Gov. Cuomo Lays Out 30-Day Budget Amendments, Includes SALT Fixes

Chris Gaetano
Published Date:
Feb 20, 2018

New York Governor Andrew Cuomo, through a set of 30-day budget amendments, has formally laid out a set of proposed fixes to address the new cap on state and local tax (SALT) deductions imposed by the recent Republican tax bill. Under the new federal law, deductions on state and local taxes, which had previously been unlimited, are now limited to $10,000, a provision that has disproportionately affected higher tax states like New York and California. The governor said that this would increase New Yorkers' tax burden by an unacceptable amount and called the cap a way to rob blue states to finance tax cuts in red states. In order to address this, the governor has proposed: 

* Creating a new Employer Compensation Expense Tax (ECET), a 5 percent tax on payroll expenses in excess of $40,000 per employee. The tax would be opt-in and would be paired with a corresponding credit equal in value to the ECET in order to ensure workers do not experience a reduction in take home pay as a result of the measure. Under the legislation, the deadline for the first annual election for employers to opt-in to this alternative system will be on October 1, 2018, for the 2019 tax year. For those who opt in, the three-year phase-in for the new payroll tax on wages over $40,000 would include a 1.5 percent rate in first year, a 3 percent in second year and a 5 percent rate in third year. 

* Creating two new state-operated charitable funds that would accept donations to improve health care and education in the state of New York. This contribution can then be deducted on a taxpayer's federal returns, as well as claim a state tax credit equal to 85 percent of their donation. School districts, counties, and municipalities would also be empowered to create similar charitable funds, donations to which would give the taxpayer a credit against local property tax bills equal to 95 percent of the donation. 

* Decoupling the state and federal tax code, a measure which already has wide support in the legislature. In general the state and federal tax code had been closely aligned. Decoupling the two, according to the governor, would save New Yorkers $1.5 billion in state tax increases that would be brought on by increases in their federal tax burden. The 30-day amendments will also maintain the state standard deduction for single filers. Without this change, single filers would not be able to take the standard deduction on their State return, and New York taxpayers would have been subjected to an $840 million annual State tax increase beginning in FY 2020.

"The FY 2019 Budget protects New Yorkers against attacks from Washington and helps further our bold, progressive agenda to move New York forward," Governor Cuomo said. "After working with experts and stakeholders, I am advancing further reforms through these budget amendments that to safeguard our competitiveness and help protect residents from this federal economic assault."

The New York Business Journal said small businesses so far have been skeptical of this plan, with many owners saying they already received hefty tax breaks through the federal reforms, and so why would they change their tax structure to do something that has no direct benefit for them? 

Mark Klein, a speaker at the Foundation for Accounting Education's conference "Impact of the New Tax Law: a Sid Kess Workshop" on Jan. 31, was similarly skeptical as to whether either a payroll tax or a charitable fund could function as an effective workaround to the SALT deduction cap.  Klein said that this measure isn't as simple as it might seem, as it might in fact even further increase taxes for some people, such as out-of-state workers. Further, by definition, the payroll tax would only be applicable to those on a payroll, which leaves out things like self-employment income or capital gains, both of which also represent a significant portion of revenue for the state. This means that the workaround would not cover as many people as an unlimited SALT deduction.  Klein also felt that it is extremely unlikely that a charitable fund would work, since it flies in the face of many of the rules surrounding what counts as a charitable contribution. In general, for a charitable contribution to be eligible for a deduction, the taxpayer cannot receive value from it; otherwise it's more of a transaction. 

The NYSSCPA has formed a Tax Cut and Jobs Act (TCJA) Ad Hoc Committee to “to review and analyze proposed changes that may develop in New York tax regimes and policy as [a] result of impacts of the federal Tax Cuts and Jobs Act.” The TCJA Committee is reviewing  the 30-day amendments and formulating a position on them.

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