Trump’s ‘big, beautiful bill’ could force NY businesses to shell out billions more in taxes

A New Tax Provision in Trump’s Spending Bill Could Have Major Impact on New York Firms

A lesser-known provision in President Trump’s recent spending bill could result in significant tax increases for New York’s highest-earning companies, potentially leading to a further exodus of businesses from the city and state, according to experts.

Hidden within Trump’s extensive 1,100-page tax bill is a proposal aimed at closing loopholes related to the State and Local Tax (SALT) deduction cap, specifically targeting pass-through entity taxes (PTET). This loophole currently allows certain New York service businesses, including lawyers, accountants, doctors, dentists, and veterinarians, to benefit from around $16 billion in personal income tax deductions annually.

The amendment to the PTET loophole is seen as a response to a proposed reinstatement of SALT deductions on state and local taxes, which were reduced during Trump’s first term in office. This move by GOP lawmakers aims to balance out the potential restoration of SALT deductions, according to tax experts.

“That’s absolutely what’s going on,” said EJ McMahon, a fellow at the Manhattan Institute for Policy Research. “There’s a great tension that’s been created by this.”

The Republican spending bill, recently advanced by the House Budget Committee, includes a provision to raise the current SALT deduction cap to $30,000 from $10,000 for individuals earning less than $431,000 annually.

However, the curtailment of PTET could result in a significant tax hike for New York’s top-earning accounting, finance, and law firms, potentially increasing their taxes by up to six percentage points, even with the proposed increase in SALT deductions.

According to a former partner at a national CPA firm, the current 10% tax rate for certain businesses could be reduced to around 4% using PTET. The elimination of PTET could be a tipping point for firms on the verge of relocating, potentially prompting further business relocations from the state.

Trump’s bill has faced resistance from some GOP lawmakers, despite his urging for their support. The White House has not yet responded to requests for comment on the matter.

The removal of PTET could also impact New York City’s 4% unincorporated business tax deduction, affecting residents in the city. Additionally, smaller service businesses in New York may face challenges as a result of this change.

The pass-through tax loophole was created to circumvent the SALT deduction cap, allowing certain businesses to benefit from substantial tax deductions. The IRS approved this rule in 2020, shortly after Trump’s defeat in the presidential election, leading to its adoption in multiple states across the country.

Over the past few years, New York has seen a significant outflow of residents and businesses to states like Florida, potentially due to tax-related considerations. The impact of the removal of PTET could further exacerbate this trend in the coming years.

Despite the potential repercussions for New York’s business landscape, the full extent of the impact of this tax provision remains to be seen.