New York Legislature Passes Fiscal Year 2009-10 Revenue Bill

Following is a summary of a few key points from the New York Legislature’s recently passed Fiscal Year 2009-10 Revenue Bill:

Personal income tax. Effective for a 3–year period beginning January 1, 2009, the personal income tax rate is increased to 8.97% for all tax filers with a taxable income above $500,000. The rate is increased to 7.85% for taxpayers filing jointly with a taxable income above $300,000, for heads of household with taxable income above $250,000, and for single filers above $200,000. Effective upon approval of the legislation, individuals with New York State or New York City adjusted gross incomes over $1 million may not itemize deductions but may only claim the standard deduction.

For New York State and New York City personal income tax purposes, a taxpayer who is present in a foreign country or countries for at least 450 days within a period of 548 consecutive days will be taxed as a resident of New York unless the taxpayer, the taxpayer's spouse (unless the spouse is legally separated) and the taxpayer's minor children are not present in New York for more than 90 days.

The gain from the sale of interests in partnerships and other entities is included as New York source income to nonresidents to the extent that the gain is attributable to the entity's ownership of real property in New York.

The annual filing fee imposed on limited liability companies and limited partnerships is extended to certain general partnerships based upon their New York source income.

Corporate taxes. The percentage used by large business taxpayers to compute the mandatory first installment of franchise tax and the Metropolitan Commuter Transportation District surcharge under Articles 9, 9–A, 32, and 33 of the Tax Law is increased from 30% to 40%.

Insurance companies. For-profit health maintenance organizations are reclassified as Article 33 insurance corporations from their previous status as corporate franchise tax profits-based Article 9–A business corporations. In addition, overcapitalized capital insurance companies whose premiums are 50% or less of their gross receipts are required to file a combined return under Tax Law Article 9–A or 32 with their affiliates.

Sales taxes. Effective June 1, 2009, sales of limousines and large cars are made subject to sales tax, the rate of the special tax on passenger car rentals is increased from 5% to 6%, the rate of the prepaid sales tax on cigarettes is increased from 7% to 8% of the base retail price of a package of cigarettes, and the definition of affiliated nexus is expanded. The sales tax exemption for commercial aircraft and the use tax exemption for motor vehicles, vessels, and aircraft are narrowed.

Credits. An additional $350 million is allocated to the film production tax credit for fiscal year 2010–11. The Commissioner of Housing and Community Renewal is authorized to allocate an additional $4 million of state low-income housing credits, which may be claimed each year for ten years. Credits for fuel cells and transportation improvement contributions previously allowed under the corporation franchise and personal income taxes are eliminated.

Beer, wine, and cigars. The excise tax on beer is increased by 3¢ per gallon to 14¢ per gallon and the tax on wine is increased by 11¢ per gallon to 30¢ per gallon. The tobacco products tax on cigars is increased to 46% of the wholesale price.

Empire Zone reform. The Empire Zone program is reformed to remove from the program companies that fail a cost-benefit ratio test . The real property tax credit granted to eligible Empire Zone firms is reduced from 100% to 75% of their property tax liability and the sales and use tax exemption granted to empire zone firms is eliminated. In addition, the sunset date for the program has been moved up from June 30, 2011 to June 30, 2010.

School Property Tax Relief (STAR) program. The Middle Class STAR Rebate Program is eliminated and the New York City STAR personal income tax credit is reduced to pre-rebate levels.

Tax compliance improvements. Additional authority is granted to the New York State Department of Taxation and Finance to enter into certain offset agreements with the federal government and other states. In addition, various measures are enacted to enhance the effectiveness of the tax collection system including additional recordkeeping requirements, increased underpayment penalties, and accelerated wage reporting.

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