On April 12, Governor Andrew Cuomo signed New York’s FY2019/2020 Budget Bill (S. 1509-C, A. 2009-C), allocating $175.5 billion and enacting numerous significant tax and revenue provisions. The bill made changes to nearly every tax levied by New York, including the corporate income tax, personal income tax, sales and use tax, and real property tax, as well as other important changes. CPAs should take note, as individuals and businesses across all industries will be affected by these changes. This article is intended to provide a brief overview of some of the more significant changes.
Corporate Income Tax Provisions
Net GILTI apportionment (Part C).
The bill provides guidance on the apportionment of global intangible low-taxed income (GILTI), as defined by section 951A of the Internal Revenue Code (IRC). Under the bill, receipts constituting net GILTI are included in the sales factor apportionment faction. Net GILTI is excluded from the apportionment numerator but included in the denominator. The bill amends both the New York State and New York City corporate income tax provisions. The new rule will apply to taxable years beginning on or after January 1, 2018.
Qualified New York manufacturers (Part D).
As of January 1, 2014, certain qualified New York manufacturers were entitled, inter alia, to a reduced tax rate of 0%. Under prior law, the test to determine eligibility relied in part upon having manufacturing property in New York with a federal adjusted basis of $1 million. The bill broadens eligibility by changing the reference from “federal” adjusted basis to “New York” adjusted basis. The bill amends both the New York State and New York City corporate income tax provisions. The new rule takes effect immediately and applies to taxable years beginning on or after January 1, 2018.
Decoupling from Tax Cuts and Jobs Act (TCJA) amendments to IRC section 118 (Part X).
Under the TCJA, IRC section 118 was amended to require that certain incentives offered by a governmental entity to a corporation’s capital be included in federal gross income. The bill restores exempt treatment by New York State for these subsidies. The new rule takes effect immediately for tax years beginning on or after January 1, 2018.
Personal Income Tax Provisions
Extension of ‘millionaire’s tax’ (Part P).
The top personal income tax rate of 8.82% had been set to expire after 2019. The bill extends the “millionaire’s tax” for five years, through 2024.
Extension of charitable contribution deduction limitation (Part Q).
The charitable contribution deduction is limited to 50% of the federal deduction for New Yorkers with adjusted gross income (AGI) of $1–10 million and 25% for New Yorkers with AGI over $10 million. These limitations were set to expire after 2019; the bill extends them for five years, through 2024.
Certain nonresident gambling winnings treated as New York–source income (Part M).
The bill amends section 631 of the Tax Law to include New York gambling winnings in excess of $5,000 as New York–source income of a nonresident. The bill similarly requires withholding if such winnings are subject to federal withholding, amending section 671 of the Tax Law. The new provisions take effect immediately and apply to taxable years beginning on or after January 1, 2019.
Sales Tax Provisions
Marketplace provider nexus (Part G).
Under the bill, New York follows the lead of many other states and requires marketplace providers to collect sales and use taxes on sales of tangible personal property they facilitate. A marketplace provider is a person who, pursuant to an agreement with a marketplace seller, facilitates sales of tangible personal property, essentially by providing a forum for the sale to take place. For nexus purposes, a marketplace provider without a physical presence in New York must have cumulative total gross receipts of $300,000 or more than 100 sales in the prior four quarters. The provisions take effect immediately and apply to sales made on or after June 1.
Vendors permitted to advertise payment of sales tax on behalf of customers (Part DDD).
Vendors required to collect tax may now advertise to a retail purchaser that they will pay the tax due on behalf of the purchaser. The vendor must state that it will pay the tax and must not represent that the transaction is exempt or nontaxable. The new provision takes effect immediately.
Real Property Tax Provisions
Real property transfer tax (Part OOO).
The bill imposes an additional real property transfer tax of $1.25 per $500 (0.25%) of consideration for residential properties in New York City valued over $3 million and nonresidential properties in New York City valued over $2 million. In addition, the bill expands the existing “mansion tax,” which applies to sales of residential real property where the consideration paid is $1 million or more. Under the bill, a supplemental mansion tax applies at 0.25% when the consideration paid is $2 million, ranging up to 2.90% when consideration paid is $25 million or more. The new provisions take effect on July 1.
Real property tax cap made permanent (Part NNN).
The 2% cap on real property taxes, originally enacted in 2012, is made permanent by the bill.
Miscellaneous Tax Provisions
Undue economic hardship limitation upon driver license suspension (Part EEE).
New York is one of a few states that will suspend a taxpayer’s driver license for owing $10,000 or more in unpaid taxes. The bill provides limited relief, authorizing an exception from suspension for taxpayers who receive public assistance or supplemental security income or who can demonstrate that suspension will cause undue economic hardship.
The bill decouples from certain changes in federal law arising under the TCJA relating to itemized deductions.
Congestion pricing (Subpart A).
New York City will introduce the first congestion pricing program in the nation, otherwise known as Central Business District Tolling. A six-member Traffic Mobility Review Board will be established to oversee the new tolls imposed on cars and trucks driving south of 60th Street in Manhattan. Revenues will be dedicated to Metropolitan Transportation Authority (MTA) capital needs. Tolls will not begin before December 31, 2020.
Vapor products tax (Part UU).
The bill enacts a new 20% supplemental tax on sales of vapor products.
Opioid excise tax (Part XX).
The bill enacts a new excise tax on sales of opioids. Sales to hospice and chemical dependency programs are exempt.
Trusts and estates (Part EEE).
The bill decouples from certain changes in federal law arising under the TCJA relating to itemized deductions. In addition, the bill disallows the IRC section 199A deduction. It is the authors’ understanding that the Department of Taxation and Finance is developing guidance to address these issues, with respect to trusts and estates.
Adjusting to the Changes
The FY 2019/20 Budget Bill enacted numerous significant tax provisions affecting individuals and businesses across many industries within New York. Given the number and complexity of the changes, taxpayers need to understand how these changes will affect their specific tax positions. CPAs should continue to monitor these developments and their impact upon New York and non–New York taxpayers. Businesses and individuals should familiarize themselves with the new provisions to ensure proper compliance.