An Arkansas bill introduced by Representative Joe Jett on January 19, 2021, known as The Elective Pass-Through Entity Tax Act, could save money for many businesses organized as S-corporations and partnerships. Neighboring states Oklahoma and Louisiana already allow pass-through entities to pay business income taxes. Arkansas has attempted to do something similar in years past, but a recent IRS opinion bolsters the bill and may increase its chances of passage in the Arkansas legislature.

Instead of treating business income as personal income, the bill would give owners of businesses organized as S-corporations or partnerships the option of paying state income tax at the corporate level, which would be fully deductible from federal income tax. The $10,000 “SALT” cap only applies to state and local taxes deducted from personal income and would therefore be avoidable.

Jett’s bill could save some businesses organized as S-corporations and partnerships $50 million or more in federal income taxes and send $4 million more to the state.

The bill has not passed committee yet, but Eldridge Brooks will keep you updated. If you would like more information on this bill and its impacts, please email Steve Brooks (steve@eldridgebrooks.com) or Morgan Johnson (morgan@eldridgebrooks.com) or call 479.553.7678.