An increasing number of private equity and hedge fund partners are using a new app that helps them avoid a New York City excise tax if they’ve been working out of town.
Monaeo, a company that helps taxpayers track and store their location data to show to tax authorities, said its business has more than doubled in May and June over the past year. Monaeo said he is seeing especially strong demand from hedge fund partners, private equity firms and other financial firms seeking to challenge a business tax on New York City because they have been working out of town during the coronavirus pandemic.
“These are some of the top earners,” said Anupam Singhal, co-founder of Monaeo, which was recently acquired by human resources technology firm Topia. “So this could have a big impact on New York City tax revenue.”
The problem is the city’s Unincorporated Business Tax, a 4% tax that is charged at the company level to corporations, which includes hedge funds, private equity firms, law firms, and accounting firms. In general, the city collects the tax according to the place where the company’s services are provided. If a company’s partners worked in the Hamptons or Connecticut since March, they could try to exclude from their taxes part of the company’s income earned outside the city.
New York City has estimated that it will see a 17% decrease, or about $ 300 million, in UBT collections this year. But Monaeo said that only his clients could end up saving more than $ 15 million this year at UBT. Accountants for the wealthy say they expect the decline in income to be much greater than the city expects.
“I think the loss will easily be twice what the city expects,” said Mark Klein, president of Hodgson Russ, a tax advisory firm.
The UBT loophole does not apply to personal income tax. Employees and executives who traveled to New York City prior to the Covid-19 crisis and who have been working from home since March will not be able to avoid the city’s personal income tax, even if they have been working from outside. from the city. New York’s “employer convenience” rule allows the city to claim income tax even if a worker telecommutes.
Still, Singhal said that in addition to the UBT, many hedge fund and finance executives in New York City have begun the process of changing their tax residency to the suburbs or even to Florida. While the process of changing New York City tax residency can take over a year, many have started using the Monaeo app to start arguing that they have moved from New York City forever.
“You can’t say you moved out of town and stayed with your apartment and only moved in a year,” said Klein. “You really have to move. And the state watches everything closely.”
Monaeo said customers and businesses subscribe to his app to drive their audit cases, as it tracks and stores all of their location and travel data to show they weren’t in the city or state beyond an acceptable number of days.
Using the app does not guarantee a successful audit, but Singhal said that so far, all of the company’s clients have had successful audits.
“It is not a magic bullet,” Singhal said of the application. “But it strengthens his case. And as governments become more aggressive about audits, it all helps.”
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