Boring but Important: Tax Department Releases Memos Summarizing Tax Law Changes

The New York State Department of Taxation and Finance (the Department) issued three technical memoranda on September 3, 2019, summarizing the corporation tax, personal income tax and tax credit changes that were part of the 2019-2020 New York state budget we covered here. Two of the three are recapped below, with links to both memos. The third, TSB-M-19(4)C, (5)I, covered new tax credit provisions.    

TSB-M-19(3)C, Summary of Corporation Tax Budget Legislation Enacted in 2019

This memorandum discusses corporation tax changes that were part of the 2019-2020 New York state budget. Here, four corporation tax law provisions were amended and two tax law provisions were extended. Two additional corporation tax budget changes regarding electronic filing and payment mandates and global intangible law-taxed income (GILTI) will be discussed in future guidance.

Amended Tax Law Provisions

1. Contributions to the capital of a corporation (Articles 9-A and 33)

For federal income tax purposes, contributions to a corporation’s capital made by any governmental entity or civic group (other than a contribution made by a shareholder) are included in gross income under Internal Revenue Code § 118(b)(2). New York amendments were made to Tax Law Articles 9-A and 33 to allow for subtraction modifications for these contributions in computing entire net income (ENI). These changes are effective for taxable years beginning on or after January 1, 2018 so taxpayers that have already filed their 2018 corporation franchise tax return under either Articles 9-A or 33 that included a contribution to capital made by a governmental entity or civic group in ENI, must file an amended return to receive the benefit of the newly enacted subtraction modification.

2. Entire net income for stock life insurance companies (Article 33)

The definition of entire net income (ENI) was amended for certain stock life insurance companies to conform to a change made to the Internal Revenue Code in the Tax Cuts and Jobs Act. ENI for stock life insurance companies that have an existing policyholder’s surplus account no longer includes the amount of direct and indirect distributions during the tax year to shareholders from such account. Instead, one-eighth of the balance in an existing policyholder’s surplus account, as determined as of the close of the company’s last taxable year beginning before January 1, 2018, is included in ENI. The change is effective for taxable years beginning on or after January 1, 2018, through taxable years beginning on or before January 1, 2025.

3. License fee on certain co-ops

The Cooperative Corporations Law and the Rural Electric Cooperative Law were amended to eliminate the $10 annual license fee that was payable each year with the filing of either Form CT-396, Report of License Fee Rural Electric Cooperative Corporations, or Form CT-397, Report of Annual License Fee Agricultural Cooperative Marketing or Financing Corporations and District Heating/Cooling Cooperatives. As a result, neither Form CT-396, nor Form CT-397 need to be filed after January 1, 2020.

4. Unrelated business taxable income (Article 13)

A technical correction was made to the effective date of a prior amendment to Tax Law § 292(a)(4) which results in a New York state subtraction allowed from federal unrelated taxable income for any disallowed fringe, paid or incurred on and after January 1, 2018, that was included in federal unrelated business taxable income because of IRC § 512(a)(7).

Extended Tax Law Provisions

1. Electronic filing and payment mandates (Articles 9, 9-A, and 33)

The electronic filing and payment mandates have been extended through December 31, 2024 as available through the Tax Department’s website at www.tax.ny.gov.

 2. Tax shelter provisions (Articles 9, 9-A, and 33)

The tax shelter penalty and reporting requirements have been extended through July 1, 2024. See: TSB-M-05(2)C, Disclosure of Certain Transactions and Related Information Regarding Tax Shelters; TSB-M-05(2.1)C, Supplement to the Disclosure of Certain Transactions and Related Information Regarding Tax Shelters; and TSB-M-05(2.2)C, Additional Supplement to the Disclosure of Certain Transactions and Related Information Regarding Tax Shelters.

TSB-M-19(4)I, Summary of Personal Income Tax Budget Legislation Enacted in 2019

This technical memorandum discusses personal income tax changes that were part of the 2019-2020 New York state budget. Five provisions of the personal income tax law were amended and three were extended.

Amended Tax Law Provisions

1. Charitable contributions itemized deduction

For tax years beginning on or after January 1, 2018, the New York itemized deduction for charitable contributions is the amount allowed under Internal Revenue Code (IRC) § 170, reduced by any donations included in such amount that were used to claim the farm donations to food pantries credit. If your New York adjusted gross income (AGI) is over $1 million and no more than $10 million, or your New York AGI is over $10 million, your total New York itemized deduction (including charitable contributions) is limited to 50% or 25% of your federal deduction for charitable contributions, respectively. The itemized deduction limitation for individuals with New York AGI of more than $10 million was due to expire but has been extended through tax year 2024.

2. New York State driver’s license suspension program

As of July 11, 2019, the criteria for challenging a driver’s license suspension by the Tax Department is expanded to include taxpayers who receive public assistance or supplemental security income, or can demonstrate that the suspension of their driver’s license will cause them undue economic hardship.

3. Retroactive modifications for fiduciary filers

For tax years beginning on or after January 1, 2018, estates and trusts must, when computing their New York fiduciary adjustment, make the modifications described below:

• add back the qualified business income deduction allowed under IRC § 199A;
• subtract certain state and local taxes disallowed federally; and
• subtract certain miscellaneous itemized deductions disallowed federally.

4. Tax preparer penalties

Tax preparer penalties relating to an understatement of liability or failure to sign a return or claim for refund have been updated to clarify the penalties and penalty amounts that may be imposed, effective April 12, 2019, against preparers who take positions on returns or credit claims that are not properly supported by the Tax Law and to ensure that the penalties for failing to sign a return and for failing to provide a required identification number on a return apply to all tax preparers, for returns filed or required to be filed for tax years beginning on or after January 1, 2019, regardless of whether the preparer is required to be registered with the Tax Department pursuant to Tax Law § 32.

5. Treatment of certain gambling winnings

For tax years beginning on or after January 1, 2019, New York state withholding is required from any gambling winnings from a wagering transaction within New York State if the proceeds from the wager are subject to federal withholding. The New York source income of a nonresident individual must now include gambling winnings in excess of $5,000 from wagering transactions within New York State.

Extended Tax Law Provisions

1. Electronic filing and payment mandates

As noted above, the electronic filing and payment mandates have been extended through December 31, 2024.

2. Tax shelter provisions

Again, the tax shelter penalty and reporting requirements have been extended through July 1, 2024.

3. Top personal income tax bracket and rate

The top tax bracket, tax rate and tax table benefit recapture provisions were extended through tax year 2024.