Michael Knight quoted in Bloomberg article 'New Rhode Island SALT Workaround Bill 'Has Legs’'

Michael Knight, CPA, CVA, CFE, a partner at Knight Rolleri Sheppard CPAs, LLP (with offices in Fairfield and Greenwich), was quoted by Bloomberg Tax in the article "New Rhode Island SALT Workaround Bill 'Has Legs’."

The article follows.

 


 

 

New Rhode Island SALT Workaround Bill 'Has Legs’

By Aaron Nicodemus

Proponents of a bill that would allow Rhode Island businesses to work around the federal cap on state and local tax deductions say it stands a good chance of becoming law.

The bill (H. 5576) would provide a work-around for owners of pass-through entities whose state and local taxes exceed the $10,000 cap on the SALT deduction enacted in the 2017 federal tax law. It was filed Feb. 27 by Rep. K. Joseph Shekarchi (D), and Sen. Mark P. McKenney (D) is expected to file a companion bill, according to a news release.

The bill sets a 5.99 percent levy on pass-through entities, which report their income on owners’ personal returns. Pass-through owners then get a state credit equal to 100 percent of the owner’s share of tax paid by the business. The strategy effectively lets pass-through owners take bigger federal write-offs to help offset their previously unlimited SALT deductions, and is modeled on a Connecticut law passed last year. One difference between the two is Connecticut set the state tax credit at 93 percent.

Like the Connecticut law, the Rhode Island bill is designed to be revenue-neutral for the state, Shekarchi said in the release. If passed, the workaround would take effect for the 2019 tax year. The bill is currently before the House Finance Committee.

Shekarchi, the House Majority Leader, declared the bill’s chance of passage “excellent.”

“This bill has bipartisan support, and even some of the most progressive members of the General Assembly have expressed their support,” he told Bloomberg Tax. The state treasurer and Gov. Gina Raimondo (D) have indicated to him they will support the bill as well, he said. Neither Raimondo nor General Treasurer Seth Magaziner (D) responded to requests for comment.

Rep. Blake Filippi (R), House Minority Leader and one of the bill’s 19 co-sponsors, agreed the bill should move through the state legislature quickly.

“When you have a bill that’s revenue neutral and saves people money, it’s an easy sell,” he said. 

Bill 'Has Some Legs’ 

Shekarchi said two Rhode Island CPAs--Grafton “Cap” Willey IV, managing director at the Providence office of accounting firm CBIZ MHM LLC, and Randolph K. Dittmar, principal of Dittmar McNeil & Varone CPAs Inc. in Warwick--brought the idea to him.

“I think that it has some legs,” Willey told Bloomberg Tax in an email.

Companies organized as C corporations already receive this benefit, and the bill would place pass-through entities organized as limited liability companies, S corporations, partnerships, and sole proprietorships on an equal footing with big businesses, Willey said.

In Rhode Island, 33 percent of filers use the SALT deduction. On average, they claimed about $12,400 in 2015, according to research by Pew Charitable Trusts. The group lists Rhode Island as one of 19 states where the average SALT deduction exceeds the new $10,000 cap, according to the release.

It’s still an open question, though, whether this attempt to work around the SALT deduction cap will be deemed appropriate by the IRS.

Michael J. Knight, a certified public accountant with Knight Rolleri Sheppard CPAs LLP in Fairfield, Conn., has been publicly critical of the Connecticut law. He told Bloomberg Tax he will advise his clients not to use it in their tax returns.

“At the end of the day, I have to sign this return,” he said. “And I have a concern about signing a return using 'the Connecticut way.’”