As we discussed in last month’s issue of New York Tax Insights, Governor Cuomo has released his proposed 2015-16 Executive Budget (Senate Bill No. S2009, Assembly Bill No. A3009), which includes several new and potentially far-reaching tax proposals, some of which are discussed below.
- Expands sales tax collection obligation to “marketplace providers.” In a proposal that is reminiscent in scope of the State’s controversial “Amazon tax” legislation in 2008, the Governor has proposed that, beginning March 1, 2016, a “marketplace provider” would be required to collect sales tax on behalf of a “marketplace seller” where the provider “facilitates” sales to New York customers. “Facilitation” is defined to include the collection of sales receipts from the customer, where the provider either (i) “provides the forum” for making sales (including an Internet website) on behalf of a seller or (ii) “arranges for the exchange of information or messages or information” between the seller and customer. This proposal raises potential nexus concerns, although the Memorandum in Support states that it would not expand the rules regarding sales tax nexus. It would also have the effect of shifting sales tax collection responsibilities from the marketplace seller who has in-State nexus to the marketplace provider.
- Closes certain sales and use tax “avoidance strategies.” Couched as a proposal to curb various sales tax avoidance strategies, this broad proposal would: (i) disallow the existing exemption from use tax for tangible personal property (“TPP”) used in New York that has been purchased outside the State by a nonresident business unless the business has been operating for at least six months before using the TPP in the State; (ii) deem a single-member LLC and its member to be one person for sales tax purposes, to address the claimed abusive practice of the single member LLC avoiding sales tax by purchasing TPP for resale to its sole member; (iii) for leases of TPP between related corporations, require that sales tax be paid at the outset of the lease on all payments due under the lease for leases of more than one year to address the alleged abusive practice of claiming nontaxable resale treatment on purchases and entering into lengthy related party leases for insufficient rental charges to defer sales tax on the leases; and (iv) most sweeping of all, impose sales tax on most intercompany transfers of TPP, while allowing a credit for sales or use tax paid to New York or another state by the seller on the same property. The proposed changes would undoubtedly have the effect of reaching bona fide transactions having nothing to do with tax avoidance.
- Makes technical changes to last year’s State corporate tax reform legislation. Proposed as “technical changes” to last year’s New York State corporate tax reform legislation, the proposed changes primarily relate to what qualifies as investment capital, some of which may properly be viewed as substantive changes. For instance, one proposed change is that, in order for stock to qualify as investment capital, it must never have been used by the taxpayer in the regular course of its business.
- Conforms New York City corporate tax to the New York State corporate reform legislation. As most taxpayers have been hoping, this proposal would substantially conform the New York City taxation of general business corporations and banks to most of the State corporate tax reform proposals that went into effect for tax years beginning on or after January 1, 2015, through the establishment of a new “Subchapter 3-A tax.” This conformity would include the merger of the City bank tax and corporate taxes, adoption of economic nexus, water’s edge unitary combined filing, and market-based sourcing. Unlike the State corporate tax, however, the revised tax would not phase out the alternative tax on capital, but would actually increase the alternative tax cap to $10 million annually. The existing general corporation and bank taxes would be retained to apply only to S corporations. If enacted, the changes would be effective retroactive to tax years beginning on or after January 1, 2015, consistent with the effective date of the State tax reform legislation.
The Executive Budget must be enacted by April 1, 2015. It is unclear whether recent upheavals in the New York State Assembly leadership will have any effect on the timely enactment of the bill.