On April 12, 2019, New York Gov. Andrew Cuomo signed Senate Bill 1509, the FY2019-2020 revenue bill and one of several budget bills, enacting provisions pertaining to global intangible low-taxed income (GILTI), basis rules defining a qualified New York manufacturer, marketplace provider sales tax collection, and an extension of the top personal income tax rate for five years, among other provisions.
Corporate income tax
Net GILTI apportionment
The federal GILTI rules require a 10 percent U.S. shareholder of a controlled foreign corporation to include in current income the shareholder’s pro rata share of the GILTI income subject to certain deductions. New York generally conforms to the federal code on a “rolling basis,” and therefore conforms to the net GILTI inclusion.
In response to the GILTI inclusion, the bill codifies GILTI apportionment guidance previously provided through Technical Memorandum TSB-M-19(1)I. Specifically, the bill includes the net GILTI amount in the sales factor apportionment fraction for both New York state and New York City corporate income tax. The net GILTI income is excluded from the sales factor numerator, but the net amount shall be included in the sales factor denominator of the corporate income apportionment fraction.
Qualified New York manufacturer
Beginning Jan. 1, 2014, qualified New York manufacturers were taxed at a reduced rate of zero percent. Qualified New York manufacturers must be principally engaged in manufacturing and satisfy specific property requirements. Taxpayers with less than 100 percent of its manufacturing property in the state were deemed qualified manufacturers if its fair market value of manufacturing property in the state had an adjusted basis for federal taxable income of at least $1 million.
Effective Jan. 1, 2018, the state decouples from the federal adjusted basis and requires the fair market value of the property have an adjusted basis for New York state purposes of at least $1 million. According to the Memorandum in Support of the State Executive Budget, the state is decoupling due to the recent federal law increase on expense limitations, which may potentially reduce the federal adjusted basis of such property.
Sales and use tax
Marketplace provider nexus
As of April 2019, a majority of states have responded to South Dakota v. Wayfair by providing guidance or adopting economic sales tax nexus thresholds. Beginning in 2018 and continuing through 2019 state legislative sessions, many states are adopting “marketplace facilitator” provisions, which impose the sales tax collection obligation on the marketplace itself, rather than a seller selling through the marketplace.
The bill requires New York marketplace providers to collect sales tax on sales of tangible personal property. A “marketplace provider” is defined as a person who, under an agreement with a marketplace seller, facilitates sales of tangible personal property. A marketplace provider is defined as a person who provides the forum, physical or virtual and collects the receipts paid by a customer to a marketplace seller, or contracts with a third party to collect such receipts. Facilitation includes providing the forum in which, or by means of which, the sale takes place or the offer of sale is accepted, including a shop, store, or booth, an internet website, catalog, or similar forum; and when the provider or an affiliate of the provider collects the receipts paid by a customer to a marketplace seller for a sale of tangible personal property, or contracts with a third party to collect such receipts. The marketplace provider provisions apply to sales made on or after June 1, 2019.
Additionally, the New York Department of Taxation and Finance recently released guidance on the state’s economic sales tax nexus thresholds for remote sellers. For more information on the state’s response to Wayfair, please read our article, New York releases guidance for remote sellers in response to Wayfair.
Additional sales and use tax provisions
The tax bill also provides for the following changes:
- Imposes the sales and use tax on the transportation, transmission or distribution of gas or electricity, even if sold separately
- Provides that sellers may advertise that they will pay the sales tax on behalf of a retail purchaser, subject to certain conditions, including notice and statement requirements on invoices, bills and/or receipts
Personal income tax
Currently, the state imposes a tax rate of 8.82 on the top income tax bracket of unmarried individuals with income over $1,077,550, married filing jointly with income over $2,155,350, and heads of households with income over $1,616,450. That rate was scheduled to expire beginning after the 2019 tax year, but the budget extends the so-called “millionaires’ tax” bracket through 2024.
The FY20 budget includes a permanent 2 percent cap on local property taxes. Additionally, the STAR program (enacted in 1997 to offset rising property taxes) savings amount cannot exceed the tax savings in the prior year, beginning with the 2019-20 school year.
The revenue bill also imposes the following taxes:
- A congestion toll for entering midtown Manhattan – one of the first congestion tolls imposed in the country. The tolled district will include any roadways, bridges, tunnels, approaches or ramps that are located within, or enter into, the geographic area in the borough of Manhattan south of and including 60th street, but will not include the FDR Drive or the West Side highway. Toll amounts have not yet been decided and residents located inside the district earning below certain wage thresholds are entitled to claim a credit against the toll
- A new 20 percent tax on vapor products sold at retail
- An excise tax on certain opioid units
- A general ban on certain plastic carry-out bags (ban imposed through Senate Bill 1508, another budget-related bill signed April 12, 2019)