On June 24, 2019, New York Governor Cuomo signed into law S.6615/A.8433 (Ch. 39) (hereafter, the Bill), provisions of which make several tax law changes. Notably, the new law modifies the state's tax treatment of global intangible low-taxed income (GILTI), which was incorporated into the state's business tax laws through rolling conformity to changes made to the federal income tax law by the Tax Cuts and Jobs Act (P.L. 115-97) in 2017. The Bill also modifies the state's sales and use tax economic nexus threshold for remote sellers and marketplace facilitators.

GILTI

The Bill enacts a 95% exclusion from the state's corporate franchise business income tax base for any GILTI amounts recognized for federal income tax purposes applicable to tax years beginning on and after January 1, 2019. Specifically, the definition of exempt controlled foreign corporation (CFC) income under N.Y. Tax Law Section 208.6-a(b)(iii) is expanded to include 95% of GILTI income required to be included in federal gross income under IRC Section 951A(a), without regard to the GILTI-related deduction under IRC Section 250, received from a corporation that is not included in a New York combined report with the taxpayer. The amendments further clarify that this income does not constitute investment income or exempt unitary corporation dividends for New York corporate franchise tax purposes.

Further, the Bill amends the definition of "entire net income" (ENI) under N.Y. Tax Law Section 208.9(b) by adding a new addition modification to the computation of ENI for the amount of any federal deduction for the GILTI-related amounts allowed under IRC Section 250(a)(1)(B)(i).

Likewise, the Bill amends the apportionment provisions set forth in N.Y. Tax Law Section 210-A.5-a. For New York C corporations, the Bill makes clear that GILTI continues to be excluded from the numerator of the apportionment fraction but instead provides that only 5% of the GILTI income is included in the denominator of the New York taxpayer's apportionment fraction.

For New York S corporations, GILTI is not included in the numerator of the apportionment fraction, but 100% of GILTI is included in the denominator of the apportionment fraction.

For insurance franchise tax purposes, the Bill similarly amends the definition of ENI under N.Y. Tax Law Section 1503.b(1) to exclude from ENI, to the extent not otherwise excluded under certain other provisions of N.Y. Tax Law Section 1503.b(1):

• 95% of GILTI income under IRC Section 951A(a), without regard to the GILTI deduction under IRC Section 250, that is generated by a corporation that is not included in a combined report with the taxpayer; and
• Any amount treated as a dividend received by the taxpayer under IRC Section 78 that is attributable to GILTI required to be included in the taxpayer's federal gross income under IRC Section 951A(a)

In addition, for insurance franchise tax purposes, the Bill amends N.Y. Tax Law Section 1503.b(2) by adding a new addition modification to the computation of ENI for the amount of any federal deduction for the GILTI-related amounts allowed under IRC Section 250(a)(1)(B).

Economic nexus threshold for remote sellers and marketplace facilitators

For purposes of New York sales and use tax law, the Bill modifies the economic nexus thresholds for remote sellers and marketplace facilitators under N.Y. Tax Law Sections 1101.b(8)(iv) and 1101.e(1), respectively. The sales threshold under both provisions is increased to $500,000 from $300,000. The Bill did not, however, alter the additional 100 transaction requirement which already existed under current law.

These changes took effect immediately. The Bill provides for retroactive effect of the change to the threshold for remote sellers to periods beginning on or after June 21, 2018 (which was the date of the U.S. Supreme Court's historic opinion in South Dakota v. Wayfair, Inc., 585 U.S. ____ (2018)), while the threshold change applicable to marketplace facilitators is deemed to be effective only to periods on and after June 1, 2019.

Implications

The new GILTI exclusions for certain New York State tax law purposes provided by the Bill applies to tax years beginning on and after January 1, 2019. Thus, this change will not apply to GILTI amounts reported by taxpayers for years beginning in 2018.

For taxpayers subject to New York City corporate tax, the Legislature did not enact a similar GILTI exclusion.

Likewise, the Bill's 95% GILTI exclusion does not extend to New York State's (or New York City's) personal income tax and thus may not apply to individual owners of certain pass-through entities (e.g., sole proprietorships, partnerships, limited liability companies treated as partnerships) that are subject to New York State or New York City taxation.

Further, because the 95% GILTI exclusion is subject to New York State's interest expense attribution rules, taxpayers should review all of the guidance issued by the New York State Department of Taxation and Finance (Department) on the attribution of interest expense. Recent guidance from the Department set forth in TSB-M-19(2)C, (2)I (June 12, 2019), applies to taxpayers with: (1) repatriated income under IRC Section 965, (2) carryforward interest deductions limited by IRC Section 163(j) that is deductible for federal income tax purposes in the current year, and (3) federal interest deductions limited by IRC Section 163(j) in the current year. This recent guidance must be read in conjunction with the Department's previously issued guidance set forth in TSB-M-15(8)C, (7)I (December 31, 2015).

Further, taxpayers should consider the Bill's amendments to the GILTI provisions for purposes of computing second quarter provisions and third quarter estimated taxes.

From a sales and use tax perspective, remote sellers and marketplace facilitators with sales to New York customers should review the increase to the reporting thresholds and determine whether they still have an obligation to collect and remit New York State sales and use tax.

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