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New York Governor Signs State’s Fiscal Year 2018 Budget Bill


4/21/17
 
Synopsis
 
On April 10, 2017, the New York Governor signed the state’s 2017-2018 Budget Bill (“Budget Bill”) which contains several significant tax measures.
 
Issue
On April 9, 2017, the New York Legislature passed the 2017-2018 Budget Bill which Governor Cuomo signed into law the following day. The Budget Bill contains numerous tax provisions, the more significant of which are summarized below:
 
Investment Tax Credit:  Currently, New York tax law provides an investment tax credit against the franchise tax for qualified tangible personal property and other tangible property. 
 
The Budget Bill amends the Investment Tax Credit (ITC) provisions by identifying certain uses of property for which the ITC would not be allowed. The legislation excludes, from the ITC, tangible personal property and other tangible property used by the taxpayer in: (1) the production or distribution of electricity, natural gas, steam, or water delivered through pipes and mains; or (2) the creation, production or reproduction, in any medium, of a film, visual or audio recording, or commercial, or in the duplication, for purposes of broadcast in any medium, of a master of a film, visual or audio recording, or commercial. 
 
Parent and Disregarded Entity Single Taxpayer for Tax Credit Purposes:  In Matter of Weber, DTA No. 825857, the New York Tax Appeals Tribunal, reversing New York’s longstanding policy, ruled that a common parent and two SMLLCs were to be treated as distinct entities separate from each other in determining eligibility for state tax credits derived from the activities of the SMLLC.
   
The Budget Bill, while clarifying that a SMLLC that is treated as a disregarded entity for federal income tax purposes is similarly disregarded for New York income tax purposes, restores New York’s position prior to Weber that the sole member and its disregarded SMLLC(s) are a single entity for purposes of determining eligibility for New York tax credits derived from the activities of such SMLLC. This provision applies retroactively to all tax years for which the statute of limitations for seeking a refund or assessing additional tax is still open. 
 
Sales of a Partnership Interest:  Typically, for personal income tax purposes, the sale of a partnership interest is treated as the sale of an intangible asset, unless the assets of such partnership include New York real property and the value of such property is 50% or more of the total fair market value of all partnership assets on the date of sale. Accordingly, the sale of a partnership interest that is treated as an intangible asset by a nonresident is currently not treated as New York source income. 
 
The Budget Bill amends the law so that gain recognized, if any, from the sale or transfer of a partnership interest that is subject to §1060 allocation (where the buyer and the seller identify the value to be ascribed to each class of asset sold) should be treated as the sale of the underlying assets of the partnership and should generate New York source income to the extent assets associated with the gain are located in New York. 
 
Charitable Contribution Deduction Limitation Extended:  Under current law, the New York State itemized charitable tax deduction is limited to 50% of the federal deduction for individuals with AGI between $1 million and $10 million, and 25% of the federal deduction for individuals with AGI over $10 million. These limitations were scheduled to expire at the end of 2017, when all taxpayers that have AGI of more than $1 million would be subject to the 50% limitation.
 
The Budget Bill extends the current charitable deduction limitations through the end of 2019. 
 
Personal Income Tax Top Brackets Extended:  The top income tax bracket was scheduled to expire for tax years beginning after 2017. The Budget Bill extends the top personal income tax bracket, i.e., 8.82%, for three years: 2018, 2019, and 2020. 
 
Sales Tax on Related Entities:  Presently, certain related entities, such as single member limited liability companies (SMLLC) and their parents, are able to avoid sales tax on their purchases on the basis that purchases by one entity to be ultimately resold to an affiliate are for resale (and, therefore, not taxable). 
 
The Budget Bill amends the definition of “retail sale” for sales tax purposes, to include any transfer of tangible personal property when the property purchased, is to be resold to related persons or entities, including: (1) sales to SMLLCs or subsidiaries that are disregarded for federal income tax purposes, for resale to a member or owner; (2) sales to a partnership for resale to one or more partners; and (3) sales to a trustee for resale to a trust beneficiary. 
 
Tax Credits: 
 
  • Life Sciences Tax Credits:  The legislation extends the benefits of the Excelsior Jobs Program Act to life sciences companies (this includes pass-through entities with individual partners/members), and amends the tax law to add two new refundable tax credits applicable to life sciences companies that are new businesses; a research and development tax credit for life sciences companies and an angel investor tax credit for taxpayers that invest in life sciences companies. 
  • Workforce Training Credit:  The Budget Bill amends the Employee Training Incentive Credit Program to encourage companies to include incumbent worker training as part of their expansion and retention projects, and expands the credit to include training for employees working in the life sciences. 
  • Film Credits:   The legislation extends the Empire State Film Production Tax Credit and Empire State Film Post Production Tax Credit for three years, through 2022.
  • Youth Jobs Program Tax Credit:  The Budget Bill extends the Urban Youth Jobs Program tax credit for five years through 2022 and renames the program as the New York Youth Jobs Program tax credit. 
  • Alternative Fuels and Electric Vehicle:  The legislation extends the Alternative Fuels and Electric Vehicle Recharging Property Credit for five years, through tax years beginning in 2022.  
  • Child and Dependent Care Credit:  The Budget Bill increases the Child and Dependent Care Tax Credit for qualified taxpayers with New York adjusted gross income between $50,000 and $150,000. 
 
What Does CohnReznick Think?
 
There are number of significant tax changes included in the Budget Bill. Given the number and complexity of the changes, New York taxpayers, including taxpayers based outside New York, should review the new rules to see how changes impact their specific tax position.
 
Contact
 
For more information, please contact Corey L. Rosenthal, Principal, State and Local Tax Services at corey.rosenthal@cohnreznick.com or 646-625-57293 or Peter Rabinowitz, Director, State and Local Tax Services at peter.rabinowitz@cohnreznick.com or 646-625-5729.
 
 
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 
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