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New York Legislation Revises GILTI Treatment

New York Legislation Revises GILTI Treatment, Exempting 95% of GILTI and Increases Wayfair Economic Nexus Threshold

 

Revised GILTI Treatment

On June 24, 2019, New York Governor Andrew Cuomo signed the New York State Senate Bill 6615, which excludes 95% of a corporation’s gross global intangible low-taxed income (“GILTI” income) received from a non-combined foreign controlled corporation from its New York corporate income tax base, retroactive to January 1, 2019. 

Under the former New York law, effective for the tax year of 2018, a corporation’s New York net income tax base included the GILTI, net of the GILTI deduction under IRC section 250. However, the foreign-derived intangible income (“FDII”) deduction was not permitted. The former statute allowed GILTI to be included in the denominator of the apportionment factor.

Senate Bill 6615 revises the definition under Article 9-A Corporate Franchise Tax, of a corporation’s “exempt CFC income” (which is excluded from the business income base), to comprise 95% of a corporation’s gross GILTI if received from a non-combined controlled foreign corporation. In tandem, the IRC section 250 is now disallowed entirely. Consistent with the former GILTI treatment, the 5% of GILTI that is not exempt in the business income base, is to be included only in the denominator of the apportionment factor. While this legislation provides immediate satisfaction, it does not provide any alleviation to taxpayers with significant GILTI in 2018.  Additionally, this legislation does not provide any reprieve to taxpayers on the New York City business corporation tax.

Revised Economic Nexus and Local Rate Relief

Moreover, the Senate Bill amends the New York sales and use economic nexus threshold that applies to remote sellers and marketplace providers.

Under the former New York law, economic nexus was established by the gross receipts exceeding the threshold of $300,000, and 100 transactions delivered into New York in the immediate previous quarterly periods ending in February, May, August, and November.

The new provisions increases the threshold to $500,000 in receipts for remote sellers and marketplace providers, and preserves the 100 transactions threshold. The change would be considered to be operative as the date of the U.S. Supreme Court’s decision in the South Dakota vs Wayfair, June 21, 2018, and June 1, 2019 for marketplace providers.

The bill also provides penalty and interest relief to certain vendors that are registered to collect sales tax, and in good faith collected and remitted local sales tax at the improper local rate. Vendors would potentially be eligible to discharge penalties and interest on the uncollected tax for the first four quarterly periods after the vendor became required to collect the tax.

Author:  Jason Rosenberg, CPA, CGMA, EA, MST  |   jrosenberg@withum.com  and  Zhoudi Tang, CPA  |  ztang@withum.com

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