Summary of changes: NY corporate tax and personal income tax budget legislation enacted in 2019

On Sept. 3, 2019, the New York Department of Taxation and Finance released two technical memorandums summarizing the franchise tax and personal income tax changes that were enacted as part of the 2019-2020 New York State budget.

The corporate tax law provisions are as follows:

Contributions to the capital of a corporation. Effective for taxable years beginning on or after Jan. 1, 2018, the amended sections of tax law articles 9-A and 33 now allow taxpayers to subtract contributions to a corporation’s capital made by any governmental entity or civic group (other than a contribution made by a shareholder) from federal adjusted gross income in computing entire net income (ENI).

To receive the benefit of the newly enacted subtraction modification, taxpayers who have already filed their 2018 corporation franchise tax return under either Articles 9-A or 33 must file an amended return.

Entire net income for stock life insurance companies. Effective for tax years beginning on or after Jan. 1, 2018, through tax years on or before Jan. 1, 2025, the definition of ENI for stock life insurance companies that have an existing policyholder’s surplus account no longer includes the amount of direct and indirect distributions during the tax year to shareholders from such an account. Instead, one-eighth of the balance in an existing policyholder’s surplus account, as determined as of the close of the company’s last taxable year beginning before Jan. 1, 2018, is included in ENI.

For taxpayers who already filed the 2018 return and incorrectly included in ENI the amount of direct and indirect distributions during the tax year to shareholders from an existing policyholder’s surplus account, an amended return must be filed.

License fee on certain co-ops. The $10 annual license fee that was payable each year with the filing of either Form CT-396, Report of License Fee Rural Electric Cooperative Corporations, or Form CT-397, Report of Annual License Fee Agricultural Cooperative Marketing or Financing Corporations and District Heating/Cooling Cooperatives, has been eliminated.

Unrelated business taxable income (Article 13). The new subtraction modification now allows any disallowed fringe benefit, paid or incurred on and after Jan. 1, 2018, that was included in federal unrelated business taxable income because of IRC § 512(a)(7) to be subtracted from federal unrelated taxable income.

The legislation also extended the following corporation tax law provisions:

Electronic filing and payment mandates. The electronic filing and payment mandates have been extended through Dec. 31, 2024.

Tax shelter provisions (Articles 9, 9-A, and 33). The tax shelter penalty and reporting requirements have been extended through July 1, 2024.

The personal income tax law provisions are as follows:

Charitable contributions itemized deduction. Effective on or after Jan. 1, 2018, the New York itemized deduction for charitable contributions is the amount allowed under Internal Revenue Code § 170, reduced by any donations included in such amount that were used to claim the farm donations to food pantries credit.

The itemized deduction limitation for individuals with New York adjusted gross income (AGI) of over $1 million and no more than $10 million, or with New York AGI of more than $10 million, is limited to 50% or 25% of the federal deduction for charitable contributions, respectively. The itemized deduction limitation for individuals with New York AGI of more than $10 million was due to expire but has been extended through tax year 2024.

New York State driver’s license suspension program. As of July 11, 2019, the criteria for challenging a driver’s license suspension by the tax department is expanded to include taxpayers who: receive public assistance or supplemental security income, or can demonstrate that the suspension of their driver’s license will cause them undue economic hardship.

Retroactive modifications for fiduciary filers. Effective on or after Jan. 1, 2018, estates and trusts must make the following modifications in computing their New York fiduciary adjustment: (1) add back the qualified business income deduction allowed under IRC § 199A; (2) subtract certain state and local taxes disallowed federally; and (3) subtract certain miscellaneous itemized deductions disallowed federally.

Taxpayers who filed the 2018 Form IT-205, Fiduciary Income Tax Return, without making these required modifications must file an amended 2018 Form IT-205.

Tax preparer penalties. There are newly added penalties against tax preparers who take positions on returns or credit claims that are not properly supported by the tax law and who failed to sign returns or failed to provide a required identification number on returns filed or required to be filed for tax years beginning on or after Jan. 1, 2019.

Treatment of certain gambling winnings. Effective on or after Jan. 1, 2019, New York State withholding is required from any gambling winnings from wagering that occurred in New York State if the proceeds from the wager are subject to federal withholding. In addition, the New York source income of a nonresident individual must now include gambling winnings in excess of $5,000 from wagering transactions within New York State.

The legislation also extended the following personal income tax law provisions:

Electronic filing and payment mandates. The electronic filing and payment mandates have been extended through Dec. 31, 2024.

Tax shelter provisions. The tax shelter penalty and reporting requirements have been extended through July 1, 2024.

Top personal income tax bracket and rate. The top tax bracket, tax rate, and tax table benefit recapture provisions were extended through tax year 2024.

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