Welcome to our second post dedicated to providing a summary of the proposed tax changes in Governor Cuomo's Executive Budget for fiscal year 2022. The Executive Budget proposes to enact new taxes, credits, and other initiatives, aimed largely at mitigating the revenue shortfalls caused by the COVID-19 pandemic, and are broken down into the following categories:
- Responding to COVID-19;
- Tax Cuts and Credits;
- Reform and Simplification;
- Enforcement and Compliance Initiatives;
- Other Actions;
- School Tax Relief ("STAR") Program Actions;
- Gaming Initiatives; and
- Fee Actions
Last week, we covered some of the noteworthy proposals in the Executive Budget under the following categories: Responding to COVID-19, Enforcement and Compliance Initiatives, and Other Actions. This week we will be discussing noteworthy proposals under the following five categories: Tax Cuts and Credits, Reform and Simplification, and Gaming Initiatives. These proposal can be found in either the Revenue Bill ("REV") or the Transportation, Economic Development, and Environmental Conservation Bill ("TED"), as indicated below. Two of the more interesting proposals include the authorization of mobile sports wagering and the imposition of the sales tax on vacation rental marketplace providers. Next week, we'll return with our weekly legislative updates.
- Tax Cuts and Credits:
a. Extend Brownfield Tangible Property Redevelopment Credit for (TED Part AA)
The Executive Budget would allow certain developers within the Brownfield Cleanup Program adversely impacted by COVID-19 additional time to complete redevelopment of these sites. Specifically, the bill would extend the current 10-year allowable period by two years, providing a 12-year allowable period, for which the tangible property credit component of the brownfield redevelopment tax credit is allowed for projects whose original period did, or will, expire between March 15, 2020 and December 31, 2020.
b. Extend Certain Sales Tax Exemption Related to the Dodd-Frank Protection Act (REV Part M)
The Executive Budget would extend the sales tax exemption under Tax Law § 1115 for sales or services transacted between financial institutions and their subsidiaries for an additional three years. Under the Dodd-Frank Protection Act, certain financial institutions were required to create subsidiaries and then transfer property or services to those subsidiaries. Certain transactions between these financial institutions and their newly created subsidiaries are exempt from sales tax until June 30, 2021 (or June 30, 2024 pursuant to a contract entered into before June 30, 2021). The bill would extend the exemption period for three years to cover sales made on or before June 20, 2024 (or June 30, 2027 pursuant to a contract entered into before June 30, 2024)
c. Extend the Economic Transformation and Facility Redevelopment Program Tax Credit (REV Part JJ)
The Executive Budget would extend the Economic Transformation and Facility Redevelopment Program for an additional five years. This proposal is intended to support the economies of communities affected by the closure of certain correctional and juvenile justice facilities. Currently, these tax credits are set to expire on December 31, 2021. However, this bill would extend the program by five years until December 31, 2026.
d. Extension of Workforce and Hiring Credits
The Executive Budget would extend two hiring and workforce retention credits specifically intended to provide continued support for employers in certain industries to recover for the pandemic. The two credits to be extended are as follows:
- The Farm Workforce Retention Credit (REV Part FF) – The Executive Budget would extend the Farm Workforce Retention Credit for three years. This credit program Tax Law § 42 provides a benefit of between $250 and $600 per employee. Currently, this credit it set to expire at the end of 2021. With the extensions, farm employers will be able to tax advantage of the credit until the end of 2024.
- The Hire-A-Vet Credit (REV Part II) – The Executive Budget would extend the tax credit for hiring veterans for two years. This credit program under Tax Law § 210-B provides a tax credit equal to 10% of wages paid to a qualified veteran ($5,000 maximum) and 15% of wages paid to a disabled veteran ($15,000 maximum). Currently, the "hire-a-vet" tax credit is available to qualified taxpayers for hiring qualified veterans who began working beginning on or after January 1, 2015 and before January 1, 2022. The bill would extend the credit an additional two years.
In addition to the proposals described above, the Executive Budget also would extend the Film Tax Credit for one year and would extend the Alternative Fuels Exemption for five years.
- Reform and Simplification:
a. Reform and Simplify Business Tax Provisions (REV Part E)
The Executive Budget would make two major amendments to the Tax Law intended to reform and simplify business tax provisions.
First, the bill would amend Tax Law § 184 to eliminate the Article 9 tax and filing requirements for foreign bus and taxicab corporations that make fewer than 12 trips into New York State in a given calendar year. Currently, these foreign bus and taxicab corporations have a filing requirements and must annually pay a tax equal to $15 per trip into the state. Additionally, these foreign bus and cab companies would continue to be exempt from taxation under Article 9-A. This is a logical reform considering that the tax costs more to administer than it generates in revenue. For reference, only five taxpayers have been subject to the $15 per trip tax, with annual tax submissions of $100 since 2010.
Second, the bill would amend Articles 9-A, 13, and 22 to allow all federal subchapter S corporations to be recognized and treated as subchapter S corporations for New York State tax purposes. Currently, only federal S corporations with investment income above 50% of federal gross income are treated as New York State S corporations. Conforming to federal standards would hopefully simplify tax filings, eliminate potential tax avoidance schemes, and align with the treatment of S corporations in most other states.
b. Make Technical Correction to Sales Tax Remote Vendor Registration (REV Part N)
The Executive Budget would make a technical correction to Tax Law § 1134(a)(1)(i) and increase the registration threshold to conform with the threshold at which remote vendors must register for purposes of collecting sales tax. The sales volume threshold that triggers sales tax registration and collection requirements for vendors with no physical presence in the state if a taxpayer has $500,000 in gross receipts from sales over the four previous quarters. Currently, taxpayers are required to register for the collection of sales tax when the gross receipts from sales exceeds $300,000 over the four previous quarters. There is a blatant $200,000 incongruity between the two registrations requirements. The technical correction in the proposed bill would increase the registration threshold to $500,000 in order to conform to the economic nexus collection provisions.
c. Modernize Tax Law to Include the Vacation Rental Industry (REV Part I)
The Executive Budget would amend the Tax Law to impose sales tax on vacation rentals and require vacation rental marketplace providers to collect sales tax on taxable sales of the vacation rentals that they facilitate. Under the proposal, any vacation rental marketplace provider that facilitates the occupancy of a vacation rental will be responsible for collecting and remitting the state and local sales taxes, including the New York City hotel unit fee. The bill would define a "vacation rental marketplace providers" as a person who collects the rent and provides the forum, physical or virtual, where the transaction occurs. The intent behind this proposed bill is to "create a level playing field" between the traditional hospitality industry (e.g., hotels, motels, etc.) and the growing vacation rental sector (e.g., AirBnb, VRBO, etc.). The Executive Budget would subject all vacation rentals to state and local sales taxes and the daily New York City Convention Center hotel fee.
As expected with the new Legislative Session, the Executive Budget is looking to new and expanded tax regimes in order to ease the multibillion-dollar revenue shortfalls being faced due to COVID-19. This new sales tax imposition is expected to generate $10 million in revenue in 2022 and $18 million in revenue annually thereafter.
d. Make Permanent Local Sales Tax Rate Authorizations (REV Part L)
The Executive Budget would grant permanent local sales tax authority for all counties and cities to impose a local sales tax rate up to 4% (or their existing rate, if higher). Currently, all counties and cities have the authority to impose sales tax at a rate of 3%. This means that local governments would no longer need to seek and receive the State's approval as long as they want to raise their existing rates to no more than 4%.
Again, this bill is an effort by New York State to shore up local government finances in response to the revenue shortfalls at the state and local level being faced due to the COVID-19 pandemic.
- Gaming Initiatives:
a. Authorize Mobile Sports Wagering and Establish a Casino Tax Rate Petition Process (REV Part Y)
The Executive Budget would authorize mobile sports wagering in New York State and establish a process for casinos to petition for a lower tax rate. Currently, sports wagering is limited to in-person betting at the four upstate casinos. The bill explains that the Gaming Commission would select a platform provider(s) after engaging in a competitive bidding process. Mobile sports wagering is already legal in 14 states, including the bordering states of New Jersey and Pennsylvania. The intent behind this proposed bill is to bring back revenue generated by New Yorkers wagering in other states where mobile sports betting in already allowed.
Additionally, the bill would put a petition process in place for casinos to demonstrate their need for a slot tax rate reduction (no lower than 25%) based on certain enumerated criteria including their financial projections, the use of the additional funds, impact on the overall competitive landscape, and other economic factors.
We are beginning to see a pattern. By authorizing mobile sports wagering, the State is clearly looking for new and alternative revenues to help cover the gap in revenue shortfalls due to COVID-19. By authorizing mobile sports wagering, it is expected to generate over $500 million in revenue.
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