New York Directs Disclosure of State Returns to Congress

A new New York law directs the state tax commissioner to disclose state tax returns to certain U.S. Congressional Committees. The disclosure requirements apply to state returns and reports filed by:

  • various federal, state, and local public officials, including the U.S. President; and
  • companies, partnerships, and trusts controlled by those officials.

The law limits disclosure to certified written requests by:

  • the U.S. House Ways and Means Committee;
  • the U.S. Senate Finance Committee; and
  • Joint Committee on Taxation.

It also requires redaction of:

  • any copy of a federal return attached to the New York return;
  • information contained in the federal return that gets reflected on the state return or report; and
  • Social Security numbers, account numbers, and residential address information.

If New York shares President Trump’s resident tax returns with Congress, would it shed any light on what is in his federal tax returns? The answer is unclear. Plus, the president and his lawyers will certainly fight any attempt to disclose his New York returns to Congress.

What Does a State Return Reveal About a Taxpayer?

Most states use federal adjusted gross income as the starting point for computing state income tax liability. The New York return is no different, except that it shows more information from the federal return than many other states. This includes amounts reported on the federal return for:

  • interest and dividend income;
  • business income or losses;
  • capital gains or losses;
  • S corporation, partnership, and other pass-through entity income or losses; and
  • real estate rental income.

More than half of the states, including New York, allow taxpayers to claim certain itemized deductions, instead of a standard deduction. New York permits itemized deductions for:

  • medical expenses;
  • state and local income taxes paid;
  • property taxes;
  • foreign taxes paid on real estate;
  • mortgage interest; and
  • gifts to charity.

 A little less than half of the states allow a net operating loss (NOL) deduction. The New York NOL deduction is the smaller of:

  • a taxpayer’s federal NOL deduction; or
  • federal taxable income computed without the NOL deduction.

Finally, a state return can reveal what tax credits a taxpayer is using to offset state income tax liability.

 What Doesn’t a State Return Reveal About a Taxpayer?

States generally require taxpayers to assign or source income from business inside and outside the state. Under New York sourcing rules, a taxpayer must report the percentage inside and outside the state of:

  • payroll;
  • property; and
  • sales.

But, taxpayers do not need to identify the name of the states or other jurisdictions in which they have business payroll, property, or sales.

Thus, President Trump’s New York state return would not show the extent of his business income or losses from places like Russia or Saudi Arabia.

By Tim Bjur, J.D.

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CCHTaxGroup

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