New York 2013-2014 Budget Bill: Summary of Significant Tax Changes
Metropolitan Transportation Authority Surcharge Extended
The temporary 17% Metropolitan Transportation Authority (MTA) surcharge on the Metropolitan Commuter Transportation District (MCTD) allocated New York State franchise tax liability was to expire for tax years ending before December 31, 2013. The surcharge has been extended five years through tax years ending before December 31, 2018.
Related Party Royalty Expense Addback and Income Exclusion
New York, like many states, wants to limit potential abuses for royalties paid to related parties without a valid business purpose. The royalty expense addback exception requirements of Sec 208.9.(o) have been modified applicable for tax years beginning on or after January 1, 2013, as follows:
- The definition of a New York related party no longer is a New York specific definition but now conforms to the IRC Sec 465(b)(3) related party definition but modified so that a 50% ownership test applies.
- One new exception to the addback allows taxpayers to avoid the addback if the related party paid significant taxes on the royalty payment in taxing jurisdictions including a state or U.S. possession where the aggregate effective tax rate (rate times apportionment) of the related party is 80% of the New York statutory rate. However, combined return states are excluded because an offset occurs between the taxpayer and related party within the return.
- Another new exception allows taxpayers to avoid the addback if the related party paid significant taxes on the royalty payment in a taxing jurisdiction of a country other than the U.S. subject to a U.S. treaty where the aggregate effective rate of the related party is 100% of the New York statutory rate.
Qualified New York Manufacturer Rate Reduction
A corporate franchise tax rate reduction is phased-in over a six-year period. The applicable rate reductions are as follow:
2013 – 9.2% reduction
2014 & 2015 – 12.3% rate reduction
2016 & 2017 – 15.4% rate reduction
2018 and thereafter – 25% rate reduction
Film Production Tax Credit
The New York State Film Production tax credit for a “qualified film” was increased in 2010 for an annual additional amount through 2014. This amount has now been extended through 2019 as long as production cost requirements in New York are met. The definition of a “qualified film” such as a feature-length film, television film or television pilot has been expanded to include a “relocated television production.” The qualified film definition continues to exclude a variety of different programs such as documentaries, sporting events or sporting programs, non-qualified commercials, music videos, reality shows, talk programs. The Empire State Post Production tax credit has also been extended through 2019.
Note that the temporary deferral of certain tax credits ended in 2012 and in 2013 all deferred tax credits are now available for use.
Personal Income Tax Rates
Current personal income tax rates are extended through 2017.
Itemized Deduction LimitationThe provision reducing the amount of charitable contributions allowed from 50% to 25% for taxpayers with New York adjusted gross income (AGI) has been extended three years through 2015.
NEW YORK BUSINESS INCUBATOR AND INNOVATION HOT SPOT SUPPORT ACT
This new provision effective March 28, 2013 provides various tax benefits. Certain tax benefits are available to entities generally in business for three years with a successful history of incubating businesses and which wish to be designated as a New York state innovation hot spot or as a New York state incubator by the Urban Development Corporation. The goal of the applicant will be to provide services to eligible “qualified entities” in their formative stage of development.
The “qualified entities” receiving the incubation services may be a corporation, a sole proprietorship, a member of a limited liability company, partner in a partnership or a shareholder of a subchapter S corporation. These qualified entities will receive their own specified tax benefits.