19 March 2026 New York budget negotiations continue as Assembly and Senate bills are introduced
Negotiations remain ongoing between the New York State Legislature and Executive branch concerning the details of the 2026–2027 New York State (NYS) budget. While the final budget bill is due before the April 1 start date of the state's new fiscal year, leaders in Albany have not met that deadline in recent years. The final shape of the budget bill remains to be seen, but it will likely include some of the tax proposals put forth by Governor Kathy Hochul, the Assembly and the Senate. This Tax Alert summarizes significant tax proposals included in (1) the Revenue Article VII Legislation proposed by the governor in the executive budget bill (S.9009-A and A.10009-A) (hereafter, Executive Bill) (see Tax Alert 2026-0294), (2) the Assembly's Revenue Article VII Legislation (A.10009-B, hereafter, Assembly Bill), and (3) the Senate's Revenue Article VII Legislation (S.9009-B, hereafter, Senate Bill). Each bill includes provisions that affect corporate and individual taxpayers across various industries.
A quick answer chart comparing which bills the following proposals are included in is available at the end of this Tax Alert, as an appendix. The Executive, Assembly and Senate Bills would all decouple from select federal tax changes enacted by the OBBBA,1 retroactive to tax years beginning on or after January 1, 2025. Mechanically, this decoupling would operate by disallowing the current expense allowed for federal income tax purposes and then allowing an alternative amount for NYS and NYC purposes. None of the Bills include any penalty or interest relief for tax liabilities that arise from a retroactive application of the decoupling provisions. While no specific time limit applies to the retroactive application of a tax law, New York has a judicially developed three-factor test for evaluating whether retroactivity violates due process. Those factors include: (1) the public purpose, (2) the length of retroactivity, and (3) the taxpayer's reasonable reliance on prior law.2 Because taxpayers may have underpaid tax liabilities due to retroactive application of the decoupling provisions, it is possible that the current provisions, if enacted, may be challenged. The OBBBA created a 100% depreciation allowance for US nonresidential real property used as an integral part of a qualified production activity. The Executive Bill (Part F) would decouple from this provision for NYS corporate franchise tax, personal income tax and insurance tax purposes.3 The Executive Bill (Part G) also would decouple from this provision for various NYC taxes, including the general corporation tax, business corporation tax and unincorporated business tax.4 The applicable depreciation would be computed under the depreciation provisions (i.e., IRC Section 167) in effect before the enactment of the OBBBA. The NYC portion of the legislation differs from the proposed state language, notably specifying that the5 property would not be treated as IRC Section 1245 property.6 While the NYC personal income tax is not currently included in this decoupling measure, we would expect that to change in the final legislation. The OBBBA made a number of changes to the federal treatment of domestic research and experimental (R&E) expenditures. For expenditures occurring in tax years beginning after December 31, 2024, taxpayers may expense the full amount of domestic R&E or amortize over different periods under new IRC Section 174A(c) or 59(e). Small businesses may elect to apply the provision retroactively for domestic R&E expenditures incurred after December 31, 2021. All taxpayers may elect to accelerate certain unamortized domestic R&E expenditures (incurred and capitalized in tax years beginning after December 31, 2021, and before January 1, 2025) over one or two years, beginning with the 2025 tax year. Under IRC Section 174A(c), amortization begins in the month the taxpayer first realizes benefits from the expenditures. The changes do not apply to foreign R&E expenditures, which are deductible over a 15-year period. The Executive, Assembly and Senate Bills each would decouple NYS and potentially NYC from the federal accelerated deductions for pre-2025 domestic R&E expenditures and the ability to immediately deduct domestic R&E expenses in the year incurred. Note that NYC does not include a cross reference to the transition rule for R&E expenses in the OBBBA and that may mean it does not effectively decouple from the catch-up deduction. For tax years beginning on or after January 1, 2025, all domestic and foreign R&E expenses would be deductible over the same five-year period for NYS tax purposes. For NYC tax purposes, foreign R&E costs would continue to be amortized over 15 years, but domestic R&E costs would be amortized over five years beginning with the midpoint of the tax year in which the expenditures are paid or incurred. As a result, if any of the bills are enacted without change, there would be different R&E calculations for federal, NYS and NYC tax purposes.7 The OBBBA made permanent the addback of depreciation, amortization and depletion in computing the 30% limitation in deducting business interest expense under IRC Section 163(j), effective for tax years beginning after December 31, 2024. As a result, the limitation reverted to using earnings before interest, taxes, depreciation, depletion, and amortization (EBITDA). This change may lead to higher deductions than the earnings before interest and taxes (EBIT) approach. For NYC tax purposes, the Executive, Assembly and Senate Bills (Part G), would decouple from the inclusion of depreciation and amortization in the adjusted taxable income (ATI) calculation (which means NYC would include the expense in ATI) and require taxpayers to use the pre-OBBBA EBIT approach for NYC income taxes.8 The OBBBA increased the IRC Section 179 deduction limits for tax years beginning after 2024. The Executive and Assembly Bills do not include a parallel provision for NYS tax purposes, but the Senate Bill would decouple NYS from IRC Section 179(d). For NYC tax purposes, the Executive, Assembly and Senate Bills would decouple from the federal change and revert to the NYC limitations in effect before the OBBBA. NYC previously decoupled from prior versions of IRC Section 179.9 The Governor's 30-day Amendments, the Assembly Bill and the Senate Bill (Part G) for NYC tax purposes would replace refences to net GILTI with: IRC Section 951A(a), less the amount of deduction allowed under IRC Section 250(a)(1)(B)(i) — i.e., net CFC tested income (net NCTI). The OBBBA expanded the benefit for investments in qualified small business stock. The Senate Bill (Part PP) would decouple NYS and NYC from the expanded exclusion for gain from qualified small business stock enacted by the OBBBA and would instead allow for an exclusion under IRC Section 1202 as in effect on December 31, 2024 (i.e., prior to the effective date of the OBBBA amendment). This provision would apply retroactively to tax years beginning on or after January 1, 2025. The Senate Bill (Part CC) would decouple NYS from the exclusion of gain and basis adjustment, applicable to investments in qualified opportunity zone funds that are subject to the election in IRC Section 1400Z-2(a) and held for at least 10 years, thus generating gains subject to IRC Section 1400Z-2(c). For taxpayers with business income over $5 million, the Executive Bill (Part E) would extend the current top corporate franchise tax rate of 7.25% through tax years beginning before January 1, 2030 (currently before January 1, 2027). The Executive Bill also would extend the current 0.1875% capital base rate for three years, through tax years beginning before January 1, 2030 (currently January 1, 2027). The Senate Bill would increase the top corporate franchise tax rate to 9% for taxpayers with business income over $5 million. The Assembly Bill introduces a new tier that would apply a 7.25% rate for taxpayers with business income between $5 million and $10 million and add a new 9.25% rate for taxpayers with business income exceeding $10 million. The Senate and Assembly Bills do not modify the Executive Bill's proposed changes to the capital base tax. Both the Senate and Assembly Bills would apply these proposed rate changes to tax years beginning on or after January 1, 2026, and before January 1, 2030. The Senate Bill (Part SS) and the Assembly Bill (Part PP) would increase the NYC Unincorporated Business Tax rate to 4.4% (from 4%) for taxpayers with business income above $5 million. Both bills also would increase the NYC corporation tax rates to 10.62% (from 8.85%) for general corporations and to 10.80% (from 9%) for financial corporations. The corporation tax rates for small businesses and qualified manufacturers would increase using "scaling factors." The language for the corporate Unincorporated Business Tax credit conversion ratio updates the corporate tax rates but not the Unincorporated Business Tax rate, which would have the effect of creating a mismatch between the credit and conversion when the unincorporated business is paying the higher marginal rate, if not corrected. These rate changes would apply to tax years beginning on or after January 1, 2026. While the rate increase provided for in the Assembly Bill would take effect upon the bill becoming law, the rate increase provided by the Senate Bill would require approval by the City Council to take effect. The Senate Bill (Part FF) would permanently impose a tax rate of 10.80% on individuals who have taxable income between $5 million and $25 million and 11.40% tax rate on those who have taxable income over $25 million. The Assembly Bill (Part AA) would combine middle income relief and increased rates for high-income earners. Under current law, the rates range from 3.90% up to 10.90%. For tax years beginning in 2026 through 2033, there would be rate reductions for income below $323,000, with rates ranging from 3.75% (from 3.90%) up to 5% (from 5.90%). For high-income earners, the rate would be 10.50% for individuals with income between $5 million and $10 million,10.75% for income between $10 million and $25 million, 11.75% for income between $25 million and $100 million, and 12 % for income over $100 million. Currently, NYS and NYC require the annual pass-through entity tax (PTET) election to be made by March 15 of the tax year for which the election would be in effect; however, many taxpayers lack sufficient information at that time to estimate the potential impact of the election on the business and its partners/shareholders.
The Senate Bill (Part GG) would also reduce the PTET credit to 90% for NYS purposes (Part RR) and to 75% for NYC purposes. The Assembly Bill (Part OO) only provides for the reduction of the NYC PTET credit, limiting it to 75%. These provisions would be effective June 1, 2026, and appear to be effective for PTET tax year 2026 and forward (note the due date for the NYS and NYC PTET elections for the 2026 tax year is March 16, 2026.). Because the NYS PTET uses a marginal rate structure, partners that pay a lower marginal tax rate than their partnership will face a proportionally more significant state tax increase from the credit limitation. The Executive Bill (Part M) would amend NY Tax Law Sections 1201 and 1402 and NYC Admin. Code Sections 11-2102 to extend for three years, until September 1, 2029, the 50% tax rate reduction in NYS's real estate transfer tax and NYC's real property transfer tax for qualifying transfers to real estate investment trusts.11 The reduced tax rates are currently set to expire in 2026. These provisions would take effect immediately. This special benefit has consistently been extended since it was originally enacted in 1996. The application of the benefit, however, has been the source of litigation because the qualifying criteria require calculations that refer to estimated market value for property tax purposes, rather than fair market value. The disconnect between those two values may potentially magnify the benefit by generally allowing a lower value to be used as the base, as well as making qualifying much easier. The Senate Bill (Part TT) and the Assembly Bill (Part QQ) each propose a new NYC tax on transfers of interests in certain residential real estate occurring on or after June 1, 2026. (This provision is not part of the Executive Bill.) Dubbed the "New York City Mansion Tax," the proposals would create progressive rate brackets for transfers of such residential real property within the City, whether the transferred interest is a direct interest, a leasehold interest or an economic interest. Although the proposed mansion tax rates would replace the current NYC Real Property Transfer Tax rates (which are currently either 1.425% or 2.625% depending on property type and consideration amount) for applicable residential real property, the proposed mansion tax would be in addition to the New York State Real Estate Transfer Tax,12 the New York State Additional Real Estate Transfer Tax13 and the New York State Supplemental Real Estate Transfer Tax.14
Unlike a traditional mansion tax, under the proposed NYC Mansion Tax, the grantor/seller would be the primary obligor, rather than the grantee/purchaser (the NYS Mansion Tax makes the grantee the primary obligor). Nevertheless, joint and several liability would apply, such that both seller and purchaser would be liable for the full amount of tax. Furthering the Governor's affordability agenda, the Executive Bill (Part B) seeks to eliminate the NYS income tax on tipped wages — up to $25,000 per year — for single filers earning up to $150,000 and joint filers earning up to $300,000. Beginning with the 2026 tax year, tax filers would be entitled to reduce their NYS adjusted gross income by the same amount authorized by the equivalent federal deduction.15 The Executive Bill (Part N) outlines the parameters for a four-year Certificate of Authority (COA) re-registration program for sales tax vendors to be completed by December 31, 2030, and would provide incentives to encourage delinquent taxpayers to settle fixed and final debt before reregistration. As part of the reregistration program, the Commissioner of Taxation and Finance would determine the order in which current sales tax vendors must reregister to provide proper oversight and efficient administration of the program. All vendors would be required to pay fixed and final debts in full before obtaining a new COA. To incentivize vendors to resolve their outstanding debt before the start of the reregistration program, the Department of Taxation and Finance would apply a discount that fully eliminates the associated penalties and reduces by half the associated interest for all vendors who pay in full by December 31, 2026. The Executive Bill (Part O) would create a sales and use tax exemption for the retail sale of electricity (used to recharge an electric vehicle) by a commercial EV charging station. According to the memorandum in support of the Executive Bill, this exemption would help to lower the administrative costs and burdens of owning and operating commercial EV stations and incentivize the continuous development and expansion of the State's public EV charging infrastructure. The resale exemption on the purchase of wholesale electricity by an EV charging station operator would no longer apply, newly subjecting these wholesale purchases to sales tax.16 The Executive Bill would extend with no other changes the following credit and exemption provisions:
The current sales and use tax exemption for transactions between related entities under the Dodd-Frank Wall Street Reform and Consumer Protection Act would be extended for an additional three years, for sales made, services rendered, or uses occurring on or before June 30, 2028, and for those made pursuant to binding contracts entered into on or before June 30, 2028. In no case will the exemption apply after June 30, 2031. An excise tax would be imposed on electric power used by crypto mining facilities that use at least 2.25 million kilowatt-hour (kwh) annually and use "proof-of-work" authentication methods, at the following rates:
The Senate Bill would impose a noise tax on non-essential helicopter/seaplane flights that originate or terminate in the City. The tax would be the greater of $50 per seat or $200 per flight. The Senate Bill would modify the sales tax exemption for sales of bullion above $1,000 to be applicable only to government entities. With multiple moving parts in the proposed budget revenue bills, it remains unclear which provisions will be included in a final budget deal as executive and legislative branch negotiators reach the budget deadline. The total budget package could ultimately include significantly higher rates for taxpayers, decoupling from certain OBBBA provisions for NYS and NYC income tax purposes and new vendor registration provisions for sales and use tax purposes. Affected taxpayers should review these proposed changes and consider how they would impact their New York tax obligations. It will be especially important for taxpayers to consider the decoupling provisions when making tax payments for tax year 2025. To reduce the chances of incurring future penalties and interest, taxpayers may wish to operate under the assumption that the decoupling provisions will be enacted retroactively, resulting in more tax being due. This quick answer chart illustrates which bills include each proposal described above. The "*" next to a Yes response indicates that the Assembly and/or Senate Bill differs from the Executive Bill, or if the provision is not included in the Executive Bill, the Assembly Bill differs from the Senate Bill.
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