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Tuesday, January 31, 2023

Seven States Introduce Laws Aimed toward Rich Taxpayers

On Jan. 19, New York and Connecticut lawmakers, together with legislators from California, Hawaii, Illinois, Maryland and Washington, launched tax laws focusing on rich taxpayers. The pending proposals are much like these promoted by Massachusetts Senator Elizabeth Warren throughout her 2020 presidential marketing campaign and have been funded by Fund Our Future, a tax coverage advocacy group.

New York Proposals

The New York proposals search to extend capital positive aspects charges and add to present payments launched earlier this month and in 2021:

Senate Invoice 2162, launched on Jan. 19, proposed an extra tax on long-term capital positive aspects, dividends or some other kind of capital achieve revenue of:

  1. 7.5% for married people submitting collectively, surviving spouses and heads of family with taxable revenue over $500,000;
  2. 15% for married people submitting collectively, surviving spouses and heads of family with taxable revenue over $1 million;
  3. 7.5% for single people, married people submitting individually and estates and trusts with taxable revenue over $400,000; and
  4. 15% for single people, married people submitting individually and estates and trusts with taxable revenue over $800,000.

Senate Invoice 1570, launched on Jan. 12, proposed a mark-to-market tax on New York residents with internet belongings price $1 billion or extra on the finish of every taxable 12 months starting in 2023.

  1. Acquire or loss can be acknowledged as if every asset owned by a person have been offered for its truthful market worth on Dec. 31, 2022.
  2. Any internet achieve from these deemed gross sales can be included within the taxpayer’s revenue for 2023 as much as a “phase-in cap” quantity.
  3. On the taxpayer’s choice, any tax payable could also be made for the present taxable 12 months or in 10 equal annual installments together with a “deferral cost.”
  4. Every year thereafter there can be a deemed sale of belongings of any particular person with internet belongings of a minimum of $1 billion as of Dec. 31 of the previous 12 months, with credit score given for positive aspects beforehand topic to the tax.

Senate Invoice 3462 (Meeting Invoice 4643A), launched in January 2021, proposed creating separate taxes on inheritance and present revenue, amending the computation of the property tax and creating a present tax. These proposals have been referred to the New York legislature’s Methods and Means and Funds and Income committees in January 2022 with out additional motion.

Connecticut Proposals

Two separate Connecticut payments suggest growing marginal tax charges, establishing a capital positive aspects surcharge and restructuring sure taxes:

Invoice 774 proposed:

    1. growing the 2 highest private revenue marginal tax charges to 7.49% and seven.20%; and
    2. establishing a 1% and a 0.75% surcharge on internet achieve from the sale of capital belongings of Connecticut taxpayers within the high two revenue brackets.

Invoice 351 proposed:

    1. making a 5% surtax for taxpayers within the highest revenue bracket on revenue from internet achieve from the sale or change of a capital asset and dividend and curiosity revenue;
    2. implementing a ten% tax on annual gross revenues of any enterprise with annual gross revenues exceeding $10 billion from digital promoting companies;
    3. enacting a statewide property tax on industrial and residential actual property with an assessed worth of over $1.5 million;
    4. extending and growing the company revenue tax charge to 11.5% from 7.5%;
    5. elevating the company enterprise tax surcharge to twenty%;
    6. hiring 50 extra in-house auditors and extra wage enforcement brokers; and
    7. authorizing extra marginal tax charges for people with Connecticut taxable revenue over $1 million (9.55%), $10 million (10.25%) and $25 million (10.65%).

The Connecticut provisions additionally embrace these favorable to much less rich taxpayers, together with a $500 refundable little one tax credit score (for as much as three kids), expanded and elevated property tax credit and a discount within the 5.5% marginal charge to five%.

Harbinger of Issues to Come?

The Washington Publish quoted a New York state senator as saying, “The purpose right here is to verify we do on the state stage what shouldn’t be being finished on the federal stage.” Wealth taxes just like the New York mark-to-market tax are an untested type of taxation in the US, the place taxpayers must pay annual taxes on asset values quite than on revenue. Passage of such laws would nearly actually immediate rich taxpayers to contemplate relocating to decrease tax jurisdictions and will increase constitutional challenges in addition to sensible issues like valuing belongings with unrealized positive aspects.

Even when taxpayers in New York and Connecticut really feel that proposals like these are unlikely to develop into legislation now, they’d be properly suggested to not dismiss the chance that these measures may achieve traction over time. Massachusetts, one other Democratic-leaning state within the Northeast, not too long ago handed a “millionaires tax” after six failed makes an attempt to impose a progressive tax system courting again over 100 years. Thus, even when New York and Connecticut fail to cross the laws described above, the mere existence of such laws might be a harbinger of issues to come back.


Justin M. Hannan, Mariano Robert Beecher and Emily Byrnes are attorneys at Day Pitney

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