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December 28, 2023

BREAKING TAX NEWS | New York State finalizes regulations implementing corporate franchise tax reform from 2014

On December 27, 2023, the New York State (NYS) Department of Taxation and Finance (Department) published final regulations implementing comprehensive franchise tax reform for corporations, banks and insurance companies, which was enacted in 2014, with subsequent technical and conforming amendments enacted in 2015 and 2016.

The final regulations are substantially similar to proposed regulations, with few modifications. In addition to the final regulations, the Department issued documents responding to public comments and summarizing the substance of the final regulations.

In responding to public comments, the Department acknowledged written comments from several industry groups, but noted that "[a] majority of the written comments … duplicated feedback … that the [D]epartment had rejected as inconsistent with the Tax Law, established department policy, related Federal provisions or the legislative objectives of Tax Reform, as lacking statutory authority, or as administratively impracticable." While the Department considered alternatives to the proposed regulations during the notice and comment period, "no substantial revisions" were made to the final version of the regulations, and the Department only made "minor clarifying and technical changes to the proposed rule."

While rejecting most of the comments submitted by industry groups, the Department addressed comments on retroactivity. According to the Department, "[t]he Tax Reform legislation … specifically provided that the amendments contained therein generally apply to [tax] years beginning on or after January 1, 2015. The proposed rules interpret the statutory amendments of the Tax Reform, and, therefore, will be applied to the same periods."

The final regulations are effective December 27, 2023, with retroactive application to tax years beginning on or after January 1, 2015. The Department, however, "may choose not to apply penalties in cases where taxpayers took a position in their tax filings prior to the adoption of the proposed rule in reliance upon prior article 9-A regulations or prior drafts of the proposed rule."

Given that the final regulations were published on December 27, 2023, these changes will be considered a fourth-quarter event for financial statement purposes for New York calendar-year taxpayers.

The final regulations cover a wide range of areas, such as imposition of tax (nexus) and protected/unprotected activities under PL 86-272; apportionment; computation of tax; combined unitary reporting; and qualified NYS manufacturers (NYQMs). These and other areas addressed in the final regulations may impact NYS taxpayers in various industries.

A general table of contents of the final regulations is as follows:

  • Part 1 — Imposition of tax (pages 1-39), including corporations that may be subject to tax based upon economic nexus, corporate partner rules and protected/unprotected activities under PL 86-272
  • Part 2 — Accounting periods and methods (pages 39-47)
  • Part 3 — Computation of tax (pages 47-171), including rules on investment and business income and capital, with examples; and capital loss, prior net operating losses and net operating loss provisions, with examples
  • Part 4 — Apportionment (pages 172-305), including general and specific rules; rules on receipts from digital products and services, and from other services and other business activities, with examples
  • Part 5 — Credits (pages 305-313), including the investment tax credit, employment incentive tax credit, and security training tax credit
  • Part 6 — Reports (pages 313-341), including general requirements, and combined reporting
  • Part 7 — Payment of tax, declaration and payment of estimated tax, and collection (pages 341-354)
  • Part 8 — Metropolitan Transportation Business Tax Surcharge (pages 354-368), including the Metropolitan Commuter Transportation District Apportionment Percentage rules
  • Part 9 — Special entities (pages 368-404), including NYQM and contract manufacturers provisions; corporate partner rules with examples; NYS S corporation provisions; and rules for real estate investment trusts and regulated investment companies
  • Part 32 — Combined reports for insurance corporations (pages 404-417)

A detailed Tax Alert is forthcoming.

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Contact Information

For additional information concerning this Alert, please contact:

For general (non-financial instituion) New York State taxpayers

For financial institutions that are New York State taxpayers

Published by NTD’s Tax Technical Knowledge Services group; Chris DeZinno, legal editor