On June 11, 2018, Senate Bill 8991 (the Bill) was introduced by New York Senate Majority Leader John Flanagan. The Bill would decouple from the federal treatment of Global Intangible Low-Taxed Income (GILTI).
The Federal Tax Cuts and Jobs Act (TCJA) created a new category of income under Internal Revenue Code § 951A, known as Global Intangible Low-Taxed Income (GILTI). This provision imposes a tax on US shareholders based on income from controlled foreign corporations (CFCs), to the extent that this income is in excess of a nominal return on the tangible assets of the CFCs. GILTI is taxed at the regular federal tax rates, but a deduction is allowed for 50% of the amount of GILTI included in a taxpayer’s federal gross income under IRC § 250. Additionally, foreign tax credits are available to offset the federal income tax imposed on GILTI, with credits limited to 80% of the amount of foreign taxes paid.
In April 2018, New York passed legislation responding to provisions of the TCJA, but did not address GILTI. As a result, both GILTI and the 50% GILTI deduction would be included in the computation of New York taxable income due to New York’s conformity to federal taxable income. For more information on New York’s response to the TCJA, see our previous legal alert on New York’s 2018-2019 fiscal year budget.
New York Senate Bill 8991
The recently introduced Bill adds GILTI to the definition of “exempt CFC income,” which was previously limited to Subpart F income and income related to the Repatriation Transition Tax under IRC § 965. By including GILTI in the definition of exempt CFC income, the Bill (if enacted) will exempt GILTI from the calculation of New York entire net income, creating parity with New York’s treatment of other foreign income. However, interest expense attribution related to the exempt CFC income is required, requiring taxpayers to add back any interest expense attributable to the exempt income. Additionally, the Bill prevents taxpayers from receiving a double benefit by providing that the 50% deduction under IRC § 250 will not be allowed as a deduction for purposes of calculating entire net income.
The provisions in the Bill apply to New York City as well as New York State and would apply to tax years beginning on or after January 1, 2018. Notes to the Bill indicate that there is no fiscal impact since the amounts subject to tax under GILTI were not subject to New York tax before the federal law change. As New York’s 2018 Legislative Session is scheduled to end on June 20, 2018, the Bill will need to make its way through the legislature quickly if it is to be enacted during this session.