New York’s fiscal year 2023 budget contained an opportune provision that permits “resident S corporations” to get larger tax benefits under the state’s Pass-Through Entity Tax (PTET) regime. Under the new rules, beginning with tax year 2022, S corporations in which all shareholders are New York State residents can now remit PTET on all income allocated to the resident shareholders, rather than limiting the PTET to only New York-sourced income. While this is an exciting change conceived of by New York lawmakers with positive implications for S corporation construction companies, the law was passed about a month after the PTET election due date for tax year 2022. Accordingly, only those construction company S corporations that had previously opted into the PTET under the old law were eligible to take advantage of the rule change, as the budget bill did not modify the PTET election due date. Consequently, many resident S corporations with low New York income allocations had not made the PTET election in March 2022, not anticipating this law change, and were thus ineligible for the new PTET benefit. Thankfully, at the request of Governor Hochul, New York is moving forward with amending its PTET provisions to move the election due date to September 15, 2022, opening the door to such S corporations seeking to now elect into the PTET regime.
Electing into the New York PTET seems like a great tax savings opportunity for construction companies with operations in New York.
While extending the election due date for S corporations, the state is also pushing back the election due date for partnerships to September 15, 2022. In doing so, partnerships may want to now reconsider whether the New York PTET could benefit their members and partners for tax year 2022. Furthermore, this could be an opportunity for pass-through entities formed after the prior March 15th election deadline to opt into the tax regime.
In addition to the above, the new PTET law amendments appear to include:
- An S corporation that previously elected into the PTET by March 15th that will be certifying as a resident S corporation will make its June 15th estimate under the old New York allocation rules. However, for its September 15th payment, it will need a catch-up estimate to ensure it has paid in at least 75% of its estimated PTET using the new resident shareholder allocation rules.
- For an S corporation or partnership, using the new rule change, to make a valid 2022 PTET election between March 16, 2022 and June 15, 2022, it will need to include an estimated payment equal to 25% of its PTET liability.
- Similarly, for an S corporation or partnership, using the new rule change, to make a valid 2022 PTET election between June 16, 2022 and September 15, 2022, it will need to include an estimated payment equal to 50% of its PTET liability.
The New York Legislature and Governor passed the bill on May 6th. With construction companies operating under a much more complicated set of tax rules and a more complex financial landscape, you will need to make sure that electing into New York’s PTET regime is truly the best financial move. For more information on these upcoming New York PTET rules changes and how they may be applicable to your construction company, please contact Alan Goldenberg, Principal and Leader of Anchin’s State and Local Taxation and Tax Controversy groups or Phillip Ross, Partner and Leader of Anchin’s Construction Industry group.