Tax Committee Update
January 24, 2014
The following provides an overview of the tax law changes proposed in New York's FY 2015 Executive Budget. All provisions cited here are in S.6359/A.8559, and the bill text is available here. A more detailed review of the Article 9A reform package will be circulated early next week. I will appreciate any feedback from Tax Committee members on the broad components and specific language proposed here.
Corporate Tax Reform (Part A) - This proposal largely tracks prior draft legislation. Key provisions include:
- The Article 32 Bank Tax is repealed, Article 32 taxpayers are subject to the corporate franchise tax.
- The ENI rate is reduced to 6.5% effective 1/1/16; the capital base cap is increased to $5 million for all non-manufacturing taxpayers; the 1.5% alternative minimum tax is repealed; and a new fixed dollar minimum tax schedule is adopted for sub-C taxpayers, with a maximum payment of $200,000, and for “qualified NY manufacture” taxpayers with a top payment of $4,500.
- Combined reports are required to include: businesses with more than 50% stock ownership and engagement in a unitary business; captive REITs/RICs not combined under Article 33; and certain alien corporations treated as domestic corporations under the IRC. Taxpayers are allowed a seven year non-revocable election to combine based on ownership only.
- The current subsidiary capital exemption is replaced with an exempt investment income/taxable business income regime.
- An economic nexus standard is imposed for the corporate franchise tax and the MTA surcharge; Article 9-A single sales factor apportionment method is adopted for determining the MTA surcharge.
- Pre-reform net operating losses are converted into credits to be applied against ENI-based tax liability, with a 20 year carry forward.
ITC and Manufacturers' Credit (Part R)
- Defines “manufacturer” as a taxpayer or combined group with more than 50% of gross receipts from the sale of goods produced by manufacturing; excludes power generation and distribution, natural gas extraction and distribution, co-generated steam, film/TV/commercial production and fuel blending.
- Defines “qualified New York manufacturer” as a taxpayer or combined group that is a manufacturer with either at least $10 million or 100% of its manufacturing property in NYS; or a taxpayer with 2,500 manufacturing employees and $100 million in manufacturing property in-state.
- Limits the Article 9-A investment tax credit to “qualified NY manufacturers” and to qualified agri- and mining business;” defines qualified agri-business and mining as taxpayer/combined group with at least 50% of gross receipts from such in-state activity; eliminates the ITC for air and water pollution control equipment, security broker/dealers, investment advisory services, and film production; prohibits the ITC for property that had already served as the basis for the ITC or EZ-ITC;
- Creates a new refundable credit under Articles 9A and 22 equal to 20% of real property taxes paid by a qualified NY manufacturer; excludes PILOT payments, any RPTs deducted from ENI or federal AGI calculations, and RPTs used to calculate another tax credit. Recaptures credits if RPTs are subsequently lowered after a legal challenge or other actions.
- Reduces the Article 9-A entire net income tax rate to zero, effective 1/1/14, for a qualified NY manufacturer with a MTCD surcharge apportionment factor of zero (the bill also proposes the adoption of single sales factor apportionment for purposes of the MTCD surcharge.)
Estate Tax Reform
- Increases the Estate Tax exclusion threshold to $5.25 million (and future indexing); phases down the tax rate to 10% by FY 2017; subjects certain gifts to be added back for estate tax purposes (Part X).
- The bill also closes the so-called “resident trust loophole,” to impose state income taxes on distributions from certain non-resident and exempt trusts (Part I).
- Extends the 20% credit for TV commercial production through 12/31/16; it is currently set to expire at the end of 2014 (Part O).
- Extends and reforms the Brownfield Cleanup Program and its redevelopment tax credit. Tax credit changes include: limits tangible property credit eligibility to vacant or tax delinquent properties and other “priority” sites and limits the availability of the credit to five years after completion of cleanups; terminates sites in program not completed on a timely basis; repeals the environmental insurance credit. Other reform issues discussed under “Environment” above. (Part Q).
- Amends the Excelsior Jobs credit program to provide participants with a credit against their payment of telecommunications excise tax (Part T).
- Conforms Tax Law provisions to recent Labor Law amendments to the Youth Works Tax Credit; provides an additional credit(s) for extended employment of eligible youth (Part U).
- Extends the alternative fuel use credit (for E85, CNG and hydrogen) for two years through 9/1/2016 (Part V).
- Extends the state fee for state-established oil and gas production values, used in local property tax assessments, through 3/1/2018 (Part C).
- Increases the state fee on thoroughbred, harness and OTB betting and simulcast racing from 0.5 to 0.6 percent, with funds to be used for industry regulation (Part D).
- Allows the state to require payment of (or a payment plan for) fixed and final tax liabilities at the time that a state-issued professional or business license is being applied for (Part H).
- Repeals the state tax on agricultural co-operatives (Part S).
- Repeals the stock transfer tax, which under current law is collected and fully rebated to taxpayers with no net revenues to the state (Part CC.)
- Allow self-employed individuals to file MTA mobility tax returns with their personal income tax returns (Part DD).