The Carried Interest Battleground Now Moves to the State Level
President Trump signed the Tax Cuts and Jobs Act of 2017 into law on December 22, 2017. A collective sigh of relief could be heard across the investment management community as the worst fear of investment managers apparently had not materialized: the carried interest had survived. Although not completely intact, the new requirement of a three-year holding period was viewed as relatively benign.
However, on January 16, 2018, New York State Governor Cuomo unveiled his 2019 Executive Budget, which contained a proposed “fairness fee” of 17% to be levied on most investment-related management fee income. The 17% tax would supposedly eliminate the rate differential that some investment managers enjoy between the 20% capital gain rate and the highest marginal 37% rate on personal service income. (Interestingly, New York currently taxes capital gain income and personal service income at the same rate.)