New York Budget Has IRC Conformity, Many Other Tax Changes

New York’s 2018-19 budget package contains Internal Revenue Code (IRC) conformity amendments and many tax changes. The conformity amendments address the effects of the federal Tax Cuts and Jobs Act. The taxes affected by the budget legislation include:

  • corporate franchise tax;
  • personal income tax;
  • property tax;
  • sales and use tax; and
  • other taxes.

Opt-in payroll tax

The legislation creates an optional employer compensation expense program, under which affected employers are subject to an employer compensation expense tax (ECET) on annual payroll expenses exceeding $40,000 per employee. For employers opting in, the tax is phased in over three years, with a rate of 1.5% in 2019, 3% in 2020, and 5% beginning in 2021. The deadline for the first annual employer election to opt in is December 1, 2018, for the 2019 tax year.

In addition, a new credit is allowed under the personal income tax, corresponding in value to the ECET.

Charitable contribution funds

State-operated charitable contribution funds are created to accept donations, which can be claimed as itemized deductions. In addition, taxpayers making a donation are allowed a state tax credit equal to 85% of the donation amount for the tax year after the donation. The credit is available for taxable years beginning on or after January 1, 2019.

Repatriated income

The definition of “exempt CFC income” is expanded to encompass repatriated income received from a corporation not included in a combined report with the taxpayer. However, an addback is required for the amount of the federal deduction allowed under IRC Sec. 965(c). These provisions apply to taxable years beginning on or after January 1, 2017.

Foreign-derived intangible income (FDII)

An addback is required for the amount of the federal deduction allowed under IRC Sec. 250(a)(1)(A).

Foreign dividend gross-up

The legislation provides that the subtraction for deemed dividends under IRC Sec. 78 applies to the extent that the dividends are not deducted under IRC Sec. 250.

Standard and itemized deductions

The New York standard deduction is maintained for single filers. In addition, the legislation eliminates the restriction that allowed taxpayers to itemize on their New York return only if they itemized on their federal return. Further, the New York itemized deduction provision is amended to refer to federal deductions as they existed immediately prior to the enactment of the TCJA. These amendments apply to taxable years beginning on or after January 1, 2018.

Alimony and moving expenses

The legislation creates state modifications for alimony and qualified moving expense reimbursements and moving expenses, applicable to taxable years beginning on or after January 1, 2018.

Historic property rehabilitation credit

The legislation extends provisions of the state’s commercial and homeowner rehabilitation tax credit programs and allows the commercial credit to be used independently of the federal credit. The amendments apply to taxable years beginning on and after January 1, 2018.

Empire state child tax credit

The amount of the empire state child tax credit is maintained at the same level existing prior to the enactment of the TCJA. The amendment applies to taxable years commencing on or after January 1, 2018.

Statute of limitations for amended returns

For changes or corrections on an amended return, the statute of limitations is extended to allow assessments to be made at any time within one year after the amended return is filed.

Wage reporting

The law is amended to provide for consistent quarterly reporting of wage information to both the Department of Labor and the Department of Taxation and Finance, applicable to calendar quarters beginning on or after January 1, 2019.

Statutory residency

The legislation codifies the Department of Taxation and Finance’s policy of counting all days that an individual is present in New York to determine statutory residency, regardless of whether an individual is domiciled in the state (or New York City) for any portion of the taxable year. The amendment applies to taxable years commencing on or after April 12, 2018.

Musical and theatrical production credit

The musical and theatrical production credit, which was set to expire on January 1, 2019, is extended for four additional years.

Low-income housing credit

The law is amended to provide for transfers of New York low-income housing credits, regardless of how any federal low-income housing tax credit for the low-income building may be allocated. The amendment applies to taxable years beginning on or after January 1, 2019, for buildings that receive a low-income housing credit allocation on or after May 12, 2018.

Veteran employment credit

New York’s hire a veteran tax credit is extended for two years, through tax year 2020.

Youth jobs program credit

The legislation provides a 50% increase in the credit amounts available under the youth jobs program for qualified employers, applicable to tax years beginning on or after January 1, 2018. Further, for tax years beginning on or after January 1, 2019, qualified employers are required to comply with enhanced reporting requirements.

Congestion surcharge on for-hire vehicles

Beginning January 1, 2019, a surcharge is imposed on for-hire transportation trips below 96th Street (“congestion zone”). The surcharge amount is:

  • $2.75 on for-hire vehicles,
  • $2.50 for yellow cabs, and
  • $0.75 for pooled vehicle trips.

The surcharge does not apply to transportation services that are administered by or on behalf of the Metropolitan Transportation Authority, including paratransit services.

The surcharge must be passed along to passengers and separately stated on any receipt that is provided. Every person liable for the surcharge must file a properly completed application for a certificate of registration and file a return on a monthly basis.

“For-hire transportation trip” means transportation provided in a for-hire vehicle that is not a pool vehicle, regardless of the number of stops, for which a charge is made. But, it does not include transportation provided by, or pursuant to a contract with, school districts, or in connection with funerals.

“For-hire vehicle” means a motor vehicle, other than an ambulance and a bus, carrying passengers for hire.

“Pool vehicle” means a for-hire vehicle that is available for shared transportation by two or more passengers (or groups of passengers) that separately request transportation.

Sales tax on limousine and bus services

For purposes of the sales and use tax on transportation services, the definition of “limousine” is amended to include any vehicle with a seating capacity of between 15 and 20 persons (excluding the driver) that has only two axles and four ties. Also, a “bus” is defined as any motor vehicle with a seating capacity of at least 15 persons (excluding the driver) that does not otherwise qualify as a limousine.

Resale exclusion for prepared food and drinks

Effective June 1, 2018, a resale exclusion is granted to restaurants, cafeterias, caterers and other establishments when purchasing prepared food and drinks for resale.

Responsible person sales tax relief for certain minority partners and members

Relief from per se responsible person sales tax liability is provided to certain minority partners of limited partnerships and members of limited liability corporations (LLCs). Specifically, limited partners of a limited partnership and members of an LLC are eligible for relief if they demonstrate that:

  1. They were not under a duty to act for the limited partnership or LLC in complying with the requirements of the sales tax; and
  2. Their ownership interest and the percentage of their distributive share of the profits and losses of the limited partnership or LLC are each less than 50%.

A limited partner or member must submit an application for relief. If approved, a limited partner or member will be liable only for their pro-rata share of the original liability of the business, based on the greater of the limited partner’s or member’s ownership percentage, or their distributive share of the business’ profits and losses. Such amount would include prorated interest on the business’ original liability up to the date of payment of the limited partner or member, but not penalty.

The application may be denied for any limited partner or member who:

  • had acted for the limited partnership or LLC with regard to sales tax compliance;
  • has been convicted of a tax crime or who;
  • has a past-due tax liability.

Sales tax exemption for certain drugs or medicines

Effective June 1, 2018, the existing sales tax credit or refund for certain drugs and medicine used by veterinarians or farmers for livestock or poultry used in farm production is converted to an upfront exemption.

Property tax credit for contributions to charitable funds

School districts and other local governments are authorized to create charitable funds and provide a credit against real property taxes for contributions to such funds that is equal to a percentage of the donation.

Telecommunications property tax assessment ceilings

The bill extends the property tax assessment ceiling program for telecommunications property by four years, to January 1, 2023 (previously set to expire on January 1, 2019). Also, the bill extends and restructures the transitional provisions of the program so changes will be phased in gradually. Under previous law, the assessment ceiling established each year, from 2015 through 2017, could not be 10% below or above the assessments that were determined by local assessors in 2014. The bill allows assessment ceilings to deviate from the 2014 assessments by as much as 25% in 2018, 50% in 2019 and 75% in 2020. In 2021, the ceilings will no longer be tied to the 2014 assessments.

Changes to school tax relief (STAR) program

The bill makes various revisions to the school tax relief (STAR) program, including requiring all Enhanced STAR recipients to be enrolled in the STAR Income Verification Program (IVP), effective with applications for the exemption on 2019 assessment rolls.

The text of the bill is available at http://assembly.state.ny.us/leg/?bn=s7509.

Ch. 59 (S.B. 7509), Laws 2018, effective April 12, 2018, applicable as noted; Press Release, New York Governor’s Office, March 30, 2018; Governor’s Memorandum in Support, New York Division of the Budget

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