Analysis

New York budget legislation enacted amending state tax law

Multistate tax alert | April 14, 2015

This tax alert summarizes the more significant New York State tax law changes included in the new law.

Overview

On April 13, 2015, New York’s Governor Andrew Cuomo signed into law S2009B/A3009B and S2006B/A3006B, referred to generally as “Budget Bills” forming part of the 2015-16 State Budget. This legislation makes technical corrections and other revisions to the New York State tax reform provisions enacted in 2014, and makes changes to certain sales and use tax provisions and other tax laws.

The official legislative record confirms the enactment date of the Budget Bills to be April 13, 2015. As such, any impact from the Budget Bills should be treated as a second quarter event for financial statement purposes for calendar year taxpayers. These law changes are effective as if originally enacted as part of the 2014 Tax Reform, which generally will be for tax years beginning on or after January 1, 2015. In this tax alert we summarize the more significant New York State tax law changes included in the new law.

Download the PDF to read the full tax alert, which includes details about:

  • Changes to sales and use tax provisions
  • Changes to tax credits
  • Information on mobile telecommunication services
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Technical corrections and other revisions

The more significant technical corrections and other revisions to the New York State tax reform provisions enacted in 2014 include the following:

  • Redefining the definition of investment capital as investment in stock that meets the following five criteria:
    • Satisfies the definition of a capital asset under Internal Revenue Code (“I.R.C.”) § 1221 at all times that the taxpayer owned such stock during the taxable year
    • Is held by the taxpayer for investment for more than one year (under the original provision, the required holding period was more than six consecutive months)
    • The disposition of such stock is, or would be, treated by the taxpayer as generating long‐term
      capital gains or losses under the I.R.C.
    • For stock acquired on or after January 1, 2015, at any time after the close of the day in which such stock is acquired, the stock has never been held for sale to customers in the regular course of business; and
    • Before the close of the day on which the stock was acquired, such stock is clearly identified in the taxpayer's records as stock held for investment in the same manner as required under I.R.C. § 1236(a)(1) for the stock of a dealer in securities to be eligible for capital gain treatment (whether or not the taxpayer is a dealer of securities under I.R.C. § 1236); provided, however, that for stock acquired prior to October 1, 2015, that was not subject to I.R.C. § 1236(a)(1), such identification in the taxpayer's records must occur before October 1, 2015.
  • Removing the provision stating that for purposes of determining the requisite holding period of a security to qualify as investment capital, the Commissioner of the New York Department of Taxation and Finance would take into account offsetting positions the taxpayer takes in such security or similar securities.
  • Conforming the related statute addressing the investment capital holding period requirement to provide that if a taxpayer acquires stock that is a capital asset under I.R.C. § 1221 during the taxable year and owns that stock on the last day of the taxable year, it will be presumed, solely for purposes of determining whether that stock should be classified as investment capital after it is acquired, that the taxpayer held that stock for more than one year.
    • Adding that if the taxpayer does not in fact own the stock at the time it actually files its original report for the taxable year in which it acquired such stock, then the presumption in the preceding sentence does not apply and the actual period of ownership would be used to determine whether the stock should be classified as investment capital after it is acquired.
  • Removing the subtraction of hedging losses and expenses from the computation of nontaxable investment income (the original provision essentially would have disallowed those expenses).
  • Adding a limitation on investment income such that if the taxpayer's investment income determined without regard to attributed interest deductions comprises more than eight percent of the taxpayer's entire net income, investment income determined without regard to such interest deductions cannot exceed eight percent of the taxpayer's entire net income (determined on a combined group basis where applicable).
    • Adding that the election to reduce investment income by 40 percent in lieu of interest attribution is revocable (which revocation must be consistent with a revocation of such election in computing exempt CFC income and exempt unitary corporation dividends) and is determined after applying the eight percent limitation noted above.
  • Deleting a provision that permitted the exclusion from entire net income of a New York City refund or credit relating to the New York State stock transfer tax.
  • Clarifying that, for purposes of computing the residential and small business loan subtraction modification for certain community banks and small thrifts, the $8 billion asset qualifying test for a combined group applies if the taxpayer is included in a combined report and the assets of the combined group do not exceed $8 billion and clarifying generally that the modifications for certain community banks and small thrifts do not reduce the numerator and denominator of the apportionment fraction.
  • Clarifying that only unitary group members that meet the ownership test under Article 9-A (more than 50 percent voting power ownership) are considered in applying the aggregate bright-line economic nexus tests. In other words, only the New York receipts of $10,000 or more of unitary group members will be aggregated to determine whether the $1 million or more bright-line nexus threshold is met.
    • Excludes from the application of the bright-line economic nexus test corporations that are not permitted to be included in a combined report under Article 9-A that otherwise could be considered unitary (e.g., corporations taxed under Article 9 or Article 33).
  • Clarifying that a non-US corporation qualifying for New York’s self-trading exemption will not be deemed to be subject to the bright-line economic nexus rules if its activities are limited to self-trading.
  • Clarifying that for purposes of qualifying as a “qualified New York manufacturer” (for a 0 percent tax rate on the business income base), a combined group filing a combined report will be required to meet the “principally engaged” test on a combined basis.
  • Limiting the type of New York property required in order to qualify as a qualified New York manufacturer (for income tax, capital tax, and fixed dollar minimum tax purposes) to New York ITC property that is “principally used by the taxpayer in the production of goods by manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture or commercial fishing,” whereas the New York property requirement previously had been satisfied with any New York ITC property (such as research and development property).
  • Establishing a capital base rate of 0.132 percent for tax years beginning in 2015 for qualified New York manufacturers and Qualified Emerging Technology Companies (“QETCs”); adding new fixed dollar minimum tables for S corporations that are qualified New York manufacturers or QETCs; adding that with respect to qualified New York manufacturers, the fixed dollar minimum tables apply in the case of a combined report only if the combined group satisfies the requirements to be a qualified New York manufacturer.
  • Clarifying that the deduction related to pre-2015 net operating losses (the Prior Net Operating Loss Conversion, “PNOLC,” subtraction) can be claimed only until the calculated pool of pre-2015 net operating losses is exhausted, and, except where the taxpayer elects to use its entire pool of pre-2015 net operating losses in 2015 and 2016 (as elected on its first return for the 2015 tax year), the taxpayer may carry forward the PNOLC subtraction pool for no longer than 20 taxable years or until the 2035 tax year, whichever comes first.
    • Clarifying that an NOL must be carried back to the earliest year first; and providing that a taxpayer may make an irrevocable election (which will apply to all members of a combined group) on an original timely filed return determined with regard to extensions (a separate election for each loss year) to waive the entire carryback period.
  • Amending the apportionment provisions:
    • Clarifying that a qualified financial instrument (“QFI”) means a specified type of financial instrument that has been marked to market in the taxable year by the taxpayer under I.R.C. §§ 475 or 1256; provided that, if the taxpayer has in the taxable year marked to market such a specified financial instrument, then any financial instrument within that type that has not been marked to market by the taxpayer under I.R.C. §§ 475 or 1256 is a QFI in the taxable year. If a corporation is included in a combined report, QFI status will be determined on a combined basis.
      • Providing that stock that is investment capital is not a QFI, notwithstanding an election for the fixed percentage method of sourcing the inclusion of receipts and net gains from QFIs.
      • Clarifying that a loan “secured by real property” (where 50 percent or more of the collateral used to secure the loan based on fair market value at inception consists of real property) is not a QFI and if the only loans that are marked to market by the taxpayer under I.R.C. §§ 475 or 1256 are loans secured by real property, then no loans are QFIs.
    • Clarifying that the fixed percentage method for determining the inclusion of receipts and net gains from QFIs shall be elected on an original timely filed return determined with regard to extensions.
    • Deleting “the location of the treasury function of the business entity” as the first level in the hierarchy for purposes of determining commercial domicile in sourcing receipts from financial transactions, so that now the first level in the hierarchy is the seat of management and control of the business entity.
    • Adding apportionment provisions for marked-to-market net gains of certain financial instruments, receipts from the operation of vessels, and receipts from qualified air freight forwarders.
  • Eliminating the requirement that the designated agent of a combined group, a taxpayer which acts on behalf of the members of the group relating to the combined report, must be the parent corporation.
  • Clarifying that the commonly owned group election (permitting qualifying nonunitary groups to file a combined return) is made on a timely filed return of the combined group, determined with regard to extensions.

For questions regarding the New York City tax reform or other New York State/City tax matters, please contact the following Deloitte Tax professionals:

 

Abe Teicher, partner, Deloitte Tax LLP, New York +1 212 436 3370
Ken Jewell, director, Deloitte Tax LLP, Parsippany +1 973 602 4309
Douglas Tyler, director, Deloitte Tax LLP, New York +1 212 436 3703
Mary Jo Brady, senior manager, Deloitte Tax LLP, Jericho +1 516 918 7087
Phillip Lee, senior manager, Deloitte Tax LLP, Jericho +1 516 918 7809

​Multistate Tax alert archive

The Multistate Tax Alert Archive includes external tax alerts issued by Deloitte Tax LLP's Multistate Tax practice during the last three years. These external alerts highlight selected developments involving state tax legislative, judicial, and administrative matters. The alerts provide a brief summary of specific multistate developments relevant to taxpayers, tax professionals, and other interested persons.

View the list of archived Multistate Tax alerts.

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