Source: https://www.reedsmith.com/en/perspectives/2014/02/ny-governor-cuomo-proposes-sweeping-tax-reform
Timestamp: 2019-04-22 11:56:33+00:00

Document:
On January 21, 2014, New York State Governor Andrew M. Cuomo (D-N.Y.) released his 2014-2015 Executive Budget (Budget). Among other reforms, the Budget proposes sweeping changes to the Article 32 bank franchise tax and the Article 9-A general corporation franchise tax. In particular, the governor’s proposals would repeal the bank franchise tax in its entirety and merge it into a significantly modified Article 9-A general corporation franchise tax. Key components of the reform package include unitary filing, economic nexus, repeal of subsidiary capital treatment, changes to the definition and taxation of business and investment income, market-based sourcing, and preferential treatment for certain manufacturers. It is important to note that the vast majority of the proposed reforms would only impact filing obligations in New York State, and not in New York City. Accordingly, if conforming changes are not made to the New York City Administrative Code, taxpayers may be faced with navigating the waters of two distinctly different tax regimes.
The proposed reforms are the result of discussions that the New York State Department of Taxation and Finance has had with practitioners, industry groups and other interested parties over the past several years, and are largely consistent with the reform recommendations recently made by the governor’s New York State Tax Reform and Fairness Commission. If enacted by the legislature, the proposed reforms would be effective for tax years beginning on or after January 1, 2015. The corporate tax reforms proposed by the governor’s Budget are outlined below.
The bank franchise tax under Article 32 would be repealed in its entirety. Taxpayers historically taxed under Article 32 would be taxed under the Article 9 A general business corporation franchise tax.
Taxpayers engaged in a unitary business with other corporations, and owning directly or indirectly more than 50 percent of their stock, would be required to file combined reports.4 The concept of distortion as a basis for requiring combination (and thus the substantial intercorporate transactions test) would be eliminated.
Rather than being subject to tax on one of four bases, corporations with nexus in New York would be required to calculate tax on three different bases, and pay the highest of the alternative amounts. The three alternative amounts would be: (1) net income base tax; (2) capital base tax; and (3) fixed-dollar minimum tax (attributed to each member of the combined group). The capital and fixed-dollar minimum bases would include a credit for taxes paid to other states on identical bases.18 Under the proposal, the Article 9-A alternative minimum tax base, the Article 32 alternative entire net income base, the Article 32 taxable asset base, and the Article 32 fixed-dollar minimum tax would be eliminated. In addition, the separate tax on subsidiary capital would be repealed.
The net income base tax would be imposed on allocated business income.23 The starting point for the net income base tax would be federal taxable income, or for non-U.S. corporations, ECI.24 Non-U.S. corporations would also be required to add back treaty benefits to federal taxable income.25 The majority of income modifications currently found in the Tax Law would remain unchanged. However, a number of the modifications that are obsolete would be repealed. In addition, because of the proposed modifications below, modifications attributable to subsidiary capital and the 50 percent exclusion for dividends from non-subsidiaries would be eliminated.
The proposal would eliminate the exclusion of income, gains and losses attributable to subsidiary capital. “Subsidiary capital,” as traditionally understood, would be reclassified as business income, investment income, or other exempt income. Investment income and other exempt income would not be subject to tax. Consequently, the “investment allocation percentage” for apportioning investment income would be eliminated.
Business Income – Business income would equal entire net income minus (i) net investment income and (ii) net other exempt income.26 Discrete components of business income are not defined, but business income would include: interest income and gains and losses from debt instruments or other obligations (unless the income could not be included in apportionable business income under the U.S. Constitution); gains and losses from stock of a unitary corporation; dividends and gains and losses from stock held in a non-unitary corporation for six months or less; and cash.
For more information on Governor Cuomo’s tax reform proposals, and their impact on your business, please contact one of the authors of this alert, or the Reed Smith attorney with whom you normally work. For more information on Reed Smith’s New York tax practice, visit http://www.reedsmith.com/nytax/.
1 Bill Part A § 5; Tax Law § 209.1(a) and (b). “Receipts” would be defined in reference to applicable apportionment provisions.
2 Bill Part A § 5; Tax Law § 209.1(b) and (c).
3 Bill Part A § 18; Tax Law § 210-C.2(c).
4 Bill Part A § 18; Tax Law § 210-C.2(a).
5 Id.; see also Tax Law §§ 210-C.4)(f)(i) & 205. Additionally, the proposed legislation disallows the federal deduction for captive REIT dividends paid to members of affiliated groups.
6 Id.; see also Tax Law § 210-C.4(f)(ii). The new legislation does not define the term “combinable.” However, § 211(4)(a)(7)(ii) continues to require inclusion of overcapitalized capital insurance companies in the combined report.
7 Bill Part A § 18; Tax Law 210-C.2(b).
8 C.f. 26 C.F.R. § 1.269B-1.
9 Bill Part A § 18; Tax Law §§ 210-C.2(b); 201; c.f. 26 U.S.C. § 871.
10 Bill Part A § 18; Tax Law § 210-C.2 (c).
11 Bill Part A § 18; Tax Law § 210-C.3(b).
12 Bill Part A § 18; Tax Law § 210-C.3(c).
13 Bill Part A § 18; Tax Law § 210-C.3(c).
14 Bill Part A § 18; Tax Law § 210-C.4(a).
15 Bill Part A § 18; Tax Law § 210-C(2)(a).
16 Bill Part A § 18; Tax Law § 210-C(6).
17 Bill Part A § 18; Tax Law § 210-C(4)(c)-(d).
18 Bill Part A § 17; Tax Law § 210-B.42.
19 Bill Part A § 12, Tax Law § 210.1(a).
20 Bill Part A § 12; Tax Law § 210.1(b).
21 Bill Part A § 12; Tax Law § 210.1(d).
22 Bill Part A § 12; Tax Law § 210.1(a).
23 Bill Part A § 12; Tax Law § 210.1(a).
24 Bill Part A § 4; Tax Law § 208.9.
25 Bill Part A § 4; Tax Law § 208.9(b)(1).
26 Bill Part A § 4; Tax Law § 208.8.
27 Bill Part A § 4; Tax Law § 208.6.(a).
28 Bill Part A § 4; Tax Law § 208.5(a). If the taxpayer owns or controls, directly or indirectly, less than 20 percent of the stock of a corporation that entitles the holders thereof to vote for the election of trustees or directors, that corporation will be presumed to be non-unitary. No presumption would be established for corporations that own or control 20 percent or more of such stock.
29 Bill Part A § 4; Tax Law § 208.5(d).
31 Bill Part A § 4; Tax Law § 208.5(e).
32 Bill Part A § 4; Tax Law § 208.6-a(a).
33 Bill Part A § 4; Tax Law § 208.6-a(b).
34 Bill Part A § 4; Tax Law § 208.6-a(c).
35 Bill Part A § 4; Tax Law § 208.6(a) & (6-a)(d).
36 Bill Part A § 18; Tax Law § 210-C.4(e).
37 Bill Part A § 4; Tax Law §§ 208.6 and 208.6-a.
39 Bill Part A § 18; Tax Law § 210-C.4(e).
40 Bill Part A §§ 4, 91, 92, 94, 95, 96, 97 and 08; Tax Law § 208.9(o), 292(a)(6)(B), and 1503(b)(14)(B); Administrative Code of NYC §§ 11-506, 11-602, 11-641, and 11-1712.
41 Bill Part A § 19; Tax Law § 211.5.
42 Bill Part A § 12; Tax Law § 210.1 (a)(viii)(1).
43 Bill Part A § 12; Tax Law § 210.1 (a)(viii).
44 Bill Part A § 12; Tax Law § 210.1 (a)(viii)(2).
45 Bill Part A § 12; Tax Law § 210.1 (a)(viii)(4).
46 Bill Part A § 12; Tax Law § 210.1 (a)(viii)(3).
47 Bill Part A § 17; Tax Law § 210-B.28.
48 Bill Part A § 17; Tax Law § 210-B.28 (c)(i)-(iii).
49 Bill Part A § 17; Tax Law § 210-B.28 (d).
50 Bill Part A § 17; Tax Law § 210-B.28 (f).
51 Bill Part A § 17; Tax Law § 210-B.28 (e); 182.
52 Bill Part A § 17; Tax Law § 210-B.28 (f) and (h).
53 Bill Part R § 5; Tax Law § 210(12)(b)(i).
54 Bill Part R § 5; Tax Law § 210(12)(b)(ii)(A).
55 Bill Part R § 14; Tax Law § 1456(i) (repealed).
56 Bill Part R § 15; Tax Law § 1511(q) (repealed).
59 Current credits in Tax Law § 210(12)-(47) for the 2014 tax year are allowed. See generally Bill § 17.
60 Bill Part A § 17; Tax Law § 210-B.46.
61 Bill Part A § 17; Tax Law § 210-B.47.
62 Bill Part A § 16; Tax Law § 210-A(1) and (10).
63 Bill Part A § 16; Tax Law § 210-A.5(c).
64 Bill Part A § 16; Tax Law § 210-A.5(d).
65 Bill Part A § 16; Tax Law § 210-A.3(a) and (b); A.6; A.7(a) and (b); A.9.
66 Bill Part A § 16; Tax Law § 210-A.4.
67 Bill Part A § 16; Tax Law § 210-A.8(c).
68 Bill Part A § 16; Tax Law § 210-A.5(a), (b), and (e).
69 Bill Part A § 7; Tax Law § 209-B.

References: § 5
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