New York State Corporate Tax Reform FAQs Update
The New York State Department of Taxation and Finance has updated its “Corporate Tax Reform FAQs” to clarify two provisions of the State’s corporate tax reform law which became effective January 1, 2015. Specifically, the Department clarified whether certain corporations not otherwise subject to New York Tax are required to be included in a combined return. The Department also clarified what is considered a “small business loan” for purposes of the subtraction modification provided for in Tax Law Sec. 208.9(s). An explanation of these two additions to the FAQs is set forth below.
First, the FAQs now includes confirmation that, pursuant to Tax Law Section 210-C.2, non-taxpayer members of a unitary group that meet the ownership requirements under Tax Law section 210-C are required to be included in a combined report, with certain exceptions for specifically excluded corporations. The list of excluded corporations are:
- A corporation that is taxable under Article 9 or Article 33 or that would be taxable under Article 9 or Article 33 if it was subject to tax in the State;
- A REIT that is not a captive REIT;
- A RIC that is not a captive RIC;
- A New York S corporation;
- An alien corporation that, under any provision of the Internal Revenue Code(“IRC”), is not treated as a “domestic corporation,” as defined in IRC Section 701, and has no effectively connected income for the taxable year as defined in Tax Law Section 208.9(iv); and
- A corporation subject to tax solely because it is a limited partner of a limited partnership with receipts or activities in New York, and none of the corporation’s related corporations are subject to tax under Article 9-A.
Second, FAQs now provide guidance as to what constitutes a “small business loan” for purposes of the deduction provided to small thrifts and qualified community banks under Tax Law Sec. 208.9(s). Under the revised Tax Law, thrifts and qualified community banks are permitted a deduction for a portion of its net interest income. Such deduction is based in part on the amount of interest attributable to a small business loan. A loan will be considered a "small business loan" if made to an “active business” that has had, for federal income tax purposes, an average number of full-time employees of 100 or fewer, not including general executive officers, and gross receipts of not greater than $10,000,000 in its immediately preceding taxable year. A taxpayer that is a member of the combined group must meet this test at the group level. A business qualifies as an “active business” if the value of the financial instruments described in NY Tax Law Section 210-A.5, which it holds for investment, does not exceed 50% of the value of its total assets. In addition, a loan made to an entity which meets these requirements to be a small business at the time of the filing of the loan application is deemed to be a small business loan throughout the term of such loan.
We will continue to monitor the NYS Tax Reform FAQs and keep you updated on any important additions. For questions or assistance regarding NYS corporate tax reform, please contact Terence Avella at (914) 798-9912.
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