On April 12, 2019, Governor Andrew M. Cuomo signed into law the New York State Budget Bill for the State's 2019-20 fiscal year, which began on April 1, 2019. (S. 1509-C. A. 2009-C.) The legislation contains several important tax provisions, including increases to the New York State real estate and "mansion" transfer taxes that were not in the Governor's proposed budget released this past January. The most significant of the new tax provisions are summarized below:
Increases tax rates on real estate transfers. The New York State real estate transfer tax, currently imposed at the rate of 0.4% of the consideration for the real property, is increased to 0.65% for conveyances of (i) residential real property located in New York City where the consideration is at least $3 million and (ii) non-residential real property located in the City where the consideration is at least $2 million. In addition, the New York State "mansion tax" – currently imposed on sales of residential real property for a consideration of $1 million or more at the rate of 1% – would be increased for conveyances within New York City at graduated tax rates of between 1.25% (where the consideration is at least $2 million but less than $3 million) up to 3.9% (where the consideration is at least $25 million).
The funds raised from the new taxes are designated for the benefit of the Metropolitan Transportation Authority, which provides public transportation in New York City and nearby New York State counties. The new taxes will apply to conveyances made on or after July 1, 2019, except for conveyances made pursuant to written contracts entered into on or before April 1, 2019. (Part OOO.) These increased State real estate transfer taxes were not part of the Governor's proposed budget released last January, but were introduced as a way to provide additional funding for mass transit. The tax increases were enacted in the face of significant opposition to other proposed legislation that would have increased property taxes on high-value pieds à terre, that is, on residential real property (including cooperatives) that is not the owner's primary residence.
- Sales tax: Requires marketplace providers to collect sales tax. After several failed attempts by the Governor in recent years, the Legislature finally passed legislation requiring "marketplace providers" to collect and remit sales tax on sales that they "facilitate." "Marketplace providers" are defined as persons that, under an agreement with a seller, "facilitate" sales of tangible personal property, which involves both (i) providing the "forum" in which the sale takes place, whether a physical location (such as a brick and mortar store) or an Internet website or catalog, and (ii) the provider (or an affiliate) collecting the purchase price from customers on behalf of the seller. The new law applies to marketplace providers that either have a physical presence in New York State, or that have made or facilitated in-State sales resulting in total New York State receipts in the immediately preceding four quarterly sales tax periods of more than $300,000 or that have more than 100 in-State sales during those periods, which the Governor's memorandum in support had characterized as "large marketplace providers." The new law applies to sales made on or after June 1, 2019. (Part G.)
- Sales tax: Vendors may now advertise that they will pay sales tax on behalf of customers. Scaling back on a long-standing prohibition, and effective immediately, vendors may now advertise or otherwise hold themselves out to customers as paying the sales tax on their behalf, provided certain conditions are met. Among the conditions is that bills and receipts given to purchasers must state that the vendor is paying the tax, and cannot state that the transaction is exempt or otherwise excludable from sales tax. (Part DDD.)
- Corporate tax: Imposes a sourcing rule for GILTI apportionment. Legislation was enacted under the New York State and New York City corporate taxes whereby corporations with global intangible low-taxed income ("GILTI") must include in the denominator of the apportionment fraction – but not in the New York numerator – their "net global intangible low-taxed income," defined as GILTI less the amount deducted federally under IRC § 250(a)(1)(B)(i). Efforts by some business groups seeking legislation that would have excluded GILTI from the income tax base altogether proved unsuccessful. The new GILTI sourcing provision applies to taxable years beginning on or after January 1, 2018, i.e., to all years in which the GILTI inclusion may apply for federal, and New York, tax purposes. (Part C.)
- Corporate tax: Decouples from federal basis in determining whether a manufacturer is a qualified manufacturer. Under Article 9-A, a "qualified New York manufacturer" is entitled to reduced tax rates, including a zero percent tax rate on business income, if, among other requirements, the manufacturer has New York property with an adjusted basis for federal income tax purposes of at least $1 million. The Federal Tax Cuts and Jobs Act allows corporations to treat certain capital expenditures as expenses in lieu of capitalizing them, which could result in reductions to the federal adjusted basis of a manufacturing corporation's New York property to bring it below the $1 million threshold. The legislation decouples from the federal adjusted basis and substitutes a New York State adjusted basis, which presumably means an adjusted basis that treats the items expensed for federal purposes as capitalized expenditures for State purposes. The legislation similarly decouples for a "qualified New York manufacturing corporation" under the New York City corporate tax. (Part D.)
- Income tax: Extends top personal income tax rates for five years. The top New York State personal income tax bracket for individuals, currently at 8.82%, has been extended for another five years through 2024. That top rate, initially enacted as a temporary rate increase, would have expired after 2019. (Part P.)
- Income tax: Extends for five years the limitations on itemized charitable deductions for high- income individuals. While the Governor and the Legislature continue to combat the $10,000 federal limitation on state and local tax deductions, regardless of the taxpayer's income, individuals with New York adjusted gross income of more than $10 million who claim itemized deductions for charitable contributions will continue to have those charitable deductions limited to 25% for another five years for New York State and City income tax purposes. The limitations were to expire after 2019. (Part Q.)
The final legislation did not include the Governor's proposal to legalize and tax adult-use cannabis. It also did not include the Governor's proposal to tax "carried interest" income of hedge fund and private equity investors as ordinary earned income, and to impose a "17 percent carried interest fairness fee," if neighboring states enacted substantially similar legislation.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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