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New York State Budget Reform 2014 - 2015

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New York State's 2014 budget includes significant changes impacting corporate and individual tax laws.  Following are details on the extensive new provisions.

Table of Contents

CORPORATE INCOME TAX

1. Corporate Franchise Tax Rate – Minimum Taxable Income Base Eliminated
  1. Currently, general corporations under Article 9-A must compute the amount of tax due using four different bases:
    1. Entire net income (ENI) base, 
    2. Business capital base,
    3. Minimum taxable income base, and
    4. A fixed dollar minimum tax base. 
  2. The new law eliminates the tax on minimum taxable income and the separate tax on subsidiary capital.  It also adjusts the fixed dollar minimums.
  3. Click for more Corporate Franchise Tax - Minimum Taxable Income information
2. Corporate Franchise Tax Rate – ENI Base Calculation Rate Reduction
  1. The corporate franchise tax rate is reduced from 7.1% to 6.5% of "net income base" for taxable years beginning on or after January 1, 2016.
  2. Specific industries have also received a rate reduction:
    1. "Qualified New York Manufacturers" have a tax rate of 0%
    2. "Qualified Emerging Technology Companies" (QETCs) are taxed at 5.9% in 2014, and have the rate gradually decreased to 4.875% beginning in 2018.
    3. "Small businesses" can begin utilizing the 6.5% rate in tax year 2014.
  3. Click for more Corporate Franchise Tax – ENI information
3. Corporate Franchise Tax Rate – Phase-out of Business Capital Base Calculation
  1. The business capital base calculation will be completely phased out for all taxpayers by the year 2016.
  2. Specific industries such as Qualified New York Manufacturers, QETCs and Cooperative Housing Corporations will have their rates phased out slightly quicker.
    1. For tax year 2014, the tax is capped at $350,000 for qualified New York manufacturers including QETCs, and $1 million for all other taxpayers.
    2. For tax years beginning on or after January 1, 2015, the tax is capped at $350,000 for qualified New York manufacturers and QETCs, and $5 million for all other taxpayers.
  3. Small business taxpayers are exempt from the capital base tax in their first two years.
4. Article 32 Bank Franchise Tax Repealed
  1. The special rules governing the taxation of banks are repealed, and banks are merged into the Article 9-A corporate franchise tax.
  2. Click for more Article 32 Bank Franchise Tax information
5. Sourcing of Receipts
  1. The legislation creates new Tax Law §210-A, generally providing for the sourcing of receipts based on customer location.
  2. Click for more Sourcing of Receipts information
6. Unitary Business
  1. The legislation also adds Tax Law §210-C to generally require combined reporting if the taxpayer is engaged in a unitary business and a 50% common-ownership test is met.
  2. Click for more Unitary Business information
7. Net Operating Losses (NOLs)
  1. With respect to net operating losses (NOLs), the legislation provides for:
    1. a prior NOL conversion subtraction, and
    2. a deduction for NOLs generated in taxable years beginning after 2014.
  2. Click for more Net Operating Losses information
8. Economic Nexus
  1. Under the new legislation, an economic nexus provision is added to impose tax on businesses having receipts within New York of $1 million or more in a taxable year.
  2. Currently, use of fulfillment services in New York does not trigger nexus in New York.  This exception is repealed.
  3. Click for more Economic Nexus information
9. Current Entire Net Income Base ("ENI") Is Eliminated
  1. The current ENI base is eliminated. 
  2. The new law replaces ENI with the "business income" base: ENI, less net investment income and other exempt income.
  3. Click for more Entire Net Income information
10. Terms Redefined
  1. The legislation revises the definitions of
    1. "business capital,"
    2. "business income,"
    3. "investment capital," and
    4. "investment income."
  2. Click for more Legislation Terms information
11. "Other Exempt Income" Is Defined
  1. A new provision is created to define "other exempt income" as the sum of exempt controlled foreign corporation (CFC) income and dividends paid by a member of the unitary corporate group.
12. Exclusions from income for Subsidiary Capital and Dividends Are Removed
  1. The existing entire net income exclusions for income from subsidiary capital and 50% of dividends from non-subsidiaries are removed.
13. Licenses and Fees
  1. The legislation repeals the organization and license taxes and maintenance fees under Tax Law §180 and §181.
14. MTA Surcharge
  1. The MTA surcharge under Tax Law §209-B is made permanent, and the rate is increased from 17% to 25.6% for taxable years beginning after 2014 and before 2016.
  2. For subsequent years, the MTA rate is to be adjusted by the commissioner.
  3. The MTA surcharge is an extra tax on corporations that have nexus in the Metro Transit District, which includes New York City and the surrounding suburbs.

INTERNATIONAL

15. Alien Corporation Definition of ENI Changed
  1. With respect to an alien corporation (not treated as a domestic corporation under any provision of the IRC), the definition of "entire net income" is modified to refer to income that is effectively connected with the conduct of a trade or business within the U.S., as determined under IRC Sec. 882.
  2. Previously, an alien corporation subject to Franchise Tax included income from all sources in ENI.

PERSONAL INCOME TAX

16. A Personal Income Tax credit for Homeowners and Renters in New York City Earning less than $200,000
  1. "Circuit Breaker" Tax Relief for Renters and Low-Income Homeowners:
    1. For New York City residents, the Budget creates a new $85 million progressively structured "Circuit Breaker" tax relief program. Qualifying homeowners and renters will be eligible to receive a refundable tax credit against the personal income tax when their property taxes or rent exceeds a certain percentage of their income.
    2. This threshold varies from 4 to 6% of income.  A refundable credit ranges from 1.5 to 4.5% of excess real property tax.
    3. The credit is also available for qualifying renters. The real property tax equivalent for renters (i.e., the amount of real property tax that a renter is deemed to have paid for purposes of calculating the credit) is set at 15.75% of adjusted rent paid in the taxable year.
17. Personal Income Tax Additional Minimum Tax Repealed
  1. New York City's Additional Minimum Personal Income Tax is also repealed.
  2. The Additional Minimum Personal Income Tax was imposed on the New York minimum taxable income of every individual, estate, or trust at the rate of 6%.
  3. Furthermore, individuals or fiduciaries of an estate or trust are allowed a specific deduction of $5,000 ($2,500 if married and filing separately).
  4. This provision takes effect immediately and applies to taxable years beginning on or after January 1, 2014.

MCTMT

18. Metropolitan Commuter Transportation Mobility Tax
  1. The legislation conforms the due dates for the Metropolitan Commuter Transportation Mobility Tax (MCTMT) for taxpayers with income from self-employment with the due dates for the personal income tax. (The provision uncouples the due date for estimated MCTMT payments for self-employed individuals from the date for estimated MCTMT payments for employers.)
  2. The legislation also allows the tax commissioner to require the filing of MCTMT combined returns in certain situations for taxable years beginning on or after January 1, 2015.

SALES AND USE TAX

19. Lower Manhattan Tax Exemption
  1. The legislation extends the sales and use tax exemptions for qualifying leases in certain areas of Lower Manhattan for two years.
  2. Click for more Lower Manhattan Tax Exemption information
20. Vending Machine Sales of Food and Drink
  1. The threshold for the exemption from sales and use tax for candy and confectionery, fruit drinks that contain less than 70% of natural fruit juice, and soft drinks, sodas, and beverages that are ordinarily dispensed at soda fountains (other than coffee, tea, and cocoa) sold through any vending machine activated by the use of a coin, currency, credit card, or debit card, is increased from 75 cents to $1.50, effective June 1, 2014.
21. Alternative Fuels Exemption
  1. The legislation extends the sunset date for the sales and use tax exemption for alternative fuels, including E85, compressed natural gas (CNG), hydrogen, and B20 from September 1, 2014, to September 1, 2016.
22. Prepaid Tax for Distributors of Motor Fuel
  1. The rate of the prepaid sales tax for distributors of motor fuels is increased and the applicable regions are changed effective June 1, 2014.

TAX CREDITS AND OFFSETS

23. Income Tax Credit for Qualified Manufacturers
  1. Under the new law, "Qualified New York Manufacturers" are eligible to claim a refundable tax credit under the Franchise Tax (or personal income tax) equal to 20% of such manufacturer's real property tax paid on property owner or under certain circumstances leased by such taxpayers.
  2. Click for more Income Tax Credit information
24. Relocation and Employment Assistance Program
  1. The relocation and employment assistance program credit taken against the New York City utility tax and/or the commercial rent or occupancy tax for relocations is extended from July 1, 2013, to July 1, 2015.
25. Empire State Commercial Production Tax Credit
  1. The Empire State Commercial Production Tax Credit is extended by two years so that it applies to taxable years beginning before January 1, 2017 (formerly 2015).
  2. The threshold minimum spending activity required to qualify for credit pool allocated to production outside of the Metropolitan Commuter Transportation District is lowered from $200,000 to $100,000.
26. Empire State Film Production Credit
  1. Currently, qualified film production companies are allowed a credit equal to 30% of the qualified production costs paid or incurred in the production of a qualified film. 
  2. The new legislation expands the Empire State Film Production Credit by adding Albany and Schenectady counties to the list of counties participating in the 10% additional credit for upstate counties.
  3. The additional credit equals 10% of the amount of wages paid to individuals directly employed by a qualified film production company in connection with a qualified film with a minimum budget of $500,000.
27. A Musical and Theatrical Production Income Tax Credit
  1. The budget creates a 25% refundable credit against taxes for production, promotion, performance and transportation expenses for qualified live, dramatic stage shows on national tour.
  2. The credit is first effective for taxable years beginning on or after January 1, 2015 and expires on January 1, 2019.
28. Workers with Disabilities Tax Credit
  1. The budget creates an income tax credit for the hiring of persons with developmental disabilities effective for taxable years beginning on or after January 1, 2015 and expiring January 1, 2020.
29. Excise Tax Credit on Telecommunication Services
  1. A credit for excise tax on telecommunication services for businesses located in tax-free START-UP NY areas.
30. Real Property Tax Freeze Credit
  1. The budget provides a real property tax freeze credit to taxpayers who are STAR recipients or would be STAR-eligible. The credit is a refundable personal income tax credit for homeowners who reside in school and municipal jurisdictions that abide by the property tax cap.
31. Low Income Housing Credit
  1. The aggregate dollar amount of credit that the Commissioner of the Division of Housing and Community Renewal may allocate to eligible low-income buildings is increased from $48 million to $56 million effective immediately and further raised to $64 million dollars effective April 1, 2015.
32. The Youth Works Tax Credit
  1. The Youth Works Tax Credit is amended to allow an additional $1,000 credit for eligible employees who are employed for one additional year. The legislation also amends the eligibility requirements of qualified employees to include full-time high school students working at least 10 hours.
33. Noncustodial Parent Earned Income Tax Credit
  1. The Noncustodial Parent Earned Income Tax Credit is extended for two years making it applicable to taxable years beginning on or after January 1, 2016 and before January 1, 2017 (previously 2015).

EXEMPTIONS

34. Exemption from Taxable Income for any Distributions from Length-of-Service Defined Contribution or Benefit Plans to Volunteer Firefighters and Ambulance Workers
  1. The legislation creates an exemption from taxable income for any distributions from length-of-service-defined contribution or benefit plans to volunteer firefighters and ambulance workers over the age of 59½, effective for taxable years beginning on and after January 1, 2014.

PROCEDURE CHANGES

35. Electronic Filing
  1. The signature requirements on returns prepared by tax professionals are modified.

TRUSTS & ESTATES

36. Trusts
  1. The legislation amends the New York State Tax Law and the New York City Administrative Code in relation to taxing residents who are grantors of exempt resident trusts that qualify as non-grantor incomplete gift trusts on the income from such trusts and taxing residents who are beneficiaries of all other exempt resident trusts or nonresident trusts on the distributions of accumulated income that they receive from such trusts.
  2. Click for more New York Trust information
37. Estate Tax
  1. The enacted law increases the estate tax exclusion threshold from $1 million to $2.06 million for decedents dying on or after April 1, 2014, and before April 1, 2015.
  2. The exclusion threshold increases each succeeding year, up $5.25 million over the next four years.
  3. Additionally, the law maintains the top tax rate at 16%, and indexes to inflation effective January 1, 2019.
  4. Click for more Estate Tax information

PROPERTY TAX

38. Commercial Revitalization Abatement
  1. Effective March 31, 2014, the benefit period for property tax abatements under the Commercial Revitalization Abatement Program is extended from March 31, 2020, to March 31, 2022, and the eligibility period is extended from March 31, 2014, to March 31, 2016.
  2. Additionally, the application and construction performance deadlines for abatements under the Industrial and Commercial Abatement Program (ICAP) are extended from 2015 to 2017.
  3. The eligibility period for similar Title 4-A tax abatements for certain commercial properties is extended from 2014 to 2016.
39. Extended Fees for Oil and Gas Units
  1. For property tax purposes, the enacted law extends the fees for the establishment of oil and gas units of production until March 31, 2018. Previously, the fees were set to expire March 31, 2015.
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