N.Y. Tax Department Outlines Options for Major Tax Shift

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By Gerald B. Silverman

Gov. Andrew M. Cuomo’s (D) plan to mitigate the impact of the new federal tax act on New Yorkers took another step forward Jan. 17 with a report from the state Department of Taxation and Finance on the state’s options.

The report outlines several options for an employer-based tax to replace part of the $47 billion the state collects in personal income tax revenue. It also outlines options for an unincorporated business tax, charitable contributions to the state, and a number of conformity issues for the state tax code.

The report is a significant step because it puts some flesh on the bones of proposals floated by Cuomo over the past several weeks.

“Given the far-reaching nature of the law, New York State will need to undertake extensive analysis as it considers how best to respond to its consequential reforms, and the law’s impacts will need to be examined over time,” the report said.

The department said in a news release it will engage tax experts, lawmakers, employers, and various stakeholders “to produce a proposal that promotes fairness for New York’s taxpayers and safeguards the competitiveness of New York’s economy.”

Options for Consideration

The 2017 federal tax act ( Pub. L. No. 115-97), signed Dec. 22, 2017, by President Donald Trump, allows taxpayers to deduct up to $10,000 of property taxes and state and local income or sales taxes. There was previously no limit on the amount of state and local taxes that could be deducted.

The state collected $47.6 billion in personal income tax revenue in fiscal year 2017—$37.5 billion of which was remitted as withholding from employee wages, according to the report.

“Depending on policy design, a new employer compensation expense tax system could be expected to generate billions of dollars annually in federal taxpayer savings while keeping state revenues constant,” the report said.

Among the several options under consideration in New York are:

  •  an employer compensation expense tax that eliminates the personal income tax on wages;
  •  a system that maintains the current progressive personal income tax system;
  •  an employer opt-in; and
  •  a targeted tax above a certain wage threshold.
The report also provides the state with options to shift nondeductible individual income taxes to a deductible business tax for pass-through businesses.

Loud Outcry

Cuomo has been among the most outspoken opponents of the 2017 tax act from the state level, previously saying he would try to sue over the law’s new cap on the deductibility of state and local taxes on federal returns.

Several other states, including California and New Jersey, have begun to explore end-runs of the tax law through converted charitable gifts or an employer-based payroll tax system.

Cuomo said the federal tax law would effectively raise taxes on New Yorkers by 25 percent, or $14 billion. The proposed payroll tax wouldn’t replace the state’s personal income tax system but would be implemented parallel to the current personal income tax. The payroll tax would only apply to wage earners.

To contact the reporter on this story: Gerald B. Silverman in Albany, N.Y. at gsilverman@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

For More Information

Text of the report is at http://src.bna.com/vIv.

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