The New York Legislature passed a budget bill (“NY Budget Bill”) that takes aim at several key provisions in the federal tax reform bill known as the Tax Cuts and Jobs Act (“Federal Tax Reform”). It has been no secret that Governor Cuomo was displeased with Federal Tax Reform, and this year’s NY Budget Bill reflects that displeasure. Among other items, the NY Budget Bill contains two provisions designed to mitigate Federal Tax Reform’s limit on the deductibility of state personal income taxes—first, the NY Budget Bill creates state-operated charitable contribution funds and provides taxpayers with a credit against their New York State income tax liability equal to 85 percent of the amounts contributed for the immediately proceeding tax year, and second, the Budget Bill creates an optional payroll tax (the “Employer Compensation Expense Tax”) for which employees will receive a credit against their New York State income tax liability (effectively shifting the tax expense and corresponding deduction from the employees to the employer). The NY Budget Bill also addresses some of the corporate income tax changes adopted under Federal Tax Reform, including Internal Revenue Code (“IRC”) section 965 income and the deduction found in IRC § 250(a)(1)(A) (“FDII”). In this blog, we will focus on the provisions of the Budget Bill impacting corporate taxpayers under the New York State corporate franchise tax.
On February 15, 2018, New York Governor Andrew M. Cuomo released 30-day amendments to the State’s FY 2019 Executive Budget. The amendments contain several noteworthy tax provisions that, if enacted, would amount to a sweeping overhaul to portions of the New York Tax Law and could benefit many New York taxpayers. Included in the amendments are provisions that would (1) create an optional employer compensation expense tax, (2) establish a state-run charitable trust fund for the benefit of New Yorkers, and (3) decouple from several Internal Revenue Code provisions. While a proposal to pursue an unincorporated business tax was included in the “Summary of Proposed Tax Reforms” released by the Governor’s office, details of the proposal were not included in the amendments. The revenue proposals contained in the 30-day amendments are largely intended to address the adverse impact of the individual $10,000 state and local tax (“SALT”) deduction cap that was enacted as part of the federal Tax Cuts and Jobs Act of 2017 (the “TCJA”).