Partnerships and other pass-through businesses in New York would be able to circumvent the $10,000 federal cap on state and local tax deductions under legislation proposed this month by two lawmakers. 

The measure, backed by Assemblywoman Amy Paulin and Sen. James Skoufis, addresses the tax policy that Gov. Andrew Cuomo has rallied against as unfair to states like New York. 

“Given that an income tax increase is on the horizon, it is critically important that we take all the actions we can to help minimize the impact to residents, many of whom are struggling financially due to the pandemic,” Paulin said. “This legislation would provide substantial federal tax relief to many New Yorkers at the time when they need it the most.”

The move would allow business partnerships to take the full deduction if the partners paid their income taxes directly to New York state. They would receive the full federal deduction, with payments offsetting the New York state income tax for the partners. 

New Jersey and Connecticut have approved similar laws and the Internal Revenue Services has previously issued a guidance that backs the arrangement. 

There have been other efforst to workaround the cap as well as legal challenges to the limits on deductions, which were part of a 2017 federal tax overhaul. 

"A key suburban priority is restoring the SALT deduction and, with first-quarter tax payments due January 15 and many businesses still working through the aftermath of the shutdown, the state ought to act quickly on our latest reform," Skoufis said.

"If we return to session in December, aligning our tax code with the recent IRS ruling ought to be on the agenda in order to provide a common-sense benefit - at no cost to New York State - for the 2020 tax year."