States Fight Federal Tax Changes: What Homeowners and Business Owners Must Know

When new federal tax laws are passed, they often make big headlines. But what happens when states don’t agree with those changes? Right now, several states across the country are pushing back on parts of the One Big Beautiful Bill, a major piece of tax legislation.

This bill included some big shifts, like:

• The end of federal EV (electric vehicle) tax credits
• Keeping the SALT deduction cap in place

Both of these rules have major effects on taxpayers. And now, states like California, New Jersey, and Pennsylvania are stepping in with their own solutions. Let’s break down what’s happening, why states are reacting, and what it could mean for you.

A Quick Look at the Federal Changes

Before we dive into the states’ responses, let’s understand the two main issues:

1. EV Tax Credits Are Ending

For years, the federal government offered big tax credits for people buying electric vehicles—up to $7,500 for new EVs and $4,000 for used ones. These credits helped make EVs more affordable and encouraged more people to go green.

But under the One Big Beautiful Bill, these credits will end in 2025. This means buyers will soon lose a major financial incentive.

2. SALT Deduction Cap Remains

The SALT (State and Local Taxes) deduction lets taxpayers deduct state and local taxes they’ve paid from their federal taxable income. Before 2018, there was no cap. But the Tax Cuts and Jobs Act set a $10,000 limit.

High-tax states like California, New Jersey, and New York argue this cap unfairly hurts their residents, who often pay much more in property and state income taxes.

The One Big Beautiful Bill did not remove the cap. For many taxpayers in these states, this means a higher federal tax bill.

How States Are Fighting Back

Instead of just accepting these federal rules, some states are creating their own workarounds to help residents. Here’s what they’re doing:

California: EV Incentives

California has been a leader in the push for clean energy and electric cars. With the federal EV credits ending, California is stepping in with state-level EV incentives.

These could include:

• Rebates for buyers of new electric cars
• Extra credits for low- and middle-income families
• Support for charging station infrastructure

The goal is simple: keep people motivated to buy EVs, even without federal help.

New Jersey and Pennsylvania: Pass-Through Entity Taxes (PTETs)

To fight the SALT cap, many states are turning to Pass-Through Entity Taxes (PTETs).

Here’s how PTETs work:

• Business owners (like those with LLCs or partnerships) pay state income tax at the business level.
• This tax payment is then fully deductible on the federal return, avoiding the $10,000 SALT cap for individuals.

By shifting taxes this way, states give relief to small business owners and professionals who would otherwise lose deductions.

Other States Following Suit

It’s not just California, New Jersey, and Pennsylvania. States like New York, Connecticut, and Illinois are also finding creative ways to help their residents manage the federal rules.

Why Are States Doing This?

There are a few reasons why states are pushing back:

1. Protecting Residents
   States want to make sure their taxpayers don’t face sudden increases in tax bills.
2. Keeping Housing Affordable
   In high-tax states, the SALT cap makes property ownership more expensive. Workarounds like PTETs help ease the burden.
3. Promoting Policy Goals
   For California, supporting EVs is about more than taxes. It’s part of a bigger plan to reduce emissions and fight climate change.
4. Political Pressure
   State leaders want to show they’re fighting for their residents, especially in areas where federal policies feel unfair.

What This Means for Taxpayers

If you live in one of these states, here’s how these changes might affect you:

• Buying an EV in California: You may still get state-level rebates or credits, even if the federal incentive ends. This could keep EVs within reach for many families.
• Running a Business in New Jersey or Pennsylvania: If you’re part of a pass-through entity (like an LLC, S-Corp, or partnership), you might benefit from PTETs, which can restore valuable deductions.
• Owning Property in High-Tax States: While the SALT cap still applies federally, your state may offer other forms of relief to help reduce the overall burden.

The Bigger Picture: State vs. Federal Tax Policy

This situation highlights a long-running tension in the U.S. tax system. The federal government sets broad rules, but states often take their own approach to taxes.

• Sometimes states add their own incentives (like California’s EV rebates).
• Other times they create workarounds (like PTETs).
• In some cases, states may even challenge federal rules in court.

This push-and-pull shows how tax policy is never one-size-fits-all.

What Should You Do Next?

If you’re a taxpayer in one of these states, here are a few steps you can take:

1. Stay Informed
   State tax laws can change quickly. Check official state websites or talk to a tax professional about the latest updates.
2. Plan Ahead
   If you’re considering buying an EV, ask whether state credits or rebates are available. Timing your purchase could save you thousands.
3. Talk to a Tax Advisor
   Business owners especially should ask about PTETs and other strategies that could lower their federal tax bill.
4. Watch for Federal Updates
   Just because the current law says something doesn’t mean it won’t change again. Tax laws are often debated and revised.

Final Thoughts

The end of federal EV tax credits and the continuation of the SALT deduction cap may feel like a setback for many taxpayers. But states like California, New Jersey, and Pennsylvania are showing that they can fight back with their own policies.

For residents, this could mean new opportunities to save money or reduce tax burdens, even when federal law is less favorable.

As the debate continues, one thing is clear: tax policy is not just about Washington. States play a powerful role in shaping how taxes affect people’s daily lives.