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SALT TALK: NY Tax Department Fights Back – Comprehensive Report Offers Alternatives to Make New Yorkers Whole

Wayne Berkowitz CPA, J.D., LL.M. 01.22.2018 | SALT TALK

A lot of things I thought would never happen, have. While some of this might be attributable to a lack of foresight, I’m convinced most of it has to do with the natural process of just getting older. I never wanted to believe that federal tax reform would severely restrict the deductibility of state and local taxes and was waiting for some heroic legislator to swoop in at the last minute and eliminate this provision from the final legislation. But it never happened.

Fortunately, the New York State Tax Department, in its “Preliminary Report of the Federal Tax Cuts and Jobs Act[1]” has proposed some courageous and creative solutions to Governor Cuomo. 

Listening to news radio was the first I heard of the Preliminary Report. And I have to admit, I had a good laugh at the expense of the Tax Department and the Governor. After all, who is going to make a charitable contribution to the State of New York? But after delving into all thirty seven pages, I have to admit that while the three pillars of the proposal push the envelope, this is exactly what is needed to keep New York taxpayers on an even keel with the rest of the nation. 

The three pillars of the proposal (with different implementation alternatives offered) are as follow:

  • Convert former tax obligations to charitable contributions
  • Establish a payroll tax in lieu of, or in conjunction with, the current state personal income tax
  • Replace or supplement the personal income tax with an unincorporated business tax

Multiple alternatives and structures are proposed for each of the above. The report recognizes the complexities that some of the options present. But the essence is to provide either offsetting credits to the personal income tax for amounts paid under any of the three pillars or a corresponding phasedown or elimination of the personal income tax to compensate for these additional amounts paid. The end game being to “convert” currently non-deductible state and local income and property taxes into otherwise deductible charitable contributions and deductible business expenses.

We still have a long way to go before any of these proposals become reality. There is even some talk that a heroic federal legislator may still swoop in and get the $10,000 cap eliminated. We will just have to wait and see. In the meantime, kudos to courage and creativity and also the necessity of the Preliminary Report.

If my blog has raised questions about these proposals, contact me at WBerkowitz@berdonllp.com or your Berdon advisor. 

Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, New York Accountants, advises on the unique requirements of governments and municipalities across the nation.

[1] The full report can be viewed at https://www.tax.ny.gov/pdf/stats/stat_pit/pit/preliminary-report-tcja-2017.pdf

 

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