They've got the Giants and the Jets and now they want credit for sacking the carried interest? Both the President-elect and his opponent set their sights on its elimination, yet some states, most recently New Jersey, still see the need to pursue the quarterback and miss the long ball?
Just a few months ago, New Jersey Assemblyman Troy Singleton sponsored Assembly Bill No. 3868, which would penalize carried interests with an additional 19 percent surtax. But wait, it's not just New Jersey lawmakers that forgot they’re playing on the Fed’s field. Back in March of 2016, New York had a similarly reckless play in motion.
Regardless of your view on taxing carried interests, you've got to remember the state's play no role here and income earned from carried interests receive no preferential treatment at the state level. Fortunately, the New York proposal tripped over its own feet and the New Jersey one is likely to do the same. The most amusing part of these proposals was the fact that they don't become effective until all three of the tri-states pass a similar law.
Why is this so infuriating to me? Well, if you have ever been a dual resident or tried to help someone who is a dual resident, you may have figured it out by now. Many years ago, the tri-states were tossing around the idea of a fair state tax credit so that dual residents would only get hit once with tax on their intangible income. The provision which Connecticut actually enacted and is still waiting for the actions of New York and New Jersey, makes it clear that intangible income will only be taxed to dual tax residents once, in their state of domicile. The credit makes it clear, however, that in order for the provision to apply, the other resident state must provide similar relief.
It must have been at least fifteen years ago, if not longer, that I was at an event where both the New York and Connecticut Tax Commissioners were speaking. Not to take sides, but it was very clear from the presentations that Connecticut was extending an olive branch and New York was extending a middle finger. So after all of this time, shouldn’t our state lawmakers focus on the basic inequities they can control and repair, rather than reaching to make a political statement through legislation that makes no sense at the state level?
Questions about carried interest or dual residency? 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, advises on the unique requirements of governments and municipalities across the nation.