The "SALT Parity Act" (act) was enacted in 2021 and, for income tax years commencing on or after January 1, 2022, the act allows 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.
The bill converts the deductions created to keep state revenue neutrality into a tax credit and makes provisions of the act retroactive to January 1, 2018. An S corporation or a partnership must make the retroactive election on or after December 1, 2022, 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: Italicized words indicate new material added to the original summary; dashes through words indicate deletions from the original summary.)
(Note: This summary applies to the reengrossed version of this bill as introduced in the second house.)