May 21, 2025
The Honorable Don Beyer
United States House of Representatives
Washington, DC 20510
RE: Preserve Pass-Through Entity Tax Deductions
Dear Representative Beyer:
On behalf of the nearly 12,000 members of the Virginia Society of CPAs (VSCPA), we urge you to oppose provisions included in the House Ways and Means Committee’s tax reform legislation that unfairly target the ability of service businesses structured as pass-through entities to deduct their state and local taxes (SALT) from their federal tax liability while providing no such limit to other businesses. This legislation effectively discriminates against particular pass-through businesses by indirectly raising taxes on those entities that are considered the backbone of the American economy. These provisions greatly widen the disparity in treatment between pass-through entities and other kinds of businesses, and we strongly urge you to oppose these provisions of the bill.
Currently, state and local income taxes for individuals are capped at $10,000, which has a disproportionate impact on business owners who are operating as sole proprietorships, disregarded entities, or pass-through entities. Corporations may deduct state and local income taxes in determining their taxable income and also have an effective tax rate of 21%.
Many states, including Virginia, have enacted various approaches to mitigate the $10,000 SALT limitation by shifting the state and local tax liability on pass-through entity income from the owner to the pass-through entity itself. The IRS allows the payment of a pass-through entity tax to be fully federally deductible and permits the partners/owners to claim a state and local tax credit or deduction on the owner’s state income tax return. This helps to provide some parity between corporations and pass-throughs.
The proposed bill excludes specified service trades or businesses (SSTBs) (e.g., accountants, veterinarians, dentists, doctors, lawyers, nurses) from deducting state and local income taxes at the partnership level, as is currently permitted. Instead, it pushes the tax liability to the individual partners/owners, therefore contributing towards their individual SALT deduction limitation. However, the bill includes no such limitation on the federal deductibility of state and local taxes for corporations.
By eliminating the entitylevel deduction for pass-throughs, the bill targets service providers, who were already substantially limited under the SSTB rules for the qualified business income (QBI) deduction. The targeting of SSTBs would further increase taxes on millions of service-based businesses, discourage the creation and growth of such businesses, and expand the advantages of C corporations over pass-through entities.
Thank you for your consideration. Should you require further assistance or information, please do not hesitate to contact me or VSCPA Vice President of Advocacy & Pipeline, Emily Walker, CAE, at (804) 612-9428 or [email protected].
Sincerely,
Stephanie R. Peters, CAE
President & CEO
Virginia Society of CPAs