When Governor Cuomo signed New York State’s FY 2014-15 executive budget into law last month, he ushered in sweeping changes to New York’s tax provisions – including some which may increase taxes for Multistate taxpayers.
The budget contains several provisions that may benefit multistate taxpayers, especially those who qualify as manufacturers. Equally important, the legislation enacted, modified and/or repealed numerous tax provisions that may end up increasing New York State taxes for Multistate businesses, estates and trusts.
For this post, we’ll identify those tax provisions that may increase multistate businesses’ New York Tax. In a later post, we will focus on the provisions that may affect estates and trusts.
Executive Budget’s “Cutting Taxes to Create Jobs”
The state’s official press release highlights that a major provision of the budget is “Cutting Taxes to Create Jobs” in New York. It focuses on tax relief for certain qualified manufacturers, emerging technology companies and small businesses. Most importantly, it eliminates the state corporate income tax for New York manufacturers.
(The state’s Office of Tax Policy Analysis’ “Summary of Tax Provisions in SFY 2014-15 Budget”provides an excellent guide to the legislation as well as a summary of its key tax provisions.)
In addition, the budget establishes a “credit for qualified New York manufacturers equal to 20% of the real property taxes paid during the taxable year for real property owned by such manufacturers in New York and principally used for manufacturing. The credit is also allowed for property taxes paid on real property leased from an unrelated third party if the taxes are paid pursuant to explicit requirements in a written lease and remitted directly to the taxing authority.” This credit may reduce the Article 9-A tax to $25. The credit is in effect for tax years beginning on or after January 1, 2014.
The Executive Budget also extends the commercial production credit as well as establishes or enhances credits for the musical, theatrical and film industries. It also extends the Commercial Office Space Lease in Lower Manhattan Sales Tax incentives from September 1, 2015 to September 1, 2017.
New York’s Tax “Climate Change” May Bring Inclement Tax Costs To You
The budget adopts, amends and/or repeals numerous tax provisions that may create an unpleasant tax “climate change” for multistate taxpayers. As set forth in the Budget Summary, the following enacted changes may increase multistate taxpayers’ New York State tax:
- Adopting full unitary water’s-edge combined reporting with an ownership requirement of more than 50%;
- Implementing a single receipts apportionment factor using customer based sourcing rules for all taxpayers;
- Eliminating the separate treatment of subsidiary capital and income;
- Narrowing the current definition of investment capital and investment income;
- Converting existing NOLs into a prior NOL conversion subtraction pool
Conspicuous by its absence, it appears that nowhere in the summary is there mention or discussion of the budget’s adoption of an economic based nexus standard. In fact, our search of the budget’s language determined that the provision that adopts economic nexus is not referred to under the terms “economic” or “nexus.” The following excerpt from the budget “sets” forth the State’s adoption of its economic nexus standard:
(B) A CORPORATION IS DERIVING RECEIPTS FROM ACTIVITY IN THIS STATE IF IT HAS RECEIPTS WITHIN THIS STATE OF ONE MILLION DOLLARS OR MORE IN THE TAXABLE YEAR. FOR PURPOSES OF THIS SECTION, THE TERM “RECEIPTS” MEANS THE RECEIPTS THAT ARE SUBJECT TO THE APPORTIONMENT RULES SET FORTH IN SECTION TWO HUNDRED TEN-A OF THIS ARTICLE, AND THE TERM “RECEIPTS WITHIN THIS STATE” MEANS THE RECEIPTS INCLUDED IN THE NUMERATOR OF THE APPORTIONMENT FACTOR DETERMINED UNDER SECTION TWO HUNDRED TEN-A OF THIS ARTICLE. FOR PURPOSES OF THIS PARAGRAPH, RECEIPTS FROM PROCESSING CREDIT CARD TRANSACTIONS FOR MERCHANTS INCLUDE MERCHANT DISCOUNT FEES RECEIVED BY THE CORPORATION.
Others Weigh In On New York’s Tax Climate Change
In a recent article in The Torch, “Budget nudges up NY tax ranking, a little bit”, the author makes reference to the Tax Foundation’s recently revised State Business Tax Climate Index stating “while it called the corporate tax changes “impressive,” the Tax Foundation also made it clear that the state’s business tax climate still has plenty of room for improvement.” In a follow up article, the author refers to the Small Business & Entrepreneurship (SBE) Council’s 2014 assessment Best to Worst State Tax Systems for Entrepreneurship and Small Business stating that the New York ranked in 45th place “based on a state-by-state comparison of burdens imposed by 21 different taxes including income, capital gains, property, death, unemployment, and various consumption-based taxes, including state gas and diesel levies.” It should be noted that the author states that the SBE Council’s 2014 survey was completed prior to the enactment of the budget.
New York’s Tax “Climate Change” Should Stay On Your Tax Radar
The tax forecasts that may roll in as a result of New York’s new budget enactment should be on the radar screens of all multistate taxpayers immediately and for the foreseeable future. As our allies and U.S. forces first used radar to help discern objects that appear seemingly innocuous or friendly from those that may be potentially harmful, so should multistate taxpayers seek out their tax advisors to turn their tax radar on the New York State budget to determine whether it’s a friend or foe.