The 2014-15 New York State Budget, enacted on March 31, 2014 contained significant changes to New York’s corporate tax system. The 2015-16 New York State Budget, enacted on April 13, 2015 provided technical and clarifying amendments to the 2014-15 Budget. These amendments are effective for tax years beginning on or after January 1, 2015.
If you, your clients, your employees, your agents or your customers are located in or are do business in , or are considering locating in or doing business in New York, you need to know about these changes. Here are some of the highlights:
Rate Reduction (and Special Low Rates for Certain Kinds of Businesses):
- Starting in tax year 2016, the tax rate on a corporation’s “entire net income”, which is allocated and apportioned to New York State, is being reduced from 7.1%, to 6.5%. This rate is available a year earlier for a qualifying small business.
- An even lower tax rate – of 5.7% – now applies to a QETC (qualified emerging technology company). For 2016 and 2017 this rate drops to 5.5%. Beginning 2018 it drops to 4.875%.
- For 2015 and forward, qualified New York Manufacturers (QNYM’s) will pay NO INCOME TAX in New York state.
Tax Simplification: Eliminating the Minimum Taxable Income Base and Capital Base Taxes:
In past years, New York required all corporations to compute their tax using four different methods, and the state then assessed its tax based on whichever method (or “base”) resulted in the highest amount of tax. These four methods were: 1) the tax on the ENI (entire net income) base, 2) the tax on the capital base, 3) the tax on the MTI (minimum taxable income) base, and 4) the fixed dollar minimum tax, the amount of which varies based on a corporation’s gross receipts in NY.
- Starting in tax year 2015, the tax on the MTI base is eliminated.
- Starting in tax year 2021, the tax on the Capital Base is eliminated. Between now and then, the general rate of this tax gradually declines as follows: 0.150% (for 2015), 0.125% (for 2016), 0.10% (for 2017), 0.075% (for 2018), 0.050% (for 2019), 0.025% (for 2020) and 0.00% (for 2021 and thereafter).
- Rates for QETC’s and QNYM’s (see above) and for Cooperative Housing Corporations in New York are generally lower, and also zero out for tax year 2021 and thereafter.
Other Important NY Tax Changes:
New York has adopted an “economic nexus” standard for all taxpayers. The existing Article 9-A nexus standard is expanded to include deriving receipts from activity in New York. The de minimis New York receipts threshold, subject to annual review, is set at US $ 1 million. As such, it is now possible to be liable for New York corporate tax, or be required to collect sales tax in New York, even if you have no physical presence or employees in New York.
New York is adopting full unitary water’s-edge for combined reporting. The requirements to be combined are a unitary business test and more than 50% stock ownership test based on voting power. The adoption may have a favorably or unfavorably influence on your apportionment percentage with New York.
Questions? Feel Free to Contact Us:
The tax reform that took place in New York was much broader than the summary information described above. If you operate in, have customers in, or have agents in the state of New York please contact us if you’d like to know more about how these changes may impact you. We can be reached at (416) 594-9500.
U.S. TAX TIP is provided as a free service to clients and friends of Cadesky US Tax. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing a tax planning arrangement or taking an uncertain tax filing position. Cadesky US Tax cannot accept any liability for the tax consequences that may result from acting based on the contents hereof.