Emily Hollingsworth (Tax Notes): New York City Leaders Call for Reduced Passthrough Entity Credit
Mayor Zohran Mamdani (D) and City Council Speaker Julie Menin (D) on April 28 jointly announced their support of a proposal to reduce the city PTE tax credit from 100 percent to 75 percent.
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“A reduction would ensure the wealthiest pay their fair share,” Mamdani added.
But Gov. Kathy Hochul (D) has indicated that a PTE tax change would be a nonstarter.
New York City’s PTE tax is an optional tax that S corporations or partnerships can elect to pay. Entities then receive a credit equal to the amount of tax paid.
The city’s elective tax is intended as a workaround to the state and local tax deduction cap that was first approved in the federal Tax Cuts and Jobs Act. The cap, initially $10,000, was temporarily increased to $40,000 under the One Big Beautiful Bill Act (P.L. 119-21).
The State Assembly’s and the State Senate’s respective budget resolutions have already proposed for the city’s PTE tax credit to be reduced from 100 percent to 75 percent. The Senate also proposed to reduce the state PTE tax credit from 100 percent to 90 percent.
Additional Coverage (Bloomberg Law): Mamdani Pushes to Shrink NY Hedge-Fund, Private-Equity Tax Break
“More than 95% of PTET credits go to those making more than $1 million a year,” Mamdani said at a press conference inside City Hall. “The PTET credit is a tax cut for the rich.”
Mamdani and Menin estimate limiting the credit from its current 100% level to 75% would yield nearly $1 billion. That could help close the city’s $5.4 billion two-year deficit.
It seemed a bit counterintuitive when taxpayer advocacy groups and chambers of commerce were begging states and localities to create new unincorporated business tax regimes. If the PTET regime is purely optional and provides a full credit, it is a valuable workaround to the federal SALT deduction cap. But if a state were to simply make it mandatory instead of optional (as Connecticut’s PTET regime was initially), states could easily ratchet back the credit percentage to raise revenue (and thus use the unincorporated business tax against the very taxpayers that asked for it).
