NYC PTET Tax Strategy for Restaurants & Franchises

If you own a restaurant group or a franchise network in New York, you’ve probably heard about the Pass-Through Entity Tax (PTET) and its city companion, the NYC PTET. These elections let many S-corps and partnerships pay state/local income tax at the entity level—a smart way to work around the federal SALT cap on owners’ personal returns.

Here’s the clear guide: what PTET actually does, who qualifies, how it hits cash flow, and the practical steps to get it right for 2025–26.

First, what PTET is (and isn’t)

PTET is a choice, not a new tax. When you elect it, your company pays a state (and possibly city) tax that otherwise would have hit the owners on their personal returns. Owners then typically receive a credit for their share of the PTET paid. Net effect: a larger slice of tax becomes deductible by the business, which can reduce federal taxable income flowing to the owners—this is the SALT “workaround.”

Three important realities:

1. Entity type matters. PTET is for pass-throughs (S-corps, partnerships/LLCs taxed as partnerships). C-corps don’t use PTET.
2. It’s an annual election. If you want it for a year, you must elect it for that year—you can’t decide after the fact when returns are due.
3. Owners’ facts still matter. Residency, K-1 allocations, and multi-state income change the math. PTET helps many owners, but not everyone.

Why NYC operators care

If you’re running five pizza shops in Queens, a polished-casual concept in Manhattan, or 12 franchise units dotted across the boroughs and suburbs, you’re almost certainly grappling with:

• High state and city taxes that exceed the $10,000 federal SALT cap on Schedule A.
• Multi-unit expansions that push owner income up—and deductions down—without careful planning.
• Complex ownership (different investors per location) that makes “one size fits all” tax answers risky.

PTET/NYC PTET is one of the few levers that can shift a meaningful amount of tax back to the business, where it’s deductible.

The catch: elections and estimates hit early

For calendar-year entities, the PTET and NYC PTET election windows arrive early in the year (often mid-March). That means you’re making a cash-impact decision before you’ve seen the full year’s results. In practice, you need:

• A pro-forma of owner income by entity and by owner.
• A PTET model that estimates the entity-level tax and the owners’ credits.
• A cash calendar to handle required estimates during the year.

Takeaway: PTET is beneficial only when you budget for the cash outlay. The credit to owners comes later—so the business carries the cash temporarily.

A simple example (illustrative)

Imagine “Metro Pie, LLC,” a partnership with two equal owners and a projected 2025 New York taxable income of $1,000,000.

• Without PTET, the $1,000,000 flows to owners’ returns. They each hit the SALT cap quickly and lose deductibility for most NY taxes.
• With PTET elected, the entity pays a state-level tax (rate depends on the bracket). Suppose the modeled PTET is $80,000. The business records $80,000 of deductible expense, reducing federal flow-through income. Owners later receive PTET credits on their NY returns for their $40,000 shares.

In many cases, the federal deduction at the entity level is worth more than the lost Schedule A deduction the owners can’t use anyway. The spread is where PTET earns its keep. But remember: Metro Pie must pay that $80,000 as it goes—so the timing of cash is critical.

Who benefits most (and who should run the numbers twice)

Clear wins:

• Multi-unit restaurant groups where owners have already maxed the SALT cap.
• Franchisees with healthy margins and predictable K-1 allocations.
• Operators with owners who are NY residents and primarily report NY-sourced income.

Run the numbers twice:

• Investors with different residencies (NY vs. non-NY).
• Tiered structures (holdco/propco/opco arrangements).
• Groups with loss carryforwards or large Section 179/bonus plans that might already be reducing federal income.

Cash-flow planning: how to avoid a PTET “surprise”

1) Build a PTET cash grid.

Lay out entity-level PTET estimates across the year (quarterly or as required). Tie each to your operating cash forecast and debt covenants. If your PTET estimate is lumpy, consider staging equipment purchases or promotions around the same quarter to smooth working capital.

2) Keep the owners in sync.

Owners need to understand:

• The entity is paying the tax.

• They’ll receive a credit later.

• Distributions might be recalibrated to reflect PTET cash leaving the business.

  Formalize the policy in your operating agreement or minutes.

3) Coordinate with NYC PTET.

Some NYC pass-throughs have to tackle both state and city versions. Don’t assume one election covers both.

4) Watch the multi-state angle.

If you operate in NJ/CT/PA or deliverables cross state lines, the source of income and the owners’ residency affect credits and offsets. Your PTET model should include a state-by-state schedule and the owners’ resident credits.

Implementation checklist (save this)

• Confirm eligibility (S-corp or partnership; C-corps are out).
• Forecast 2025/26 income at the entity level and by owner share.
• Model PTET & NYC PTET (rates, brackets, sourcing).
• Decide on elections early (calendar-year entities face early-year deadlines).
• Calendar entity-level estimates and update as results change.
• Coordinate owner distributions so no one is surprised by cash leaving the business.
• Track basis (distributions + PTET payments interact with basis calculations and debt allocations).
• Document policy in your governance docs and share a one-page explainer with partners/investors.
• Re-evaluate annually—PTET is an annual choice, not “set and forget.”

How PTET shows up in your books

• PTET is typically recorded as an income tax expense at the entity.
• Payments reduce cash and may flow through a taxes payable account if you accrue estimates.
• On the owners’ side, PTET becomes a credit on personal returns; your CPA reconciles this against K-1 income.
• For S-corps, be mindful of reasonable compensation and wage vs. distribution planning—it still matters even when PTET is elected.

Common pitfalls (avoid these)

1. Electing late.

   Election windows come early. Put PTET on your January calendar alongside W-2/1099 deadlines.

2. No owner communication.

   Owners see a smaller distribution and wonder “where the cash went.” Share the PTET plan up front—cash now, credit later.

3. Assuming NYC is automatic.

   State and city are separate analyses and may require separate elections.

4. One-entity thinking.

   Franchise groups often have multiple entities (ops, IP, management, real estate). You may not want PTET everywhere—choose where it helps most.

5. No multi-state map.

   Expanding across the Hudson? Opening in CT? Add resident credits and apportionment to your model before electing.

Where QMK Consulting fits in

QMK Consulting is a New York City-based accounting firm that specializes in franchise and restaurant accounting. They help multi-unit operators and franchise owners:

• Model PTET/NYC PTET by owner and by entity, so you know the cash and tax impact before you elect.
• Align distributions and loan covenants with entity-level tax payments.
• Coordinate multi-state sourcing and resident credits (NY, NJ, CT, PA, and beyond).
• Build a clean, month-end close that ties PTET estimates, payroll, and capex—so nothing breaks at filing time.

Get assistance and help from QMK Consulting experts

Ready to see if PTET or NYC PTET actually saves you money—without crunching the wrong numbers or choking cash flow?

Get a free Profit & Cash Flow Analysis by our experts at QMK Consulting. We’ll map your 2025–26 elections, model cash timing, and design a simple playbook that your partners and managers can follow.

Get Your Free Profit & Cash Flow Analysis

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The Post is educational—not tax or legal advice. Rules change; confirm current requirements with your tax advisor and the appropriate state/city agencies.