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New York’s proposed tax credit for certain businesses has picked up the support of a coalition concerned that the new federal tax law will hit businesses with a big tax bill.
Parity for Main Street Employers, a coalition representing more than 100 national business groups, supports legislation that would create a personal income tax credit and a new unincorporated business tax for partnerships, S corporations, and other pass-through businesses.
The coalition fears that the $10,000 federal cap on the state and local tax deduction established by the 2017 tax act ( Pub. L. No. 115-97) will cause a “massive tax increase” for owners of pass-through companies who pay personal income rather than corporate income taxes on their profits, according to July 11 comments submitted to the state.
The Department of Taxation and Finance released draft legislation in May and is accepting comments until July 16. The purpose of the measure is to preserve federal income tax deductibility for individuals on non-wage income while maintaining revenue levels for the state.
If the state does nothing, New York pass-through entities would see a marginal tax increase of about 3 percentage points because of the loss of the full SALT deduction, according to Chris Smith, executive director of the coalition. He told Bloomberg Tax that he was encouraged that the department was taking the lead on the issue and it remains open to input from businesses. He’s optimistic on passage by the Legislature, which will re-convene in January.
The coalition recommended that the state include all pass-through entities in the bill. The draft would only cover partnerships. It also wants the tax to be optional so business can choose to continue under the current tax treatment. In addition, the tax should be revenue-neutral to prevent a tax increase, according to the coalition.
The business community has expressed concerns that a new UBT tax could eventually be used by the state to raise revenue. The Business Council of New York State hasn’t submitted its comments yet, but it will raise that concern, Kenneth Pokalsky, vice president of the council, told Bloomberg Tax in an email.
“A newly imposed statewide UBT would raise concerns about something adopted today as a TCJA-mitigation measure may tomorrow be a state revenue raiser,” he said, referring to the new federal tax law.
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