Breaking Down the House Republican Tax Bill: What Minnesota and Oregon Business Owners Need to Know

The Big Picture: Making 2017 Tax Cuts Permanent

The centerpiece of this legislation is making the 2017 Trump tax cuts permanent. The Joint Committee on Taxation (JCT), the official revenue scorer for Congress, estimated earlier this month that the overall cost of extending the tax cuts and other measures in the plan would add more than $5 trillion to the nation's deficits. One of the most costly proposals is extending the individual rate reductions in the 2017 law, which is estimated to reduce revenues by more than $2 trillion through 2034.

For business owners, this means the favorable tax rates you've been operating under since 2017 would become permanent rather than expiring in 2025.

SALT Deduction: Relief for High-Tax State Business Owners

Minnesota and Oregon business owners should pay close attention to the State and Local Tax (SALT) deduction changes. If the House provision is enacted, the SALT cap would rise to $40,000, up from $30,000 in the previous plan, and phases out over $500,000, according to revised language released by the House Rules Committee.

Currently capped at $10,000, this increase to $40,000 could provide substantial tax relief for business owners who itemize deductions. The SALT cap and income phaseout would increase annually by 1% from 2026 through 2033, according to the text.

Business owners in higher tax income tax states like Oregon and Minnesota will be waiting to see how this shakes out. 

Critical Change: Pass-Through Entity Tax Deduction Elimination

This is a major concern for Minnesota and Oregon business owners. The bill seeks to nullify the Pass-Through Entity (PTE) tax deduction that both states have implemented as SALT cap workarounds.

Oregon adopted legislation in July 2021 via SB 727 to provide a workaround to allow Oregon taxpayers to receive a federal deduction for state and local taxes attributable to pass-through income. Oregon Pass-Through Entity - Elective Tax - Kernutt Stokes. Similarly, Minnesota has its own PTE election that allows pass-through entities to effectively bypass the $10,000 SALT cap by having the entity pay state taxes directly and then deduct them at the entity level.

For tax years beginning on or after January 1, 2022, entities taxed as S corporations and partnerships may elect annually to be subject to the PTE-E tax at a rate of 9% tax on the first $250,000 of distributive proceeds (per owner) and 9.9% tax on any amount exceeding $250,000. Oregon Pass-Through Entity - Elective Tax - Kernutt Stokes

If this provision stands, business owners in both states who have been benefiting from the PTE election could see a significant tax increase, even with the higher $40,000 SALT cap. The math will depend on your specific situation, but for many profitable pass-through entities, losing the PTE deduction could outweigh the benefits of the higher individual SALT cap.

QBI Deduction Preserved

While the PTE workaround may be eliminated, the permanent extension of the 2017 tax cuts would include not only maintaining the Qualified Business Income (QBI) deduction for pass-through entities but also increasing the deduction from 20% to 23%. There will also be expanded access in terms of who qualifies (looking at you, service businesses). This remains crucial for most small and medium-sized businesses, though its value may be diminished if you lose the PTE tax benefit.

New Tax Relief Measures

The bill introduces several new tax benefits that could impact business owners:

• No tax on tips: Relevant if you operate in hospitality or service industries

• No taxes on overtime pay: Could affect how you structure employee compensation

• No taxes on car loan interest: Personal benefit for business owners financing vehicles

What Gets Cut: Green Energy Credits

If your business has invested in or plans to invest in renewable energy, pay attention to these changes. "The bill's initial text eliminates tax credits for electric vehicles within two years. It also eliminates credits for low-carbon electricity, including wind and solar that begin producing power after 2028."

Timeline and Next Steps

The SALT provision "would go into effect in 2025" if enacted. However, "the House proposal for changes to the SALT deduction could still face pushback in the Senate."

The bill also addresses the debt ceiling, "moving forward with plans to raise the nation's debt ceiling by $4 trillion as part of the package."

Bottom Line for Minnesota and Oregon Business Owners

This legislation could be a double-edged sword for pass-through entity owners in both states. While the higher SALT cap provides some relief, the elimination of the PTE tax deduction could result in a net tax increase for many profitable businesses.

Immediate Action Items:

1. Model both scenarios with your tax advisor - compare your current tax situation using the PTE election versus the proposed higher SALT cap without PTE

2. Review 2025 tax planning - you may need to adjust estimated payments and year-end strategies

Remember, this is just the House version. The Senate will likely make changes, and the final legislation could look quite different. However, given the potential impact of losing the PTE deduction, business owners in both Minnesota and Oregon should start planning now for multiple scenarios.

The key is understanding that while the headline focuses on SALT relief, the elimination of the PTE workaround could more than offset those benefits for many business owners in high-tax states like Minnesota and Oregon.

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