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New York proposes carried interest fee on investment management services

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January 2019


On January 9, Senate Bill 303 (S303) was introduced in the New York Senate. This bill is intended to close a perceived ‘carried interest loophole.’ S303 would amend both the franchise tax on business corporations and the personal income tax to tax income from ‘investment management services’ that are provided by individual or corporate partners to a partnership. This bill also would enact a ‘carried interest fairness fee’ that would impose a surtax of 19% on income from investment management services that are provided to a partnership and that are received during the taxpayer’s tax year.

If S303 is enacted, the effective date is tied to the enactment of similar measures in neighboring states. A similar bill was passed into law on July 1, 2018 in New Jersey, (Assembly Bill 3088, A3088) with similar language.

Governor Andrew Cuomo is expected to release his budget proposal on January 15, which may state his position on this issue.

The takeaway

The taxation of carried interest has been a hot topic of discussion in recent years as states look for revenue sources. The intent of S303 is to ensure that the so-called ‘carried interest loophole’ is not used under New York tax law, while also providing a multi-state level effort to prevent fund managers from simply moving to a nearby state. S303 differs slightly from prior versions of similar bills introduced in the New York State legislature; in previous years, these similar bills have failed to be enacted into law in the overall New York budget process. The New York budget bill is expected to be released in January 2019, and language similar to this bill may be included again.

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Peter Michalowski

Peter Michalowski

State and Local Tax Leader, PwC US

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