A state lawmaker from Noblesville has filed a bill that would provide tax relief to Indiana small businesses.
State Sen. Scott Baldwin, R-Noblesville, filed Senate Bill 2, which would change state tax law so that LLCs and S Corps can deduct all state tax payments on federal tax returns, resulting in what could be $50 million in federal tax savings for Hoosier small businesses.
“One of my primary goals in the Senate is to make it easier and less costly to start and grow a business in Indiana,” Baldwin said. “SB 2 would provide significant tax relief for small businesses by leveling the playing field and allowing these businesses to qualify for tax deductions that other large corporations already receive. This legislation has broad support from the business community, and I look forward to working with my colleagues to pass it into law.”
Under federal law, businesses can deduct their state tax payments from their federal tax liability. For businesses that pay income tax as corporations, such as C corporations, which are normally larger businesses, the deduction is unlimited. However, for corporations where the owners or shareholders pay their own individual income taxes, such as LLCs and S Corps, the deduction is limited to $10,000.
The legislation would allow LLCs and S Corps to receive an unlimited federal deduction for their state tax payments, similar to C Corps.
Baldwin’s legislation has been identified as a priority bill by the Indiana Senate Republican Caucus and is supported by a wide range of business organizations, including:
- Indiana Chamber of Commerce
- National Federation of Independent Businesses (NFIB)
- Indiana Technology and Innovation Association (ITIA)
- Indiana Manufacturers Association
- Indiana Builders Association
- Main Street Employers
- Indiana Restaurant & Lodging Association
- Indiana Association of Realtors
- Indiana Association of Beverage Retailers
- Indiana State Bar Association
- Indiana CPA Society
- S Corp. Association
- Associated Builders and Contractors of Indiana/Kentucky; and
- Automobile Dealers Association of Indiana.
“We’re excited to support this proposal as it will allow Hoosier business owners to reinvest in their businesses and continue to drive economic growth in our state,” Indiana Chamber of Commerce Vice President of Taxation and Public Finance David Ober said. “Additionally, this tax relief will not cost the state anything, making it a win-win for both business owners and the state of Indiana.”
“The Indiana Technology & Innovation Association supports Senator Baldwin’s legislation to provide tax relief to small businesses and ensure Indiana has a competitive tax climate that encourages businesses to start, locate and grow in our state,” said Jennifer Hallowell, executive director of ITIA.
If SB 2 becomes law, Indiana would join at least 29 states that have already made the change to their tax laws so their businesses can minimize federal taxes.
SB 2 has been referred to the Senate Committee on Tax and Fiscal Policy and awaits a hearing for further consideration. For more on the bill, visit iga.in.gov/legislative/2023/bills/senate/2.