Negotiations surrounding President Donald Trump's proposed tax reforms could be disrupted by a provision threatening partnerships in high-tax states like New York. This provision may nullify state laws designed to alleviate tax burdens imposed by the 2017 tax reform, which limited the State and Local Tax (SALT) deduction to $10,000. If Congress eliminates New York's Pass-Through Entity Tax (PTET), businesses could face an additional $5 billion to $6 billion in federal taxes. Such changes might prompt profitable firms to relocate to states with lower tax burdens, affecting local economies adversely.
If Congress kills the PTET, it'll mean these NY biz would collectively have to pay $5 billion to $6 billion more in federal taxes, calculates the Empire Center's E.J. McMahon.
The net effect would be to boost the company's tax bill by something like 50% - a hit that will send those that can leave fleeing to Florida, Tennessee or other low-tax states.
Many business pay taxes under the personal code, not the corporate one. And where the 2017 reforms gave almost every individual filer a net tax cut, it hit some partnerships harder.
Ironically, this move may have been how the tax-writing wonks sought to replace the federal revenue lost by increasing the SALT limit from $10,000 to $30,000 to help out individual filers in high-tax states.
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