April 7, 2021
New York State budget agreement reached, includes income tax increases for businesses and individuals, new tax on pass-through entities
Today, the New York State (NYS) Assembly passed the revenue legislation part of the FY 2021-22 budget bill (S.2509-C/A.3009-C) (Final Bill). The Final Bill, which passed the NYS Senate April 6, includes various tax increases and provisions affecting certain individuals, pass-through entities and corporations. The Final Bill now will be sent to Governor Andrew Cuomo, who is expected to sign it soon.
Key provisions in the Final Bill include the following:
- Extension of top state income tax rate — Beginning with tax year 2021, the Final Bill would extend the top state income tax rate, starting with a new tax rate of 9.65% for NYS taxable income over $2,155,350 up to a new top tax rate of 10.90% for NYS taxable income over $25 million. These top tax rates would be extended for all filing statuses through 2027. For tax years beginning on or after 2028, the top state income tax rate would decrease to 8.82%. (Part A of the Final Bill)
- Tax on pass-through entities — New Article 24-A would create an elective pass-through entity tax, which would permit partners, members and shareholders of electing entities to indirectly deduct state and local taxes (SALT) paid so as to mitigate the impact of the federal cap on the deduction for state and local tax paid. (Part C of the Final Bill)
- Increase in income tax rate for businesses — The business income tax rate for Article 9-A taxpayers would increase from 6.5% to 7.25% for tax years beginning on or after January 1, 2021 and before January 1, 2024. The increase would apply to any taxpayer with a business income base of more than $5 million for the tax year. This rate increase would not apply to businesses at or below the $5 million threshold, qualified NY manufacturers or qualified emerging technology companies. (Part HHH of the Final Bill)
- Extension of the business capital base tax — The business capital base tax for Article 9-A taxpayers, which was set to phase out in 2021, would be extended. For tax years beginning on or after January 1, 2021 and before January 1, 2024, the business capital tax rate would be 0.1875% for most corporations. The business capital base would completely phase out for tax years beginning on and after January 1, 2024.
- This capital tax extension would apply to all taxpayers except cooperative housing corporations and qualified NY manufacturers. Both of those types of taxpayers would still have a 0% business capital base tax for tax years beginning on or after January 1, 2021. (Part HHH of the Final Bill)
The Final Bill did not include proposals on:
- Capital gains taxes
- An 18% business tax surcharge
- Mezzanine debt, preferred equity investments and the mortgage recording tax
- Pied-a-Terre provisions
- Increased filing fees for limited liability companies and partnerships
- Increases in estate taxes
- Allowing the NYS Department of Taxation and Finance to appeal adverse decisions by the Tax Appeals Tribunal
A detailed Tax Alert is forthcoming.