Summary
As part of the budget reconciliation process and in order to finance a growing list of tax priorities, members of Congress have considered limitations on the federal tax deduction for state and local taxes paid by businesses (“Business SALT”) as a source of new revenue. These restrictions could take several forms. A cap on the deductibility of business-related property taxes would have devastating consequences for commercial real estate values, rents, and the entire economy and financial system. The tax legislation passed by the House Ways and Means Committee in May does not limit the deductibility of state and local business-related property taxes.
RER has strongly urged Congress to preserve the deductibility of state and local business property taxes to avoid the detrimental impacts that would result from changing this policy.
Key Takeaways
Analysis by the Tax Foundation indicates that disallowing corporate SALT deductions for corporate income and property taxes would reduce GDP and American incomes by 0.6 percent and reduce hours worked by 147,000 full-time equivalent jobs.
State and local property taxes represent, on average, 40 percent of the operating costs of U.S. commercial real estate, a greater expense than utilities, maintenance, and insurance costs combined.
Business-related property taxes are different from state and local income taxes. Property taxes are an unavoidable expense, an inescapable cost of operating any business. They are a cash outlay that is owed regardless of whether the business has any income at all.
See the full fact sheet.
Preserve the Deductibility of Business SALT: Repealing the deductibility of state and local business property taxes would cause unimaginable damage to U.S. commercial real estate, local communities, and the broader economy and must be avoided.
2017 Tax Cuts and Jobs Act (TCJA)