NYS PTET Enhancement Creates Additional Benefits for Architecture, Engineering and Construction (A/E/C) Businesses
Recent New York State legislation contains a provision that permits “resident S-corporations” to get larger tax benefits under the state’s Pass-Through Entity Tax (PTET) regime. Under the new rules, beginning with tax year 2022, A/E/C S-corporations in which all shareholders are New York State residents can now remit PTET on all income allocated to the resident shareholders, rather than limiting the PTET to only New York sourced income. This legislation will benefit A/E/C S-corporations where the owners live in New York, but have significant projects performed in other states.
While this is an exciting change conceived of by New York lawmakers, the law was passed about a month after the PTET election due date of March 15, 2022 for tax year 2022 elections. Accordingly, only those A/E/C S-corporations that had previously opted into the PTET were eligible to take advantage of the rule change, as the budget bill did not modify the PTET election due date. This impacted many resident S-corporations with low New York income allocations that had not made the PTET election by the deadline and were thus ineligible for the new PTET benefit.
Thankfully, New York is moving forward with amending its PTET provisions to move the election due date to September 15, 2022, opening the door to such S-corporations seeking to now elect into the PTET regime for tax year 2022.
While extending the election due date for S-corporations, the state is also pushing back the election due date for partnerships and LLCs to September 15, 2022. In doing so, A/E/C partnerships and LLCs may now want to reconsider whether the New York PTET change would benefit their partners or members for tax year 2022.
Furthermore, this could be an opportunity for pass-through entities formed after the prior March 15, 2022 election deadline to opt into the tax regime. New York State has also provided rules for A/E/C companies certifying as resident S-corporations (one where all the shareholders are New York State residents) or making a “late election” to make catch up estimated payments for 2022.
The bill also contains the creation of a new, optional New York City Pass-Through Entity Tax for partnerships with at least one New York City resident partner, as well as city resident S-corporations. The tax will be imposed at the city’s highest personal income tax rate of 3.876% and will contain an offsetting individual tax credit. For those choosing to opt in, an initial annual irrevocable election by March 15, 2023 will be required. The new tax will be offered starting in 2023.