year budget.
Brinegar said the first round of READI has proven to be a success by the amount of additional funding that has been leveraged. The Indiana Economic Development Corp. Chief Operating Officer David Rosenberg said in December the initiative has leveraged a total project cost of $6.2 billion from local, philanthropic and private investment.
“Quality of place is especially important in this day and age where you have particularly people with talents, with skills choosing where they want to live and then seeking a job,” said Brinegar. “The quality of place initiatives that the READI program has funded we think are very, very important. We know that there were twice as many projects and proposals from communities around the state submitted in the first round of READI grants than the funding would cover.”
Brinegar added the chamber is optimistic will spend more time on policies to move the state forward such as early childhood education and workforce development and less time on “peripheral social issues.”