New York Executive Budget Includes Tax Reform Proposals
Feb. 20, 2014
On Jan. 20, 2014, the New York 2014-15 executive budget bill was released, and later amended in the legislature’s version of the bill, proposing radical revisions to New York state tax laws. Some of the significant corporate tax law changes contained in the legislation are highlighted here. All changes, if approved, would be effective for tax years beginning on or after Jan. 1, 2015, unless otherwise indicated.
- The franchise tax on banking corporations would be repealed. All financial institutions would be subject to the general business corporation franchise tax. Certain tax benefits for small banks, such as favorable treatment of dividends from subsidiary REITs, would be eliminated, replaced by new small-bank deductions.
- The alternative tax based on minimum taxable income would be eliminated. The tax on capital and the fixed-dollar minimum tax would remain. The maximum tax on capital would increase from $1 million to $5 million, and the maximum fixed-dollar minimum tax – based on receipts, not payroll – would be $200,000, a significant increase over the current $5,000 maximum.
- The exclusion for income from subsidiary capital would be eliminated. Subsidiary income generally would be taxed as business income, but certain income from subsidiaries, such as dividends, might qualify as “other exempt income.” The separate tax on subsidiary capital also would be eliminated.
- Investment capital would include only “investments in stocks that are held by the taxpayer for more than six consecutive months.” Income resulting from investment capital, net of applicable expenses, would be exempt from tax.
- Combined returns would be required for related corporations (applying a 50 percent ownership test) engaged in a unitary business, and the “substantial intercorporate transactions” test would be eliminated.
- The definition of nexus would be expanded, with “bright-line” tests established based on business activity in the state.
- Net operating losses (NOLs) would be carried forward for 20 years, with no carryback. The use of New York NOLs no longer would be limited by the amount of the federal NOL deduction.
- For apportionment purposes, “customer-based” sourcing of receipts from sales other than sales of tangible personal property would apply. Special rules for income from certain financial transactions also would apply.
- The corporate income tax rate would be reduced from 7.1 percent to 6.5 percent for tax years beginning on or after Jan. 1, 2016.
- Manufacturers would be eligible to receive certain credits, and favorable tax rates would apply. Effective for years beginning on or after Jan. 1, 2014, the tax on entire net income would be eliminated for a manufacturer located outside of the metropolitan commuter transportation district.
- Statutory credits could be claimed only on an originally filed tax return. “Missed” credits could not be claimed on an amended return, except in very limited situations.
- The Metropolitan Transit Authority surcharge would increase from 17 percent to 24.5 percent of the New York corporate tax rate for tax years beginning on or after Jan. 1, 2015, for most taxpayers.
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