On January 21, 2020, New York State Governor Andrew M. Cuomo released his proposed New York State 2020–21 Executive Budget, applicable to the State’s fiscal year beginning April 1, 2020. Overall, the tax proposals are relatively modest in scope and, other than reintroducing last year’s proposal to legalize and tax adult-use marijuana, contain no “big ticket” items. Among the Governor’s proposals are the following:
- Enact the Cannabis Regulation and Taxation Act (Part BB). As he did last year, the Governor is again proposing to legalize adult-use cannabis, and to impose a new three-part tax on adult-use cannabis products. One tax would be imposed on the cultivation of cannabis, a second tax on the sale to a retail dispensary (at 20% of the invoice price), and a third tax on the same sale to the retailer (at 2% of the invoice price, but collected in trust for the county where the dispensary is located). Tax revenues would be deposited into a “cannabis revenue fund” to be used for prescribed purposes, including administration of the regulated cannabis program and a “social and economic equity plan.” The Governor failed to garner sufficient legislative support last year, and the proposal remains controversial.
- Small Business Tax Relief (Part D). The Governor proposes reducing the corporate franchise tax rate on business income from 6.5% to 4% for qualifying small businesses, effective for tax years beginning after 2020. Also proposed is the elimination of the estimated tax underpayment penalty for New York S corporations, which are treated as pass-through entities for New York State tax purposes.
- Authorization for the Tax Department to Allow Unclaimed Tax Benefits (Part F). The Governor’s proposal would authorize the Tax Department to compute and issue refunds relating to earned income credits—available to low-income individuals—even if not claimed on a tax return. (The law already requires the Department to periodically alert potentially eligible individuals to the availability of the earned income credit.) It would also allow the Department, on its own volition, to reverse a taxpayer’s New York election to itemize deductions and allow instead a standard deduction if greater. The memorandum in support of the proposal does not explain why this latter authority is not allowed under existing law.
- Revise Criminal Tax Fraud Statutes (Part K). Referring to “judicial confusion” over a provision in the existing New York tax fraud statutes, the Governor proposes to make clear that an individual does not actually have to underpay tax to commit criminal tax fraud, and that criminal tax fraud can also result where an individual has received a “fraudulent refund” or applied for one as a result of the commission of the crime. The proposal also includes a new criminal tax preparer provision for tax preparers who file or cause to be filed 10 or more New York tax returns within a 365-day period where the preparer knows they contain materially false information or omit material information intended to evade or reduce tax liability, or to “effect or inflate a refund.”
- Reform the New York Film Tax Credit (Part M). In the face of rising concerns about the costs and fairness of allowing tax credits for the film industry, the Governor proposes modest reductions in the film production credit and post-production credit (from 30% to 25% of qualified production costs at a qualified facility within the Metropolitan Commuter Transportation District, and from 35% to 30% at a qualified facility located elsewhere in New York State), as well as limitations on what constitutes a “qualified film” for purposes of the film credit.
The Governor’s proposed budget does not include conforming the New York City corporate tax treatment of GILTI to its treatment under Article 9-A.
The New York State Senate and Assembly are expected to release their own tax proposals. The deadline for enactment of the New York State budget is April 1, 2020.