On February 15, 2018, New York Governor Andrew M. Cuomo released 30-day amendments to the State’s FY 2019 Executive Budget. The amendments contain several noteworthy tax provisions that, if enacted, would amount to a sweeping overhaul to portions of the New York Tax Law and could benefit many New York taxpayers. Included in the amendments are provisions that would (1) create an optional employer compensation expense tax, (2) establish a state-run charitable trust fund for the benefit of New Yorkers, and (3) decouple from several Internal Revenue Code provisions. While a proposal to pursue an unincorporated business tax was included in the “Summary of Proposed Tax Reforms” released by the Governor’s office, details of the proposal were not included in the amendments. The revenue proposals contained in the 30-day amendments are largely intended to address the adverse impact of the individual $10,000 state and local tax (“SALT”) deduction cap that was enacted as part of the federal Tax Cuts and Jobs Act of 2017 (the “TCJA”).

Employer Compensation Expense Tax

The legislation would create an optional Employer Compensation Expense Tax (“ECET”) imposed on electing employers. The ECET is intended to counteract the adverse effect of the federal $10,000 SALT deduction limitation by shifting a portion of the New York tax burden from individual employees to their employers, whose state and local taxes remain fully-deductible at the federal level.

Employers who opt-in would be subject to a tax on their annual payroll expenses in excess of $40,000 per employee at an initial 1.5% rate in 2019, with the tax rate increasing over the following two years to 3.5% in 2020 and 5% in 2021 and later years. Employees covered by the ECET would be permitted to take a corresponding credit to offset the New York personal income tax imposed on their wages. The deadline for the first annual opt-in election is October 1, 2018 for the 2019 tax year.

Charitable Gifts Trust Fund and State Income Tax Credit

The proposals would also establish a state-run charitable fund (“charitable gifts trust fund”) in an apparent attempt to partially circumvent the TCJA’s individual SALT deduction cap by allowing individuals to claim a credit against their New York state personal income taxes equal to 85% of their contributions to the fund in the immediately preceding calendar year. Monies in the fund would be earmarked exclusively for New York public health and education initiatives. The proposed legislation also permits localities to create similar funds and provide corresponding credits to partially offset local property taxes.

Similar charitable contribution measures have been proposed by other states (e.g., California, New Jersey); however, the tactic has been met with skepticism by some who believe it would be vulnerable to an IRS challenge—particularly in light of Treasury Secretary Steven Mnuchin’s comment that the idea is “ridiculous.” Nonetheless, certain states have historically imposed similar measures throughout the years prior to the TCJA without challenge. For example, in California, the “College Access Tax Credit” currently permits taxpayers donating to the College Access Tax Credit Fund to utilize a 50% credit against their California personal income tax liability, and those same taxpayers may also claim a charitable contribution deduction on their federal income tax return under the Internal Revenue Code (noting that there is an addback required for such a deduction on the California return). Given the scrutiny these initiatives are expected to receive from the IRS, it remains to be seen whether the proposal will be a viable work-around to the TCJA’s SALT deduction cap.

Decoupling from Federal Code

Finally, the legislation would decouple from several federal provisions. For example, the legislation would decouple from the TCJA’s SALT deduction cap in order to preserve the pre-2017 computation of federal taxable income. This change, among other proposals, are intended to ameliorate some of the state tax increases New York individual taxpayers are expected to face as a result of the TCJA.

On the corporate income tax side, the 30-day amendments make clear that the federal deduction provided by IRC § 965(c), which reduces the amount of a taxpayer’s subpart F income inclusion in connection with the deemed repatriation of foreign earnings under IRC § 965(a), is disallowed for Article 9-A purposes. An addback of the 965(c) deduction was largely expected in light of the New York State Department of Taxation and Finance’s Preliminary Report on the Federal Tax Cuts and Jobs Act, which confirmed that the deemed repatriation under 965(a) is exempt from tax as “other exempt income.”


In the wake of the TCJA’s passage, New York is among several states that have been working to formulate solutions to counteract the disproportionate impact the TCJA is expected to have on their residents. While several ideas reportedly had been floating around in the past few months, the 30-day amendments represent the first concrete legislative proposals offered for consideration in New York. The amendments must now survive difficult budget negotiations between Governor Cuomo and state legislators, who must also address the State’s estimated $4 billion budget deficit. However, the budget impact of the proposed legislation is expected to be revenue neutral. That, along with the potential tax savings for many New Yorkers, should be an important consideration as the budget negotiations get under way. Stay tuned for updates over the coming months as the bill progresses through the legislative process.