Tax Committee Update
March 27, 2012
The following provides an overview of key tax-related actions adopted as part of the New York State budget for Fiscal 2014 (technically, while the Senate completed its approval of budget bills today, the Assembly will not complete its passage of the budget until Thursday.)
Please feel free to contact me with any questions or comments on these issues, or on any other issues related to the FY 2014 budget. Note that we have provided additional budget information on our web site.
Manufacturing Rate Reductions: Adopts Article 9-A corporate franchise tax reductions for “qualified NY manufacturers,” (i.e., a taxpayer or combined group with >50% of income from manufacturing activity that either has at least $1 million in manufacturing-related capital in NY or all of its capital in NYS). The tax rate applicable in 2013 is reduced by 9.2% in 2014, 12.3% in 2015, 15.4% in 2016 through 2018, and 25% in 2019 and thereafter. These percentage reductions apply to taxes imposed on ENI, capital base, AMT and fixed dollar minimum calculations. As example, the new ENI rates are as follows: 2014 = 5.9%; 2015 = 5.7%; 2016-18 = 5.5%; 2019 and thereafter = 4.875%. (Note: there is no corresponding reduction under the personal income tax for manufacturing-related income from sub-S corps, partnerships or LLCs). (S.2609-D/A.3009-D, Part Z).
Personal Income Tax: Extended the “temporary” Article 22 income tax rates, adopted in December 2011, to tax years 2015, 2016 and 2017. This maintains the 8.82% rates on incomes over $1 million/year (for singles, $2 million for joint filers); and lower rates for incomes below $300,000. The $2 billion in increased revenue generated from the high earner tax will be a substantial down payment on, but will not eliminate, multi-billion budget gaps projected for Fiscal 2015 through 2017. (S.2609-D/A/3009-D, Part FF). The budget also includes a $350 per year personal income tax rebate to residents with one or more dependent children under the age of 17, and with adjusted gross income between $40,000 and $300,000. This credit applies to tax years 2014, 2015 and 2015, and is projected to cost about $370 million per year. (S.2609-D/A/3009-D, Part FF).
Royalty Income: Eliminates the exclusion of royalty income received by a taxpayer if a related entity that made the payment was required to add back the payment to its income; creates new exclusions from this provisions in instances where the related member paid significant tax on the income in another jurisdiction, if the payment was for a valid business purpose, or where the related member is incorporated in foreign countries. This change is expected to produce a net $28 million increase in state revenue in Fiscal 2015. (S.2609-D / A.3009-D, Part E).
Energy Assessment: Extends the “Temporary State Energy and Utility Service Conservation Assessment,” a temporary 2 percent PSC assessment on electric, gas, steam and water utilities currently set to expire 3/31/14, for 3.5 years, with a 2% assessment in FY 2015, 1.75% in FY 2016, 1.5% in FY 2017 and an extra payment of one half of the FY 2017 assessment due by the end of March 2017. Our projected impact is about $1 billion in aggregate, with more than half born by industrial and commercial entities. (S.2609-D / A.3009-D, Part BB).
Unemployment Insurance Tax: As part of a broad UI program reform package, and to expedite repayment of $3.5 billion in federal borrowing, the budget modifies the state's UI taxes by: eliminating the six lowest tax brackets in the state's UI tax table (raising the tax rate for the post positive experienced-rated employers from 0.9 percent to 1.5 percent); and increasing the UI taxable wage base to $10,300 in 2014; to $13,000 by 2026; and for later years indexes it to 16 percent of the state's average annual wage.
MTA Tax: Extends the “temporary” Metropolitan Transportation Authority surcharges on corporation, corporate franchise, bank and insurance taxes, currently scheduled to sunset December 31, 2013, by five years through December 31, 2018. (S.2609-D / A.3009-D, Part A).
Charitable Deductions: Extends the high income charitable contribution deduction limitation for three years (to 25 percent of federal allowable deductions for taxpayers with New York adjusted gross income over $10 million). (S.2609-D/ A.3009-D, Part D).
Sole Proprietor/Small Farm AGI: Allows for a reduction from federal AGI for sole proprietors and small farms (net business/farm income under $250,000) of 3 percent in 2014, 3.75 percent in 2015, and 5 percent thereafter (S.2609-D/A.3009-D, Part Y).
False Claims Act: Note that we were able to defeat a proposal to amend the state's False Claims act to apply to tax-related activities that “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the state or a local government. This provision was applied to Medicaid and other non-tax actions. The final budget does expand broadly applicable provisions regarding recovery of court costs were limited, and allows for awarding to costs of prevailing defendant in frivolous qui tam case. (S.2606-D/A.3006-D, Part A).
Tax Modernization: Extends for three years, through December 31, 2016, tax “modernization” provisions adopted in 2011 and currently set to expire at the end of 2013. These include the requirement for e-filing of tax returns by professional preparers and individuals that use pre-packaged software to prepare their taxes; and authority for the Department of Taxation and Finance to require segregated bank accounts for sales that vendors that have failed to collect, account for, or pay to the state required sales tax collections. (S.2609-D / A.3009-D, Part H).
Unstamped Cigarettes: Increases the penalty for possessing or controlling unstamped or unlawfully stamped cigarettes from a maximum of $150 to $600. (S.2609-D/ A.3009-D, Part O).
Drivers' License Suspensions: Allows for suspension of drivers' licenses for taxpayers with past-due liabilities under the state's Tax Law of $10,000 or more (does not apply to commercial drivers' licenses). Provides for limited ability to challenge such suspensions. (S.2609-D/A.3009-D, Part P)
Warrantless Income Execution: Allows the Tax Commissioner to serve an income execution on a taxpayer without a warrant in cases where the taxpayer's unpaid liability for taxes, penalties and/or interest are not paid within 21 days of a notice and demand thereof (or within ten days if the delinquent amount is $100,000 or more). (S.2609-D/A.3009-D, Part Q).
Film Credit: Adopts a five year extension of the film production tax credit, at $420 million per year (through 2019), and increases the share available for post-production credit costs from $7 million per year to $25 million per year. Allows the credit to apply to “relocated television productions.” Provides that credits of $1 to $5 million be realized over a two year period, and credits over $5 million be realized over a three year period. (S.2609-D / A.3009-D, Part B).
IDA Tax Abatements: Re-instates the pre-2002 prohibition on IDA's support for most retail projects (with exceptions for where projects address underserved or highly distressed communities); imposes new recordkeeping and recapture requirements on IDA-provided state sales tax abatementLimits state sales tax exemptions for IDA-financed projects to instances where: the project is certified by the state as eligible for participation in the Excelsior Jobs program; ESDC determines that such benefits are consistent with regional economic development strategies. Further provides that any state sales tax benefits would be awarded as a credit or refund, not an up-front exemption, and that if any share of the value of state sales tax exemption is included in a PILOT agreement, the IDA must remit those payments to the state. (S.2609-B / A.3009-B, Part J).
Minimum Wage Credit: Adopts a refundable credit related to the increased state minimum wage, applicable to C and S-corporations, sole proprietors, LLCs and partnerships taxed under the state's corporation, corporate franchise, personal income, bank and insurance taxes; applicable to employees 16 to 19 (inclusive) that are a “student” at the time they are being paid the minimum wage; the refundable credit applies under and is set at: 2014 = $0.75/hour; 2015 = $1.31/hour; 2016-18 = $1.35/hour. If federal minimum wage increases to at least 85% of the applicable NYS minimum wage, these credits are reduced to the difference that the state min wage exceeds the federal. If the feds go higher, these credits go to 0. (S.2609-D/A.3009-D, Part EE).
Emerging Tech Business/”Hot Spots”: For designated technology businesses operating in state assisted incubators, provides tax abatements including: for Article 9-A taxpayers, limits tax liability to the fixed dollar minimum for a five year period; for Article 9-A taxpayers that are “partners” in a designated technology business, provides a deduction for income attributed to such entities; for Article 22 taxpayers, provides a deduction for income attributed to such entities; provides a credit or refund for state and local sales tax liability for retail sales of tangible personal property for such entities. Any taxpayer using these benefits would be ineligible for any other state tax exemption or deduction; the election to take “hot spot” tax benefits is irrevocable. (S.2609-D / A.3009-D, Part C).
Veteran Hiring Credit: Adopts a non-refundable tax credit for hiring qualified veterans (discharged after 9/11/01, not fully employed for previous 6 months), equal to 10 percent of wages paid in first year of employment, up to a maximum of $5,000 (or 15% and $15,000 for qualified disabled veteran); credit is in tax years 2015 and 2016, available under Corporate Franchise, Personal Income, Bank and Insurance tax. (S.2609-D/A.3009-D, Part Z).
At Risk Youth Employment: Extends the at risk youth employment tax credit (adopted in December 2011) through 2018, and modifies eligibility to persons residing in cities with populations over 55,000 (rather than 62,000). (S.2609-D/A.3009-D, Part DD).
Historic Property: Extends the enhanced tax credit available for rehabilitation of historic properties through tax years beginning before January 1, 2020, and to make necessary technical corrections to the method of determining eligible census tracts. (S.2609-D / A.3009-D, Part F).
EV Recharging: Creates a new, non-refundable tax credit under the corporation, corporate franchise and personal income tax for the purchase of electric vehicle recharging property, equal to the lesser of $5,000 or fifty percent of the cost of such property. (S.2609-D / A.3009-D, Part G).
NG Vehicles: Creates a sales and use tax exemption for natural gas that is purchased and converted into compressed natural gas (CNG) for use or consumption in the engine of a motor vehicle. (S.2609-D, A.3009-D, Part K).