On April 10, 2017, Governor Cuomo signed budget legislation for the State of New York that includes several tax provisions. The following are the most significant tax measures.
Maximum marginal rate. New York’s highest marginal tax rate is 8.82% on individuals with taxable income in excess of $1,000,000 ($2,000,000 on a joint return). This rate was scheduled to expire at the end of 2017 and the highest rate would have reverted to 6.85%. The budget legislation extends the 8.82% rate through 2019.
Limit on charitable contributions. Certain limits that New York imposes on the deduction for charitable contributions were set to expire at the end of 2017; however, these limits were extended through 2019. For individuals with income between $1,000,000 and $10,000,000, the limit is 50% of the federal deduction; for those with income over $10,000,000, the limit is 25% of the federal deduction.
Sale by nonresidents of interests in an entity that owns an interest in a co-op. If a nonresident of New York sells an interest in a legal entity, he is not subject to tax in New York unless more than 50% of the value of the assets of the entity are New York real property. The budget legislation added a provision that treats shares of a co-op located in New York as real property for purposes of this provision.
Nonresident seller of partnership interest taxed if buyer elects to step-up tax basis. Under a new provision contained in the budget legislation, if a nonresident sells a partnership interest in a partnership that owns assets that would generate New York source income if the assets were sold, the nonresident will now be required to treat the transaction as an asset sale subject to New York tax if the partnership makes a Section 754 election or if the buyer acquires all of the partnership interests, and the buyer benefits from an increase to the tax basis of the partnership’s assets. Purchase and sale agreements will need to address this election as the making of the election may cause the seller to become subject to taxes in New York that would not be payable absent the election.
Sales and use tax loopholes are closed. A new provision restricts certain related parties from benefitting from the purchase for resale exemption from the imposition of sales tax. Previously a person might have an entity purchase tangible property, including works of art, that would normally be subject to sales tax. The entity would claim the purchase for resale exemption. Then the entity would re-sell the property to the related party at a lower price to limit the amount of sales tax payable. The use tax law was also tightened up to restrict the purchase of tangible property outside of New York in a non-New York entity, followed by the entity relocating to New York.
Extension of film credits. The Empire State film tax credit and post-production tax credit, which were set to expire after 2019, have been extended through 2022.
New life sciences credit. New life sciences businesses are eligible for a new credit with a maximum annual allocation of $10,000,000. New certified life sciences businesses would receive a 15% (20% for small companies) credit on all qualifying research and development expenditures in New York, up to $500,000 per taxpayer in any tax year.
Increase in research and development credit. The research and development credit is increased from 3% to 6% of qualified expenditures in New York.