The Business Council strongly supports this legislation ,which would avoid an increase in tax liability for New York business and individual taxpayers resulting from the federal “Tax Cuts and Jobs Act” of 2017. In doing so, this bill is consistent with provisions adopted with bipartisan support as part of the state’s FY 2019 budget.
In general, New York starts with federal taxable income in calculating state business and personal income taxes. Therefore, most changes to the definition of taxable income adopted at the federal level automatically flow-through to state tax law, unless the state “decouples” from them. In the FY 2019 state budget, the legislature approved decoupling measures for both personal and business taxpayers.
Specifically, this legislation provides an Article 22 personal income tax decoupling from the one-time federal tax imposed under new Section 965 of the Internal Revenue Code. The same exemption was already adopted by the legislature as part of the state’s FY 2019 budget under the state’s corporate franchise and insurance tax and the NYC corporation tax. Including this exemption in Article 22 provides the same relief for individual taxpayers and pass-thru businesses such as partnerships and LLCs whose tax on business income is paid through the personal income tax.
IRC §965 imposes a tax on “deemed repatriated” income earned by foreign corporations, even if these foreign earnings are not actually paid to or received by the New York taxpayer. It applies to earnings that had accumulated since 1986 until either November 2 or December 31, 2017, depending on the taxpayer.
Without this decoupling, the result would be a significant one-time tax hit on New York taxpayers based on income that they have yet to receive. Importantly, once and if these foreign earnings are distributed to the New York taxpayer, they would then be subject to tax under the state’s personal income tax law, so this amendment is more about the timing of taxation, than the exemption of taxation.
The Business Council is supporting several of these decoupling bills whose intent is to eliminate unintended tax increases caused by federal tax reform, and avoid imposing a competitive disadvantage for businesses subject to New York’s business taxes. For these reasons, The Business Council strongly supports adoption of S.9024 (Flanagan).