The New York State budget for 2021-22, approved on April 7, includes a number of new sources of income, including higher income tax rates for those who earn more than $ 1 million annually and an increase in the franchise tax rate for businesses.
The budget also includes laws that provide tax breaks for partnerships and suburban companies in the form of a workaround for capping state and local tax deductibility (the SALT cap) of $ 10,000 during the Trump administration in the year In 2017, Limit was disproportionately violated in democratic states like New York, where state and local taxes for residents often exceed US $ 10,000.
Amy Paulin, New York State MP who represents Scarsdale, authored the Pass-Through Entity Tax legislation, which went into effect last week on the budget, giving eligible partnerships and other pass-through businesses the full SALT – Deduction provides.
These companies can choose to pay pass-through corporate tax on their taxable income and receive a credit on their New York State personal income tax liability for their share of the company-level tax paid.
According to a statement released by Paulin on April 7th, “This facility is tax neutral to New York State, but allows partners to take the full SALT deduction, which would otherwise be capped at $ 10,000 if partners pay their income taxes directly New York State would pay. ”
To clarify the move and to provide the Scarsdale Board of Trustees with an update on its SALT cap lawsuit filed against the IRS last year, Paulin participated in a board meeting on April 13 through Zoom of Citi Field in Queens. Working session in which she attended a New York Mets double header against the Philadelphia Phillies. (She wore a Mets bandana to cover her face, of course.)
To get around the cap, New York State created the Charitable Gifts Trust Fund in 2018, which enabled individual taxpayers to donate to the fund and apply for a deduction from their state income tax. Taxpayers could also have applied for a state income tax credit equal to 85% of the donation amount for the tax year following the donation. The law also allowed local governments to set up their own charitable funds, and taxpayers could contribute up to 95% of local property tax credits. The village of Scarsdale decided to promote the establishment of a charitable fund.
However, in response to the circumvention attempts, the IRS and Treasury Department issued a ruling requiring taxpayers who received state or local tax credits in return for charitable contributions to reduce their deductions for charitable contributions on their federal income tax returns.
Scarsdale’s July 2019 lawsuit against the Internal Revenue Service and the Treasury Department argued that the regulations “unilaterally impose the political will of the current government in violation of clear legal limits”. The lawsuit further argued that while a state or local tax credit reduced the amount of a taxpayer’s state or local tax liability, it was not a separate consideration under the 1986 IRS Code and that Trump’s 2017 tax code changes provided no legal basis for any the issuance of final rules on the deductibility of contributions to state and municipal charity funds.
The Internal Revenue Service moved the lawsuit to be dismissed or a summary judgment given.
Speaking between rally chants and stadium announcements, Paulin informed the trustees that the village’s lawsuit against the IRS in the southern borough of New York had been fully disclosed and they were awaiting the judge’s decision.
Paulin said the New Jersey State lawsuit against Mnuchin, South New York County Second Circuit, was also relevant to Scarsdale’s case, and while she was never sure of the merits of the lawsuit, the position of the case could be the outcome of the lawsuit Determine the village.
“If you [the states] If you stand, then the village will also be in our case and this part of it was received extremely well by the judges, ”said Paulin.
In November last year, the IRS issued a notice announcing that the Treasury Department intended to propose new regulations that would allow S-corporations and pass-through businesses to deduct certain income tax payments (any amount paid by a partnership or S Corporation is paid to a domestic jurisdiction). during a tax year. According to the notice, a specific income tax payment made by the partnership or an S company does not apply to the SALT deduction restriction.
The new pass-through legislation in the state budget enables termination.
“In fact, anyone in a partnership can claim the SALT deduction,” said Paulin. “So this is very good news for accounting firms, law firms [and] other types of partnerships in each pass-through S-corp. But … the village lawsuit will be very important unless the federal government changes the law, of course, which it isn’t doing yet. “
Paulin said if the Biden government couldn’t lift the SALT restriction because of the U.S. Senate filibuster, it hoped the government would lift IRS regulations that restrict the creation of nonprofit funds.
She said she expected a court decision within six months.
And the Mets swept the Phillies 4-3 and 4-0.