On May 3, 2023, New York signed into law the New York State Budget Act, S4009, which includes various changes to the state’s pass-through entity tax (PTET), tax credits, and updates to the metropolitan commuter transportation mobility tax.

It is important to note that no major changes were made to personal income taxes in this year’s budget, and no personal income tax rates have been changed.

Read on for highlights of some of the key items included in the Act.

Updates to New York PTET

The Act changes the definition of what is includable in taxable income for calculation of the New York State PTET. There is now an add-back for New York City PTET taxes paid and PTET taxes paid in other jurisdictions that are considered substantially similar.

Tax credits

• The Act creates “The Child Care Creation and Expansion Tax Credit Program Act,” which allows qualifying businesses to expand their childcare programs offered to employees. The credit is allowable for up to 25 childcare seats and is equal to the sum of:
  • The number of infant childcare seats that have been created or expanded times 20% of the childcare rate for the infant childcare seats; and
  • The number of toddler childcare seats that have been created or expanded times 20% of the childcare rate for the toddler childcare seats
• The Act repealed language that previously allowed investment tax credits to be transferred.
• The Act also added language stating that for eligible farmers, any credit carryover would now be refundable for property placed in service on or after Jan. 1, 2023, but before Jan. 1, 2028.
• The Act extends the alcoholic beverage production credit, allowing cider, wine, and liquor produced in New York to be eligible for the credit program. Specifics on this credit expansion are dependent upon the type of alcoholic beverage produced.
• The Act extended the deadline for taxpayers to submit their application for the COVID-19 Capital Costs Tax Credit from March 31, 2023, to Sept. 30, 2023.
• The Act also increased or otherwise enhanced a number of credits including but not limited to:
  • Empire State film production credit
  • Brownfield redevelopment tax credit
  • New York City Musical and Theatrical Production Tax Credit
  • Rehabilitation of historic properties credit
  • Empire State commercial production credit

Tax rate changes

• The 7.25% corporate tax rate has been extended through tax years beginning before Jan. 1, 2027, for taxpayers with an income tax base over $5 million. For other taxpayers, the rate remains at 6.5%.
• Beginning Jan 1., 2024, the metropolitan commuter transportation mobility tax rate is permanent at a fixed rate of 30% of a taxpayer’s franchise tax liability.
• Effective Sept. 1, 2023, the tax rates under the cigarette tax for 20 cigarettes (increasing from $4.35 to $5.35) as well as packages of more than 20 cigarettes have been adjusted, resulting in an increase in tax.

Tax tribunal appeals

• The Act granted the Commissioner of Taxation and Finance certain authority to seek judicial review of Tax Appeal Tribunal decisions. The Commissioner is granted authority to file an appeal, with procedures that allow for interest and penalty related to the appealed tax liability to be stayed until 15 days after the judicial decision is issued.

S corporation election procedures

One key item that was not included in the Act was the initially proposed changes to New York’s S corporation election procedures. The original proposals of the Act included an elimination of New York’s separate S Corp. election requirement for businesses seeking to elect S Corp status within the state of New York. The final, signed version of the Act did not make any changes to these provisions, so a separate New York S Corp. election is still required at this time.

What does CohnReznick think?

The NYS Budget Act provided changes to entity-level and individual taxes, and it’s important for businesses to review these changes to consider their NYS tax implications. Further, for businesses/individuals that have opted into the elective NYS PTE tax, consulting with your tax advisor to confirm how these new changes might impact such election is recommended.

Contact

Corey L. Rosenthal, JD, Principal, Practice Leader, State and Local Tax Services

646.625.5729

Arvinder Kaur, CPA, Senior Manager, State and Local Tax Services

646.448.5466

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