Rosen Seymour Shapss Martin & Company LLP 

Certified Public Accountants & Profitability Consultants
 
State and Local Taxation Services Group

 

ALERT

New York State Budget 2014-2015
Dear Clients and Friends of the Firm: 

  

Discussed below are some of the major highlights of the 2014-15 New York State budget which extends some previously enacted changes as well as adding new provisions.

 

PERSONAL INCOME TAX 

  

Repeal of the Personal Income Tax Additional Minimum Tax: Effective for tax years beginning on or after January 1, 2014, the Additional Minimum Personal Income Tax for both New York State and New York City is repealed.

 

Eliminate Prepayment of the Family Tax Relief Credit:  Effective for tax years beginning on or after January 1, 2015, the prepayment element of the family tax relief credit has been eliminated.  Eligibility for the credit will be based on the current year's tax information rather than from the taxpayer's return from the two years prior. Accordingly, taxpayers will receive the family tax relief credit check for 2014 in the fall of this year, and will claim the credit on their 2015 and 2016 personal income tax returns.

  

Noncustodial Parent Earned Income Tax Credit:  The law extends the enhanced earned income tax credit  (EITC) for certain noncustodial parents to tax years 2015 and 2016. To qualify for the enhanced EITC, claimants must be a resident taxpayer, age 18 and over, and have a minor child with whom they do not reside. The credit is equal to the greater of 20% of the Federal EITC that the taxpayer would otherwise be able to claim for one qualifying child (if he/she were a custodial parent), or 2.5 times the EITC for taxpayers without qualifying children. Claimants must have a child support order in effect for at least half the tax year and have made their required support payments.

  

Enhanced Real Property Tax Circuit Breaker:  The law establishes a refundable enhanced real property tax circuit breaker credit for tax years 2014 and 2015. The credit applies to homeowners and renters residing in New York City with household gross income of less than $200,000 annually. Eligible circuit breaker recipients will claim the credit on their personal Income Tax return (or stand-alone form for claimants not required to file a tax return).

 

Align Metropolitan Commuter Transportation Mobility Tax and Personal Income Tax Filings for the Self-Employed: Effective for tax years beginning on or after January 1, 2015, the due dates for filing returns and making estimated tax payments for self-employed individuals subject to the Metropolitan Commuter Transportation Mobility Tax (MCTMT) will be the same dates as for quarterly estimated personal income tax payments (i.e., April 15, June 15, September 15, and January 15). In addition, the MCTMT final return due date is also changed from April 30 to April 15 to conform to the personal income tax return due date.

 

Reform Taxation of Resident Trusts: The law will require New York beneficiaries of exempt resident trusts to pay tax on accumulated income distributed to them. The accumulated income will be taxed at the rate in effect in the year in which it is paid out to the beneficiary.  Furthermore, the income of a particular type of exempt resident trust, known as an incomplete gift, non-grantor trusts, will be taxed to the grantor of the trust.

 

In general, from an income tax perspective, income that is earned by a resident trust (a trust that becomes irrevocable while its creator is a New York resident) may be included in the income of

the grantor, the trust, or the beneficiaries of the trust. Under the current tax law, however, the accumulated income (i.e. the income of a trust that is not distributed to a beneficiary in the year it is earned) of some types of resident trusts is not subject to any New York tax at the grantor level, the trust level, or the beneficiary level. The main cause of the problem is that New York exempts a resident trust if it has no trustees or assets located in New York and its income is not derived from New York sources ("exempt resident trusts"). The new law closes this loophole in two different ways. With regard to one type of exempt resident trust, known as an incomplete gift, non-grantor trust ("ING trust"), the law requires the New York resident grantor of the ING trust to pay tax on the income of the trust. The fact that the transfer of property to the trust was an incomplete gift means that the New York grantor has retained some degree of control over the property, thereby creating a proper nexus for the State to tax the grantor on the income from that property. With regard to all other exempt resident trusts, distributions of the accumulated income of the trust will be taxed to the New York resident beneficiaries who receive the distributions. In computing the tax, income accumulated on behalf of beneficiaries that are not yet born or that are under the age of 21 will not be subject to the tax. Credits are to be applied to avoid the income from the trusts being taxed twice at the State level.

  

This provision takes effect immediately and applies to income accumulated by a trust in a tax year starting on or after January 1, 2014. However, to mitigate transition issues, there is an exclusion of distributions by exempt resident trusts (except ING trusts) of accumulated income made before June 1, 2014, and income earned by ING trusts that are liquidated on or before June 1, 2014.

 

CORPORATE TAXES

  

Overview: The law enacts comprehensive corporate tax reform for tax years beginning on or after January 1, 2015. Major changes include:

  • Merging Article 32 (Bank Franchise Tax) into Article 9-A;
  • Adopting full unitary water's-edge combined reporting with an ownership requirement of more than 50%;
  • Implementing a single receipts apportionment factor using customer based sourcing rules for all taxpayers;
  • Eliminating the separate treatment of subsidiary capital and income;
  • Narrowing the current definition of investment capital and investment income and completely exempting both from tax;
  • Creating a new "other exempt income" category of income;
  • Converting existing NOLs into a prior NOL conversion subtraction pool to stabilize their value for financial accounting purposes;
  • Simplifying the rules for NOLs incurred in tax years beginning on or after January 1, 2015;
  • Allowing a three year carry back of net operating losses (NOLs) incurred in tax years 2015 and after;
  • Lowering the business income base tax rate from 7.1% to 6.5% for tax years beginning on or after January 1, 2016;
  • Reducing the business income base rate for qualified manufacturers to 0% beginning for tax years on or after January 1, 2014;
  • Repealing the alternative minimum tax base;
  • Phasing out the capital base tax over six years;
  • Streamlining the computation of the MTA Surcharge and making it permanent, and
  • Repealing the organization tax and taxes on changes of capital on domestic corporations under �180 of the Tax Law and the license and maintenance fees on foreign corporations imposed by �181 of the Tax Law.

Tax Base and Rate Changes:

The following tax rate schedule applies to the income base:

  

 

Type of Business

 

Tax Year

2014

 

Tax Year

2015

 

Tax Year

2016

 

Tax Year

2017

Tax Year

2018 and

Thereafter

Qualified New York

Manufacturers1

 

0.0%

 

0.0%

 

0.0%

 

0.0%

 

0.0%

Qualified Emerging Technology Companies (QETCs)

 

5.9%

 

5.7%

 

5.5%

 

5.5%

 

4.875%

 

Small Businesses2

6.5%

6.5%

6.5%

6.5%

6.5%

 

Remaining Taxpayers

7.1%

7.1%

6.5%

6.5%

6.5%

1Includes eligible qualified New York manufacturers.

2For the 2014 and 2015 tax years, current law graduated rates apply to small businesses with income over $290,000 but below $390,000. A flat 6.5% rate applies to tax years beginning on or after January 1, 2016.

 

Capital Base:

The following rate schedule applies to the capital base:

 

 

Type of

Business

 

Tax

Year

2014

 

Tax

Year

2015

 

Tax

Year

2016

 

Tax

Year

2017

 

Tax

Year

2018

 

Tax

Year

2019

 

Tax

Year

2020

 

Tax

Year

2021 and

There after

Qualified New York Manufacturers

& QETCs

 

0.136%

 

0.15%

 

0.106%

 

.085%

 

.056%

 

.038%

 

.019%

 

0%

Cooperative Housing Corporations

 

0.04%

 

0.04%

 

0.04%

 

0.04%

 

0.04%

 

0.04%

 

.025%

 

0%

Remaining

Taxpayers

 

0.15%

 

0.15%

 

0.125%

 

.1%

 

.075%

 

0.05%

 

.025%

 

0%

  • For tax year 2014, the tax is capped at $350,000 for qualified New York manufacturers including QETCs, and $1 million for all other taxpayers.
  • For tax years beginning on or after January 1, 2015, the tax is capped at $350,000 for qualified New York manufacturers and QETCs, and $5 million for all other taxpayers.
  • Small business taxpayers are exempt from the capital base tax in their first two years.

Fixed Dollar Minimum (FDM):

 

Eligible qualified New York manufacturer C corporations are subject to the following FDM schedule for the 2014 tax year:

 

 
New York Receipts



Tax Year 2014

Not more than $100,000

$12.50

$100,001-$250,000

$37.50

$250,001-$500,000

$87.50

$500,001-$1,000,000

$250

$1,000,001-$5,000,000

$750

$5,000,001-$25,000,000

$1,750

Over$25million

$2,500

NOTEBeginning with th2015 tayearthese eligiblqualified NeYor

manufacturerare subjecto thFDschedulfor qualified New Yormanufacturer

detailed below.

 

Qualified New York manufacturer C corporations and QETCs are subject to the following FDM schedule:

 

 

New York Receipts

 

Tax Year

2014

 

Tax Year

2015

 

Tax Year

2016

 

Tax Year

2017

Tax Year

2018 and

Thereafter

Not more than $100,000

$23

$22

$21

$21

$19

$100,001-$250,000

$68

$66

$63

$63

$56

$250,001-$500,000

$159

$153

$148

$148

$131

$500,001-$1,000,000

$454

$439

$423

$423

$375

$1,000,001-$5,000,000

$1,362

$1,316

$1,269

$1,269

$1,125

$5,000,001-$25,000,000

$3,178

$3,070

$2,961

$2,961

$2,625

Over$25million

$4,500

$4,385

$4,230

$4,230

$3,750

 

Remaining C corporation taxpayers are subject to the following FDM schedule

 

 

New YorReceipts

 

Tax Year 2014

Tax Year 2015 and

Thereafter

Not more than$100,000

$25

$25

$100,001- $250,000

$75

$75

$250,001- $500,000

$175

$175

$500,001- $1,000,000

$500

$500

$1,000,001- $5,000,000

$1,500

$1,500

$5,000,001- $25,000,000

$3,500

$3,500

$25,000,001- $50,000,00

$5,000

$5,000

$50,000,001- $100,000,000

$5,000

$10,000

$100,000,001-$250,000,000

$5,000

$20,000

$250,000,001-$500,000,000

$5,000

$50,000

$500,000,001-$1,000,000,000

$5,000

$100,000

Ove$1billion

$5,000

$200,000

 

The fixed dollar minimum amounts are unchanged for S corporations.

  

Alternative Minimum Tax:

 

For tax year 2014, the rate is .75% for eligible qualified New York manufacturers; 1.36% for qualified New York manufacturers and QETCs; and 1.5% for all other taxpayers.This base is eliminated for tax years beginning on or after January 1, 2015.

 

TAX CREDITS: 

 

Commercial Production Credit: The threshold minimum activity required for the pool of credit allocated to production outside of the Metropolitan Commuter Transportation District is lowered from $200,000 to $100,000. The sunset date of the credit is extended two years to January 1, 2017.

  

Low-Income Housing Credit: The aggregate dollar amount of credit that the Commissioner of the Division of Housing and Community Renewal may allocate to eligible low-income buildings is increased from $48 million to $56 million effective immediately and further raised to $64 million dollars effective April 1, 2015.

  

Real Property Tax Credit for Manufacturers: The law creates a new credit for qualified New York manufacturers equal to 20% of the real property taxes paid during the taxable year for real property owned by such manufacturer in New York and principally used for manufacturing. The credit is also allowed for property taxes paid on real property leased from an unrelated third party if the taxes are paid pursuant to explicit requirements in a written lease and remitted directly to the taxing authority.

  

Other Tax Credits: The law has:

  • Enhanced the Youth Works tax credit;
  • Creates a new tax credit to encourage touring musical and theatrical productions in upstate New York theaters;
  • Amends the Empire State film production credit to add Albany and Schenectady Counties to the list of upstate counties where additional credit based on wages may be earned;
  • Establishes the Workers with Disabilities Tax Credit Program, administered by the Department of Labor (DOL), to provide an additional tax incentive to employers for employing individuals with developmental disabilities, and
  • Provides an approved business participating in the START-UP NY (SUNY Tax-Free Areas to Revitalize and Transform Upstate New York) Program with a refundable credit equal to the 2.5% Excise Tax paid on purchased telecommunication services under Tax Law Article 9, Section 186-e.

The law provides that any taxpayer who stands convicted of an offense defined in Article 200 or 496 or Section 195.20 of the Penal Law is ineligible for any business credits.

  

ESTATE TAX:  The law amends the estate tax to decouple the tax from Federal law. The estate tax was commonly known as a "pick-up" tax because the tax equaled the Federal credit for state estate taxes as it existed on July 22, 1998. The unified threshold of $1 million is replaced with an applicable credit equal to the tax on a basic threshold amount equal to $2,062,500 for those dying in State Fiscal Year (SFY) 2014-15; $3,125,000 in SFY2015-16; $4,187,500 in SFY2016-17; and $5,250,000 from April 1, 2017 to December 31, 2018. The basic threshold will equal the Federal basic threshold amount with annual indexing for those dying on or after January 1, 2019. The applicable credit is reduced for New York taxable estates exceeding the basic threshold amount and equals zero for those exceeding one hundred five percent of such amount. This is similar to the loss of the benefit of the $1 million unified threshold under previous law.

  

Gifts taxable under Section 2503 of the Internal Revenue Code that were not otherwise included in Federal Gross Estate and that were made during the three years ending on the date of death must be added to the New York Gross Estate. However, gifts made while the decedent was a nonresident of New York State and gifts made prior to April 1, 2014 or on or after January 1, 2019 are not included.

  

The Generation Skipping Tax has also been repealed as of April 1.

  

SALES AND USE TAX: Effective June 1, 2014, the sales tax exemption provided for certain food and beverages sold from a vending machine has been increased from $1.50 or less from 75 cents or less.

  

PROPERTY TAX:  The law provides a real property tax freeze credit to taxpayers who are STAR recipients or otherwise would be STAR-eligible. The credit is applicable against school district and municipal taxes levied outside of the City of New York. Credits against school tax increases will be provided for school years 2014-15 and 2015-16. Credits against all other municipal taxes will be provided in 2015 and 2016. The credits will be sent as an advance payment, with the initial 2014-15 school tax payment occurring in the fall of 2014.

 

Should you have any additional questions, please feel free to contact Steven J. Eller, CPA, JD at (212) 303-1051 or via email at seller@rssmcpa.com. 

 

Sincerely,

  

Rosen Seymour Shapss Martin & Company LLP
To ensure compliance with requirements imposed by the IRS, or any state and local taxing authority we wish to inform you that any tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or applicable state or local tax law provisions or (ii) promoting, marketing or recommending to another party any transaction or tax-related matter addressed herein.
 
The publication provides general information.  It does not constitute an opinion of RSSM, it is not a substitute for professional advice and does not create an accountant-client relationship.  You should obtain professional advice before taking or refraining from taking any action based on the information in this publication.
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