A growing number of hedge-fund and private-equity partners are using a new app that helps them avoid a special New York City tax if they’ve been working outside the city.
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 last year. Monaeo said it’s seeing especially strong demand from partners of hedge funds, private equity firms and other financial firms looking to challenge a New York City business tax because they’ve been working outside the city during the coronavirus pandemic.
“These are some of the highest earners,” said Anupam Singhal, co-founder of Monaeo, which was recently acquired by HR tech firm Topia. “So this could have a large impact on New York City’s tax revenues.”
At issue is the city’s Unincorporated Business Tax, a 4% tax charged at the company level to partnerships, which include hedge funds, private-equity firms, law firms, and accounting firms. In general, the city charges the tax based on where the firm’s services are performed. If the partners of a firm were all working in the Hamptons or Connecticut since March, they could seek to exclude the portion of the firm’s income earned outside the city from their taxes.
New York City has estimated that it will see a 17% decline — or about $300 million — in UBT collections this year. But Monaeo said its clients alone could end up saving more than $15 million this year on the UBT. Accountants to the wealthy say they expect the revenue decline could be far larger than the city expects.
“I think the loss is going to easily be twice what the city is expecting,” said Mark Klein, chairman of Hodgson Russ, a tax advisory firm.
The UBT loophole does not apply to personal income tax. Employees and executives who commuted to New York City before the Covid-19 crisis, and have been working from home since March won’t be able to avoid the city’s personal income tax even if they have been working from outside the city. New York’s “convenience of employer” 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 started the process of changing their tax residency to the suburbs or even Florida. While the process of changing tax residency from New York City can take over a year, many have started using the Monaeo app to begin making their case that they have moved out of New York City for good.
“You can’t say you moved out of the city and keep your apartment and just move back in a year,” Klein said. “You really have to move. And the state looks at everything closely.”
Monaeo said that clients and companies sign up for its app to boost their audit cases, since it tracks and stores all their location and travel data to show that they were not in the city or state beyond an acceptable number of days.
Using the app doesn’t guarantee a successful audit, but Singhal said that so far, all of the company’s clients have had successful audits.
“It’s not a magic bullet,” Singhal said of the app. “But it strengthens their case. And as governments get more aggressive with audits, everything helps.”