Yesterday, in his annual state-of-the-state address, New York Governor Andrew Cuomo said he is considering restructuring the State’s tax code in light of the negative impact the new federal tax law could have on New Yorkers. Details were sketchy, but Cuomo announced “we are developing a plan to restructure our tax code to reduce reliance on our current income tax system and adopt a state‑wide payroll tax system.”
Yikes! No other details were given, and the Governor promised more information would be provided in his 2019 budget proposal, which is due January 16th.
What could he be talking about? One of the big issues for New Yorkers in the new federal tax law is the loss of the state and local tax deduction (the “SALT deduction”), discussed previously in this blog post last month. In the past, if a New Yorker had $50,000 in New York taxes, comprised of both income taxes and property taxes, he or she would be entitled to deduct that tax payment from their federal taxes. Thus, assuming the taxpayer was in the highest tax bracket and not otherwise in the AMT, the payment of $50,000 in New York tax would only cost that taxpayer around $30,000, owing to the federal tax benefit of the deduction. Now, however, the new federal tax bill caps the SALT deduction at $10,000. Thus, that same taxpayer now only gets about a $3,000 benefit for the payment of $50,000 in New York taxes. With New York’s tax rates being some of the highest in the nation, this is a huge problem. And, the Governor is rightfully concerned about the negative impact this could have on New Yorkers. We’re already getting lots of calls from people looking for advice on changing residency!
Interestingly, the Governor also announced they are also planning to challenge the constitutionality of the SALT deduction in court, saying “We believe it is illegal and we will challenge it in court as unconstitutional.” His idea, I think, is that the limitation of the SALT deduction essentially constitutes double taxation. Without the deduction, taxpayers are paying federal tax on all of their income and state tax on the same measure of income. I certainly wish them well in this battle, as we are currently litigating two other cases where efforts by the State Tax Department result in significant double taxation to taxpayers. Funny, the Governor is not too troubled about that double taxation.
In any case, sit tight, we will have more details in approximately two weeks.
