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Business groups are mobilizing to squelch a plan gathering momentum among Republicans to curtail a heavily used federal income tax break that allows corporations to deduct state and local taxes.

The proposal to cap or eliminate the so-called C-SALT deduction, which has especially riled manufacturers, oil and gas producers and life insurers, is gaining traction with lawmakers as they search for ways to contain the cost of a giant tax cut package Republicans are rushing to approve by the end of May.

C-SALT finds itself in political peril — at least partially — because of the debate over the individual SALT deduction. The household version of that write-off has become one of the most hot-button tax issues in Congress ever since President Donald Trump limited it to $10,000 in his first-term tax bill.

Administration officials and Capitol Hill Republicans are mulling trimming C-SALT as a way to pay for increasing the individual SALT deduction to $25,000. That’s an expensive proposition that will likely require the party to find offsets elsewhere.

Enter the struggle over corporate SALT, which is playing out as the drive to pass tax legislation enters a period of both high risk and great opportunity for myriad interest groups. Lawmakers in the coming weeks hope to work out the measure’s final details and impose some semblance of balance between tax cuts and offsetting revenue increases.

Senate Republicans’ budget gives them $1.5 trillion for new tax cuts over the next 10 years, on top of renewing President Donald Trump’s expiring 2017 tax cuts. 

Republicans are looking for a way to squeeze in new tax cuts on tips, overtime pay and auto loans as well as a higher standard deduction for seniors into that allowance. 

In 2017, Republicans held a large enough majority in Congress that they were able to brush aside concerns of residents of high-tax states such as New York, New Jersey and California over the $10,000 cap individual SALT to offset other tax cuts. This time, the GOP’s margin in the House is razor-thin and at least six Republicans representing high-tax states are insisting the limit be raised.

Business backlash

The corporate SALT break is a parallel version of the deduction for individual taxpayers, except that it was left uncapped in 2017 law. Corporations currently can write-off state levies on income, property and other taxes such as on oil production from income subject to the 21% federal corporate tax.

Business groups including the U.S. Chamber of Commerce, National Association of Manufacturers, Retail Industry Leaders Association, American Petroleum Institute and American Hotel and Lodging Association are all lobbying Congress to shelve the proposal.

The right-of-center Tax Foundation estimates that ending the break for business income taxes would raise $223 billion over 10 years, while ending it for income and property tax would result in $432 billion in new revenue. The broader proposal would cause 147,000 job losses, the group projects. 

Watson McLeish, senior vice president for tax policy at the U.S. Chamber of Commerce, said the proposal will make the country less competitive because it partially reverses the corporate tax cuts in the 2017 law.

The proposal would at a minimum raise the effective rate on U.S. corporations by an average 1.25%, he said. 

Manufacturers are the heaviest users of the tax break with the finance industry closely behind, according to the Tax Foundation study. 

Life insurers argue that they will be squeezed because they will lose deductions for state taxes on premiums but can’t quickly adjust rates on long-term policies to pass on the added cost to customers.

Manufacturers would be especially hard hit by limitations on deducting local property because of the large physical footprint of many plants, said Charles Crain, a vice president of the manufacturers association. 

“If you increase taxes on manufacturers, there is less capital available for job creation, capital investment and research and development,” Crain said.

Retailers are warning they could be hit with higher effective tax rates under the proposal, further squeezing tight margins already under pressure from Trump’s tariff increases. 

That “would provide a disincentive for employers to invest in new facilities or employment,” said Courtney Titus Brooks, a vice president with the retailers group.

Chirag Shah, with the hoteliers group, predicts loss of the tax break “could end up being a major challenge for jobs in the industry.”

The Petroleum Institute’s Aaron Padilla said including state levies on the production of non-renewable resources known as severance taxes would damage Trump’s efforts to promote production and “would be discriminatory against oil and natural gas.”

Proponents of capping business SALT breaks say part of the reason to do so is because states have used the corporate break to allow residents to get around the individual SALT cap by re-classifying income as business earnings. 

“That’s becoming more widespread and more expensive,” said Marc Goldwein of the Committee for a Responsible Federal Budget, which advocates for deficit reduction.

What becomes of the broken-hearted; the earth moved; Kreative accounting; and other highlights of recent tax cases.

Providence, Rhode Island: Four Florida residents have been convicted and sentenced for what authorities called one of the largest schemes to defraud CARES Act programs.

The defendants defrauded various federally funded programs of more than $4.8 million, and each of the defendants pleaded guilty to charges of conspiracy to commit wire fraud and aggravated identity theft. The schemes involved obtaining and using stolen ID information to submit fraudulent applications to multiple state unemployment agencies, including the Rhode Island Department of Labor and Training, and to submit fraudulent Economic Injury Disaster Loans and Paycheck Protection Program loan applications. The defendants also submitted fraudulent applications in the names of other persons to federal and state agencies to obtain tax refunds, stimulus payments, and disaster relief funds and loans.

The scheme involved using the stolen information to open bank accounts to receive, deposit and transfer fraudulently obtained government benefits and payments and to obtain debit cards to withdraw the money.

Sentenced were Florida residents Tony Mertile, of Miramar, identified in court documents as the leader of the conspiracy, to six years in prison; Junior Mertile, of Pembroke Pines, sentenced to 54 months; Allen Bien-Aime, of Lehigh Acres, to four years; and James Legerme, of Sunrise, to four years. All four were also sentenced to three years of supervised release to follow their prison terms.

The government moved to forfeit a total of $4,857,191, or $1,214,294.75 apiece, proceeds of the conspiracy. The defendants have also forfeited hundreds of thousands of dollars’ worth of Rolex watches and assorted jewelry and more than $1.1 million in cash. Each defendant is also liable for $4,456,927.36 in restitution to defrauded agencies and financial intuitions.

Raleigh, North Carolina: Michon Griffin, 46, who engaged as a money mule (a.k.a. middleman) in an international romance scheme, has been sentenced to two years in prison and three years of supervised release after pleading guilty to conspiracy to commit money laundering and to making false statements on her 1040.

Between 2021 to 2023, Griffin received more than $2 million from the scheme that she deposited into fictitious bank accounts that she controlled. She converted the money to virtual currency and wired the funds to overseas accounts controlled by her co-conspirators in Nigeria.

Griffin received some $300,000 from the romance fraud, which she did not report as income on her 1040 for 2021.

She was also ordered to pay $109,119 in restitution to the IRS.

Las Vegas: Tax preparer Keisy Altagracia Sosa has pleaded guilty to preparing false income tax returns.

Sosa has operated the tax prep business National Tax Service, and from 2016 to 2021 prepared and filed false federal returns for clients. These returns included falsely claimed dependents, and fictitious Schedule A and Schedule C expenses such as sales taxes paid and unreimbursed employee expenses.

Sosa continued to prepare false returns even after the IRS notified her that her returns appeared inaccurate and informed her that she may not be meeting due diligence requirements. 

Sosa caused at least $550,000 in tax loss to the IRS.

Sentencing is June 11. She faces up to three years in prison, as well as a period of supervised release and monetary penalties. 

Elk Mound, Wisconsin: Business owner Deena M. Hintz, of Eau Claire, Wisconsin, has been sentenced to a year in prison for failure to pay employment taxes.

Hintz, who pleaded guilty in December, owned and operated Jade Excavation and Trucking for nearly 10 years and at times had up to 15 employees. From 2017 to 2021, Hintz deducted more than $400,000 in federal employment taxes from employees’ pay and, instead of paying those taxes to the government, kept the money.

She was also ordered to pay $482,185.46 in restitution.

Littleton, Colorado: Tax preparer Thuan Bui, 60, has been sentenced to three years in prison and a year of supervised release and ordered to pay a $50,000 fine after pleading guilty to one count of aiding or assisting in preparation of false documents.

From about 2016 to 2021, Bui operated a tax prep business under several names, lying to clients that he was a CPA. On hundreds of returns, Bui overstated or fabricated expenses on Schedules C.

Philadelphia: Resident Joseph LaForte has been sentenced to 15 and a half years in prison for defrauding investors, conspiring to defraud the IRS, filing false tax returns, employment tax fraud, wire fraud, obstruction and other charges.

LaForte defrauded investors using a fraudulent investment vehicle known as Par Funding. Along with conspirators, he caused a loss to investors of more than $288 million.

He and conspirators diverted some $20 million in taxable income from Par Funding to another entity controlled by LaForte and nominally owned by another, then filed returns that did not report this income; he also received more than $9 million in kickbacks from a customer of Par Funding and did not report this income to the IRS. He paid off-the-books, cash wages to some employees, failing to report these wages to the IRS and not paying employment taxes.

The federal tax loss exceeds $8 million. He also caused $1.6 million in state tax loss to the Pennsylvania Department of Revenue by falsely reporting that he and his wife were residents of Florida from 2013 through 2019 when they lived in Pennsylvania.

Hampton Roads, Virginia: Two area residents have pleaded guilty to their roles in a refund scheme involving pandemic relief credits.

Between October 2022 and May 2023, Kendra Michelle Eley of Norfolk, Virginia, filed eight 941s for Kreative Designs by Kendra LLC using the EIN assigned to another company, Kendra Cleans Maid Service. These forms covered four tax periods in 2020 and four in 2021. On each of the forms, Eley falsely reported wages paid and federal tax withholdings for 18 purported employees, knowing there were no such employees.

For the four forms filed for 2021, Eley claimed false sick and family leave credits and Employee Retention Credits, totaling some $975,000. In December 2022, the IRS issued two refund checks payable to the cleaning company totaling $649,050.

That same month, Eley and Rejohn Isaiah Whitehead, of Portsmouth, Virginia, opened a business checking account in the name of Kendra Cleans; signatories on the account were Eley and Whitehead. The two falsely represented the nature and extent of the business, including that it had 16 employees and that the average pay of each was $2,000. Eley funded the account by depositing one of the refund checks in the amount of $389,640. In January 2023, Eley wrote Whitehead two checks from the account totaling $60,000.

Whitehead’s sentencing is June 26 and Eley’s is July 9. They each face up to 10 years in prison.