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Legislative Memo

Ken Pokalsky
Vice President, Government Affairs
T 518.694.4460
www.bcnys.org

BILL:

S.8831 (Ranzenhofer) / A.11051 (Paulin)

Support

SUBJECT:

Decoupling from Federal Provisions on Unrelated Business Income

 

DATE:

June 18, 2018

 

This is one of several bills being supported by The Business Council to avoid an increase in tax liability for New York taxpayers resulting from the federal “Tax Cuts and Jobs Act” of 2017. Its intent is to simply maintain elements of the state’s business tax code as they were pre-TCJA. In doing so, this bill is consistent with provisions adopted with bipartisan support as part of the state’s FY 2019 budget. 

Specifically, this legislation decouples from a federal tax law change related to “unrelated taxable income” of non-profits. Generally speaking, both the federal Internal Revenue Code and the state’s tax laws impose a tax on income earned by non-profit organizations that is generated through an activity not related to the tax-exempt purpose of that organization.

Under state tax law §290, New York imposes a 9 % tax on unrelated business income as defined in the IRC.

Among the many provisions of the TCJA was the elimination of deductibility of certain categories of fringe benefits provided by employers to employees, including transportation benefits.

Oddly, with regard to not for profit entities, a new provision, IRC 501(m)(2)(A), treats the payment of transportation fringe benefits as taxable “unrelated business income” of the non-profit organization.  This is effective for amounts paid or incurred after December 31, 2017.

The purpose of this bill is to decouple New York tax law from IRC 501(m)(2)(A), to avoid imposing this unintended state tax burden on non-profit organizations including universities, hospitals and other entities.

To avoid unintended tax increases caused by federal tax reform, and to avoid a competitive disadvantage for businesses subject to New York’s business taxes, The Business Council strongly supports adoption of S.8831 (Ranzenhofer) / A.11051 (Paulin).