Major Changes to SALT Taxes
Many practitioners don’t spend as much time on SALT law changes unless they specialize in them, but realistically your clients are not only impacted by these laws, they also anticipate you will make them aware of changes. Understanding state nexus laws is an important part of a tax advisory practice. Even if you don’t offer sales tax services, changes to SALT laws can be indicative of changes that impact state nexus as well.
As we move into 2024, there are several major state and local tax developments likely to unfold. Drawing on 2023's key SALT issues and fiscal projections, here are predictions for 2024 tax law changes that you may need to be aware of:
- More pass-through entity (PTE) taxes - Despite the impending federal SALT cap expiration, at least two more states are enacting elective PTE taxes as a workaround. Be sure to pay attention to state laws when preparing income taxes to not miss these alternative limits.
- States currently face a wide array of financial and budget situations - States with both budget surpluses as well as deep financial deficits are expected to enact income tax rate changes to address both.
- Developments taxing digital ads - Maryland’s groundbreaking digital ad tax faces ongoing litigation. While the decision is widely expected to stroke down the tax in Maryland, followed by anticipated appeals, at least three more states are considering enacting similar taxes.
- More conformity to the MTC’s updated P.L. 86-272 rules – The multistate tax commission updated guidance on protected and unprotected activities by adding language to address digital and remote activity. More challenges to these rules are expected in the coming year.
- Economic nexus adoptions - Following Wayfair, at least three or more states are applying updated income tax economic nexus rules, with at least one state using a threshold under $500,000. Watch your business clients sales dollars carefully. See also number 7 below.
- Pandemic residency disputes - With remote work continuing post-COVID, several court cases addressing pandemic-related residency changes are pending. Decisions could impact tax laws moving forward.
- Remote seller sales tax revisions – Unlike states adopting more economic nexus rules, some states will seek to eliminate transaction thresholds from economic nexus provisions, easing compliance. Practitioners will need to carefully watch states in which their clients may have economic nexus.
- Sales tax simplification - States like Louisiana with complex local sales tax regimes may see centralized systems and an overhaul of existing rules. Especially in the face of more complex nexus rules, keep and eye on your state’s tax rules for sales taxes.
- Sales tax base expansions - Ongoing efforts to tax digital services and transport may continue. Even though Maryland’s decision is expected to be struck down, appeals may produce a different response especially as more states seek to expand tax basis to digital assets and services.
- Unclaimed property reform - On the heels of Delaware v. Pennsylvania, it is expected at least two states will accelerate unclaimed property rules. While this may not directly impact tax calculations, make sure business clients especially are aware of their compliance requirements.
Stay tuned as these critical SALT issues develop over the next year. SALT can be a time-consuming issue for practitioners to keep up with. It’s recommended that you always read the latest rule changes before preparing returns in any state you’re not familiar with. It is also highly recommended that you ask your business clients, especially service providers, where and how they are serving their clients. Gaining a good understanding of the business can help identity SALT issues early on.
Christine Gervais
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and providing strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.