Larry's Tax Law

As reported on May 16, 2025, the SALT cap proposal contained in the legislation that was pending in the U.S. House of Representatives (“House”) aimed at, among other things, dealing with the expiring provisions of the Tax Cuts and Jobs Act (“TCJA”) was not well received by lawmakers from high-income tax states such as Oregon, New York, Hawaii and California.  That proposal increased the SALT cap from $10,000 to $30,000, but it contained a downward adjustment for taxpayers with “modified adjusted gross income” over $400,000.  For this purpose, modified adjusted gross income is adjusted gross income plus any amounts excluded from income under Code Sections 911, 931 and 933.  Under that proposal, the $30,000 cap is reduced by 20% of a taxpayer’s modified adjusted gross income to the extent it exceeds $400,000 ($200,000 in the case of a married taxpayer filing separately).  However, the SALT cap cannot be reduced below $10,000 ($5,000 in the case of a married taxpayer filing separately).

It appears the SALT cap proposal may have been the last item holding up the passage of the bill by members of the House.  After hours of debate and discussion, the proposal was modified, and the House passed the bill on May 22, 2025.  It now sits in the U.S. Senate (“Senate”), where it is expected this provision of the bill, among others, will face fierce debate.

As reported on May 13, 2025, several changes to the Washington state tax laws were passed by lawmakers and delivered to the desk of Governor Ferguson in late April, awaiting his signature to make them law.  In the aggregate, these changes create what is likely the largest historical increase in taxes the state has ever seen.  While there was some speculation that the governor would not sign all of the bills into law, especially since they had been sitting on his desk for more than three weeks, that speculation is no longer.  Governor Ferguson signed these bills into law on May 20, 2025.

Oregon House Bill 3115 (“HB 3115”) was sponsored by Representatives John Lively (D) and Kimberly Wallan (R).  It was co-sponsored by Representatives Tom Anderson (D), David Gomberg (D) and Nathan Sosa (D). 

HB 3115 was introduced in the Oregon House of Representatives (“House”) on January 13, 2025. It passed the House on March 17, 2025.  The legislation was introduced in the Oregon Senate (“Senate”) on March 18, 2025.  It passed in the Senate on April 29, 2025.  The bill was signed by the Speaker of the House and the President of the Senate on May 1, 2025.  Governor Kotek signed HB 3115 on May 8, 2025.  The bill becomes law 91 days following adjournment sine die (i.e., the final adjournment of the legislative session).

Background

Prior to the Tax Cuts and Jobs Act (“TCJA”), there was no direct limitation on an individual taxpayer’s deduction of his or her state and local taxes (“SALT”) on the federal individual income tax return.  Of course, for high-income taxpayers, the SALT deduction often triggered the alternative minimum tax.

As of 2018, as a result of the TCJA, the SALT deduction for individuals was capped at $10,000 per year for both single and married taxpayers filing jointly ($5,000 for married taxpayers filing separately).  Hence, the cap contains an inherent “marriage penalty.” 

The SALT cap was added to the TCJA, in part, as a compromise for an increase in the standard deduction (almost doubling it from pre-TCJA days). It is, however, set to sunset at the end of this year.

Many individuals, wanting to liberate their wallets from taxes, have moved to states like Washington, Nevada, Texas, Florida and other states that have friendly state and local tax regimes.  This trend, especially for residents of high-tax states such as New York, Oregon and California, has increased in recent years. 

Until 2022, Washington had been a top choice for many individuals seeking a better tax climate. Effective January 1, 2022, however, Washington lawmakers adopted a capital gains tax, causing several residents to look for residency outside of Washington, including billionaire Jeff Bezos who moved to Florida.  Additionally, effective January 1, 2022, the city of Seattle adopted a new payroll tax on certain businesses with payrolls of $7 million or more.  On top of that, effective January 1, 2025, the city of Seattle upped the ante, adopting an additional payroll tax of 5% on businesses with high-earning employees (5% of annual compensation paid to any employee in excess of $1 million who is based at a business location within the city). 

Rather than let the seas calm, Washington lawmakers are once again changing the tax terrain in the state.  Several tax bills have been passed by the legislature and are on Governor Ferguson’s desk waiting to be signed into law.  Whether these bills will become law is yet to be seen.