Unrelated Business Taxable Income
For taxable years beginning on or after January 1, 2014, California law conforms, as modified, to federal provisions for charitable remainder annuity trusts and charitable remainder unitrusts by providing that the trust’s income shall be tax-exempt, with the exception of any unrelated business taxable income.
For taxable years beginning on or after January 1, 2014, taxpayers who exchange property located in California for like-kind property located outside of California under Internal Revenue Code Section 1031 are required to file annual information forms with the Franchise Tax Board.
Financial Incentive for Turf Removal
For taxable years beginning on or after January 1, 2014, and before January 1, 2019, taxpayers can exclude from gross income any amounts received as a rebate, voucher, or other financial incentive issued by a local water agency or supplier for participation in a turf removal water conservation program.
For taxable years beginning on or after January 1, 2014, any business entity filing an original or amended tax return prepared using tax preparation software is required to electronically file (“e-file”) with the Franchise Tax Board. A waiver for this requirement can be filed online.
Federal Schedule M-3
California conforms to federal law which allows corporations with at least $10 million, but less than $50 million, in total assets at tax year-end to file Schedule M-1 (Form 1120/1120-F), Reconciliation of Income (Loss) Per Books with Income Per Return, in place of Schedule M-3 (Form 1120/1120-F), Net Income (Loss) Reconciliation for Corporation with Assets of $10 Million or More, Parts II and III. Schedule M-3, Part I, continues to be required for these corporations. For California tax purposes, corporations must complete California Schedule M-1.
New Employment Tax Credit
For taxable years beginning on or after January 1, 2014, and before January 1, 2021, the New Employment Credit (“NEC”) is available to qualified taxpayers that hire qualified full-time employees; pay or incur qualified wages to such employees in a designated census tract or economic development area; and receive tentative credit reservations for the qualified full-time employees. Annual certification of employment is required with respect to each applicable employee hired in a previous year. In order to be allowed a credit, the qualified taxpayer must have a net increase in the number of full-time employees in California. Any credits not utilized in the taxable year may be carried forward up to five years. If any employee is terminated within the first 36 months after beginning employment, the employer may be required to recapture previous credits taken.
California Competes Tax Credit
For taxable years beginning on or after January 1, 2014, and before January 1, 2025, the California Competes Credit is available to businesses that relocate to California or stay and grow in California. Tax credit agreements will be negotiated by the Governor’s Office of Business and Economic Development (“Go-Biz”) and the California Competes Tax Credit Committee. This credit only applies to state income or franchise tax. Twenty-five percent of the total credits available each year are specifically reserved for taxpayers with worldwide gross receipts greater than $0 and less than $2 million. Taxpayers awarded a contract by the Committee will claim the credit on their income or franchise tax returns. The credit can reduce tax below the tentative minimum tax. Any credits not utilized in the taxable year can be carried forward up to six years.
College Access Credit
For taxable years beginning on or after January 1, 2014, and before January 1, 2018, a credit is available to taxpayers who contribute to the College Access Tax Credit Fund. The credit is equal to 55% of the amount contributed in 2015 and 50% of the amount contributed for taxable years 2016 and 2017. Taxpayers who receive a certificate from the California Educational Facilities Authority (“CEFA”) may claim the credit on their income or franchise tax returns. The CEFA will provide a copy of each certificate issued to the Franchise Tax Board. Recent legislation extended this credit to taxable year 2017 and enables this credit to reduce tax below tentative minimum tax. Any credits not utilized in the taxable year can be carried forward up to six years.
Repeal of Enterprise Zone (“EZ”) Incentives
For taxable years beginning on or after January 1, 2014, taxpayers cannot generate the following EZ incentives: Business Expense Deduction, Net Interest Deduction, or Net Operating Loss. Taxpayers can still claim a net operating loss carryover deduction from prior years.
For taxable years beginning on or after January 1, 2014, taxpayers cannot generate any EZ Hiring Credits, excepting certain qualified taxpayers. Qualified taxpayers who hired qualified employees on or before December 31, 2013 in a qualified EZ and paid or incurred qualifying wages during the 60-month period immediately following the hire date continue to qualify for the credit.
For taxpayers engaged in a trade or business in a repealed EZ, the sales and use tax credit may only be taken on qualified property purchased before January 1, 2014 and placed in service before January 1, 2015. The sales or use tax credit is not available for assets purchased after January 1, 2014, regardless of when the assets were placed in service. For taxable years beginning on or after January 1, 2014, unused EZ sales or use tax or hiring credits may only be carried forward to the succeeding 10 taxable years.
Earthquake Loss Mitigation Exclusion
For taxable years beginning on or after July 1, 2015, corporate taxpayers can exclude from gross income an amount received as a loan, loan forgiveness, grant, credit, rebate, voucher, or other financial incentive issued by a California Residential Mitigation Program or the California Earthquake Authority to assist a residential property owner or occupant with expenses paid, or obligations incurred, for earthquake loss mitigation. “Earthquake loss mitigation” means activity that reduces seismic risks to a residential structure or its contents, or both.
In response to inquiries, the Franchise Tax Board published a three-part Tax News series discussing nonresident group tax returns, also known as composite tax returns. Only individuals can be included in a composite tax return; individuals must be full-year nonresidents of California, and income from the business entity/organization must be the only California-source income for the individual, with the exception of other California-source income reported on another composite return. The election to be included in a composite return is irrevocable for the taxable year. Taxpayers are taxed at the highest California marginal rate on a composite return. For taxpayers with California taxable income in excess of $1 million, all income included on a composite return will be assessed the additional 1% Mental Health Services Tax. Should the individual file his or her own California nonresident tax return, the additional 1% tax would only be assessed on excess taxable income over $1 million. As such, careful consideration should be made by business entities before filing composite tax returns on behalf of their nonresident owners.
California Film Credit Regulations Adopted
The California Film Commission adopted various regulations to implement the California Film & Tax Credit 2.0 Program. The regulations amend the application process, eligibility determination, qualified expenditures, tax credit allocations, and the credit certificate issuance process. This program increases tax credit funding from $100 million to $330 million and extended funding for five years, among other changes.
Net Operating Loss (“NOL”) Carryback
California law requires that NOLs incurred in a taxable year beginning on or after January 1, 2013, be carried back two preceding taxable years. For taxable years beginning on or after January 1, 2014 and before January 1, 2015, the carryback amount may not exceed 75% of the NOL. For NOLs incurred in a taxable year beginning on or after January 1, 2015, the carryback amount is 100% of the NOL. Any loss not applied in the preceding periods is carried forward. Similar to federal tax law, an election may be made to relinquish the NOL carryback.
Sales and Use Taxes
Sales Tax Increase on Website Creation, Development and Maintenance:The exclusion for sales tax on services rendered in connection with website creation, development and maintenance was repealed October 1, 2015, making those services subject to sales tax. These services will be treated as computer and data processing services subject to the 1% tax rate.
Effective July 1, 2015, the luxury sales tax rate increases from 7% to 7.75% for motor vehicles, jewelry, clothing and footwear costing more than specified amounts as follows:
- $50,000 for motor vehicles, with certain exceptions;
- $5,000 for jewelry (real or imitation); and
- $1,000 for clothing, footwear, handbags, luggage, umbrellas, wallets, and watches.
Effective for sales occurring on or after April 1, 2015, legislation reinstates a sales and use tax exemption for sales of certain nonprescription drugs and medicines for use in or on the body, including: vitamins or mineral concentrates; dietary supplements; natural or herbal drugs or medicines; products for coughs, colds, asthma or allergies, or antihistamines; and laxatives, among other items. The exemption expressly does not include cosmetics, dentifrices, mouthwash, shaving and hair care products, soaps and deodorants.
The exemption for the sale of any article of clothing or footwear intended to be worn about the human body and costing less than $50, originally passed during the 2013 legislative session, was reinstated during the 2014 session. The effective date for this exemption is now July 1, 2015.
Income Tax: Mandatory Unitary Combined Reporting
This change, applicable to tax years beginning on or after January 1, 2016, replaces the current combined reporting provisions and applies to unitary combined reporting. This will apply to a group of corporations engaged in a "unitary business," defined as a single economic enterprise that is interdependent, integrated or interrelated enough through its activities to provide mutual benefit and produce significant sharing or exchanges of value among its entities or a significant flow of value among its separate parts. This can relate to the separate parts of a single entity or a group of entities under common ownership, including businesses conducted or connected to pass-through entities such as partnerships and S-Corporations. Common ownership will exist if the same entity or entities, including individuals, directly or indirectly own more than 50% of the voting control of the entities, regardless of whether the owner or owners are part of the combined group. Indirect control will be determined under IRC section 318, and the combined group will include all companies under common ownership as long as one of the members of the group is subject to Connecticut Corporations Tax.
Corporate Income Tax Surcharge Extended
The 20% corporation income tax surcharge is extended for two additional years to the 2016 and 2017 income years. In addition, a temporary 10% surcharge is imposed for the 2018 income year. Companies that have less than $100 million in annual gross income in those years are exempt from the surcharge, unless they file combined or unitary returns.
Net Operating Loss Carryforward Limitation
Beginning with the 2015 tax year, the net operating loss (NOL) that a corporation may carry forward is limited to the lesser of: (1) 50% of net income or, for companies with taxable income in other states, 50% of the net income apportioned to Connecticut; or (2) the excess of NOL over the NOL being carried forward from prior income years.
Tax Credit Limitation
For any tax year commencing on or after January 1, 2015, the amount of tax credits that corporations may use to reduce their corporation tax liability is limited to 50.01% (currently 70%) of the amount of tax due in any tax year prior to the application of credits.
Personal Income Tax
Effective January 1, 2015, personal income tax rates will rise via an increase in the top bracket from 6.7% to 6.9%, and through the creation of a new 6.99% marginal tax rate (for individuals earning more than $500,000 and couples earning more than $1 million). In addition, a flat income tax rate is applied to all trusts and estates at a rate of 6.99%. The previous rate was 6.7%
Research and Development Credit
Massachusetts has implemented a new alternative simplified R&D tax credit that may allow a credit for a number of companies previously disallowed from claiming a credit. This new method will allow taxpayers to claim either the regular or simplified method. The Massachusetts alternative simplified credit method will be phased in over a sevenyear period:
- For calendar years 2015, 2016, and 2017, the amount of the credit is equal to 5% of the taxpayer’s qualified research expenses for the taxable year that exceeds 50% of the taxpayer’s average qualified research expenses for the three preceding taxable years.
- For calendar years 2018, 2019 and 2020, the amount of the credit is 7½% of the taxpayer’s average qualified research expenses for the preceding three taxable years.
- For calendar years beginning on or after January 1, 2021, the amount of the credit is increased to 10%.
Massachusetts Combined Reporting
An amendment has been made to the MA combined reporting regulation. The change addresses a Department of Revenue (DOR) position that the principal reporting company in a combined report is the agent for all members, and the DOR has the right to seek payment from the principal reporting company or any other member of the group for any liability of the group members. In essence, the DOR can collect taxes due from any member of the group, not just the member that incurred the tax.
Effective for tax years beginning on or after January 1, 2015, Rhode Island has implemented several changes to the taxation of corporations that reduce the corporate income tax rate; repeal the franchise tax; and institutes combined filing, single sales factor apportionment and market-based sourcing for purposes of calculating the sales factor. In addition:
- The corporate tax rate will decline from 9% to 7%; the minimum tax remains $500.
- The Franchise tax is repealed.
- Unitary combined reporting is required for C-corporations engaged in a unitary business.
- Requires “water’s edge” treatment.
- Mandates the “Finnegan” method for purposes of computing the sales factor in apportionment.
- Includes certain tax haven language.
- Allows a combined group, if certain conditions are met, to elect to file based on its federal consolidated group. (Such an election cannot be revoked for five years).
Estimated Taxes on Combined Reports
To meet safe harbor provisions, estimates must be computed as follows:
- The installments must equal 100 percent of the tax due for the prior year plus any additional tax that is due to the combined reporting provisions; or
- The installments must equal 100 percent of the current year tax liability.
Market-Based Sourcing for Service Revenue
For tax years beginning after on or after January 1, 2014, the receipts from the sale of services will be sourced to Pennsylvania for apportionment purposes if the service is delivered to a location in the state, or based on the relative value of the services delivered to Pennsylvania. Marketbased sourcing represents a significant change in methodology for service providers and has been adopted by a growing number of states.
Expiring Capital Stock & Franchise Tax
This tax, originally scheduled to be eliminated for taxable years ending December 31, 2013, was extended to gradually phase-out over two additional years. The Capital Stock and Franchise Tax is currently reduced to 0.45 mills in 2015 and set to terminate after December 31, 2015.
Related Party Expense Addback
Beginning in 2015, for Pennsylvania Corporate Net Income tax purposes, affiliated companies in certain instances are required to add-back to income intercompany intangible expenses for interest, royalties, patents, trademarks, service marks, copyrights, etc. A tax credit is available if the affiliated entity is subject to tax on the corresponding intangible or interest item in any U.S. state or possession. Various exceptions are provided to the addback requirement if certain conditions are met, such as business purpose and arm’s length criteria; transactions with affiliates located in a foreign nation that has a comprehensive tax treaty with the United States; and in some instances where the affiliate incurs a similar payment to an unrelated party.
Increased Net Operating Loss Deductions
The current net loss deduction limitation for Corporate Net Income Tax (the greater of $4 million or 25% of Pennsylvania taxable income) is increased to the greater of $5 million or 30% of Pennsylvania taxable income for tax years beginning after December 31, 2014; however the new Governor’s Executive Budget proposes the net operating loss deduction cap be decreased to $3 million or 12.5% of taxable income for tax year 2016 and thereafter.
Corporate Net Income Tax Proposals
Governor Wolf’s corporate tax reform plan proposes a reduction in the corporate net income tax rate from 9.99% to 5.99% in tax year 2016, 5.49% in tax year 2017, and 4.99% in tax year 2018 and beyond.
Multistate Tax Commission’s Joint Audit Program
Effective November 2014, Pennsylvania joined 23 other states in the Multistate Tax Commission (MTC) joint income tax audit program for corporate net income and capital stock/foreign franchise taxes. This move will spare multistate and multinational enterprises the hardship of multiple active audits by multiple member states.
The Realty Transfer Tax
Pennsylvania expands circumstances in which the sale of a real estate company is subject to tax: (A) an option or commitment to transfer interests in a real estate company in the future is now treated as a transfer of those interests; (B) a closely held company, 90 percent of whose assets are interests in one or more real estate companies, is now considered a real estate company itself; (C) whether or not a company is a real estate company is determined by consideration of real estate everywhere, not just in Pennsylvania. This change is effective January 1, 2014.
Business Income and Receipts Tax
Special Tax Credit Opportunity for Job Creation in 2015: For any Job Creation Tax Credit Application filed after October 29, 2014 for 2015, a business may claim a tax credit in the amount of $5,000 or 2% of the annual wages paid for each new job, excluding benefits, whichever is higher, for each new job created, up to the maximum job creation amount specified in the commitment letter. This is a five year program.
Effective for Taxable Years beginning in 2014
Businesses in Philadelphia will receive a tax break on their Business Income and Receipts Tax (BIRT). The new tax break exempts the first $50,000 of income. The exemption amount increases to $75,000 for tax year 2015 and $100,000 for Tax Year 2016 and thereafter. The gross receipts, or the amount of money a business has made in a year, are taxed at a rate of $1.415 per $1,000; and the current net income tax rate of 6.43% will be reduced gradually until it reaches 6% in tax year 2023.
NEW YORK STATE
On April 13, 2015, Governor Andrew Cuomo signed into law New York State’s 2015-2016 budget legislation, which included important changes to New York State and New York City tax law.
New York State Corporate Tax Provisions
The budget bill makes several revisions and technical corrections to the New York State corporate tax reforms included in the 2014-2015 budget. These changes are effective January 1, 2015, unless otherwise noted. Among these changes are the following:
Prior Net Operating Loss Conversion (PNOLC)
The 2014-2015 budget explained the calculation and use of the PNOLC, which consists of NOLs incurred through the end of the 2014 tax year. This included an election to use 50 percent of the PNOLC in 2015 and 50 percent in 2016, with any unused portion being forfeited. The 2015- 2016 budget makes this election revocable and specifies that the election must be made on an original filed return, including extensions, for the tax year beginning in 2015. If the election is not made, the PNOLC may be carried forward at 10 percent per year, plus any unused portion from prior years, for 20 years or until the 2035 tax year, whichever comes first.
Net Operating Loss (NOL)
The 2015 budget provides specific rules for using NOLs incurred in tax years beginning in 2015. They must be carried back to the earliest of the three years before the loss year (but not to tax years beginning before January 1, 2015). Any remaining NOL must be carried back to the second year before the loss, and then to the year before the loss, with any remaining amount carried forward for up to 20 years after the loss year. The maximum net operating loss deduction allowed in a taxable year is the amount that reduces the taxpayer's tax on the apportioned business income base to the higher of the tax on the capital base or the fixed dollar minimum. The net operating loss deduction is not limited to the amount allowed under IRC Section 172, and the $10,000 limit no longer applies.
If the taxpayer makes irrevocable elections to waive the carryback for each of the three earlier years, the election will apply to all members of a combined group. The election must be made on a timely filed original return, including extensions.
The bright-line economic nexus test of $1 million in New York State receipts or 1,000 credit card customers and/or merchants now applies to “unitary group” members meeting the common ownership test of more than 50 percent of voting power of capital stock. Corporations that are statutorily excluded from a combined report are not considered for the brightline economic nexus test. These excluded corporations include non-captive REITs and RICs, insurance companies, some utilities, New York S corporations, and alien corporations with no effectively connected income that are not treated as domestic corporations by the IRS.
The bill provides a revised and somewhat widened definition of qualified financial instrument (QFI). For combined groups, QFI status is determined by reference to the combined group. The definition of investment capital has been tightened, with the holding period lengthened to one year from six months, and adding other provisions.
Investment income, determined without regard to attributed interest expenses, is limited to 8 percent of a taxpayer’s entire net income. The newly revocable election to reduce investment income by 40 percent instead of attributing interest expenses is applied after calculation of the 8 percent limitation.
The requirement to deduct hedging expenses before calculation investment income has been repealed.
Qualified Manufacturers and Qualified Emerging Technology Companies (QETC)
For qualified New York manufacturers (eligible for a zero percent tax rate on business income), the 2015 budget narrows the types of eligible property to New York property “principally used by the taxpayer in the production of goods by manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture or commercial fishing.” In addition, if a New York manufacturer is part of a combined reporting group, the “principally engaged in qualifying activities” test must be met at the combined group level, or no members of the combined group will be qualified manufacturers. A taxpayer or a combined group shall be "principally engaged" in activities described above if, during the taxable year, more than 50 percent of the gross receipts of the taxpayer or combine group, respectively, are derived from receipts from the sale of goods produced by such activities.
The capital base tax rate for qualified New York manufacturers and qualified emerging technology companies for tax years beginning in 2015 is 0.132 percent.
There are new fixed-dollar minimum tax tables for S corporations that are qualified New York manufacturers or QETCs.
The business income tax rate for QETCs has been set at: 5.7 percent in 2015; 5.5 percent in 2016 and 2017; 4.875 percent in years after 2017.
Financial Services Investment Tax Credit
The 2015 budget bill limits the financial services investment tax credit to property placed in service prior to October 1, 2015.
Designated Agent of a Combined Group
The budget bill has eliminated the requirement that the designated agent of a combined group must be the parent corporation.
Sales and Use Tax Provisions
Alcoholic Beverage Tastings
Effective immediately, the existing exemption from sales and use tax for wine furnished for consumption at a wine tasting has been enhanced to also include the bottles, labels, corks, and caps used to package the wine at the wine tasting.
Effective June 1, 2015, a similar exemption from sales and use tax will apply to tastings of beer, cider, and liquor, and their packaging.
Sales of Boats and Aircraft
Effective June 1, 2015, sales tax will be charged only on the first $230,000 of the sales price of a vessel (including a yacht), and on outboard motors and trailers sold with a vessel. Use tax on a vessel will only be due if the vessel is registered or required to be registered in New York State, or if the vessel is used in New York State for over 90 days.
Effective September 1, 2015, general aviation aircraft and machinery or equipment to be installed on such aircraft are exempt from New York State sales and use tax.
Effective December 1, 2015, the sales and use tax exemption for residential and commercial solar equipment will be expanded to include electricity sold by a seller primarily engaged in the sale of solar energy systems equipment and certain sales of electricity generated by such equipment. Local option provisions will also include this expanded exemption.
Sales Necessitated by the Dodd-Frank Act
The 2015-2016 budget bill includes a temporary exemption from sales and use tax for related-party sales of tangible personal property and taxable services undertaken solely to comply with provisions of the Dodd-Frank Act, if the seller did not claim an exemption from sales tax at the time of original purchase. The sales, services, or uses must occur on or before June 30, 2019, or they must occur as part of a binding contract entered into on or before June 30, 2019, and completed by June 30, 2024.
Prepaid Mobile Calling Services
Effective immediately, taxable “prepaid telephone calling services” is expanded to include “prepaid mobile calling services.” The sale is sourced to the location of the customer at the time of the sale or recharging (i.e., the location of the vendor).
Brownfield Clean-up Program
Effective July 1, 2015, several changes are made to the Brownfield Clean-up Program, including various definitions and terminology; creation of a BCP-EZ program providing expedited investigation and/or remediation; exclusion of related-party payments from eligibility; and a requirement that projects must be accepted into the program by December 31, 2022, with certificates of completion received by March 31, 2026.
New York Youth Works Tax Credit Program
Effective immediately, the name of this program is being changed to the Urban Youth Jobs Tax Credit Program. Allocation of tax credits has been reduced from $10 million for each of Programs Three, Four, and Five to a maximum of $20 million for all programs.
Excelsior Jobs Program (EJP)
Effective immediately, “entertainment companies” and “music production” are newly eligible for the EJP. Entertainment companies are required to create at least 100 net new jobs, and music production organizations are required to create at least five net new jobs. Entertainment companies may also qualify for the EJP tax credit in the newly created category of “regionally significant project” by creating at least 200 net new jobs and making a significant capital investment in New York State. The EJP definition of “software production” now includes certain aspects of video game production or post-production.
Employee Training Incentive Program
This new program is effective January 1, 2015. The program provides refundable tax credits for qualified training activities of 50 percent of eligible costs. The maximum credit is $10,000 for each eligible employee being trained.
NEW YORK CITY
The New York City tax law changes provide substantial, but not total, conformity with New York State corporate tax reform that was passed in 2014 and took effect for tax years beginning on or after January 1, 2015.
The New York City Corporate Tax of 2015 applies to C corporations and banks only. S corporations remain subject to the General Corporation Tax or the Banking Corporation Tax. Partnerships and LLC’s remain subject to the Unincorporated Business Tax. The City intends to study the taxation of S corporations and unincorporated businesses in 2015.
The following provisions generally mirror the New York State changes enacted last year, effective January 1, 2015:
General Corporation Tax and Banking Corporation Tax
The General Corporation Tax and the Banking Corporation Tax have been merged into Tax Law Subchapter 3-A for C corporations.
Market-based Sourcing Rules
Market-based sourcing rules have been adopted for receipts from intangibles and services. The law also sets out specific sourcing rules for various financial products. There are sourcing hierarchies for digital products and other receipts not specifically covered in the new rules.
Unitary combined reporting is required with 50 percent stock ownership threshold. Also included in combined reports are captive REITs and RICs, combinable captive insurance companies, and alien corporations that have effectively connected income or are treated as domestic corporations under IRC Section 7701. Corporations may also elect to be combined with non-unitary corporations if the 50 percent ownership requirement is met. This election is binding for seven years and will be automatically renewed for seven additional years unless it is affirmatively revoked.
Net Operating Loss
The Net Operating Loss (NOL) computation is changed from a pre-apportionment to a post-apportionment basis and is decoupled from the federal NOL. As with the new New York State rules, pre-2015 NOLs are converted to a “prior NOL conversion subtraction pool” (PNOLC), using the taxpayer’s business allocation percentage and tax rate in effect on December 31, 2014. Each year, beginning in 2015 and continuing for 20 years, a taxpayer may use 10 percent of the PNOLC, plus any unused portion from preceding years. A taxpayer may also elect to use 50 percent of the PNOLC in 2015 and 50 percent in 2016. This election is revocable.
Effective January 1, 2015, new NOLs may be carried back three years (but not to years before January 1, 2015) and carried forward 20 years. In any tax year, a PNOLC must be utilized before an NOL.
Fixed Dollar Minimum Tax
Prior to 2015, the Fixed Dollar Minimum Tax for general business taxpayers imposed a top tax amount of $5,000 for New York City receipts over $25 million. Beginning January 1, 2015, new brackets have been added for New York City receipts over $50 million ($10,000 tax), $100 million ($20,000 tax), $250 million ($50,000 tax), $500 million ($100,000 tax), and $1 billion ($200,000 tax).
If a partnership has nexus with New York City, a corporate partner of the partnership will also have nexus with New York City.
The following New York City corporate tax law changes do not provide conformity with New York State corporate tax reforms:
New York State uses single sales factor apportionment beginning January 1, 2015. New York City will continue its long-standing plan to phase in single sales factor apportionment by January 1, 2018. In addition, taxpayers or combined groups with not more than $50 million of receipts allocated to New York City may make a revocable election to continue to use the 2017 three-factor apportionment formula of 3.5 percent each for property and payroll, and 93 percent for sales.
New York State has introduced a bright-line economic nexus standard of New York State receipts of $1 million or more, or 1,000 New York State credit card customers, beginning January 1, 2015. New York City will have economic nexus only for corporations that issue credit cards (1,000 New York City customers, or 1,000 New York City merchant customers, or a combination of both totaling 1,000).
Tax on Capital Base
New York State is gradually reducing the rate of the tax on capital base, with the rate reaching zero percent by January 1, 2021. New York City retains the tax on capital base, with an increased cap of $10 million.
Tax on Business Income Base
New York State imposes a tax on the business income base that will decline from 7.1 percent to 6.5 percent by 2016. New York State also has a zero percent tax rate on the business income base for qualified manufacturers.
New York City imposes a 9 percent business income tax rate on financial corporations. The business income tax rate is 8.85 percent for non-financial corporations (other than qualified manufacturing corporations) with at least $3 million in business income before allocation. There are sliding-scale rate reductions up to 6.5 percent for taxpayers with less than $1 million of business income allocated to New York City. For qualified manufacturing corporations with more than $40 million of business income before allocation, the tax rate is 8.85 percent, with sliding-scale rate reductions up to 4.425 percent for qualified manufacturing corporations reporting less than $10 million in business income allocated to New York City.
Alternative Minimum Tax Base
The alternative minimum tax base of income plus compensation has been repealed.
New York State Individual Tax Provisions
Family Tax Relief Credit Program
For 2015 and 2016, eligibility for this refundable credit will be based on that year’s tax return. Previously, eligibility was based on a prior year’s return. The credit is $350 per return. Eligibility requirements are:
- Taxpayer(s) must be New York State resident(s).
- Taxpayer(s) must claim one or more dependent children who were under age 17 on the last day of the tax year.
- Taxpayer(s) must have New York adjusted gross income between $40,000 and $300,000.
- Taxpayer(s) must have a tax liability greater than zero.
Voluntary Gifts Established and Expanded
The voluntary gift for prostate cancer research and education has been expanded to include testicular cancer research and education.
A new Homeless Veterans Assistance Fund has been established beginning with the 2015 tax year. This fund will be added to personal income tax returns so that taxpayers may make voluntary contributions to the fund.
New York City Resident Tax Rates
The applicability of a separate New York City resident tax has been extended to tax years beginning before 2018. These rates had been scheduled to expire in 2015.
STAR Program Personal Income Tax Rate Reduction
For tax years beginning after 2014, the STAR (School Tax Relief) Program six percent personal income tax rate reduction has been eliminated for New York City residents with city taxable income greater than $500,000.
Metropolitan Commuter Transportation Mobility Tax (MCTMT)
The MCTMT applies in New York City and the suburban counties of Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester. As of January 1, 2015, MCTMT information will be reported on personal income tax returns and estimated tax forms. Payment dates coincide with the dates for personal income tax payments. Partnerships can no longer file MCTMT group returns for partners. Resident and part-year resident partners will file on personal income tax returns. Nonresident partners may file individually on nonresident income tax returns. A partnership may be granted approval to file a personal income tax group return on behalf of its qualifying electing nonresident partners.