New York State Update 2013

By: William J. Killory, CPA (Apr, 2013)

There is a television ad currently airing that says that New York is open for business.  The Tax Foundation ranks New York State tax environment as the worst in the nation.  The annual budget was passed and it contained many tax provisions some of which are business friendly (if you are in the right business) and some of them add to the already heavy tax burden we have in the Empire State.

Movie and television producers will be happy with motion picture and television development credits that were extended and enhanced.  There are additional wage credits available for post- production in upstate counties with limitation on the type of employee and minimum budget requirements in order to obtain the credits.  It was these types of incentives that enticed NBC to bring back the Tonight Show to New York City when Jimmy Fallon takes over the hosting duties in 2014.

The individual tax rates have jumped around in the past few years.  A few years ago the top rate was 6.85% and that was imposed on taxable income over $40,000.  Back in 2010 the top rate was 8.97% for taxable income over $500,000 for married couples along with the elimination of itemized deductions for the high income taxpayer.  Many people had an unexpected New York refund this year as the 6.85% tax rate for married taxpayers tax rate did not start until you reached $300,000 in taxable income.  These lower rates and an indexing of the standard exemption were extended until 2017 under the budget bill.  The top rate of 8.82% for married taxpayers with taxable income over $2 million will also remain along with the elimination of all their itemized deductions except the charitable contributions deduction.  This will be limited to 25% of the federal deduction for the high income taxpayer through 2017.

The budget bill added a family tax relief credit for families with incomes under $300,000 and a dependent child under 17.  The $350 payment will be mailed on or before October 15 each year and will be a reconciling item on your return when it is filed 6 months later.  This is a bit gimmicky and will add to the complexity of filing a return as you will need to keep track of whether you received it and if you are eligible for the credit when you actually file your return.

There are some energy related items in the budget bill that add recharging equipment for electric vehicles to the list qualifying for the alternative fuels credit.  The sale of natural gas purchased and converted to compressed natural gas for use in the engine of a motor vehicle is now exempt from sales tax.  

The “temporary” Metropolitan Commuter Transportation Authority business tax surcharge has been extended another five years and is now scheduled to expire in 2018.  This “temporary” tax has been around since 1982. The budget bill did reduce the tax rates for “qualified manufacturers.”   A qualified manufacturer is one that has fewer than 100 employees in New York State, must have tangible property used in manufacturing with an adjusted federal tax basis of at least $1 million. These assets along with all its real property must be located in New York.  If you have a MCTD allocation over 15% then you are excluded from this program.  Once you have jumped through those hoops you still must be principally engaged (more than 50% of receipts) in manufacturing, processing or assembling goods. Those engaged in refining, extracting, mining, agriculture, floriculture, viticulture or commercial fishing are also eligible.

The budget bill included provisions that raised the minimum hourly wage in New York from the current $7.25 to $8.00 by the end of 2013, to $8.75 by the end of next year and to $9.00 by the end of 2015.  To assist employers the bill includes a credit for those employing students between the age of 16 and 19 that are paid at the minimum wage.  They are eligible for a refundable credit that ranges from $0.75 an hour in 2014 to $1.35 an hour starting in 2016 and going through 2018.  If the federal minimum wage increases during that time then the credit will be reduced accordingly.  What a mess.  I guess the $350 payment received this October will take some of the sting off of your unemployed teenager next summer.

The New York State Court of appeals recently issued an opinion in the Amazon and Overstock.com case.  New York State enacted a law that imposed a sales tax collection obligation on out-of-state businesses that sold goods via the internet that originated from a New York based web site.  If you are located in New York and have a link to Amazon.com and they pay you a commission for sales derived from that link, New York believes that is sufficient to obligate Amazon to collect sales tax.  The United States Supreme Court decided in the Quill v. North Dakota case back in 1992 that only actual physical presence can subject an out-of-state business to collect sales tax.  This bright line test is a result of the commerce clause in the United States Constitution controlled by federal law.  The judges in Albany chose to read the Quill decision differently and upheld the New York State provision.  It is likely this will be appealed to the Federal Courts but may be rendered moot as the Senate in Washington is offering legislation that would change the federal law and make internet sales subject to sales tax.

With most programs in New York there are some clear benefits but they typically come with not-so-clear limitations and exclusions.  This does not make the tax and regulatory environment any easier in our great state.  Whether New York is open for business is a matter of opinion.  We are here to help you through the thicket of tax and regulatory changes that we face every day.  As always, if you have any questions or concerns on taxes in New York or elsewhere please contact your Dermody, Burke and Brown tax advisor.

 

The information reflected in this article was current at the time of publication. This information will not be modified or updated for any subsequent tax law changes, if any.

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