The New York State Budget Bill was enacted by the New York State Legislature and signed into law by Governor Andrew M. Cuomo. S. 2009-C, A. 3009-C. Among the Governor's proposals from his Executive Budget that were enacted, in whole or in part, are the following:
- Extends top personal income tax rates. Extends the top tax bracket under the personal income tax (the so-called "Millionaires Tax"), which is imposed at a rate of 8.82%, for an additional two years through 2019. The Governor had proposed extending the top rate for three years. (Part R.)
- Restricts purchase for resale treatment for certain related party transactions. The legislation expands the definition of a "retail sale" for sales tax purposes to include sales of tangible personal property to (i) a single member LLC ("SMLLC") or a subsidiary for resale to a member or owner where the SMLLC or a subsidiary is disregarded for federal income tax purposes; (ii) a partnership for resale to one or more partners; or (iii) a trustee of a trust for resale to one or more trust beneficiaries. The purpose for this enactment was to preclude those types of entities from buying tangible personal property as nontaxable purchases for resale and then leasing the property to a related entity. Also enacted was the elimination of a use tax exemption for property or services purchased outside New York State and brought into the State by a nonresident (other than an individual) unless the nonresident has been doing business outside the State for at least six months prior to the date the property or services are brought into the State. (Part CC.)
- Disregarded entity treatment to be followed for tax credit purposes. In an enactment to reverse the effects of a New York State Tax Appeals Tribunal decision in favor of the taxpayer that two disregarded SMLLCs owned by the same individual should be treated as separate entities in determining entitlement to an Empire Zone tax credit (Matter of Lisa A. Weber, DTA No. 825857 (N.Y.S. Tax App. Trib., Aug. 25, 2016)), a SMLLC disregarded for federal income tax purposes will be disregarded in determining its owner's eligibility for State tax credits, such as Empire Zone credits. As a result, under the new legislation any tax credit requirements and the tax credit computations are made based on treating the taxpayer and the disregarded entity as a single entity. (Part Q.)
- Expands New York source income treatment for certain co-op sales. For personal income tax purposes, the sale by a nonresident individual of shares in a co-op housing corporation generates New York source income subject to tax, but the sale by a nonresident of an ownership interest in an entity whose assets consist solely of co-op stock does not. The definition of "real property located in this state" was amended to limit this by including an interest in a partnership, LLC, S corporation, or non-publicly traded C corporation with 100 or fewer shareholders that owns New York real property or shares in a coop where the fair market value of such real property and co-op shares equals or exceeds 50% of the value of all of the entity's assets. (Part Z.)
- Limitations on NY investment tax credit. Under the new legislation, the New York investment tax credit will not apply to property used in the production or distribution of electricity, natural gas, steam or water delivered through pipes and mains. The intent of the legislation is to provide that utilities are ineligible for ITC for property principally used to furnish electricity and other utility-type services. On the other hand, a proposed limitation on ITC for property principally used in the creation, production, or reproduction of a film, visual or audio recording, or commercial for costs incurred outside New York State was not enacted. (Part P.)
- QFI treatment allowed for financial instruments held by RICs and REITs. Although not part of the Governor's original proposals, the final legislation provides beneficial "qualified financial instrument" treatment to various types of financial instruments held by a regulated investment company ("RIC") or a real estate investment trust ("REIT"), other than a captive RIC or REIT, even if the instrument is not marked to market under IRC 475 or 1256. The legislation also limits the fixed dollar minimum tax that RICs and REITs pay, based on their New York receipts for the year, to no more than $500 annually. (Part VV.)
Several of the Governor's proposals were not enacted, however including the following:
- No requirement that marketplace providers collect sales tax. The final bill did not include perhaps the most ambitious of the Governor's proposals, the requirement that "marketplace providers" (such as EBay) collect New York sales tax from customers on sales of tangible personal property that they facilitate, unless the provider facilitates less than $100 million in sales each year. This marks the second time that a marketplace provider sales tax proposal was considered but not enacted.
- No expansion of real estate transfer tax. A proposal to broaden the scope of the real estate transfer tax to tax the transfer of a minority interest in a partnership, limited liability corporation, S corporation, or non-publicly traded C corporation with less than 100 shareholders if the entity in question owns New York real property having a fair market value that equals or exceeds 50% of the value of all of the entity's assets on the date of transfer of an interest in that entity was not enacted. Also omitted from the final bill was a proposal to give the Commissioner the authority to impose the so-called "Mansion Tax," applicable to sales of residential real property for consideration of at least $1 million, to any conveyance of real property structured to avoid or evade the tax.
- No automatic conformity of New York State S corporation treatment to federal. A proposal to conform the New York State S corporation treatment to the federal S corporation treatment in all cases was not enacted. As a result, federal S corporations retain the option of electing to be taxed as New York State S corporations or instead be taxed as C corporations under Article 9-A.
- No creation of central administrative hearings division. The Governor's proposal to create a new division of central administrative hearings headed by a Chief Administrative Law Judge, which could have resulted in the consolidation of the New York State Tax Appeals Tribunal into a centralized administrative hearings division not solely devoted to taxation, was not enacted.