The New York State Legislature has passed, and New York Governor Cuomo has now signed, legislation which provides for the exclusion of 95% of a corporation’s gross global intangible low-taxed income (“GILTI”) from its New York State corporate tax income base. S. 6615, 2019-20 Reg. Sess. (N.Y. 2019).
The legislation amends the definition under Article 9-A of a corporation’s “exempt CFC income” to include 95% of a corporation’s gross GILTI, if received from a non-combined controlled foreign corporation, and also disallows the related IRC § 250 deduction in its entirety. Therefore, substantially all of a corporation’s federal GILTI inclusion will be exempt from tax under Article 9-A. The former statute did not exclude GILTI from the tax base, and provided that GILTI (less the § 250 deduction) be included in the denominator of the business income apportionment factor. The new legislation instead provides that the 5% of a C corporation’s gross GILTI that is not exempt is included in the denominator, but not in the numerator, of its apportionment factor. The legislation represents a significant departure from existing law, and was sought by business groups concerned about the potentially harsh – and possibly unconstitutional – consequences of including GILTI in the tax base.
It should be noted that notwithstanding the beneficial effects of the legislation, the interest expense attribution rules, which disallow deductions for interest attributable to nontaxable income, including “exempt CFC income,” will now apply to the amount of exempt GILTI.
The legislation applies to the Article 9-A corporate franchise tax, as well as to the Article 33 insurance tax, but does not apply to the New York City corporation business tax.
The legislation is applicable to tax years beginning on or after January 1, 2019. For the 2018 tax year, however, the 95% exclusion will not apply, and taxpayers will be expected to include GILTI (net of the IRC § 250 deduction) both in the tax base and in the denominator of the apportionment factor.