United States: New York State Tax Reform And Fairness Commission Proposes Extensive Revamp Of Tax Law

In its November 11, 2013 final report, the New York State Tax Reform and Fairness Commission has proposed five revenue-neutral tax reform packages that are intended to overhaul the New York State tax law by decreasing complexity in the tax administration process, providing tax relief to low-income families, and modernizing the tax law to better align with current federal tax law and market trends.1 The proposed reform packages focus on the following five categories: corporate tax; sales tax; estate and gift tax; real property tax administration; and tax simplification. The main recommendations put forth by the Commission are outlined below.

Corporate Tax Reform

Noting that New York State's method of corporate taxation dates back to the 1940's and has not been restructured in more than a quarter century, the Commission proposes several reforms addressing what is perceived to be a negative tax environment for businesses. The Commission's recommendations include the following key elements:

  • Merge the bank tax (Article 32) into the corporate franchise tax (Article 9-A);
  • Adopt a single receipts factor apportionment formula using customer-based sourcing rules;
  • Adopt full water's-edge unitary combined filing with a more than 50 percent ownership test (with the ability to make a binding seven-year election to establish the composition of the combined group);
  • Expand the application of economic nexus requirements in determining whether corporations are subject to tax;
  • Increase the effectiveness of exemptions for subsidiary and investment income;
  • Eliminate certain special deductions and exemptions;
  • Use "effectively connected" income as the basis for corporate tax base calculations for foreign corporations;
  • Require combined reporting for captive insurance companies;
  • Repeal the "tax treaty" exception to the royalty add-back provision;
  • Require attribution of interest expenses to exempt income with expanded direct tracing of interest expense in certain situations;
  • Revise the alternative tax bases to create a credit for tax paid to other states to address possible constitutional challenges;
  • Reform the Investment Tax Credit (ITC) and the Brownfield Credit;
  • Repeal the Financial Services ITC;
  • Reduce the Empire State Film Production Tax Credit allocation;
  • Evaluate and increase the effectiveness of business tax incentives;
  • Streamline the corporate audit process; and
  • Accelerate the phase-out of the Article 18-A Surcharge on utilities.2 At this time, reforms to corporate tax law would be implemented at a state-wide level only, but the Commission recommends that New York City conform its corporate tax laws to those adopted by the state.

Sales Tax Reform

In its effort to address what is characterized by the Report as a regressive sales tax system despite numerous exemptions designed to eliminate such regressivity, the Commission proposes four alternative options for reforming sales tax.

  • The first option requires repealing the current sales tax exemption for items of clothing and footwear costing less than $110. The Commission recommends enhancing the Household Credit or Earned Income Tax Credit, creating a standalone sales tax relief credit, or providing real property tax relief to mitigate the burden that repealing the clothing and footwear exemption would cause on low- and middle-income taxpayers.
  • The second option expands the tax base to include digital products, such as iTunes, eBooks, and Video-on-Demand services, all of which are currently excluded from sales tax in New York. The second option also requires the elimination of special exemptions for industries that no longer need the competitive edge originally intended, such as energy service companies and self-storage facilities.
  • The third option suggests further alignment of the sales tax base with current consumption trends as well as better uniformity between state and local tax bases, including the potential elimination of the "gas cap" at $2 per gallon, and a potential tax on personal services.
  • In the event that the sales tax base is broadened under one or more of the first three options, the fourth option proposes that the additional sales tax revenue generated flow to a Tax Reduction Reserve Fund for financing future real property and personal income tax relief.

Estate and Gift Tax Reform

In recognition of what is characterized by the Report as an outdated estate and gift tax regime in New York State, the Commission recommends the following reforms:

  • Increase the estate tax exemption from $1 million to $3 million, effectively eliminating approximately three-quarters of all estates from the estate tax;
  • Eliminate the generation-skipping tax (GST);
  • Reinstate New York State's gift tax or add-back of gifts over a certain threshold amount to the estate in order to better align the state's estate and gift taxes with the $5.25 million federal estate and gift tax exemptions; and
  • Close the resident trust loophole by decoupling from the federal treatment of Delaware Incomplete Gift Trusts and treating these trusts as grantor trusts for New York State income tax purposes. This would result in trust income being taxed to the grantor of the trust.

Real Property Tax Administration

Recognizing that the Council on State Taxation (COST) ranked New York's system of property tax administration the worst in the nation in 2011, the Commission recommends establishing a state-wide statutory standard of assessment, regular updating of assessments at periodic intervals no less than five years apart, increased use of state aid to encourage shared assessment services, and state performance of valuation assessments of complex commercial, industrial, and utility properties.

Tax Simplification

The Commission concludes its report with a list of options aimed solely at increasing efficiencies and simplifying the complexities of the tax law. Among its many recommendations, the Commission suggests combining the Metropolitan Transportation Authority (MTA) surcharge with the corporate tax return, repealing several taxes characterized in the Report as "nuisance taxes" that bring in minimal revenue to the state, increasing the income level trigger for filing personal income tax returns, establishing a 14- day threshold trigger for non-residents who perform work in New York State prior to which personal income tax would not be due to the state (in contrast to a 30-day threshold currently being proposed on a nationwide basis in Congress for substantially all non-resident employees),3 simplifying the filing of amended returns, and providing for greater coordination between New York State and New York City.

Commentary

While the extent of the tax reforms that actually will be implemented in New York remains uncertain, the release of this report and the urgent call for tax reform by Governor Andrew Cuomo means taxpayers should be very mindful of potential changes to the tax law in the coming year, especially within the five categories outlined above. Taxpayers should also remain aware of potential changes to both telecommunication taxes and utility taxes as these were both listed as areas for future study by the Commission.

The Report's mention of a 14-day exemption for non-resident employees performing work functions in New York is intriguing in that historically, New York has been opposed to the Congressional legislation on this subject because of the adverse revenue effect to the state. While the Report noted the revenue effect of having a 14-day exemption at $50 million annually, the Report characterized such rule as having a "modest fiscal impact"), increasing the possibility that the state could actually enact such change if other revenue-enhancing reforms are undertaken.

Footnotes

1. Final Report, New York State Tax Reform and Fairness Commission, Nov. 11, 2013. The full text of the report is available at http://www.governor.ny.gov/assets/documents/greenislandandreportandappendicies.pdf.

2. This is a two percent temporary assessment on electric, gas, water and steam utilities. This surcharge currently is scheduled to be phased out over a three and one-half year period beginning in 2014-15.

3. H.R. 1129, introduced on March 13, 2013; S. 1645, introduced on Nov. 5, 2013. A similar bill, H.R. 1864, was passed by the House of Representatives on May 15, 2012.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Cadwalader, Wickersham & Taft LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Cadwalader, Wickersham & Taft LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions