New York recently passed the 2013-2014 budget that is intended to close a $1.3 billion gap. While the budget contains no new taxes or fees, the budget legislation contains a few notable personal income, corporate franchise, sales tax, and other tax changes.
Personal Income Tax
- Extends through 2017 the current tax rate structure, including the 8.82 percent highest personal income tax rate for individuals whose New York adjusted gross income exceeds $1 million if single or married filing separately, $2 million if married filing jointly, or $1.5 million if filing as head of household.
- Extends the limitations on itemized deductions for charitable contributions through 2015 for high-income taxpayers. Taxpayers with New York adjusted gross income over $10 million are limited to a 25 percent New York State itemized deduction, and taxpayers with New York adjusted gross income of more than $1 million and less than $10 million are limited to a 50 percent New York State itemized deduction. Conforming amendments were made to the New York City Administrative Code.
- New York residents with New York adjusted gross income of between $40,000 and $300,000 who claim at least one dependent under the age of 17 on the last day of the tax year and have tax less other credits greater than or equal to zero will be eligible to receive a new child tax credit of $350 per year beginning in 2014.
Corporate Income Tax
- Phases in a tax reduction for qualified New York manufacturers.
- Enacts technical changes addressing a perceived loophole in the related member royalty add-back statute. Taxpayers who make royalty payments to related affiliates are required to add back the amount of the payments to taxable income if they deducted these payments when calculating federal taxable income. If the royalty recipient was also a New York taxpayer, the statute permitted the recipient to exclude the royalty income if the related member added back the deduction for the royalty payment expense. Taxpayers took advantage of this income exclusion by establishing a royalty payer in New York with a low business allocation percentage to satisfy the add-back prong of the transaction. This permitted the royalty recipient with the high-allocation percentage to receive the full income exclusion. The budget legislation closed this loophole by repealing the income exclusion and providing four alternative exceptions in its place. The add-back requirement does not apply generally if the taxpayer establishes that (1) the taxpayer’s related member paid significant taxes on the royalty payment in other jurisdictions; (2) the related member paid all or part of the royalty payment it received to a third party for a valid business purpose; (3) the related member is organized under the laws of a foreign country that has a tax treaty with the United States; or (4) the taxpayer and the Tax Department agree to alternative adjustments that more properly reflect the taxpayer’s income. Additionally, the budget legislation links the term “related member” to the definition in IRC Section 465(b)(3)(c) but substitutes 50 percent for the 10 percent ownership threshold.
- The budget extends the Metropolitan Transportation Authority (MTA) business tax surcharge through 2018.
- Extends the Empire State Film production and post-production tax credits through 2019 and includes certain relocated talk or variety shows. The Governor’s Office of Motion Picture and Television Development was awarded an additional $2.1 billion in tax credits to allocate in installments of $420 million per year in 2015 through 2019. Beginning in 2015, the amount of the allocation to the postproduction credit increases from $7 million to $25 million. The post-production credit eligibility threshold for visual effects and animation (VFX) has been lowered to $3 million or 20 percent of total VFX post-production costs at a qualified New York postproduction facility. In 2015 through 2019, film and post-production projects are eligible for an additional credit equal to 10 percent of the wages or salaries of individuals employed by a qualified film with a minimum budget of $500,000 or independent film production company for services performed in certain upstate New York counties.
- Exempts from sales and use tax natural gas purchased in an uncompressed state and converted into compressed natural gas for use or consumption in the engine of a motor vehicle.
- Raises New York’s minimum wage from $7.25 per hour to $9.00 per hour over three years ($8.00 by the end of 2013, $8.75 by the end of 2014, and $9.00 by the end of 2015).