Noonan’s Notes Blog is written by a team of Hodgson Russ tax attorneys led by the blog’s namesake, Tim Noonan. Noonan’s Notes Blog regularly provides analysis of and commentary on developments in the world of New York tax law.

Highlights from the 2019 Budget Bill

The New ECET System. The new “payroll tax” passed! I’ll admit that I was skeptical of this. I didn’t think that the Legislature would actually pass the payroll tax bill, which essentially is one of the countermeasures set forth by Governor Cuomo to combat the negative effects felt by New Yorkers from the loss of the SALT deduction. More on that proposal here. But, alas, the Legislature passed the bill, and now there is a new “Employer Compensation Expense Tax” system on the books. This is not a mandatory tax; an employer would have to elect into the program. Will anyone do so? At this point it’s hard to tell. The ECET system appears pretty complicated, and will affect different employers and employees in significantly different ways.

“Charitable” Tax Payments. The charitable deduction thing passed too! This was part two of the Governor’s SALT deduction countermeasure, essentially allowing taxpayers to substitute charitable contributions for tax payments. Details are in our Alert, and at this point it’s unclear whether the IRS would actually allow the claimed charitable deduction that this New York tax provision contemplates. Overall, good for New York for giving it a try. It will be interesting to see if it works.

ŸNew statute of limitations rule for amended tax returns. Under prior law, if I filed an amended return a couple days before the expiration of the normal three year statute of limitations, this didn’t reopen the statute of limitations for the entire tax return. Instead, the Tax Department could audit my amended return and challenge my refund claim. They could even look to other areas of my tax return to offset any potential refund. But they could not assess me any additional taxes if they found problems on my amended return. Well, that’s now changed. Now the tax department has an extra year to find additional tax liabilities for taxpayers who file amended returns. We’re not wild about the approach here (see commentary from the infamous TiNY blogger here), in part because it’s unnecessary, and in part because it seems to be a clear way to discourage the filing of amended returns seeking refunds. Whatever the case, this is now something additional that taxpayers will have to consider before filing amended returns.

Sobotka Reversed. A couple years ago we won the Sobotka case, where an administrative law judge in New York’s Division of Tax Appeals held that the “183-day rule” under New York’s statutory residency rule did not apply to taxpayers who had a change of domicile during the tax year. More specifically, the judge held that the only days that counted for the 183-day rule test were days in the non-resident portion of the taxpayer’s tax year. The tax department did not like this decision, and legislation was proposed to reverse the result. But the proposal was styled as a “clarification,” meaning that the change was supposed to apply to all open tax years. Well, the change went through it, but it was not retroactive! Instead, this is a prospective change only, beginning for tax years in 2019. That means that for tax years prior to 2019, the Sobotka issue is very much alive!

Responsible Person Relief: This is just a codification of current tax department policy set forth in a 2011 technical memorandum (that apparently no longer exists; the tax department pulled in from their website). Basically, the idea is to limit the harshness of New York’s per se liability rule for members of limited liability companies and limited partners. Again, the tax department has been applying this policy for years, but arguably the policy was inconsistent with the statute. This change just codifies that policy. Kudos to the tax department for doing this; it is sensible to put this policy into law.

What didn’t pass? The somewhat goofy law to subjecting carried interest to an additional seventeen percent (17%) tax didn’t pass. Also—and thankfully as far as I’m concerned—the proposal to allow the tax department to appeal adverse Tax Appeals Tribunal decisions didn’t make it. Finally, the tax department’s effort to impose nexus obligations on “marketplace providers” like Amazon sellers also didn’t pass. Of course, this whole nexus discussion may all be moot if the U.S. Supreme Court overturns the Quill physical presence rule in the upcoming Wayfair case. Oral arguments in that case are set for this month, so we’ll be following it closely.

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