The Colorado Society of CPAs (COCPA), alongside the AICPA and  52 other states and jurisdictions, recently signed a joint letter to the U.S. Senate Finance Committee urging them to preserve a vital tax deduction for pass-through businesses.

At issue is a provision in the House-passed “One Big Beautiful Bill Act” that would eliminate the federal deduction for state and local taxes (SALT) paid at the entity level for specified service trades or businesses (SSTBs)—including accountants, doctors, nurses, veterinarians, lawyers, and other professionals. This would effectively roll back the benefits of the Pass-Through Entity Tax (PTET) workaround for millions of small business owners operating as partnerships, S corporations, or sole proprietorships.

Currently, many states—including Colorado—allow pass-through businesses to pay state income taxes at the entity level, enabling a full federal deduction of those taxes. This approach helps to level the playing field between corporations (which can fully deduct SALT) and pass-throughs (which are otherwise subject to the $10,000 SALT cap on individual returns).

The proposed legislation would remove this deduction—but only for service-based pass-throughs—subjecting their income to double taxation and worsening an already unequal system. Meanwhile, corporations would continue to enjoy the deduction at the entity level, and non-service pass-throughs would remain unaffected.

As stated in the AICPA-led letter to Senators Crapo and Wyden:

“The House bill targets professionals simply based upon their chosen occupation. We believe that this is discriminatory and unfair... CPAs across the country will be worse off than they were with the passage of the Tax Cuts and Jobs Act in 2017.”

Following submission of the joint letter, the AICPA also sent a separate letter to Senate leadership expressing appreciation for their efforts to address and correct this inequity. That letter acknowledged the Senate's recognition of the problem and encouraged continued bipartisan work to ensure fair tax treatment for all business structures and professions.

Why This Matters to CPAs—and to Colorado

• Small business impact: Many CPA firms in Colorado operate as pass-throughs. Removing the PTET deduction could lead to significantly higher tax bills.
• Inequity across entities: This change would expand the existing imbalance between C corporations (which face a flat 21% tax rate and full SALT deductibility) and pass-throughs (which already navigate SSTB restrictions under the QBI deduction).
• Discouraging entrepreneurship: Singling out service professionals disincentivizes new firm formation and growth, especially in fields like accounting where small firms play an essential role in community business ecosystems.

COCPA continues to advocate for equitable tax policy that supports small and mid-sized CPA firms. We believe that tax law should not penalize people based on their profession or their business structure.

We’re proud to stand with the AICPA and our fellow state societies on this issue—and we’ll continue pushing for fair, simple, and pro-growth tax policy on behalf of Colorado CPAs.