On March 31, 2014, Governor Andrew Cuomo signed the New York State fiscal year 2014-2015 budget bill. This tax reform includes a major overhaul of the New York Corporate income and franchise tax. The Governor cites simplification as the main driver for the changes, as he is determined to make New York more attractive to do business in.
With changes being phased in until 2020, the now complicated structure of the New York consolidated return will mean major changes for taxpayers. As the effective date of this legislation is March 31, these changes will need to be considered for first quarter provision calculations. The budget bill is expansive, as there will be changes outside of just income and franchise tax, such as other miscellaneous repeals, adjustments, and additions. However, for the purpose of this post, we will only cover those reforms made to income and franchise tax for corporate taxpayers.
The following highlights of the tax changes are effective for the 2015 tax year unless otherwise noted and will impact your organization if you do business in New York:
- New York’s previous combined reporting method converts to a water’s edge unitary filing, largely following the federal return. The intercorporate rules for combined reporting have been repealed. Each entity of an entire group of entities is liable for the tax and franchise tax of said group and calculated on a combined basis.
- Provisions establishing the Subsidiary Capital tax and modifications have been repealed. For all taxpayers, the income tax rate reduces from 7.1% to 6.5% starting in 2016.
- MTA Surcharge tax rate increases to 25.6% for the 2015 tax year, and will then be adjusted by the Tax commissioner as necessary each year.
- The Net Operating Loss (NOL) changes from pre-apportionment to post-apportionment and allows for an option of taking the NOL over 2 or 10 years as a subtraction. NOLs remaining after 2014 will have to be converted to post-apportionment NOLs.
- Many receipts will now be sourced under Market-based sourcing instead of the historical cost of performance methodology.
- Capital tax will be phased out between 2016 and 2020.
- The cap on capital tax increases to $5 million beginning in 2015.
- The fixed dollar minimum tax based on a taxpayer’s New York sourced receipts has been retained, but increases the tax incrementally up to $200,000 for taxpayer’s with over $1 billion of NY receipts (the maximum before was $5,000).
Keep in mind that both domestic and foreign corporations doing business, employing capital, owning or leasing property, or maintaining an office in New York State will be subject to New York’s Article 9-A Corporate Franchise Tax. The budget bill adds “deriving receipts from activity” in New York to this list, and a corporation will be considered active in this regard if it has $1 million or more in receipts within New York under the bill’s revised sourcing rules.
Additional changes included in the budget bill will be important to take into consideration for taxpayers. At this point, New York City’s fiscal year ends June 30.
As New York City has a history of mirroring New York state tax policy, we could expect to see something pushed out in this year’s New York City budget. You can find detailed information on the 2014-2015 Budget Bill on New York State’s website.
If you have any further questions regarding this budget bill and its impending tax reform, contact Josh Littlejohn at firstname.lastname@example.org or (901) 685.5575.