On March 30, the New York Legislature passed a $168.3 billion budget bill containing a variety of changes aimed at mitigating the effects of the new federal tax law. Governor Andrew Cuomo is expected to sign the bill within the coming days.
One key element of the legislation is the optional employer compensation expense program. Under this program, employers who opt in are subject to a 5% tax on annual payroll expenses of $40,000 or more per employee. Employees would receive a tax credit on their wages, which corresponds in value to the payroll tax paid. Starting January 1, 2019, this employer-based payroll tax would phase in over three years.
Additionally, the bill provides for the creation of two state-operated charitable contribution funds: one for healthcare and one for education to accept donations. To partially circumvent the $10,000 federal cap on state and local tax deductions, donors can claim contributions as itemized deductions and will receive a state tax credit equal to 85% of the donation amount for the tax year after the donation. Additionally, school districts and other local governments received the authority to create charitable funds and allow donors a local property tax credit of up to 95% of their contribution.
The new law would also decouple from certain provisions of the new federal tax code. Under the budget, lawmakers eliminated the requirement that taxpayers are permitted to itemize on their New York return only if they itemize on their federal return. There are also new state modifications for alimony, as well as qualified moving expense reimbursements and moving expenses.
The bill also addresses the new federal foreign income provisions by:
- expanding the definition of exempt Controlled Foreign Corporation (CFC) income to encompass deemed repatriated income and Global Intangible Low Tax Income (GILTI) of a corporation not included in a combined report with the taxpayer. This was done in an effort to make such deemed repatriated income and GILTI income exempt from state franchise tax;
- requiring an addback for the amount of federal deductions allowed under IRC Sec. 965(c) on the deemed repatriated income;
- requiring an addback for the federal deduction under the GILTI regime under IRC Sec. 250; and
- allowing a subtraction for deemed dividends under the IRC Sec. 78 gross up to the extent that the gross up is not deducted under other tax provisions.
Notably, the above CFC changes are for corporations only. The legislation does not change the laws for individuals or other entities.
When the new law is enacted, it will also provide for:
- a surcharge on for-hire vehicles south of 96th Street in Manhattan ($2.75 for-hire vehicles, $2.50 for yellow cabs, and $0.75 for pooled trips);
- the use of the a resale exclusion by restaurants, cafeterias, caterers and others when purchasing prepared food and beverages for resale; and
- relief from sales tax responsible person liability for certain minority members of limited partnerships or limited liability corporations.
For more information on New York’s tax overhaul and expert insights on how to position yourself for financial success, contact Alan Goldenberg (firstname.lastname@example.org or 212-897-6421) or Tom Corrie (email@example.com or 212-842-7019), principals in the State and Local Taxation Group.