The 2014-2015 New York budget made various changes in New York’s tax laws that generally become effective on January 1, 2015.
Corporate income tax
Corporate income tax exposure. Whether a corporation is subject to income tax in New York is based on economic nexus, which has been expanded to include deriving receipts from business activities in New York, subject to a $1,000,000 de minimis threshold.
Corporate tax rates. New York corporate income tax liability is calculated with reference to the highest of a corporation’s entire net income (ENI), capital (which is being phased out) or the fixed dollar minimum. The tax rates are as follows:
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Fixed Dollar Minimum (tax liability expressed in dollar amounts)
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The Metropolitan Transportation Authority (MTA) surtax is based on the New York State (NYS) tax before credits and is apportioned to the MTA based on an equally weighted three-factor formula, based on payroll, property and receipts.
The alternative minimum tax is eliminated for tax years beginning after 2014. So is the separate treatment of subsidiary capital and income.
New definition of income. The definitions of investment capital and investment income have been narrowed, and these incomes are not subject to tax. Other categories of tax-exempt income have been created.
Prior net operating loss conversion. Prior net operating loss (NOL) carryovers are converted into a prior net operating loss conversion (PNOLC) subtraction to stabilize their value for financial accounting purposes. The amount is apportioned and tax effected based on 2014 (so QNYMs get no benefit because their 2014 tax rate on ENI is 0 percent) and divided by 6.5. The balance can then be subtracted from apportioned business income at the rate of one tenth in each year (with the balance carried over through year 20), or deducted one half in each of 2015 and 2016 (with any unused amount being lost after 2016). Qualified small-business taxpayers are not subject to the limits.
Net operating loss deduction. NOLs incurred after 2014 can be carried back three years (but not to a tax year before 2015) and can be carried forward 20 years. NOLs are apportioned in the year incurred, and are subtracted from apportioned business income in the carryover period. As a result, no NOL is created for a year in which the corporation was not subject to tax in New York. The NOL deduction is no longer limited by the federal NOL source year or amount.
Apportionment. Business income is apportioned based on a single receipts factor using customer sourcing rules. Specific sourcing rules for particular revenues are added. For example, receipts from digital products are generally sourced to the customer’s primary use location of the product. Where the sourcing rules for financial transactions rely on commercial domicile, the following hierarchy is imposed: location of the treasury function; seat of management and control; and billing address of the customer.
Combined reporting. New York adopted a full unitary water’s-edge method for combined reporting, with a 50 percent stock ownership test based on voting power. A combined group is generally treated as a single entity. The prior requirement for substantial intercompany transactions is eliminated. Taxpayers can also make a commonly owned group election to include all non-unitary corporations that are subject to New York tax and meet the ownership test in the combined group. The election is effective for seven years and is automatically renewed for an additional seven years unless the group affirmatively declines. If the election is declined, a new election cannot be made for three years.
Nuisance taxes. The organization tax, the tax on changes in capital of domestic corporations, and the license and maintenance fees applied to foreign corporations have been repealed.
Tax credits. The commercial production credit has been extended through 2016 and the threshold minimum activity required for production outside the Metropolitan Commuter Transportation District (“MCTD”) has been reduced to $100,000. The low-income housing credit has been increased. Beginning in 2014, QNYMs are allowed a new credit equal to 20 percent of real property taxes paid during the tax year for real property owned (or leased from an unrelated landlord if the lease expressly requires the tenant to pay these taxes directly to the tax authority) by the manufacturer in New York and principally used for manufacturing. This credit was provided in lieu of the previous deduction for real estate taxes paid (provided these real estate taxes are not the basis for any other tax credit). Approved businesses participating in the STARTUP NY program may receive a refundable credit equal to the 25 percent excise tax paid on purchased telecommunications services. The youth work tax credit has been increased and extended. A new refundable credit equal to 25 percent of certain costs (capped at $4,000,000 a year) between 2015 and 2018 was enacted to encourage touring musical and theatrical productions in theaters in upstate New York. The film production credit has been expanded to include wages earned in Albany and Schenectady counties. A new credit is available in an amount equal to 15 percent of wages paid to full-time and 10 percent of wages paid to qualified part-time employees with developmental disabilities.
Personal income tax
Real property tax circuit breaker credit. For 2014 and 2015, the credit is equal to a percentage (1.5 to 4.5 percent) of the real estate taxes in excess of a certain percentage of income (4 to 6 percent) for homeowners and renters with household gross income of less than $200,000. For the purposes of this tax credit, a renter is deemed to have paid real estate taxes equal to 15.75 percent of his adjusted rent for the tax year.
Resident trusts. New York beneficiaries of exempt resident trusts are now subject to New York income tax on accumulated income that is distributed to them. In addition, the New York grantor of an incomplete gift, non-grantor trust is taxed on the income of the trust.
Minimum tax. The add-on minimum tax has been repealed.
MCTD tax. The due dates for a self-employed individual to file and make estimated tax payments of the Metropolitan Commuter Transportation Mobility Tax are the same as for the individual’s personal income tax.
Sales tax. Sales tax incentives have been extended for businesses that locate or relocate their offices in the area below Murray Street or in the World Trade site, World Financial Center or Battery Park City area.