State & Local Tax

December 2011 Tax Law Changes

December 14, 2011

Prepared by Mark S. Klein and Joseph N. Endres

On December 7, 2011, an extraordinary session of the New York State Legislature, called by the governor, enacted a bill amending various sections of the tax law. This angered some legislators due to the lack of time to review and debate the legislation. In fact, because this was an extraordinary session of the Legislature, the normal 3-day review period was cancelled and the legislation passed the Legislature in one day. The bill was delivered to the governor on December 8, and he signed it on December 9. The bill is intended to help close a $3.5 billion projected deficit in next year’s budget. However, because the legislation is only expected to generate approximately $1.9 billion in revenue, additional cuts in spending or new taxes will be necessary to balance next year’s budget. Here are the highlights:

A. 2012 – 2014 Tax Rate Adjustments

As a result of these amended rates, all single taxpayers making more than $20,000 and all married filing joint taxpayers making more than $40,000 will be taxed at lower rates in 2012 than they were in 2011. According to the Governor’s Office, 4.4 million middle-class taxpayers will see a tax reduction. However, because the top rate (i.e., the “millionaires surcharge”) was scheduled to expire at the end 2011, high income taxpayers are arguably facing a tax increase.

1.) Married Filing Joint (2011 Rates in Parenthesis)

INCOME	TAX RATE
0 - $16,000	4 % (4%)
$16,001 - $22,000	4.5 % (4.5%)
$22,001 - $26,000	5.25 % (5.25%)
$26,001 - $40,000	5.9 % (5.9%)
$40,001 - $150,000	6.45 % (6.85%)
$150,001 - $300,000	6.65 % (6.85%)
$300,001 - $500,000	6.85 % (7.85%)
$500,001 - $2,000,000	6.85 % (8.97%)
Over $2,000,000	8.82 % (8.97%)

2.) Single (2011 Rates in Parenthesis)

INCOME	TAX RATE
0 - $8,000	4 % (4%)
0 - $8,000	4.5 % (4.5%)
$11,001 - $13,000	5.25 % (5.25%)
$13,001 - $20,000	5.9 % (5.9%)
$20,001 - $75,000	6.45 % (6.85%)
$75,001 - $200,000	6.65 % (6.85%)
$200,001 - $1,000,000	6.85 % (7.85% up to $500,000 and then 8.97%)
Over $1,000,000	8.82 % (8.97%)

3.) Cost of Living Adjustment (“COLA”)

The bill added a new section (§601-a) to the Tax Law. This section subjects the personal income tax brackets, the tax table bracket benefit recapture, and the standard deduction for resident individuals to COLAs.

B. Metropolitan Commuter Transportation Mobility Tax (“MCTMT”)

The new law greatly reduces the scope of the MCTMT. The term employer was amended to include only those employers with payroll expenses in excess of $312,500 in any calendar quarter. This amount was raised from $2,500, so it will result in many taxpayers no longer having a filing obligation. Additionally, the bill excluded “eligible educational institutions” (which include public school districts, public elementary and secondary schools, and nonpublic elementary and secondary schools) from the definition of an employer required to withhold. Finally, the MCTMT is now imposed at graduated rates, ranging from .11 to .23 to .34, depending on the size of the employer’s payroll expense. Previously, the tax was imposed at a single rate of .34 of the payroll expense. The tax imposed on the net earnings from self-employment of individuals that are attributable to the MCTD will remain at .34, though the base at which the tax kicks in has been increased from $10,000 to $50,000.

C. Article 9-A Franchise tax on New York Manufacturers

Reduction in Rates—for taxable years 2012 through 2014, taxpayers which are eligible New York manufacturers must pay tax at a rate of 3.25% of their entire net income. The rate for previous years was set at 6.25%. The bill also established a new minimum taxable income base for eligible qualified NY manufacturers. The new base is 75% of the taxpayer’s minimum taxable income base. Finally, the new law cuts the fixed dollar minimum tax in half for eligible qualified NY manufacturers.

D. New York Youth Works Tax Credit Program

The legislation established a new tax credit program for employers who employ “at risk” youth in part-time and full-time positions in 2012 and 2013. The program is capped at $25 million. Employers must be certified to participate in the program. Certified employers are eligible to receive a tax credit equal to $500 per month for up to 6 months for each qualified employee the employer employs in a full-time job or $250 per month for up to six months for each qualified employee the employer employs in a part-time job of at least twenty hours per week. The employer can also claim $1,000 for each qualified employee who is employed for at least an additional six months by the qualified employer in a full-time job or $500 for each qualified employee who is employed for at least an additional six months by the qualified employer in a part-time job of at least twenty hours per week. The employees must begin by July 1, 2012.

The term “qualified employee” is defined to mean an individual:

Who is between the age of 16 and 24;

who resides in a city with a population of 62,000 or more or a town with a population of $480,000 or more;

who is low-income or at-risk, as those terms are defined by the Commissioner of Tax;

who is unemployed prior to being hired by the qualified employer; and

who will be working for the qualified employer in a full-time or part-time position that pays wages that are equivalent to the wages paid for similar jobs, with appropriate adjustments for experience and training, and for which no other employee has been terminated, or where the employer has not otherwise reduced its workforce by involuntary terminations with the intention of filling the vacancy by creating a new hire.

E. Empire State Jobs Retention Program.

The legislation created a new refundable tax credit program aimed at retaining jobs that could be at risk for leaving the state following an emergency. In order to participate, the taxpayer must operate in New York: as a financial services data center or financial service back office operations, in manufacturing, in software development and new media, in scientific R&D, in agriculture, in the creation of expansion of back office operations in New York, or in a distribution center as these terms are defined by statute. Moreover, the taxpayer must: (1) be located in a county in which an emergency has been declared by the governor on or after January 1, 2011, (2) must demonstrate substantial physical damage and economic harm resulting from the event leading to the emergency declaration by the governor, and (3) must have had at least one hundred full-time equivalent jobs in the county in which an emergency was declared just prior to the emergency and must retain or exceed that number of jobs in New York state.

The amount of such credit is equal to the product of the gross wages paid for the impacted jobs and 6.85 percent. It is available for tax years beginning on or after January 1, 2012.

F. Infrastructure Investment Act

This Act allows certain state entities to enter into contracts to repair, modernize or otherwise improve the state’s infrastructure. The Act appears to alter the way contractors bid for and are awarded capital infrastructure projects. The Act specifically allows the Thruway Authority, the Department of Transportation, the Office of Parks, Recreation and Historic Preservation, the Department of Environmental Conservation and the New York State Bridge Authority to enter into: (1) “design-build contracts” totaling at least $1.2 million, (2) “cost-plus” contracts, or (3) “lump-sum” contracts. A “design-build contract” is a contract for the design and construction of a capital project with a single entity. A “cost-plus” contract is a contract that compensates a contractor for the cost to complete a contract by reimbursing actual costs for labor, equipment and materials plus an additional amount for overhead and profit. The state is permitted to maintain a list of prequalified contractors eligible to make contract bids.

G. Hurricane Irene and Tropical Storm Lee Assessment Relief Act

This Act is designed to provide property tax assessment relief to properties impacted by Hurricane Irene or Topical Storm Lee. Where a property was “catastrophically impacted” (i.e., more than 50% of its value was lost) by either Hurricane Irene or Tropical Storm Lee or both and is located within a participating municipality, assessment relief will be granted based on the following chart:

Property Value Lost	Adjustment
At least 50% and less than 60%	Reduced by 55% on the impacted assessment roll.
At least 60% and less than 70%	Reduced by 65% on the impacted assessment roll.
At least 70% and less than 80%	Reduced by 75% on the impacted assessment roll.
At least 80% and less than 90%	Reduced by 85% on the impacted assessment roll.
At least 90% and less than 100%	Reduced by 95% on the impacted assessment roll.
Lost 100% of its value	Value of the property shall be reduced to zero.

In order to receive relief under this legislation, a property must have lost at least 50% of its value and be located in one of the counties that had been included in the federal disaster declarations for either Hurricane Irene or Tropical Storm Lee or both. Property owners must submit a written request to the assessor within 90 days following the date upon which the act was approved by the governor. Since the governor signed the legislation on December 9, property owners would have until March 8, 2012.

H. Hurricane Irene-Tropical Storm Lee Flood Recovery Grant Program

Small businesses, farms, multiple dwellings and not-for-profit organizations that sustained direct physical flood-related damage as a result of Hurricane Irene or Tropical Storm Lee are eligible to apply for a grant from the state. The grants are capped at $20,000 and the money must be used for storm-related repairs and restoration to structures, and for other storm-related costs, which are not covered by any other federal, state or local recovery program or any third-party payors. The grant program cannot exceed $21,000,000 and will be administered by Empire State Development. A separate grant program capped at $9,000,000 is available to counties included in the federal disaster declarations for Hurricane Irene or Tropical Storm Lee.