In April, New York became the first state to enact legislation specifically decoupling from certain provisions of the federal Coronavirus Aid, Relief and Economic Security (CARES) Act. Under that legislation, New York State and New York City decoupled from all of the changes made by the CARES Act for personal income tax purposes. In addition, New York State and New York City partially decoupled from favorable changes made by section 163(j) for New York State and New York City corporate income taxes as well as the New York City Unincorporated Business Tax (UBT). For more information on that legislation, please read our tax alert, New York fiscal year 2021 budget signed, includes COVID-19 relief.
On June 17, 2020, New York Gov. Andrew Cuomo signed Senate Bill 8411, further decoupling New York City’s corporate income taxes and UBT from the CARES Act. A summary of those changes is below. Importantly, the changes only apply to New York City and not to any state-imposed tax.
Section 163(j) limitations
Senate Bill 8411 fully decouples New York City from the CARES Act amendments to section 163(j), including the increased cap on business interest expense (which was addressed in the prior legislation) and the ability to use 2019 adjusted taxable income figures in computing 2020 interest expense limitations. The changes are applicable to New York City corporate income taxes and the UBT.
Changes to the net operating loss provisions
New York City decouples from the amendments to the net operating loss provisions, including the carryback provisions, by disregarding any changes made to section 172 after March, 1, 2020, before the CARES Act was enacted. The changes are applicable to New York City corporate income taxes and the UBT.
Changes to UBT excess business loss provisions
New York City decouples from the favorable excess business loss limitations applicable to non-corporate entities under the CARES Act for UBT purposes. The change was made by conforming to the relevant federal provision, section 461(l), as of March 1, 2020.
New York State, recognizing city budget shortfalls due to COVID-19, has taken quick action to decouple from additional taxpayer-favorable provisions of the CARES Act. A number of other states have begun to address their conformity to the CARES Act and it is anticipated the states will continue to work to shore up budgets. As we continue to monitor these changes, taxpayers that plan on taking advantage of the provisions in the CARES Act should consult with their state tax advisers.
Businesses in every industry should consider State tax planning in response to economic distress. For more information on the coronavirus, please see RSM’s Coronavirus Resource Center which includes related and frequently updated developments.