Tax News Update    Email this document    Print this document  

On April 13, 2016, New York State Governor Andrew Cuomo signed the FY 2016-17 revenue-related budget bill, A9009-C / S6409-C, (hereinafter, Final Bill) that includes substantive and technical amendments to New York State (NYS) and New York City (NYC) corporate tax reform as previously enacted in 2014 and 2015 (A. 8559-D / S. 6359-D; A.3009-B / S.2009-B; and S.4610-A / A. 6721-A, collectively "Tax Reform"). See Tax Alerts 2016-149{} and 2016-0563{} discussing the Governor's Bill introduced on January 13, 2016 and the Senate's and Assembly's Bills introduced on March 12, 2016, respectively.

The most significant corporate tax related provisions in the Final Bill include: conformity to the new federal tax filing dates, extension of the tax shelter reporting requirements, amendments to the definition of Qualified Financial Instrument (QFI), and amendments to the special bank subtractions. Attached to this Alert is a summary comparison schedule showing whether the amendments proposed in the Governor's, Senate's and/or Assembly's Bills were ultimately included and enacted in the Final Bill. This schedule also shows whether the Final Bill contains a similar amendment to the NYC Administrative Code and thus, applies for New York City corporate tax purposes as well.

Conformity with new federal tax filing dates

The Final Bill provides that, for tax years beginning on or after January 1, 2016, NYS and NYC corporate franchise tax returns are due April 15th for calendar-year taxpayers and March 15th for NYC unincorporated business tax filers and NYS partnerships, which have resident partners or income derived from New York sources.¹ These due dates are the reverse of the current due dates for these taxes. For fiscal-year filers, NYS corporate franchise tax returns are due on or before the 15th day of the fourth month after the close of their fiscal year, and partnership and NYC corporate franchise tax returns are due within three and one-half months after the close of their fiscal year.

Under existing rules, mandatory first installment estimated tax payments for NYS and NYC purposes must be made on a taxpayer's return or extension. For tax years beginning on or after January 1, 2016, however, the Final Bill amends this NYS and NYC mandate and requires the first installment to be paid on or before March 15th for calendar-year taxpayers. For fiscal-year filers, the Final Bill requires the NYS payment to be paid on or before the 15th day of the third month of the privilege period, and within two and one-half months after the close of each fiscal year for NYC purposes.

The Final Bill further amends the computation of the first installment estimated tax payment by requiring the taxpayer to look to the second preceding year's tax rather than the preceding year's tax to determine the amount of the first installment. This provision relating to the second preceding year's tax applies to amounts due to be paid on or after March 15, 2017. For NYS S corporations, however, the Final Bill requires the first installment to be paid with the report required to be filed for the preceding privilege period or with a timely extension, and to be equal to either 25% of the preceding year's tax, if the preceding year's tax exceeded $1,000 but was equal to or less than $100,000, or 40% of the preceding year's tax, if the preceding year's tax exceeded $100,000. The Final Bill imposes similar requirements for the MTA Surcharge if the S corporation's preceding year's tax exceeded $100,000 and the S corporation was subject to the surcharge.

Provisions relating to tax shelters and corporate tax reform

The Final Bill extends the reporting requirements concerning the disclosure of certain federal and NYS reportable transactions and related information regarding tax shelters until July 1, 2019. Also, unrelated to reportable transactions, the Final Bill revives certain tax preparer penalties related to tax returns, which imposed a penalty on preparers who signed returns with tax positions not reaching a "more-likely-than-not" level of assurance.

The Final Bill makes several substantive amendments to the NYS and NYC corporate tax reform, including an amendment to the definition of QFI. The Final Bill excludes from NYS's and NYC's definition of QFI stock that generates "other exempt income" and that is not marked to market under Internal Revenue Code (IRC) Sections 475 or 1256. Without this amendment, such stock could have been treated as a QFI if other stock owned by the taxpayer was marked to market under IRC Sections 475 or 1256. In addition, the Final Bill amends the various special bank subtractions at the NYS and NYC level. Under the Final Bill, the computation of NYS's and NYC's subtraction modifications for qualified residential loan portfolios and community banks and small thrifts, as well as NYC's subtraction modification for qualified affordable housing and low income community loans, now includes leased real property, even if that lease is not included on the taxpayer's balance sheet.

For NYC purposes only, the Final Bill corrects a typographical error in the NYC Administrative Code regarding the definition of "investment capital" so as to be consistent with NYS's definition under Tax Reform. The NYC amendment changed "stock used by the taxpayer" to "stock issued by the taxpayer" as stock that does not qualify as investment capital.

The Tax Reform-related provisions in the Final Bill are deemed to have been in full force and effect on the same date and in the same manner as the NYS corporate tax reform provisions enacted in 2014. Similarly, the above NYC Tax Reform-related provisions are deemed to have been in full force and effect on the same date and in the same manner as the NYC corporate tax reform provisions enacted in 2015.

Tax credit amendments

The Final Bill amends several NYS and NYC tax credit provisions. For NYS purposes, amendments were made to the qualified emerging technology company employment credit, the special additional mortgage recording tax credit and to the ordering of credits provisions. In addition, the Final Bill allows taxpayers to elect to treat the unused portion of special additional mortgage recording tax credits as an overpayment of tax to be credited or refunded. For NYC purposes, the Final Bill amends the computation of the unincorporated business tax credit to reflect the 9% tax rate on business income for "financial corporations."²

Similar to the various other technical and substantive amendments noted above, these tax credit provisions are deemed to have been in full force and effect on the same date and in the same manner as NYS's and NYC's Tax Reform provisions.

Provisions intentionally omitted

Several notable provisions that were included in the Governor's, Assembly's and/or the Senate's Bill were intentionally omitted from the Final Bill. Some of the notable provisions omitted from the Final Bill include: (1) a provision that would have limited the 8% cap on investment income (currently applicable to all taxpayers) to taxpayers with 50% or more in receipts in the denominator of their apportionment fraction from financial transactions; (2) a NYS provision that would have granted a "historical loss company" an election to use as its base year business allocation percentage (BAP) the average of its BAPs reported during the "loss period" when computing its prior net operating loss conversion subtraction pool; (3) a provision that would have precluded an increase in the MTA surcharge tax rate after 2016; and (4) small business tax cuts for corporate and personal income tax purposes.

Implications

Many of the legislative changes in the Final Bill have retroactive effect and, as such, apply to tax years beginning on or after January 1, 2015. Some of these changes are not merely technical/corrective in nature but do change the result of Tax Reform enacted in 2014 and 2015. EY's New York tax professionals have been following the developments of the Final Bill as it directly affects NYS and NYC corporate taxpayers, and are available to discuss the effects these important changes will have on taxpayers.

———————————————

———————————————
ENDNOTES

¹ The partnership filing fee, the minimum of which is $25, is required to be made on or before the 15th day of the third month following the close of the tax year.

² NYC's Administrative Code contains a special definition of "financial corporation" which was enacted in last year's budget bill and made such companies subject to a higher business income tax rate of 9%.

———————————————
ATTACHMENT

Comparison of Bills