The $10,000 cap on the state and local tax (SALT) deduction, enacted as part of the Tax Cuts and Jobs Act in 2017, has been one of the most contentious provisions in recent tax history. While the cap primarily affects individual taxpayers in high-tax states, it also impacts business owners who pay state income taxes on their pass-through business income. In response, nearly every state has enacted a pass-through entity tax (PTET) election that allows the entity itself to pay state income tax—generating a deduction at the entity level that is not subject to the SALT cap.

How PTET Elections Work

The concept is straightforward in principle. Instead of pass-through income flowing to the individual owners who then pay state income tax (subject to the $10,000 SALT cap), the entity elects to pay the state income tax at the entity level. The entity-level tax payment is deductible as a business expense, which reduces the pass-through income allocated to the owners. Because the deduction occurs at the entity level rather than the individual level, it bypasses the SALT cap entirely.^[1]

The IRS blessed this approach in Notice 2020-75, which confirmed that specified income tax payments made by partnerships and S corporations to state and local governments are deductible by the entity in computing non-separately stated income or loss. This was a significant development—before the Notice, there was uncertainty about whether the IRS would treat entity-level payments as an end run around the SALT cap.

State-by-State Variation

As of mid-2025, more than 35 states and the District of Columbia have enacted PTET legislation. However, the details vary significantly from state to state. Key differences include whether the election is made at the entity level or by individual owners, whether the election is irrevocable for the tax year, the tax rate applied at the entity level, how the credit or deduction flows to the individual owners, and the deadline for making the election.^[2]

Some states apply a flat rate to the entity-level income, while others apply the same graduated rate structure as individual income taxes. The credit mechanism also varies—some states provide a dollar-for-dollar credit against the owner's individual income tax liability, while others provide a deduction. The credit approach is generally preferred because it avoids the risk of double taxation.

Mississippi's Position

Mississippi has been slower than many states to adopt a PTET election. As of the time of this writing, Mississippi does not offer a standalone PTET election comparable to those in states like Louisiana, Alabama, or Georgia. This means that Mississippi business owners who pay Mississippi income tax on their pass-through income do not have a state-level mechanism to circumvent the SALT cap through an entity-level tax payment.^[3]

However, Mississippi business owners with operations in multiple states may benefit from PTET elections in other states where such elections are available. For example, a Mississippi-based partnership with income from Louisiana operations could potentially make the Louisiana PTET election on the Louisiana-source income, generating an entity-level deduction for the Louisiana income tax that would otherwise be subject to the SALT cap.

Planning Considerations

Business owners considering PTET elections should evaluate the impact on all owners—particularly in multi-state entities where owners may reside in different states. The interaction between the entity-level tax, the owner-level credit, and the federal deduction can produce different results for different owners depending on their individual tax situations. Additionally, PTET elections may affect estimated tax obligations, both at the entity level and the individual level.^[4]

The SALT cap is scheduled to sunset after 2025 under the original TCJA provisions, which would make PTET elections unnecessary. However, the reconciliation bill currently being debated in Congress may extend the SALT cap with modifications. Business owners should work closely with their tax advisors to monitor legislative developments and be prepared to make PTET elections quickly if the cap is extended.^[5]