Tax Committee Update
February 20, 2015
Contact: Ken Pokalsky
Our overall summary of the Executive Budget is available here, and the taxation/revenue summary is available here. The text of the revenue bill, S.2009/A.3009, is available here. The Cuomo Administration’s memo in support of this legislation is available here.
We welcome input from Tax Committee members on any issue presented in the Executive Budget.
Issues raising the most concerns to date include the following.
- New York City general corporation tax reform and confomance. Generally speaking, these provisions (starting on page 156 of S.2009) are consistent with Article 9-A amendments adopted in 2014. Issues of concern have focused on the capital based tax calculation which remains permanent at the city level, with an increased liability cap of $10 million (see page 180) and a city-level economic nexus threshold of $1 million of “receipts within the city” (page 156). I would appreciate your input on these provisions in specific, and the overall conformance plan in general.
- Sales tax avoidance provisions Part Y (page 112) of the bill includes four provisions, which Tax Committee members have said will adversely impact many categories of business transactions. In sum, these proposed amendments (see page 112) 1. Eliminates the sales/use tax exemption for property or services purchased by a non-resident entity (other than an individual) when brought into New York unless the entity had been doing business outside the state for at least six months prior to the date the property is brought in state, 2. treats a single member LLC and its member as one entity for sales/use tax purposes, deeming a purchase or sale by one as a purchase by both, and precluding either from making a purchase for resale to the other, 3. requires the upfront payment of sales/use tax on any lease of tangible property between related entities, and 4. eliminates the sales tax exemption for transfers of tangible personal property (rather than just aircrafts and vessels) to a corporation in consideration for the issuance of stock in a merger or consolidation, unless the entities are not “affiliated” (i.e., less than five percent ownership). I welcome input on how these proposals would adversely impact your business; while these proposals may be eliminated through legislative negotiations, I also welcome any suggested amendments that address true “shame” transactions without adversely impacting legitimate business arrangements.
- Brownfield tax credits. As part of a broader extension and reform proposal, the bill would make numerous changes to the state’s brownfield tax credits. Key changes: the tangible property credit would be limited to projects that either located in an “environmental zone,” provide affordable housing, or when the projected cost of the investigation and cleanup exceeds the appraised value of the property absent contamination (page 55); the eligibility period for post-cleanup redevelopment tangible property credits is reduced from ten to five years (this and following changes start on page 62); costs paid to a related person would be ineligible for the tangible property credit; the tangible property credit is limited to property “incorporated as part of the physical structure; the tangible credit percentage is reduced from 12 to 10 percent; and the real property tax and environmental insurance credits are eliminated for projects accepted into the brownfield program on or after April 1, 2015. The Business Council has a work group developing a comprehensive response to the brownfield extension/reform package, and we welcome any additional input.
- Article 9-A “Technical Amendments” The bill contains a number of changes to the 2014 Article 9A amendments (starting page 82). We have submitted recommendations regarding the definition of "investment capital" and “qualified financial instruments” and have made recommendations on several other issues raised by Tax Committee members. We welcome suggestions on any additional generally applicable or sector- or company-specific amendments to last year’s corporate tax reform bill.
- Small business tax rate reduction The Executive Budget proposes (page 44) to reduce the corporate franchise tax rate on “small business taxpayers” (incorporated small business with less than 100 employees, less than $1 million in capital and an income base under $390,000); their net income tax rate would be reduced from 6.5% today (with a marginal rate of 4.35% for taxable income between $350,000 and $390,000) to 3.25% in 2016, 2.9% in 2017, and 2.5% in 2018 and thereafter. This would produce an estimated $26 million in small business tax cuts. Our concern is that the majority of small business 9-A filers, who file as sub-S corporations, would not benefit from this proposal. Alternative approaches to providing small business income tax reform include: applying a structure similar to that proposed here to business income subject to Article 22 tax liability, using the same eligibility criteria proposed for this Article 9A tax reduction; amend Article 22 to exempt a portion of business income paid to taxpayers by pass thru entities. We welcome any recommendations on how to most effectively provide income tax relief to small business.
Feel free to contact me at your convenience regarding these or other issues presented in the Executive Budget.