New York State 2014-2015 budget bill makes major changes to New York State taxes

Governor Cuomo signed the 2014-2015 budget bill into law on March 31, 2014. The budget bill includes significant changes to New York State Tax Law, including:

Corporation Franchise Tax

  • Repealing the bank tax, effective January 2015 and merging the bank tax into the corporate franchise tax;
  • Reducing the corporation franchise tax rate from 7.1 percent to 6.5 percent, effective January 1, 2016;
  • Amending the N.Y. Tax Law§ 209 to provide that a corporation has nexus with the state if it derives receipts from activity within the state of $1 million or more in a taxable year;
  • Amending the definition of “doing business” for corporations issuing credit cards to corporations having 1,000 or more customers with in-state mailing addresses, having 1,000 or more merchant customer contracts, or having a combination of New York customers or merchant locations totaling 1,000 or more;
  • Making the MTA surcharge permanent, and increasing the rate from 17 to 25.6 percent for tax years beginning on or after January 1, 2015, and before January 1, 2016;
  • Providing that the sourcing of receipts is based on customer location;
  • Requiring taxpayers that are engaged in a unitary business with other corporations, and that own or control, directly or indirectly, more than 50 percent of the corporations’ capital stock, to file combined reports;
  • Repealing the organization tax, as well as the license tax and maintenance fees imposed on foreign corporations;
  • Eliminating the minimum taxable income tax base;
  • Eliminating the capital base calculation over a six-year period beginning in 2016;
  • Adding subtraction modifications for qualified residential loan portfolios and community banks and small thrifts; and
  • Redefining the terms “business capital,” “investment capital,” and “investment income.”

Credits

The bill creates, extends or enhances a variety of credits, including:

  • Enhancing the Youth Works Tax Credit by allowing an additional $1,000 credit for each qualified employee employed for at least one additional year and by amending the definition of qualified employee to include full-time high school students working ten hours a week;
  • Providing a refundable credit for the excise tax on telecommunication services paid by START-Up NY companies, applicable to tax years beginning on or after January 1, 2014;
  • Creating a refundable musical and theatrical production income tax credit for production tours of 25 percent of qualified production expenditures;
  • Extending the Empire State Commercial Production tax credit two years, making it applicable for tax years beginning before January 1, 2017;
  • Expanding the Empire film production credit by allowing Albany and Schenectady counties to participate in the 10 percent additional credit for upstate counties;
  • Creating a credit for the hiring of persons with developmental disabilities, beginning in January 1, 2015, and expiring January 1, 2020;
  • Authorizing additional low-income housing credits for state fiscal years 2015-16 and 2016-17.

Tax incentives for manufacturers

  • The budget bill reduces the tax rate on income for all manufacturers statewide from 5.9 to 0 percent and creates a refundable income tax credit equal to 20 percent of real property taxes paid by manufacturers who own property. Both provisions apply to tax years beginning or after January 1, 2014.

Tax incentives for agricultural cooperatives

  • The bill repeals the capital stock franchise tax on agricultural cooperatives, effective January 1, 2018.

Property tax

The budget includes number of provisions affecting property taxes, these include:

  • A new property tax freeze credit that provides a refundable personal income tax credit to qualifying taxpayers if their local governments stay within the property tax cap—the credit does not apply to New York City;
  • Allowing surviving spouses to use current income when applying for enhanced STAR benefits;
  • Providing that if the Commissioner accepts a late registration after having directed the removal of the basic STAR exemption, the Commission may remit the tax savings directly to the property owners and direct the assessor to restore the exemption, prospectively, without a new application;
  • Extending the fees charged for the establishment of oil and gas units of production values for three years, until March 31, 2018.

Estate tax reform and trusts

  • The budget bill keeps the top estate tax rate at 16 percent, but the exclusion threshold is raised from $1 million to $5.25 million over four years and the exclusion threshold is indexed to inflation, effective January 1, 2019. The bill also amends the tax law and 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 income from the trust, and taxing residents who are beneficiaries of all other exempt resident trusts or non-resident trusts on the distribution of accumulated income that they receive from the trusts.

Personal income tax

The budget also makes some changes to the personal income tax, namely:

  • Extending the enhanced earned income tax credit for two years (to tax years before January 1, 2017);
  • Eliminating the personal income tax add-on minimum tax for tax years beginning on or after January 1, 2014;
  • Exempting from taxable income any distribution from length of service defined contribution or benefit plans to volunteer fire fighters and ambulance works over age 59- 1/2.

New York City provisions

The bill makes a number of changes to the tax law and to the New York City administrative code. Specifically:

  • Creating the “Circuit Breaker Tax Credit,” a refundable credit against personal income tax available for eligible New York City homeowners and renters earning less than $200,000 (the maximum credit is $150);
  • Eliminating the city personal income tax add-on minimum tax for tax years beginning on or after January 1, 2014;
  • Extending the sales and use tax exemptions for leases in certain commercial leases in lower Manhattan;
  • Extending a number of New York City business tax credits and abatements, including the Industrial and Commercial Abatement Program, the Energy Cost Savings Program, Lower Manhattan tax credits, and the relocation and employment assistance program credit.

Sales and use taxes

  • The bill extends the alternative fuels tax exemption for two years until September 1, 2016, and increases the rate of prepaid sales tax for distributors of motor fuels. In addition, the exemption threshold for candy, confectionery, and soft drinks, sodas, and similar beverages sold via vending machines is increased from 75¢ to $1.50.

Phase-out of 18-A utility surcharge

  • The 18-a temporary assessment is phased out for all customers.

Miscellaneous provisions

  • The bill modifies the rules governing the signature requirement on e-filed returns prepared by tax professionals, amends the prepayment element of the family tax relief credit and makes various clarifying corrections.

For more information on these topics, or to learn how Baker Tilly tax specialists can help, contact our team.