The latest news and updates on New York state and local tax

September 23, 2022

Emergency Regulations on NY Musical and Theatrical Tax Credit Program Revised

Authored by: George Gonzales, MST and Brandon Spinella

On September 14, The NY Dept. of Economic Development amended the NYC Musical and Theatrical Production Tax Credit emergency regulations for both corporate and individual income taxpayers. The amendments to the emergency regulations include:

  • Delaying the end of the credit from 3/31/23 to 9/30/2023.
  • Extending the application deadline to 6/30/2023 (Previously 12/31/2022).
  • Revising the trigger date for economic evaluation of the credit cap to on or after 1/1/2023.
  • Increasing the overall cap on credits from $100 million to $200 million.

September 16, 2022

New York City Tax Updates

Authored by: Katerine Velasquez and Zhoudi Tang, MST, CPA

On September 9, the New York legislature passed a law bringing the New York City Tax code into greater alignment with the State’s laws. Some relevant changes in tax provision include:

  • Economic nexus:On January 1, 2022, the bill applies a bright-line nexus standard if “a corporation is “deriving receipts from activity” in the city and subject to the city’s corporation taxes if it has receipts of $1 million or more in a taxable year or derives receipts totaling $10,000 or more in a taxable year for a unitary group that has combined receipts totaling $1 million or more”. Additionally, unitary groups which have a location or at least 10 customers or both in NYC with receipts that meet the $1 million threshold are also subject to the city’s taxes.
  • Excluded grant amounts:The NYC’s Small Business Resilience Grant Program or COVID-19 Small Business Recovery Grant Program are excluded from NYC business income taxes. This provision is effective as of January 1, 2021.
  • Real property tax returns:The law excludes a member or authorized person of a limited liability company (“LLC”) from the reporting requirements for LLCs which are grantors or grantees of deeds for certain residential buildings.
  • NYC Pass-Through Entity Tax (“PTET”):The NYC PTET’s effective date is updated from January 1, 2023 to January 1, 2022. The NYC PTET is put into place as a response to the Tax Cut and Jobs Act’s $10,000 state and local tax deduction cap.
  • Overpayments of tax:The amendment now permits overpayments of unincorporated business tax and business and income taxes to be credited against any tax liability. Previously, the overpayment was restricted in applying the overpayment against liabilities for those specific tax types.

If you have questions about how these changes may affect your business, please contact a member of the Withum SALT Team.

September 2, 2022

Student Debt Forgiveness Taxable in Many States

Authored by: Brandon Vance and Bonnie Susmano, JD, MBA

On August 24,2022, President Biden announced that the Federal government will enact a wide-scale student loan forgiveness program. The loan forgiveness will be exempt from federal taxation. However, the forgiveness is taxable at the state level in many states.

States are expected to fix this significant tax disparity but must act quickly because many state legislatures have adjourned for the year. Currently, 13 states do not fully comply with the student loan debt provisions of the American Rescue Plan Act. These states include Arkansas, Hawaii, Idaho, Kentucky, Massachusetts, Minnesota, Mississippi, New York, Pennsylvania, South Carolina, Virginia, West Virginia and Wisconsin.

August 19, 2022

Growing Problem of ‘Wayfair Creep’ Threatens Compliance Burdens

Authored by: Kevan Koopaei, CPA and Brandon Spinella

The Wayfair case is starting to encroach itself on income tax for e-retailers. The majority of states have adopted economic nexus principles for income tax. Some of these economic nexus rules have bright line thresholds on the amount of sales derived from sources in the state (i.e., “factor presence”). Other states use a more amorphous “doing business” nexus standard where theoretically $1 worth of sales into the state would be sufficient to create nexus.

While many states have lowered their nexus threshold to merely deriving receipts from sources within the state, P.L. 86-272, protected many retailers from state income taxes. However, In July 2020, the Multistate Tax Commission issued its restatement on when P.L. 86-272 applies in the digital economy. As per the MTC’s restatement, a number of activities that would have previously been considered protected may now break P.L. 86-272 protection. Examples of digital activities that may break P.L. 86-272 protection include providing customer support via online chat tools, extended warranty plans, advertising job openings, accepting job applications through the Company website, putting specific types of cookies into customer’s devices, and providing remote repairs and automatic device updates. California and New York have already indicated that they are adopting the MTC’s restatement, and other states are sure to follow. This will substantially curtail retailers’ ability to claim P.L. 86-272 protection.

For questions about whether your business may be protected under P.L. 86-272, please contact the Withum SALT Team.

July 29, 2022

New York Governor Signs Law Exempting Diapers for Human Use From Sales and Use Tax

Authored by: Brandon Vance and Bonnie Susmano,JD, MBA

On July 19, 2022, New York Governor Kathy Hochul signed the Diaper Initiative for Parents and Elderly Remedy Act. The law exempts the purchase of diapers intended for human use from sales tax. The definition of diapers in the Act is broad and includes disposable, reusable, adult, and children’s diapers. The law will begin on December 1, 2022.

July 22, 2022

New York Appellate Court Holds No Tax Break for Concrete Used in Construction

The New York Supreme Court’s Appellate Division affirmed a concrete contractor that constructs foundations and sidewalks must pay sales and use tax for purchases of concrete. M&Y Developers Inc.’s argument that buying concrete should be considered a tax-exempt installation of capital improvements to real property was rejected by the New York appeals court because the purchase was not for the concrete itself but rather installation services that will lead to an addition or capital improvement to real property.

July 22, 2022

Draft Apportionment Regulations Issued Under NY Corporate Tax Reform

The NY Department of Finance proposed updates to the Article 9-A Business Corporation Franchise Tax Regulations since the corporate tax reform was enacted. The Department issued the Part 4 draft in reference to apportionment regulations. These regulations include the rules for digital products/services as well as services and other business receipts that were previously posted separately. Major elements and revisions to this draft include:

  1. Replacing “taxpayer” with “corporation”. This is due to the rules applying to corporations to determine if the economic nexus standard has been met and non-taxpayer members of combined groups.
  2. Clarifying the items included in the business apportionment factor (BAF).
  3. Addressing the apportionment of lump sum payments.
  4. Providing guidance on the treatment of net gains from the sale of tangible personal property and real property.
  5. Providing examples for sourcing sales of tangible personal property, royalties, advertising receipts, and receipts from digital products/services.
  6. Updating the rules for federal funds and other financial instruments.
  7. Clarify that cryptocurrency falls under the definition of a digital product.
  8. Including a billing address safe harbor for receipts from digital products/services and services and other business receipts.
  9. Revising the rule for services for passive investment customers based on rules adopted by other states and the Multistate Tax Commission.

The Department asks taxpayers to provide comments regarding the draft by August 26, 2022.

June 17, 2022

New York City Legislation To Suspend Commercial Rent Tax

As a result of the pandemic, Keith Powers, New York City Councilman has introduced new legislation to suspend the commercial rent tax for three years. This suspension would affect spaces rented by businesses below 96th Street in Manhattan that are solely for the purpose of trade, business, profession, vocation or commercial activity. As of the date of introduction, the Bill has support from Councilman Powers as well as six additional City Council members. New York City has only regained about 71 percent of jobs lost during the pandemic, and about 26,000 city businesses have permanently closed since the COVID-19 pandemic began in March of 2020. Council members in support of the legislation were quoted stating that commercial rent tax “punishes” restaurants and retail shops for paying high rents and the legislation would provide relief to help recover jobs, foot traffic and businesses.

May 27, 2022

New York Faces Revenue Shortfalls Due to Tax Paying Residents Moving Out

Approximately 115,000 New York State residents left between 2015-2019, taking their tax dollars with them.The rise of remote work due to the COVID-19 pandemic has further increased the volume of residents moving out of state. According to New York State Comptroller Thomas P. DiNapoli, the state’s largest revenue source is from personal income tax, which accounts for 2/3 of state revenues. The largest number of departures came from married filers who were earning between $100k-$500k, and these individuals typically paid a substantial amount of tax. As a result of these departures, state and local tax authorities are challenged with finding new revenue sources to replace the taxes lost due to residents leaving the state.This will likely take the form of increased audit activity of departing residents. Please note that former New York State residents often continue to have New York Source income – particularly if they have deferred compensation and/or stock options.New York is aggressively auditing former residents who fail to report state source income and pay the associated tax. If you are considering changing your tax residence, or have received an audit notice, please contact a member of the Withum SALT team.

May 20, 2022

Additional Time to Make New York State Pass-Through Entity Tax (“PTET”) Election

Governor Kathy Hochul signed Bill S8948 on May 6, 2022. This bill will allow an extension of time from March 15, 2022 to September 15, 2022 to make the New York PTET for tax year 2022. This will allow additional time for taxpayers to analyze the changes made to the NY PTET and determine if an election should be made. Included in the bill are estimated payment requirements for the extended election period: 25% of the required annual payment is due if the election made before June 15, 2022 and 50% of the required annual payment is due if the election made before September 15, 2022 for a PTET election to be valid.

May 13, 2022

New York and California Release Revised Regulations on P.L. 86-272

The New York Department of Taxation and the California Franchise Tax Board have issued a technical memorandum and a draft regulation respectively. The documents put out by the states revise their interpretation of P.L. 86-272.P.L. 86-272 prohibits states and localities from imposing income taxes on remote businesses if their only activity with the state is soliciting sales of tangible personal property. The Multistate Tax Commission recently reinterpreted P.L. 86-272, stating that businesses interacting with customers via a website or an app are engaging in unprotected business activities within the customer’s state in a variety of scenarios, and thus no longer qualify for P.L. 86-272 protection. Both California and New York are using this reinterpretation of P.L. 86-272 to modify their respective stances on when businesses can claim P.L. 86-272 protection. Furthermore, California has indicated that its revised interpretation of P.L. 86-272 can be applied retroactively. New York is also considering a retroactive application of its revised interpretation of P.L. 86-272. For more information, please see New York’s Draft Regulation and California’s Technical Memorandum. If you have questions about whether your business may still be protected under P.L. 86-272, please contact a member of the Withum SALT Team.

April 29, 2022

New York – Appeals Court Upholds Goldman Sachs Capital Gains Tax Treatment

In 2008, Goldman Sachs’ investment company Petershill US IM Master Fund LP purchased 9.9% of Claren Road Asset Management LLC (“Claren”). Goldman’s Master Fund had no activity or physical presence in New York City but Claren was engaged in business activities in the city. Since Goldman owned a certain percentage of the investment, when Goldman sold their ownership of Claren in 2010 it is expected that Goldman pays capital gains tax on the profit, however, Goldman Sachs did not. Due to Goldman Sachs not reporting the capital gain on their 2010 New York City General Corporation tax return, it led to a New York audit in 2014 and eventually a $4 million assessment.

Goldman Sachs protested the assessment in 2018 when an administrative law judge had sided with the city. Following this, in 2022, Goldman Sachs had gone to the appellate court where they also sided with the city concluding, “while the investment team’s business acumen may have influenced the timing of petitioner’s sale of its partnership interest, it was rational for the Tribunal to conclude that the capital gain was attributable to the value of Claren on the date it was sold.” Since Claren had business activities in New York, the courts found it to be reasonable that the nexus established by Claren allows them to tax on profits of the company.

New York – SALT Cap Challenge Denied Cert.

On April 18, 2022, the Supreme Court denied cert. in New York et al. v. Yellen. In this case, the states of New York, New Jersey, Maryland and Connecticut challenged the constitutionality of the $10,000 SALT cap enacted under the TCJA. Previously, the Second Circuit upheld the constitutionality of the $10,000 SALT cap, allowing the states challenging the SALT cap to pursue an appeal to the Supreme Court. Since the Supreme Court has declined to hear a challenge to the Second Circuit’s ruling, the only way around the SALT cap is for states to enact workaround statutes.If you have questions about whether your state has enacted a pass-through entity tax, please contact the Withum SALT Team.

April 15, 2022

New York State Budget Bill Highlights

The State’s 2022-2023 Budget Bill, S8009, has been passed by the New York State Legislature. The budget includes:

  • A motor fuel tax holiday from June 1 through December 31, 2022;
  • An accelerated phase-in of the middle-class tax cuts;
  • A city pass-through entity tax for eligible city partnerships and resident S corporations;
  • A supplemental earned income tax credit equal to 25% of the 2021 EITC benefit; and
  • A supplemental empire state child tax credit for families with children over the age of four, which would be calculated based on the taxpayers’ 2021 Empire State Tax Credit.

Also enacted in the Budget Bill are new tax credits, such as the COVID-19 capital costs tax credit and several other tax credits, including NYC’s theatrical and musical production company credit.

In addition, the state’s pass-through entity tax (PTET) workaround has been revised. New York created two classes of S corporations for purposes of the PTET computation: the electing resident S corporation and the electing standard S corporation. That said, the PTET computation remains the same for electing standard S corporations, which are S corporations making the PTET election but do not certify that all of their shareholders are residents of New York. The PTET is still limited to New York source income, even if the entity has New York resident shareholders.

Alternatively, if an S corporation elects to pay the PTET and certifies that all of its shareholders are residents of New York, then the PTET tax base is expanded to include all items of income, gain, loss or deduction to the extent they are included in the taxable income of the shareholder subject to New York’s personal income tax.

However, if an electing resident S corporation cannot certify that all shareholders are residents of New York, it is automatically treated as an electing standard S corporation. If an electing S corporation can make a certification as to shareholder residency, the certification is irrevocable as of the due date of the PTET election.

Note that certification to be taxed as an electing resident S corporation for this year must be made by March 15, 2023.

February 28, 2022

New York Determines That IT Monitoring Services are Subject to Sales Tax

The New York State Tax Appeals Tribunal determined that IT Security monitoring services are taxable services In the Matter of the Petitions of Secureworks, Inc. (DTA Nos. 828328 and 828329). Specifically, the Tribunal ruled that New York specifically enumerates all protective and security services intended to counter against burglary, theft, and damage to property. As the IT security services rendered by the petitioner were intended to prevent the theft of data and malicious network intrusions, these services were squarely included in the definition of taxable protective and security services.

January 17, 2022

New York Revises the Definition of a Statutory Resident

New York State defines a “statutory resident” as an individual who maintains a permanent place of abode “for substantially all of the tax year,” and is present in New York more than 183 days per year. While the definition of “substantially all of the taxable year” has never been defined by statute or regulation, the Department has administratively determined it to mean more than 11 months (aka the 11-month rule). As such, under the traditional rule, an individual obtaining a New York place of abode would not be considered a statutory resident because they did not maintain a place of abode for more than 11 months. Starting in 2022, New York State has revised its administrative determination of the “substantially all of the tax year” to mean a period exceeding 10 months. As such, individuals who obtain a place of abode in New York before March or dispose of a place of abode after October will now be considered statutory residents if they spend more than 183 days in the state during the year.

Judge Reverses Decision on Non-Taxable Pre-written Software in New York

An administrative law judge recently issued a decision that reversed the Division of Taxation’s determination of a taxpayer’s software product sales (Docket No. 829134). The taxpayer’s service allows agents to access detailed financial reports of personal commissions and performance, and a projection for what is needed to reach their next goal. The administrative law judge determined that since these reports are specific to an individual with minimal overlap of a previous report that it will not be subject to tax. In this case, the judge made a clear distinction between the personal information services offered by the taxpayer and SaaS. Had the judge determined that the taxpayer was selling SaaS and not a personal information service, then the taxpayer would have been required to collect and remit sales tax.

December 2, 2021

New York’s MTA Surcharge Rate Remains Unchanged for the 2022 Tax Year

According to TSB-M-21(2)C, issued on November 19, 2021, the New York Commissioner of Taxation and Finance stated the 30% MTA surcharge rate for Article 9-A Taxpayers will remain the same for tax years beginning on or after January 1, 2022, and before January 1, 2023.

November 4, 2021

New York – States with Substantially Similar PTEs

In enacting its Pass-Through Entity Tax, New York State indicated that it would give a credit for taxes paid to other states for New York residents related to their participation in “substantially similar” Pass-Through Entity Tax regimes in other states. However, at the time the New York Pass-Through Entity Tax was enacted, New York State did not provide any guidance as to what other states’ Pass-Through Entity Taxes would be considered “substantially similar”. In late October 2021, New York issued a specific list of state Pass-Through Entity Taxes that are deemed “substantially similar” to New York’s. The list of states with “substantially similar” Pass-Through Entity Taxes includes AL, AZ, AR, CA, CO, CT, GA, ID, IL, LA, MD, MN, NJ, OH, OK, OR, RI SC, and WI. This list appears to include every state that has enacted a Pass-Through Entity Tax in the past two years. Additional states are considering enacting Pass-Through Entity Taxes, and it appears likely that New York will add additional states to this list.

October 15, 2021

New York PTET Election Due Date Relief

New York may be providing some limited relief for the New York Pass-through entity tax (PTET) election that is due today, October 15, 2021. Per New York’s website as updated today, it explains that if you cannot opt-in by the October 15 deadline for one of the below three reasons, to submit a question to the NY PTET support team by October 15.

  • You’re waiting for us to process a Form CT-6, Election by a Federal S Corporation to be Treated As a New York S Corporation, you submitted on or before October 15;
  • You’re experiencing difficulties creating or logging in to your Business Online Services account; or
  • You’re receiving an error message, such as We cannot confirm your eligibility as a New York S corporation or partnership, when you try to opt-in through your account.

The website explains when you submit the question, you must explain why you could not opt-in on time. You must also retain documentation (such as a screenshot of error messages) to show you attempted to make an election prior to the October 15 deadline and make this documentation available to the department upon request. Once your issue is resolved, New York will contact the taxpayer to assist in completing the election after the deadline.

If you are unable to make the PTET election by October 15 and you do not submit a question with an explanation proving you have one of the issues listed above by October 15, you cannot elect into PTET for the 2021 taxable year.

Please note that the New York PTET Call Center will be open for additional hours on Friday, October 15 until 12:00 a.m.

September 30, 2021

New York – Extended Tax Deadlines for Victims of Hurricane Ida

Victims of Post-Tropical Depression Ida located within the counties identified by the Federal Emergency Management Agency (FEMA) will have an extended due date to December 14, 2021, for tax return filings and payment deadlines occurring between September 15, 2021, and October 2, 2021, for the following:

  1. Filing returns including personal income tax, corporate taxes, sales tax, and any other taxes administered by the Tax Department;
  2. Paying any tax or installments of tax (exceptions may apply);
  3. Filing any requests for extensions or additional extensions of time to file; and
  4. Filing for a credit or refund.

Please note that the PTET election does not fall within any of the categories of filings eligible for an extension. As such, PTET elections are due by October 15, 2021, regardless of whether a taxpayer was affected by IDA.

In addition, New York City Department of Finance has issued a memorandum to alert taxpayers that are victims of the hurricane that they may be able to have late filing and payment penalties abated or waived in relation to the following taxes: business corporation tax, general corporation tax, unincorporated business tax, banking corporation tax, commercial rent tax, hotel room occupancy tax, real property transfer tax, and utility tax. However, interest will continue to accrue from the original due date of the payment. The counties identified include Bronx, Kings, Nassau, New York, Queens, Richmond, Suffolk, Sullivan, and Westchester.

August 13, 2021

New York is Casting a Much Bigger Net Fishing for Remote Taxpayers Under the Office of Convenience Rule

In recent months, New York has started issuing desk audit notices, basically as soon as returns are filed, to taxpayers who have claimed a change of residency or who have reported less income attributable to New York sources than in prior years. New York is issuing desk audit notices, assigning taxpayers case numbers, and requiring a response. Failure to respond promptly with sufficient information will result in an assessment of additional tax along with associated penalties and interest.

Taxpayers receiving these notices related to a reduction in income allocated to New York State will be required to prove that any days allocated outside of New York were for their employer’s necessity – to the Department’s satisfaction. The Department will assess additional tax under the Office of Convenience Rule if the taxpayer is unable to substantiate to the Department’s satisfaction that the days worked outside New York was not for the individual’s convenience. Please note that the Department is taking the position that any day worked from home due to COVID is for the employee’s convenience and not the employer’s necessity.

Taxpayers receiving notices related to a claimed residence change will be required to prove to the Department’s satisfaction that they:

  1. Broke their New York domicile (or now qualify for one of the state’s exceptions to domicile);
  2. Are not statutory residents; and,
  3. Correctly allocated their income to the state – which includes proving to the Department’s satisfaction that any wage income sourced outside the state is not derived from New York sources under the Department’s Office of Convenience Rule.

Anecdotally, New York has traditionally not gone after taxpayers who make less than $1M on income allocation issues. Bloomberg is reporting instances of taxpayers who make $100K+ receiving desk audit letters. As per Bloomberg, the New York State Department of Taxation and Finance has issued almost 150,000 audit notices in 2021. As many returns are on extension, and the Department has three (3) years to audit 2020 returns, the number of desk and field audit letters sent to taxpayers on the Office of Convenience issue will only increase.

August 4, 2021

New York City Musical and Theatrical Production Tax Credit for Corporate and Personal Income Tax

On July 23, 2021, Governor Andrew Cuomo announced the New York City Musical and Theatrical production tax credit which is designed to revitalize the theater district after its closure due to the Covid-19 pandemic by offering up to $100 million in tax credits. The two-year program for approved companies will allow tax credits for up to 25% of qualified production expenditures such as sets, costumes, sound, lighting, salaries, fees, advertising costs, etc. First-year program applicants can receive up to $3 million per production and second-year applicants up to $1.5 million. Companies can receive credits for tax years beginning on or after January 1, 2021, but before January 1, 2024. Applications must be submitted by December 31, 2022, and final applications no later than 90 days after the production closes or 90 days following the program end date of March 31, 2023, whichever comes first.

June 18, 2021

New York Updates Estimated Tax Payment Instructions

The New York Department of Taxation and Finance has issued a bulletin alerting taxpayers of updated instructions for Forms IT-2105, Estimated Tax Payment Voucher for Individuals, and IT-2106, Estimated Tax Payment Voucher for Fiduciaries. The updates reflect recently enacted increased personal income tax rates for the following taxpayers: married taxpayers filing jointly with income over $2,155,350; single filers, married taxpayers filing single, and estates and trusts with income over $1,077,550; and heads of household with income over $1,616,450.

May 26, 2021

New York Temporarily Suspends Hotel Occupancy Tax

New York City Mayor Bill de Blasio has issued an executive order suspending the 5.875% hotel occupancy tax imposed by NYC Administrative Code Section 11-2502(3)from June 1, 2021, through August 31, 2021. The daily hotel room tax under NYC Administrative Code§ 11-2502(a)(2)remains in effect. For additional information, please see the executive order released on May 18, 2021.

May 13, 2021

New York Auditing Income Tax Returns of Certain Nonresident Remote Employees

New York tax authorities are focused on auditing 2020 income tax returns filed by nonresidents who work for New York employers. During the course of the Coronavirus Pandemic, the New York Department of Taxation and Finance directed nonresidents whose primary office is in New York to count telecommuting days as time working in the state. More specifically, TSB-M-06(5)I, issued in 2006, provides that in order for any workdays to be allocated outside of New York State, such services must be because of the employer’s necessity and not the employee’s convenience. Applying this rule, unless telecommuting was because of the necessity of the employer, employee services rendered remotely were to be considered New York workdays. However, there may be legal challenges to that position because taxpayers are arguing telecommuting was a requirement and, in many cases, mandated; rather than simply being based on convenience. Moreover, the U.S. Supreme Court will rule on a similar issue as requested by New Hampshire, which is challenging Massachusetts’ taxation of residents working remotely.

New York Holds Distributions from an IRA Funded from Federal Thrift Savings Plan Can be Deducted from FAGI in Determining NYAGI

The New York Department of Taxation and Finance has issued an Advisory Opinion concluding that distributions from an Individual Retirement Account (IRA) funded from a federal thrift savings plan (TSP) can be deducted from federal adjusted gross income (FAGI) when determining New York adjusted gross income (NYAGI) (to the extent the amounts represent a return of the amount rolled over). To calculate the rollover deduction amount, taxpayers can use a fraction, the numerator of which is the TSP rollover amount, and the denominator of which is the IRA’s current value. The product of the fraction is the amount that can be deducted in determining NYAGI. Additionally, while the gain from the rollover IRA may not qualify for that subtraction modification, the amounts may be eligible for the $20,000 subtraction modification.

April 5, 2021

New York Releases Details of Pending Marijuana Law

New York state lawmakers released details of the new law legalizing recreational marijuana, which recently passed the state Senate. The legislation provides licensing requirements for marijuana producers, distributors, and retailers. It creates a social and economic equity program to assist individuals disproportionately impacted by cannabis enforcement that want to participate in the industry. The law (S.854A /A.1248A) provides for a 9% state excise tax and 4% local excise tax rate on the retail sales price of marijuana. Dispensaries may be allowed to open as early as 2022.

Distributors will be required to collect an excise tax based on the potency of the amount of THC, the active ingredient in cannabis. The law plans to tax raw flowers at 0.5 cents per milligram of THC, cannabis concentrate at 0.8 cents per milligram, and edibles at 3 cents per milligram.

The bill establishes the Office of Cannabis Management to put in place a framework that would cover medical, adult-use, and cannabinoid hemp. The tax revenue generated will be used to operate the state cannabis program and related social programs.

April 28, 2021

New York Provides Updates for Housing Development fund projects; COVID-19 Debt Relief Credit; and Brownfield Credit

Effective April 16, 2021, New York exempts certain housing development fund projects from sales and use tax, and provides for a COVID-19 debt relief credit (for certain taxpayers doing business under the supervision of the public service commission) against corporate income tax. For specific details, please see L. 2021, A3006 (c. 56). Further, New York has extended certain Brownfield credit periods for two years for specified taxpayers that failed to meet credit requirements due to COVID-19 pandemic restrictions.For information pertaining to the Brownfield credit extension, please see L. 2021, S2508 (c. 58).

April 21, 2021

Governor Cuomo Signs $212 Billion Dollar New York Budget Bill

On April 19, 2021, Governor Andrew Cuomo signed the $212 billion budget for the fiscal 2022 year. Included are measures for a state-level pass-through entity tax (PTET) as well as tax relief for middle-class taxpayers. Two new tax brackets have been introduced for New York’s top-income taxpayers. Mobile sports betting and recreational marijuana have also been legalized. A brief overview of some other items included in the budget bill include the following:

  • A workaround to the federal limitation of the state and local tax deduction. The Tax Cut and Jobs Act (TCJA) imposed a $10,000 limitation on the amount of state and local tax that individuals (or pass-through business owners) may deduct for federal income tax. Some states, including New Jersey and Connecticut, responded by enacting various workaround bills in an effort to mitigate the impact of the limitation on their state residents. Similarly, New York is planning to impose an entity-level tax that would provide an offset credit to the individuals of the flow-through entity to get around the $10,000 limitation.
  • New York’s top income tax rate is currently 8.82% for income over $1.1 million. Under the budget bill, those earning income over $1.1 million ($2.2 million for joint filers) but less than $5 million would pay an increased rate of 9.65%.
  • Two new tax brackets would be created, applicable to both individual filers and joint filers. Those earning between $5 million and $25 million will be taxed at a rate of 10.3%, and those earning over $25 million would be taxed at a rate of 10.9%. These new, temporary rates would expire in 2027.
  • Continued Middle-Class Tax Cuts—
    • For single filers, the personal income tax rate would drop in the 2021 tax year to 5.97% (from 6.09%) for those earning between $21,400 and $80,650; and to 6.33% (from 6.41%) for those in the next income tax bracket, which ranges up to $215,400.
    • For joint filers, the personal income tax rate would drop in the 2021 tax year to 5.97% for those earning between $43,000 to $161,550; and to 6.33% for those in the next income tax bracket, which ranges up to $323,200.
  • New York would legalize mobile sports betting. Sports betting currently is allowed in-person at commercial and tribal casinos.,
  • New York State legalized recreational marijuana at the end of March and is anticipating raising additional revenue from this new revenue source. However, New York will not likely see any additional revenue from recreational marijuana until legal sales commence in the next fiscal year.

April 14, 2021

New York City Denies Corporate Tax Refund for Service-Based Offering with Expert Consultants

A New York City-based business provided a subscription service, which gave customers access to expert consultants in a variety of fields. As part of its service package to customers, the taxpayer employed salespeople, IT staff, and consulting managers; but the expert consultants were compensated as independent contractors. The taxpayer sought a refund for a large portion of corporate income taxes it had paid during tax years 2003-2010. Alternative rationales were offered for differing methodologies, but ultimately the taxpayer settled on an allocation whereby only the locations and amounts paid to consultants and research managers who provided services directly to clients should be counted; IT staff was excluded. The City contended that all of these persons contributed to the performance of the services provided to clients. The New York City Tax Appeals Tribunal (2017) found the taxpayer hadn’t allocated income correctly because receipts had to include work done by both employees and consultants in New York City, not all of whom the company had included. The Appellate Court agreed (2021), determining all these individuals were all part of the delivery of services for which clients paid an upfront flat subscription fee.

April 7, 2021

New York Finalizing $212 Billion Dollar Budget Deal

On April 6, 2021, Governor Andrew Cuomo announced an agreement has been reached on the $212 billion budget for the fiscal 2022 year. Included in the budget is New York’s own version of a workaround to the federal limitation of the state and local tax deduction. The Tax Cut and Jobs Act (TCJA) imposed a $10,000 limitation on the amount of state and local tax that individuals (or pass-through business owners) may deduct for federal income tax. Some states, including New Jersey and Connecticut, responded by enacting various workaround bills in an effort to mitigate the impact of the limitation on their state residents. Similarly, New York is planning to impose an entity level tax that would provide a offset credit to the individuals of the flow-through entity to get around the $10,000 limitation.

A brief overview of some other items included in the budget bill include the following:

  • New York’s top income tax rate is currently 8.82% for income over $1.1 million. Under the budget bill, those earning income over $1.1 million ($2.2 million for joint filers) but less than $5 million would pay an increased rate of 9.65%.
  • Two new tax brackets would be created, applicable to both individual filers and joint filers. Those earning between $5 million and $25 million will be taxed at a rate of 10.3%, and those earning over $25 million would be taxed at a rate of 10.9%. These new, temporary rates would expire in 2027.
  • Continued Middle Class Tax Cuts—
    • For single filers, the personal income tax rate would drop in the 2021 tax year to 5.97% (from 6.09%) for those earning between $21,400 and $80,650; and to 6.33% (from 6.41%) for those in the next income tax bracket, which ranges up to $215,400.
    • For joint filers, the personal income tax rate would drop in the 2021 tax year to 5.97% for those earning between $43,000 to $161,550; and to 6.33% for those in the next income tax bracket, which ranges up to $323,200.
  • The corporate franchise tax rate would temporarily be raised to 7.25% from 6.5% for three years.
  • For tax years beginning on or after January 1, 2021, and prior to January 1, 2024, the business capital tax base is reinstated—
    • The capital base tax was supposed to be fully phased out beginning January, 1, 2021.
    • As part of the phase out, the tax rate for the capital base tax had been reduced each year; 0.075% for 2018; 0.050% for 2019; 0.025% for 2020).
    • Going forward, the capital base tax will be imposed at a rate of 0.1875%, and therefore this reinstatement also comes with a rate increase.
  • New York would legalize mobile sports betting. Sports betting currently is allowed in-person at commercial and tribal casinos.,
  • New York State legalized recreational marijuana at the end of March and is anticipating raising additional revenue from this new revenue source. However, New York will not likely see any additional revenue from recreational marijuana until legal sales commence in the next fiscal year.

New York Does Tax Unemployment Income Excluded under the Federal American Rescue Plan Act

The New York Department of Taxation and Finance has issued a bulletin explaining the state’s treatment of the federal American Rescue Plan Act of 2021’s $10,200 unemployment compensation exclusion. Because New York decoupled its personal income tax laws from any changes to the Internal Revenue Code as of March 1, 2020, the State does not permit this exclusion for purposes of New York income tax. Therefore, taxpayers must add back this unemployment compensation on their New York income tax return, which is excludable for federal income tax purposes. Taxpayers that have already filed their 2020 personal income tax returns and did not add back the excluded income must file an amended New York State tax return by using IT-558 Form, New York State Adjustments due to Decoupling from the IRC.

New York Releases Advisory Opinion on Sales for Solar Energy Systems

The New York Department of Taxation and Finance issued an Advisory Opinion on the application of sales and use tax on the sale and installation of residential and commercial solar energy systems. Petitioners—two partners—sold commercial and residential solar energy systems to customers primarily located in upstate New York. One partner procured and provided components required for the installation of the solar energy systems, and the other partner was responsible for the transportation and installation at customers’ sites. The Department concluded that retail sales and installations of both residential and commercial solar energy systems were exempt from sales tax; but are exempt from local tax only if the locality has enacted the exemption. Please see New York Advisory Opinion No. TSB-A-20(46)S (released March 2021) for further discussion.

New York Holds Web-Conferencing Solution Was Not Subject to Sales Tax

Petitioner was a self-described provider of a “cloud-based solution” for webcasting and virtual communications. Specifically, Petitioner provided a platform through which customers are able to conduct audio and video meetings, conferences, webinars, and live presentations with others. To do so, customers upload content that they create onto Petitioner’s platform and then present this content online. Other than an Internet connection and a device capable of accessing the Internet, neither of which Petitioner sells, no other hardware or software is required to use Petitioner’s product. Customers generally pay an annual fee to use the product; an additional fee can be paid for other optional stand-alone services. The New York Division of Taxation ruled because there was no other hardware or software required to use the taxpayer’s product, it was not subject to tax. However, the Department did not opine on the other “stand-alone services,” indicating more information was needed. Individual facts and circumstances are critically important to determining whether a web-based product is subject to sales tax in New York, so make sure you are receiving proper guidance if conducting business in the State.

April 1, 2021

NYC May Abate UBT Late Filing/Late Payment Penalties, But Interest Still Accrues

The New York City Department of Finance, upon request, will waive late filing and late payment penalties for individual unincorporated business tax (UBT) taxpayers, if such taxpayers complete filing payment on or before May 17, 2021. However, interest will accrue at the underpayment rate for the late payments. UBT taxpayers can request a penalty abatement by using the Department’s portal, sending an email, filing a paper return and writing “21” at the top of the page, or request an abatement in writing.

March 25, 2021

New York Issues Guidance on the Application of Tax Credits on Combined Returns

New Jersey has indicated that with respect to combined returns, tax credits belong to the taxable member that earned them unless a specific statute authorizes the tax credit to be earned or awarded at the group level. Any credit carryover available for future use belongs to the taxable member that originally earned the credit. If a member leaves the group, that member takes with them any tax credit/carryforward they generated. Any carryforward must be reduced by the amount that is used by the group and/or member. For specific details, please consult New Jersey Division of Taxation Technical Bulletin TB-90(R) (issued March 18, 2021).

New York Proposes Three New Tax Rates / Tax Brackets, Which Would Raise Highest Individual Rate

Revised budget proposals from each of the New York State Assembly and the New York State Senate would include three additional personal income tax brackets for individuals with income over $2.155 million. Each respective proposal includes the same three new tax rates–9.85 percent, 10.85 percent and 11.85 percent—but imposes such rates at differing income thresholds. The current maximum individual tax rate in New York is 8.82 percent. The new brackets and rates would be effective for the 2021 tax year.

New York Proposes Capital Gains, Business Tax Surcharges

Revised budget proposals from each of the New York State Assembly and the New York State Senate would include a one percent (1%) surcharge on the capital gains of certain individuals for tax years beginning on or after January 1, 2021. The capital gain surcharge would be imposed in addition to individual income tax. Further, both proposals call for a surcharge to be imposed on corporations for tax years beginning on or after January 1, 20201. While both surcharges are structured differently, in either case, the tax would apply to corporations with income or receipts above a designated threshold. The Assembly proposal calls for an 18 percent surcharge, while the Senate proposal would permanently raise the corporate franchise tax rate from 6.5% to 9.5%. Lastly, the Assembly version of the Bill would reinstate the 0.15 percent capital base tax that had previously been repealed for tax years beginning in 2021.

March 23, 2021

New York Update on Extension of Filing Deadline

The New York Department of Taxation and Finance has issued a notice alerting taxpayers that the 2020 individual tax returns and related payments are now due on May 17, 2021. The Department emphasizes that the extension is for individual personal income tax returns only. However, estimated tax payments for 2021 have not been extended and are still due on April 15, 2021. (New York State Department of Taxation and Finance Important Notice No. N-21-1, 03/19/2021; https://www.tax.ny.gov/pdf/notices/n21-1.pdf.)

March 9, 2021

New Jersey and New York Propose Taxes on Financial Transactions

New York has proposed Assembly Bill 5215 and Senate Bill 3980, which would impose a new tax on the purchase of securities having a New York connection. “Security” would be broadly defined to include shares of stock, partnership interests, bonds, notes and derivative financial instruments, such as options, futures contracts, etc. Varying tax rates would apply to covered transactions, and a hierarchy would apply to determine who pays the tax (i.e. the location where the transaction cleared, the broker, the purchaser, the seller, or the payor). Similarly, New Jersey Assembly Bill 4402 and Senate Bill 2902 would impose a tax on persons or entities that process 10,000 or more financial transactions through electronic infrastructure located in New Jersey during the year. The tax rate would be $0.0025 per financial transaction processed through electronic infrastructure in New Jersey. For specific details, each state’s respective proposals should be reviewed.

New York Holds Purchase and Lease of Picasso Painting Was Not a Sale for Resale

An LLC taxpayer-owned by two family trusts—purchased a one-half interest in a Picasso painting. The other 50-percent purchaser was the father of the two sons in whose name the trusts were established. Sales tax was paid on the transaction by both purchasers. A few years later—subsequent to a lease of the painting structured between the LLC and the father—the LLC sought a refund for the sales tax it paid on its original purchase of the painting on the grounds the purchase was a sale for resale. Retroactively going back and using the lease as a basis for sale for resale argument was not successful. New York reasoned that in order to be a sale for resale, the taxpayer would have needed to show its sole purpose for purchasing the painting was to lease it. Here, however, the additional (and/or primary) purpose for purchasing the painting was because it was an investment and added to the taxpayer’s art collection.

February 25, 2021

In a recent Tax Appeals decision, New York held sales tax was owed on certain items transferred as part of an LLC acquisition. The taxpayer argued it was only intangible equity interests that were acquired, using the purchase agreement for its support. The court rejected that argument, and instead compartmentalized the items transferred, holding: tangible personal property transferred was subject to sales tax; the custom software would have been taxable if sold to a third party, but because the transfer was between affiliates it was exempt, and assets related to buildouts of office space were qualified leasehold improvements exempt from sales tax. Withum can help you identify any income tax or sales tax-related issues that may be triggered upon the sale of a business or business assets.

May 2, 2020

New York State Budget Bill Highlights

New York’s budget bill decouples from the CARES Act’s increase to the limitation on the business interest deduction, according to IRC § 163 (j)(10)(A)(i). Also, any references in New York’s personal income tax laws to the IRC will not include changes made to the IRC after March 1, 2020, for taxable years beginning before 2022. Highlights of the bill include the following:

Personal income tax
For New York City, the current personal income tax rates are extended through 2022, thereby delaying the income tax changes to taxable years beginning after 2023.

Sales and Use tax
Approximately 40 or so counties and three cities (i.e., Oswego, Yonkers, and New Rochelle) are allowed to impose additional sales and use taxes until November 2023.

The law extends the sales and use tax exemption to November 30, 2016, for certain purchases and services associated with the World Trade Center and Battery Park areas.

Real property tax
For the fiscal year 2021, special assessing units, which are cities, cannot increase the current base proportion of more than 5%. Special assessing units, which are not cities, cannot increase the current base proportion in the 2020 assessment roll to more than 1%.

For additional information, refer here.

NY Provides Guidance to Tax Professionals Amidst Pandemic

A newsletter was recently issued by The New York Department of Taxation and Finance reminding tax professionals of the information on its website to provide relief during the COVID-19 pandemic. This information includes the extension of the income tax filing and payment due date to July 15, 2020, for individuals, fiduciaries, and corporations. Tax professionals should also have clients contact the Department if they cannot make their regularly scheduled tax payments due to COVID-19. The Department reminds tax professionals that the monthly sales tax return is due on May 20, 2020. For additional information, go to the Q&A section here.

April 2, 2020

Announcement from NYC Department of Finance on Deadlines

The NYC Department of Finance (“Department”) wants businesses to comply with the regular filing due date, as a Finance Memorandum was issued stating that the NYC Unincorporated Business Income Tax Returns and Estimated Tax Payments remain due April 15, 2020. However, extensions will still be accepted for those businesses that need more time in light of recent events. In addition, an abatement of penalties will be under the discretion of the NYC Commissioner, who plans to use his authority liberally, but interest remains statutory.

Likewise, the same holds true for the General Corporation Tax due from S-corporations, which were due March 16, 2020, and Business Income taxes due from C-corporations and Banks, which are due April 15, 2020. Returns and estimated income tax voucher payments are due when required by law, with a liberal abatement of penalties, and an accrual of statutory interest. While the Department did not provide for a blanket extension to a specified date (i.e., NYS extended to July 15th), the Department does plan on approving extension requests. Although the Department is complying with the statutory requirements for filing, the Department does want to give taxpayers flexibility, as seeking legislation during this emergency would have been too difficult.

March 21, 2020

New York State Extends Income Tax Filing Deadline

New York state’s income tax filing deadline is being moved to July 15 to comply with the federal government’s decision to push back the traditional filing date due to the coronavirus outbreak.

Disclaimer: Please note this is the information that is readily available at this time, it is subject to change so please consult your Withum tax advisor.

November 2019

Technical Memorandum issued by the Department of Taxation and Finance

Pursuant to the enactment of the 2019-2020 Budget Bill, the Department of Taxation and Finance issued a technical memorandum discussing the sales tax collection requirements for marketplace providers. The memorandum reflects an increase in the sales threshold amount from $300,000 to $500,000, which is retroactive to June 1, 2019. Taxpayers affected by this change must register with the Department at least 20 days before beginning business in the state. This memorandum supersedes TSB-M-19(2)S issued on May 31, 2019. (New York Technical Service Bureau Memorandum No. TSB-M-19(2.1)S, 17/10/2019.)

Definition of Qualified New York Manufacturer Changes

For tax years beginning on or after January 1, 2018, the definition of a qualified New York manufacturer has been changed to use the New York State adjusted basis rather than the federal adjusted basis when determining whether a manufacturer meets the $1 million or $100 million property thresholds for determining eligibility for the manufacturer’s tax rate reductions and the real property tax credit. A qualified New York manufacturer is a manufacturer (or in the case of a combined report, a combined group) that is principally engaged in the production of goods by manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture, or commercial fishing during the tax year that either has property in New York State of the type described for the investment tax credit that has an adjusted basis for New York State tax purposes of at least $1 million at the end of the tax year, or has all of its real and personal property in New York State. (New York Technical Service Bureau Memorandum No. TSB-M-19(5)C, (6)I, 10/18/2019.)

NYC Releases Changes for Business Tax Filers

The New York City Department of Finance has released a new issue of its Business Tax Practitioner Newsletter, which discusses the Tax Cuts and Jobs Act (TCJA) as it relates to changes for business tax filers including reporting IRC § 965 income, foreign-derived intangible income (FDII), and global intangible low-taxed income (GILTI). In addition, the newly amended Real Property Income and Expense (RPIE) rules were discussed with respect to the increased penalties for owners of income-producing property who fail to file RPIE statements for three consecutive years. The penalty is increased to 5% of the final actual assessed value for the calendar year in which such statement was to be filed. (NYC Dept. of Finance Business Tax Practitioner Newsletter, 10/01/2019, released 10/16/2019.)

October 2019

Imposed Sales Tax on Vapor Products

Effective December 1, 2019, a new 20% supplemental sales tax will apply to retail sales of vapor products in New York, which should be collected by a vapor products dealer. Any business that intends to sell vapor products must be registered as a vapor products dealer before making sales of vapor products. The Tax Department is developing an online registration process. In addition, if a taxpayer has debit blocks on their bank account, even if the taxpayer has already authorized sales tax payments to the Tax Department, the taxpayer must communicate with their bank to authorize their vapor products registration payment.

Corporation Tax Changes in 2019 Budget

This summary highlights the corporation tax changes that were part of the 2019- 2020 New York State budget. Most notably, several tax law provisions were amended, including the contributions to the capital of a corporation, entire net income for stock life insurance companies, and unrelated business taxable income. Additionally, electronic filing and payment mandates have been extended through December 31, 2024, and the tax shelter penalty and reporting requirements have been extended through July 1, 2024.

Tax Credit Budget Legislation Enacted in 2019

The New York Department of Taxation and Finance issued technical memorandum TSB-M-19(4)C, (5)I which discusses the individual income and corporate income tax credit budget legislation enacted in 2019. New credits were added to the law, which include the Central Business District Toll credit, Employer-Provided Child Care credit, and the Recovery Tax credit. The Empire State Commercial Production credit and Employee Training Incentive Tax credit provisions were amended. In addition, the Empire State Film Production and Empire State Film Post-Production Tax credit as well as the Workers with Disability Tax credit were extended to 2024 and 2022, respectively.

April 2, 2020

Small Businesses with Fewer than 5 Employees Can Apply for a Grant to Cover 40% of their Payroll Expenses for 2 Months

NYC Employee Retention Grant Program
The City is offering small businesses with fewer than 5 employees a grant to cover 40% of payroll costs for two months to help retain employees.
Eligibility Criteria for the NYC Employee Retention Grant Program
Businesses, including non-profits, must:

  • Be located within the five boroughs of New York City
  • Demonstrate that the COVID-19 outbreak caused at least a 25% decrease in revenue
  • Employ 1-4 employees in total across all locations
  • Have been in operation for at least 6 months
  • Have no outstanding tax liens or legal judgments

NYC Small Business Continuity Loan Fund
Businesses with less than 100 employees and at least a 25% drop in sales caused by COVID-19 will qualify for loans of up to $75,000, with no interest.
Eligibility Criteria for the NYC Small Business Continuity Loan Fund
Businesses must:

  • Be located within the five boroughs of New York City
  • Demonstrate that the COVID-19 outbreak caused at least a 25% decrease in revenue
  • Employ 99 employees or fewer in total across all locations
  • Demonstrate ability to repay the loan
  • Have no outstanding tax liens or legal judgments

Contact Us

The State and Local Tax (SALT) laws vary from state to state and are constantly changing. Reach out to Withum’s SALT Team for guidance on how to navigate your state’s local tax laws.