HB21-1327: SALT Parity Act Summary

• Allows S corporations and partnerships to annually elect to pay Colorado state income tax at the entity level rather than passing income through to owners, effective for tax years beginning January 1, 2022.

• Election is only available in tax years when there is a federal limitation on deductions allowed to individuals under Internal Revenue Code Section 164 (the federal SALT cap).

• Imposes a 4.55% tax rate on electing entities' Colorado-sourced income for all owners and income not sourced to Colorado for resident owners only.

• Exempts owners of electing entities from individual income tax liability on the entity's income and requires owners to add back the federal Section 199A deduction in their individual returns.

• Appropriates $432,578 to the Department of Revenue for the 2021-22 fiscal year to implement and administer the new tax election mechanism.