The “workaround train” keeps rolling! A New Jersey bill to give small businesses and partnerships a way to diminish the impact of the federal cap on state and local tax deductions (the SALT cap) was signed into law on January 13, 2020 by Governor Phil Murphy (D). The bill (S-3246/A-4807) gives S corporations, limited liability corporations and other business partnerships the option of paying state income tax directly at the entity level, as a business tax rather than at the partner level, as personal income tax. The bill is effective for tax years beginning on or after January 1, 2020 and creates a business alternative income tax (BAIT). As we’ve outlined in the past, the play here arises because while the Tax Cuts and Jobs Act (TCJA) capped federal deductions for state and local tax at $10,000 for individuals, it set no limit on deductions for state and local taxes paid by businesses.
Employees nationwide are working to finish year-end business before the holidays and House Democrats are no exception. The U.S. House of Representatives voted 218 to 206 on December 19 to pass H.R. 5377 (the “bill”) which temporarily repeals the SALT deduction cap for 2020 and 2021.
A week or so ago, New York Governor Andrew M. Cuomo and New York Attorney General Letitia James announced that New York, Connecticut, Maryland and New Jersey filed a notice of appeal in the United States Court of Appeals for the Second Circuit to continue litigation against the federal government for its unlawful and unprecedented cap on the deduction for state and local taxes, known as SALT. The SALT deduction was capped at $10,000 as part of President Trump’s Tax Cuts and Jobs Act of 2017 (TCJA). This appeal challenges a September 30, 2019 ruling by Judge J. Paul Oetken of the U.S. District Court for the Southern District of New York stating that the $10,000 SALT deduction cap is not unconstitutionally coercive. Judge Oetken held that the states had not plausibly alleged that the cap meaningfully constrains their decision-making processes. We covered the ruling here. He denied the states' motion for summary judgment in their original suit, State of New York et al v. Mnuchin. The four states argued that the SALT cap is a politically motivated bid to effectively raise property taxes in predominately Democratic states.
Just an observation from the cheap seats about a recent notice issued by the Minnesota Department of Revenue (DOR) (Revenue Notice No. 19-05, referred to as Notice 19-05). This notice clarifies that neither the DOR nor the courts can consider the location of the individual's attorney, CPA, financial adviser, or the place of business of a financial institution where the individual opened or maintained an account for purposes of establishing whether an individual is domiciled in the state.
Late last week, New York’s Attorney General Letitia James filed a Superseding Complaint against a photo and video equipment retailer, B&H Foto & Electronics Corp., in New York County Supreme Court. The Superseding Complaint alleges various violations by the retailer under New York State’s Tax Law, False Claims Act, and the Executive Law, spanning the past two decades. A whistleblower actually filed the qui tam civil suit under seal in early 2016, after which New York State was given time to investigate the matter. But it wasn’t until just recently that the Attorney General’s office notified the court of its decision to supersede the whistleblower’s complaint and, in doing so, converted the whistleblower’s complaint into a civil enforcement action by the Attorney General.
They say that history repeats itself. After seven months of explaining that the proposed pied-à-terre tax did not pass April 1, 2019 as part of New York State Governor Andrew Cuomo’s final budget bill covered here, according to a recent Bloomberg article, the idea of charging a pied-à-terre tax is once again being discussed in political and real estate circles in New York City. Although not actually included in the Governor’s original budget proposal last year, there was much buzz around a potential real property pied-à-terre tax on non-primary residences located in New York City with a market value of $5 million or more. The Senate and Assembly budget proposals included such taxes with tax rates ranging from 0.5% to 4% on properties valued at $25 million or more.
One of the least discussed but critical aspects of New York’s corporate tax reform is the impact on corporate partners who do not engage in business in New York other than by virtue of its ownership interest in a partnership doing business in New York. The combination of the laws governing corporate partners, and recent proposed interpretations of those laws in the newest revisions to New York’s draft regulations should give a corporate partner pause as to its New York tax exposure.
/practices-sales-use-tax-attorneys.htmlWe’ve discussed New York’s economic nexus rules for sales tax purposes several times in this blog. You can review these previous articles here, here and here. But, after a flurry of initial activity and confusion, now that these rules have seemingly settled, we thought it would be a good time to provide a more comprehensive recap of the state of economic nexus in New York.
This article originally appeared in Law360 and is reprinted with permission.
It seems that President Donald J. Trump often finds himself at the center of New York state tax news, and therefore at the center of our monthly "NY Tax Minutes" column. This month is no different. First, the president continues two separate lawsuits seeking to prevent disclosures of his personal income tax returns, and second, Trump, whose name has graced New York buildings and tabloid headlines for decades, recently declared that he plans to abandon his New York tax residency for the warm weather (and low taxes) of Florida.
As the kids were out trick-or-treating last night, The New York Times dropped yet another bombshell concerning ongoing potential tax issues for President Trump. But this one did not concern requests for copies of his tax returns; this one was generated by the President himself.