United States

New York exempts most GILTI; provides remote seller changes

TAX ALERT  | 

On June 24, New York Governor Andrew Cuomo signed Senate Bill 6615, enacting changes to the state’s tax law as part of the state’s omnibus bill. Among other changes, the bill contains amendments to the state’s treatment of Global Intangible Low-Taxed Income (GILTI) for corporate taxpayers and makes changes to the state’s remote seller thresholds.

GILTI provisions

Applicable to tax years beginning on or after Jan. 1, 2019, the state has amended its definition of “Exempt CFC income” to include 95% of GILTI required to be included in federal gross income under section 951A, without regard to the deduction under section 250, that taxpayers receive from corporations with which they do not file a combined report. The bill further specifies that the exempted GILTI also cannot constitute investment income and cannot constitute exempt unitary exempt corporation dividends.

Corresponding to the 95% exemption of GILTI from entire net income, the bill disallows the 50% deduction for GILTI allowed federally under section 250(a)(1)(B)(i). The legislation also provides that 5% of GILTI income should be included in the denominator of the apportionment fraction.

The legislation also exempts 95% of GILTI and disallows the deduction for purposes of computation of the tax base for the franchise tax on insurance corporations, and further excludes from the insurance tax any amounts treated as dividends received under section 78 attributed to income included in federal gross income under section 951A(a).

Economic sales tax nexus thresholds

Senate Bill 6615 amends a number of provisions related to remote sellers. The legislation increases the sales component of the state’s economic sales tax nexus provision to $500,000, from $300,000. The 100 transaction component remains unchanged. The state similarly raises the same threshold for marketplace facilitators from $300,000 to $500,000.

The legislation explains that the increase in the sales component of the remote seller threshold is deemed to have been in full force and effect on and after June 21, 2018, the date of the South Dakota v. Wayfair decision. The increased threshold for marketplace facilitators is effective from June 1, 2019, the date those provisions became effective.

The bill also provides relief for certain vendors that are registered to collect and in good faith collected and remitted local sales tax at the incorrect local rate. These vendors are exempt from any interest or penalties on the uncollected tax, but are still required to pay any additional tax due. However, this relief only applies to the first four quarterly periods after which the vendor became required to collect the tax.

Miscellaneous tax provisions

The bill provides for a number of other changes to New York tax law, including:

  • Provision of a new procedure for renouncing the School Tax Relief (STAR) exemption and switching to the STAR credit
  • Establishment of an Empire State entertainment diversity job training development fund, with money spent only for approved job creation and training programs
  • Amendment to the definition of a qualified film production facility for purposes of the Empire State film production credit

Takeaways

New York becomes the latest state to exempt GILTI, at least partially, from state income tax. A number of states, including Arizona, Georgia, Kentucky, Maine, Minnesota, North Carolina, Tennessee and Virginia decoupled from federal GILTI provisions and exclude all or part of it from their computation of income. However, states remain split, as a number of states, including Alabama, Connecticut, Oklahoma and Pennsylvania continue to include GILTI in calculating their corporate income. Taxpayers should expect more states to enact legislation, promulgate regulation, or adopt guidance on GILTI in the coming months.

Since recently passing the one-year anniversary date of the South Dakota v. Wayfair decision, every state with a general sales tax has adopted an enforcement date for economic sales tax nexus except for Florida, Kansas and Missouri. Those state legislatures have adjourned for the year and, pending any special sessions, appear unlikely to address a remote seller sales tax threshold in 2019. Louisiana, which is the only other state pending adoption, has recently cleared the way to enforce economic sales tax nexus within the next 12 months.

For more information on other recent New York tax updates, please read our alert, New York state enacts 2019-2020 fiscal year budget.

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