GMG Knowledge Base

Salt Spotlight
02 Jan, 2014

New York Corporate Tax Relief Proposals

Posted by Grant McCarthy Group on Jan 2, 2014 2:26:00 PM

Knowledge Base

 In his 2014 State of the State address, Governor Cuomo made several tax relief proposals aimed at increasing economic competiveness and tax fairness, two areas where New York has consistently ranked at the bottom in national studies.  These proposals were selected from recommendations made by the New York State Tax Relief Commission which was convened by the Governor in late 2013 to identify ways to reduce New York property and business taxes by approximately $2B.  Some of the corporate tax proposals identified by the Tax Relief Commission were taken from recommendations made by the Tax Reform and Fairness Commission which was convened to identify ways to make revenue-neutral structural changes to the State’s individual income, sales, and corporate income taxes to make the tax code more simple and fair.  

In additional to significant property tax relief, the Governor made several proposals that would decrease the corporate tax burden on businesses.

Tax Relief for Manufacturers

In order to provide relief to the manufacturing sector, the Governor proposes a property tax credit to offset a portion of a manufacturer’s corporate income tax liability.  The refundable credit would be equal to 20% of a manufacturer’s annual real property taxes.  For manufacturers located outside the MTA region, the Governor proposes to lower the corporate income tax rate to zero.  This proposal goes even further than the proposal made by the Tax Relief Commission which recommended lowering the tax rate imposed on such manufacturers to 2.5%, and demonstrates his commitment to bringing back manufacturing to upstate New York.

Corporate Tax Reform

In order to modernize the corporate tax and create a more competitive taxing environment, the Governor proposes to reduce the corporate income tax rate from 7.1% to 6.5% (the lowest rate since 1968), and to merge the existing bank tax (Article 32) into the corporate franchise tax (Article 9-A).  Both of these proposals were recommended by the Tax Relief Commission. 
The Governor did not provide any specificity as to how the merging of the taxing structures would be implemented.   However, it is likely that the Governor and legislature will adopt certain proposals recommended by the Tax Reform and Fairness Committee, many of which were embraced by the Tax Relief Committee.  The proposals advanced by the Tax Reform and Fairness Committee include:
  • Adopting a single sales factor apportionment formula using customer sourcing rules (both Committees appeared to support this proposal);
  • Adopting mandatory water’s edge unitary combined reporting with an ownership test of more than 50%;
  • Expanding nexus to include economic nexus;
  • Revising exemptions for subsidiary and investment income (since both the bank tax and the corporate income tax have different rules for these types of income, it appears that a merging of the two taxes would have a significant impact on these exemptions);
  • Broadening the tax base by eliminating certain special deductions and exemptions;
  • For non-US corporations, using federal “effectively connected income” as the starting point for computing New York entire net income;
  • Requiring combined reporting for all captive insurance companies;
  • Repealing the tax treaty exception to the royalty add back provision;
  • Providing for mandatory attribution of interest expense to exempt income with expanded direct tracing of interest expense in certain situations; and
  • Providing credits to the alternative tax bases for taxes paid to other states to avoid constitutional challenges.

 

Accelerating the Phase-Out of the 18-A Utility Surcharge

Currently, the Temporary Utility Assessment (18-A), a 2% assessment on electric, gas, water and steam utility companies which is passed through to customers in the form of higher rates, is scheduled to phase-out by 2017-2018.  The Governor proposes to eliminate the surcharge immediately for industrial consumers and accelerate the phase-out for all other taxpayers.  

 

Going Forward  

An anticipated $2B in surplus, to be realized in the fiscal year 2016-2017, is expected to pay for these initiatives.  While many of these proposals are being lauded by the business community, certain members of the New York legislature believe that it is too soon to be allocating surplus funds to tax relief.   It is therefore unclear, based on the current legislative climate, how many of these proposals will actually be enacted.