New York Governor Andrew M. Cuomo has signed into law 2012-2013 budget legislation that implements many tax changes.1 Highlights of the legislation include extensions of corporation franchise tax credits and the sales tax exemption for alternative fuels. The legislation also revises the sales tax collection requirements imposed on hotel room remarketers. In addition, the legislation amends some of the electronic filing requirements. Finally, the legislation adds a provision concerning the determination of the rate of the Metropolitan Commuter Transportation Mobility Tax (MCTMT) that applies to professional employer organizations (PEOs).
Corporation Franchise Tax Credits
The new legislation extends a number of corporation franchise tax credits.2 In particular, the Empire State commercial production credit available for qualified commercial production companies (i.e. advertising companies), which had expired on December 31, 2011, was reinstated and extended to apply to taxable years before January 1, 2015.3 The total annual credit amount remains $7 million, but the amounts that are allocated by the state to the (i) incremental cost component, (ii) Metropolitan Commuter Transportation District component (MCTD), and the outside MCTD component of the credit are amended.4 All three components of the credit are based on a percentage of the qualified production costs over a threshold amount incurred by eligible businesses.
Other notable changes with respect to credits include:
- An extension of the sunset date of the biofuel production tax credit from December 31, 2012 to December 31, 2019.5
- An increase in the allocation of funds to low-income buildings eligible for the low-income housing credit.6
- An extension of the application deadline for the Youth Works Tax Credit Program, which provides corporation franchise tax incentives to qualified businesses employing qualified employees who are deemed at-risk youths, from June 1, 2012 to November 30, 2012 and an extension of the cut-off for employment start date from July 1, 2012 to December 31, 2012.7
Sales Tax Exemptions
With respect to sales tax exemptions, the sunset date for the alternative fuels exemption was extended from September 1, 2012 to September 1, 2014.8 This extension applies to the full exemption from excise tax, petroleum business tax (PBT) and state and local sales taxes for fuel products identified as E-85,9 compressed natural gas (CNG) and hydrogen when they are suitable for use in a motor vehicle engine. Also, this extension applies to the reduced excise tax and PBT rates for biodiesel-B-20 and its partial exemption from state and local sales tax.
Generally effective July 1, 2012, the tax provisions relating to petroleum businesses have been amended to: (i) exclude "crude oil" from the definition of "diesel motor fuel;" and (ii) disallow the application of prepaid sales tax on diesel motor fuel to previously untaxed qualified biodiesel to a distributor of diesel motor fuel.10 Exceptions to this rule include retail sales to such distributors and sales to such distributors that involve delivery at a filling station or repository, by which the qualified biodiesel fuel can be dispensed into the tank of a motor vehicle.
Room Remarketers' Sales Tax Collection Requirements
Legislation enacted in 2010 requires hotel room remarketers11 to collect sales tax on the full amount charged to customers.12 Prior to this legislation, room remarketers were required to collect tax on the amount they paid to the hotel operators, but not on the entire amount that they received from customers. Thus, room remarketers must now also collect tax on their "mark-up."
Beginning September 1, 2012, room remarketers are subject to specific new sales tax collection requirements.13 First, when a room remarketer sells occupancy for a single consideration or charge that encompasses property, service, amusement charges, and any other items, regardless of their taxability, the room remarketer must compute the rent portion of the transaction.14 To do so, the entire charge can be multiplied by a fraction, the numerator of which is the consideration payable for the occupancy by the room remarketer and denominator of which is the same consideration plus the consideration payable by the remarketer for the other items being sold.15 In addition, any other method of computing the rent portion of the transaction can be authorized by the Commissioner.16
Second, unless the room remarketer separately states the tax on the rent portion of the transaction on the invoice, sales slip, receipt or other statement provided to the occupant, the entire charge is treated as rent that is subject to tax.17 The room remarketer is allowed to give the customer a sales slip, invoice, receipt or other statement of the price indicating the amount of tax due prior to the customer's completion of his or her hotel stay.18
Furthermore, a room remarketer must report the sales tax due on rent on the return due for the filing period during which the occupancy ends, and at the time of filing the return, must pay the Commissioner the tax due.19
The legislation also simplifies the process that a room remarketer uses to claim a credit for the sales tax paid when it acquires a hotel room.20 To qualify for the refund or credit against the amount of tax, a room remarketer can provide the name, business address, telephone number, and the address of the hotel where the occupancy took place in the event that the hotel operator, upon request, does not provide the room remarketer with its certificate of authority number.21
Finally, corresponding amendments are made to the New York City regulations concerning the city hotel room occupancy tax.22
Electronic Filing Changes
The legislation amends various provisions requiring e-filing of certain tax returns. Specifically, the e-filing mandate for tax preparers and individuals using software to prepare their returns is extended through December 31, 2013.23 Effective January 1, 2012, the threshold for requiring that a tax preparer e-file is changed from more than five tax documents to more than 10 different taxpayers.24 The definition of "authorized tax document" is amended effective March 30, 2012.25 Previously, "authorized tax document" meant a tax document that the Tax Commissioner has authorized to be filed electronically. The definition is amended to provide that any return or report that includes one or more tax documents that cannot be filed electronically is not considered to be an authorized tax document.26
Computation of MCTMT by Professional Employer Organizations
For the quarter beginning on April 1, 2012, PEOs27 are provided with a new method of determining the applicable MCTMT rate for employers that use their services.28 Current law uses a tiered rate structure based on the amount of an employer's quarterly payroll expense. The MCTMT is imposed on PEOs because they are considered the employer of record. Due to the fact that a PEO's tax rate is based on the combined quarterly payroll expenses of its client firms, a PEO could be subject to a higher tax rate than would be imposed on the individual client firms. The new legislation bases the tax rate on the individual firms' payroll expenses rather than the PEO's combined payroll expenses.29
Commentary
The extension of franchise tax credits is favorable to affected businesses, preserving incentives to keep those businesses operating within the state. The same goes for the extension and preservation of sales and use tax exemptions.
More significantly, the new budget legislation eases the compliance burden on hotel room remarketers. According to the summary provided by the New York State Department of Taxation and Finance, this legislation "facilitates the compliance of hotel room remarketers with the [s]tate and local sales tax collection obligations adopted" in 2010.30 The legislative memo that accompanies this legislation does not offer much explanation concerning the reason for the new room remarketer provisions, but a detailed legislative memo was prepared for a separate bill that contains the same room remarketer provisions.31 Because the room remarketer provisions in the separate bill are identical to the provisions that were enacted, the memo for the separate bill provides valuable insight. The memo explains that the purpose of these provisions is "to better conform procedures to the manner in which room remarketers have traditionally done business, thereby lessening the compliance burden on them."32
Footnotes
1 Ch. 59 (A.B. 9059), Laws 2012; Summary of Tax Provisions in SFY 2012_13 Budget, Office of Tax Policy Analysis, New York State Department of Taxation and Finance, April 2012.
2 Note that this SALT Alert highlights corporation franchise tax credits, but these credits also may be taken against other New York taxes.
3 N.Y. TAX LAW §§ 28(a)(1), 210(38).
4 N.Y. TAX LAW § 28(a)(2)(i), (iii).
5 N.Y. TAX LAW §§ 28(a), 210(38).
6 The amount of low-income housing credit that may be allocated by the New York State Division of Housing and Community Renewal is increased from $32 million to $40 million. Effective April 1, 2013, the amount is further increased to $48 million. See N.Y. PUB. HOUS. § 22(4).
7 N.Y. TAX LAW § 210(44)(a).
8 Ch. 59 (A.B. 9059), Part D; Summary of Tax Provisions in SFY 2012_13 Budget, Office of Tax Policy Analysis, New York State Department of Taxation and Finance, April 2012.
9 This is a fuel blend of ethanol and motor fuel that meets certain standards for fuel ethanol.
10 N.Y. TAX LAW §§ 282(14), 282-a(3)(b), 301-b(a)(5).
11 N.Y. TAX LAW § 1101(c)(8) defines a "room remarketer" as a "person who reserves, arranges for, conveys, or furnishes occupancy, whether directly or indirectly, to an occupant for rent in an amount determined by the room remarketer, directly or indirectly, whether pursuant to a written or other agreement."
12 The room remarketer provisions were enacted as part of the 2010-2011 budget legislation and were effective September 1, 2010. Ch. 57 (A.B. 9710), Laws 2010, amending N.Y. TAX LAW §§ 1101(c), 1105(e), 1119(e); N.Y.C. ADMIN. CODE §§ 11-2501, 11-2502. See TSB_M_10(10)S, New York Department of Taxation and Finance, Aug. 13, 2010.
13 N.Y. TAX LAW § 1111(r). These amendments apply to hotel occupancies that begin on or after September 1, 2012.
14 N.Y. TAX LAW § 1111(r)(1).
15 Id.
16 Id.
17 Id.
18 N.Y. TAX LAW § 1111(r)(2).
19 N.Y. TAX LAW § 1111(r)(3).
20 Summary of Tax Provisions in SFY 2012_13 Budget, Office of Tax Policy Analysis, New York State Department of Taxation and Finance, April 2012.
21 N.Y. TAX LAW § 1119(e).
22 N.Y.C. ADMIN. CODE § 11-2502(a), (f).
23 Ch. 59 (A.B. 9059), Part G, § 1, amending Ch. 61 (S.B. 2811), Laws 2011, Part U, § 23; Summary of Tax Provisions in SFY 2012_13 Budget, Office of Tax Policy Analysis, New York State Department of Taxation and Finance, April 2012. Previously, the e-filing mandate was set to expire December 31, 2012.
24 N.Y. TAX LAW § 29(b)(2).
25 N.Y. TAX LAW § 29(a)(1).
26 Id.
27 These are firms that provide employer administrative services to clients. For example, they perform such services as disbursing payroll, paying taxes or administering fringe benefits. N.Y. LAB. LAW § 916(4).
28 N.Y. TAX LAW § 801(a); Summary of Tax Provisions in SFY 2012_13 Budget, Office of Tax Policy Analysis, New York State Department of Taxation and Finance, April 2012.
29 Id.
30 Summary of Tax Provisions in SFY 2012_13 Budget, Office of Tax Policy Analysis, New York State Department of Taxation and Finance, April 2012.
31 Memo for A.B. 8584, introduced Sep. 21, 2011.
32 Id.
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