By Olivia Scheck
DNAinfo Reporter/Producer
MANHATTAN — As state lawmakers battled over how to close the vast budget gap this week, they found common ground in a plan to increase taxes on New York hedge-fund managers who live in other states, the New York Times reported.
Under current law, these financiers pay New York taxes only on their base salaries, which, in many cases, amount to 2 percent of the assets that they manage, according to the paper.
However, the "performance incentive" portion of their incomes, usually 20 percent of the profits they earn for investors, has not been taxed by New York State if they live elsewhere, the Times said.
If the plan, reportedly embraced by state legislators, becomes law, this money would become fair game for the Empire State, yielding about $50 million a year, according to the Times.
But opponents of the measure warned that it might backfire, driving hedge funds out of the city.
“It could be one more reason to move,” Richard S. Zarin, a tax lawyer who represents investment fund managers for the firm Morgan, Lewis told the Times. “Having my office in New York versus Greenwich is now costing the partners who live in Connecticut more money than it used to.”
Tax lawyer Edouard S. Markson, of Chadbourne & Parke, added that the new tax might not even be legal, since states like New Jersey and Connecticut already tax the performance-incentive money earned by their residents, the Times noted.
“You’ve got this potential for double taxation,” Markson explained, according to the paper. “Someone with enough money at stake is likely to bring a federal court challenge.”
Performance incentives are already taxed by the federal government at 15 percent, though congressional Democrats have tried three times this year to raise that number, the Times noted.
