New York State Budget – What You Need to Know
Wayne K. Berkowitz, CPA, J.D., LL.M. and Sunday L. Vanderver, J.D., LL.M.
4.10.19 | Client Alert
The New York State Assembly and New York State Senate passed the Budget Bill (S.1509-C/A. 2009-C) for fiscal year 2019-2020 late in the evening on March 31, 2019. At the time of this publication, it has not yet been signed by Governor Cuomo. The Budget Bill (Bill) provided some notable state and local tax changes, which are outlined below.
New York State Transfer & Property Taxes
While the Bill addresses several tax provisions, the most significant is the increase of the New York State Transfer Tax and the New York State “Mansion Tax” rates for certain properties located in New York City.
The increases are effective for conveyances occurring on or after July 1, 2019. Binding written contracts entered into on or before April 1, 2019 will not be subject to the increases.
New York State Transfer Tax
Currently, the State transfer tax is 0.4% on transfers of any type of real property. The new tax will add an additional 0.25% for residential properties of $3 million or more and for any type of property of $2 million or more. This raises the current State rate to a maximum of 0.65% for properties within New York City (only).
New York State Mansion Tax
The legislature considered implementing an annual levy on pied-a-terres in lieu of the Mansion Tax, however, that was scrapped in favor of an increase to the existing Mansion Tax rates. The current rate is a 1% tax imposed on the buyer of residential real property in New York State when the purchase price is $1 million or more.
The increased (additional) tax, to properties (only) within New York City is as follows:
- 0.25% for consideration of at least $2 million but less than $3 million
- 0.5% for consideration of at least $3 million but less than $5 million
- 1.25% for consideration of at least $5 million but less than $10 million
- 2.25% for consideration of at least $10 million but less than $15 million
- 2.5% for consideration of at least $15 million but less than $20 million
- 2.75% for consideration of at least $20 million but less than $25 million
- 2.9% for consideration of at least $25 million
This raises the maximum Mansion Tax rate to 3.9%.
New York State Real Property Tax
The Bill also makes permanent a 2% cap on real property taxes originally enacted in 2011 and implemented in 2012. Governor Cuomo vowed not to sign a bill that did not include such a provision, noting that the cap is necessary for New York property owners particularly in light of the limitation on state and local tax deductions for federal purposes, under the Federal Tax Cuts and Jobs Act.
New York Treatment of GILTI
Until enactment of the Bill, New York had not passed legislation addressing treatment of global intangible low-taxed income (GILTI) in I.R.C. § 951A enacted by the Federal Tax Cuts and Jobs Act. The legislation establishes a sourcing methodology by codifying guidance issued by the New York State Department of Taxation and Finance earlier this year. For years beginning on or after January 1, 2018, taxpayers should include their net GILTI amount, rather than total receipts related to the generation of GILTI, in the denominator of their apportionment factor. However, such inclusion is not required in the taxpayer’s receipts numerator.
Personal Income tax Limitation on Charitable Contribution Deductions
Set to expire in 2019, the Bill extends the current itemized charitable deduction limitations – 50% of the federal deduction of individuals with adjusted gross income between $1 and $10 million, and 25% of the federal deduction for individuals with adjusted gross income exceeding $10 million – through 2024.
Extension of Top Personal Income Tax Rates
Originally set to expire after 2019, the top New York State personal income tax bracket of 8.82% is extended by the Bill through 2024.
For taxable years beginning on or after January 1, 2019, gambling winnings in excess of $5,000 are now taxable as New York source income for New York nonresidents. Additionally, withholding is required for gambling winnings exceeding $5,000 if such winning are also subject to withholding under I.R.C. § 3402.
Decoupling from I.R.C. Federal Basis for Qualified New York State Manufacturing Test
Qualified manufacturers in New York receive a reduced business income base tax rate, a reduced tax rate, cap on the capital base, lower fixed dollar minimum tax and a real property tax credit (which is the product of eligible real property taxes paid during the year multiplied by 20%). The Bill amended the tax law to use the New York State adjusted basis instead of the federal adjusted basis when determining the credit, because federal bonus depreciation might drive the basis of the qualifying assets below the test’s threshold.
Trusts and Estates
Retroactive to tax years beginning after 12/31/2017 (including calendar 2018 tax filers), the legislation puts fiduciary taxpayers on par with individuals by permitting a trust or estate to deduct taxes (other than state and local sales taxes and income taxes) not otherwise permitted on the federal return as well as miscellaneous itemized deductions not otherwise permitted on the federal return.
The legislation also requires a trust or estate to add back the §199A deduction.
Credits and Incentives
New York State Employer Provided Child Care Credit
For federal tax purposes, employers received a credit for certain expenditures paid or incurred for providing child care alternatives for their employees. The Bill provides a state tax credit for businesses in New York and allows a credit in the amount of 25% of qualified child care expenditures for employer-provided child care facilities located in New York plus 10% of qualified child care resources and referral expenses. There is an annual cap, however, of $150,000 per employer and is available for years beginning on or after January 1, 2020.
Employer Training Incentive Program (E-TIP) Tax Credit
The E-TIP credit is a refundable credit, equal to 50% of the eligible training costs up $10,000 per employee, to be taken in the year in which eligible training is completed. To be entitled to the credit, companies must be an approved Participant in the Employee Training Incentive Program under Economic Development Law and also receive a certificate of tax credit from New York State Empire Development. Previously, eligible training had to be performed by approved providers, however, the Bill now permits business entities to develop and use their own trainings.
Empire State Film Production Credit
The legislation extends the credit for qualified film production costs through 2024.
Sales & Use Tax
For tax years beginning on or after January 1, 2019, marketplace providers must collect sales tax on taxable sales that they facilitated (if sales exceed $300,000). The Bill defines “marketplace provider” as “[a] person who, pursuant to an agreement with a marketplace seller, facilitates a sale of tangible personal property” by providing “a forum in which, or by means of which, the sale takes place or the offer of the sale is accepted, including a shop, store, booth, an internet website, catalog or similar forum.”
Vendors Permitted to Pay Sales Tax on Behalf of Customers
Effective immediately, vendors required to collect and remit New York sales tax may advertise to customers that the vendor will pay the sales tax imposed on behalf of the customer. However, on every bill, receipt, or other document stating the price, vendors must state that the tax will be paid by the vendor.
Energy Services Sales Tax Exemption Eliminated
The sales tax rate on the transportation, transmission, and distribution of gas and electricity was effectively zero when sold separately from the commodity itself; this resulted in an exemption when these services were provided along with energy sold by unregulated energy service companies. The Bill eliminates that provision, so beginning June 1, 2019 sales tax must be collected on such transactions.
Other Provisions of Interest
Though somewhat controversial, and not expected to take effect until 2021, the Bill addresses congestion pricing for driving below 61st street in Manhattan. Specifically, it establishes the Traffic Mobility Review Board to review and establish pricing.
Plastic Bag Ban
Under the Bill, most single-use plastic bags will be banned in New York beginning in March 2020. Cities and counties may impose five-cent per bag tax on paper bags, and revenue will be split with three cents contributed to the state Environmental Protection Fund, and two cents to the municipality.
Supplemental Tax on Vapor Products
The Bill imposes a 20% supplemental tax on sales of vapor products, effective immediately.
Opioid Excise Tax
An excise tax will be charged on the first sale of opioids to purchasers or designees in New York State beginning July 1, 2019. However, there are exemptions for sales to hospice and chemical dependency programs.
If you have questions, contact Wayne Berkowitz at 212.331.7465 | firstname.lastname@example.org or reach out to your Berdon advisor.
Berdon LLP New York Accountants