NYS Budget Passes, Includes SALT Cap Workarounds, Excludes Non-CPA Ownership

Chris Gaetano
Published Date:
Apr 3, 2018

Albany successfully passed a $168 billion budget on March 31 that, among other things, includes several measures meant to mitigate the impact of the new $10,000 cap on state and local tax deductions brought about by the federal Tax Cuts and Jobs Act. Governor Andrew Cuomo, during his January State of the State address, said that limiting this deduction effectively raises New Yorkers' taxes by 20 to 25 percent across the board, when the state already gives $48 billion more to Washington than it gets back. This, the governor said during his January speech, amounts to economic civil war, as he felt there was no possible justification for this cap except to punish Democratic-leaning states. 

The 2019 budget that just passed contains all of the measures that he proposed to mitigate the impact of these changes: 

* It creates two new state-operated Charitable Contribution Funds that accept donations for improving health care and education in New York. The intention is for taxpayers to be able to itemize these contributions as deductions on their state and federal tax returns. Those who make such donations will also be eligible to claim a state tax credit equal to 85 percent of the donation amount for the tax year the donation is made. The new budget also authorizes local government bodies like school districts to create similar charitable funds, donations to which would yield a local property tax credit. 

* It gives businesses the option to participate in a new opt-in Employer Compensation Expense Program. Those who choose to take part would be subject to a 5 percent tax on all annual payroll expenses over $40,000 per employee. Since the progressive personal income tax system would remain in place, workers would get a new tax credit meant to ensure that they do not experience a reduction in take-home pay. This would be phased in over three years beginning on January 1, 2019. 

* It formally decouples the state tax code from the federal one. Without this decoupling, it was estimated that there would need to be a $1.5 billion tax increase brought about solely by federal tax changes. 

Cuomo said in a speech prior to the budget's passage that these measures were necessary because the Tax Cuts and Jobs Act effectively "launched a missile" at New York's economy, and "we literally had to flee the zone we were in and change the state tax code so it no longer applied, and we had to get it done before the missile hit." 

"We went from an income tax primarily to a payroll tax. Property taxes move to a charitable donation tax. Again, it's optional. Some employers will do it, some local governments will do it, but it's our best attempt to avoid the federal assault," he said. 

Cuomo, though, felt that such measures amounted to triage in the face of a crisis, adding that "the real answer is to repeal SALT," which can only be done in Washington. This, he said, should be the priority for any of the state's congressional representatives who say they care about New York. 

The budget contains a number of other tax provisions outside the SALT cap measures.

It continues the phase-in of the middle class tax cut, which had been part of the 2016 budget agreement. The tax cut is meant to benefit 6 million New Yorkers, and will be fully phased in by the year 2025. The governor said that the average savings will total $250, and when the cuts become fully effective, those savings will increase by an average of $700 annually. 

It also adds $225 million to the matching fund that encourages shared services actions, extends the county-wide shared services panels for another three years, and amends statutory obstacles to local government entities from sharing some specific services. 

The budget also creates what's called the New York State Secure Choice Savings Program, basically a voluntary enrollment payroll deduction IRA for workers whose employers do not already offer retirement savings plans. 

Finally, the budget also retains the Local Property Tax Relief Credit, which is expected to provide an additional $1.3 billion in property tax relief by 2019. The governor believes that this will add up to an average credit of $530. 

"This budget is a bold blueprint for progressive action that builds on seven years of success and helps New York continue to lead amid a concerted and sustained assault from Washington on our values and principles," Governor Cuomo said. 

Non-CPA Ownership Stripped from Budget Bill

Also relevant to New York CPAs was what was not in the budget lawmakers approved Saturday.

While Gov. Andrew M. Cuomo and the New York State Senate had included legislation in each of their respective budget proposals that would have allowed non-CPAs to own a minority stake in a New York CPA firm, the Assembly did not; and the provisions were not included in the final budget bills that will be sent to Cuomo for his signature.

Currently, New York is one of just two remaining states that require CPA firms to be 100 percent owned by CPAs, at a time when firms are growing their consulting businesses, developing new lines of business and recruiting non-CPAs to run them.

Once the New York legislature returns from its spring recess on April 16, non-CPA ownership could resurface in unlinked bills. A standalone Assembly bill, which had already been introduced, and a companion Senate bill, remain under consideration in their respective chamber’s Higher Education Committees. Both bills remain active throughout the current legislative session, which closes on June 20.

The NYSSCPA has, over the last six years, supported legislation that would have enabled a simple majority of 51% CPA ownership.

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