News & Press

Excerpted from the full article published by Crain’s New York Business 

The much-discussed pied-à-terre tax would target those who don’t live in New York City. However, another tax proposal is aimed squarely at residents, albeit a selective group.

The latest bid to close New York City’s $5.4 billion budget gap involves rolling back a five-year-old workaround to the 2017 federal tax law. The pass-through-entity tax program provides shareholders or partners of LLCs, S-Corps and similar business structures with an option to reduce their federal tax liability, after the tax law capped deductions for state and local taxes at $10,000, a move that hit high-tax states like New York the hardest. Last year, the cap was raised to $40,000, still a far cry from the full elimination sought by some lawmakers.

Law firms, real estate investors, consultants and accountants, as well as those who work in financial services or technology use pass-through entities. New York enacted its workaround in 2021 under then-Gov. Andrew Cuomo, joining other states that wanted to provide a way to soften the impact of the cap on the state and local tax, or SALT, deduction.

The program allowed pass-through entities to opt in to a new tax, reducing the income the entity’s members report to the federal government, and therefore their federal tax burdens. The state then provides a credit to the entity for the full amount of the pass-through tax.

Mayor Zohran Mamdani and City Council Speaker Julie Menin want to reduce the value of that credit in New York City from 100% to 75%, which they estimate could net the city $1 billion in revenue.

“It’s almost a 1% additional tax for NYC residents who are part of this regime at the higher income levels,” said Alan Goldenberg, who leads accounting advisory firm Anchin’s state and local tax controversy group.

He said members earning less than $1 million, whose individual tax liability might be, say 6.85%, might no longer find the program worthwhile if the entity is being taxed at 10.9%.

“Any partnership or pass through entity, any service providers that have NYC resident partners or shareholders, are impacted,” Goldenberg said, noting that he’s seen small partnerships opt into the PTET program.

“What you may see is less businesses opting under NYC,” he said.