On January 18, 2022, New York Governor Kathy Hochul released her fiscal year 2023 budget and accompanying legislation (the Budget Bill). The Briefing Book accompanying the Budget Bill highlights New York’s “remarkable reversal of fortune as tax revenues rebound”—giving the Governor the room to propose a variety of tax cuts targeted toward the middle class and small businesses. Other notable proposals in the Budget Bill include:

• Subjecting vacation rentals to sales tax: Similar to the proposal in the Fiscal Year 2022 budget (see our prior legal alert), the Budget Bill proposes subjecting all “vacation rentals” to state and local sales taxes and the daily NYC hotel unit fee of $1.50 per unit.  Under the proposal, any vacation rental marketplace provider that facilitates the occupancy of a vacation rental would be responsible for collecting and remitting state and local sales taxes, in addition to the NYC hotel unit fee.
• Treating federal S corporations as S corporations for state tax purposes: For the second consecutive year, the Budget Bill proposes to require all federal subchapter S corporations to be treated the same for state franchise tax purposes.
• Eliminating the investment tax credit for production of master tapes: The Budget Bill proposes to exclude from the investment tax credit tangible property principally used by a taxpayer in the creation, production, or reproduction, in any medium, of any audio or visual recordings, including but not limited to films, television shows, commercials, and musical recordings.
• Establishing a permanent rate for the article 9-A MTA surcharge: The MTA surcharge applies to corporations that do business, employ capital, own or lease property, maintain an office, or derive receipts from activity in the “Metropolitan Commuter Transportation District,” which includes New York City and certain counties north of the City.  Beginning in the 2016 tax year, the New York Department of Taxation and Finance was authorized to annually determine the MTA surcharge rate. The Budget Bill proposes to return to a fixed rate, which would be set at 30% beginning in the 2023 tax year.
• Expanding the financial institution data management program: The Budget Bill proposes to expand the definition of “financial institution” for purposes of the Financial Institution Data Match System to include virtual currency businesses licensed by the Department of Financial Services. The proposal would allow the Department of Taxation and Finance to receive account information from virtual currency and cryptocurrency businesses on taxpayers with outstanding tax debts.
• Extending and amending the telecommunications assessment ceiling program: The Budget Bill proposes to extend the program, which is set to expire January 1, 2023, through 2027. The proposal would also allow local government assessing units to consolidate a valuation assessment challenge with the challenge to the State’s ceiling value for the same property. In addition, local assessing units would have the option to keep the proceedings separate, without losing the right to introduce the State’s ceiling value and requesting and making use of the company’s inventory data as well.
• Extending the film tax credit: The Budget Bill proposes to extend the Empire State film production credit and post-production credit for an additional three years, to taxable years beginning before January 1, 2030. The Budget would also increase the amount the program beneficiaries are required to contribute to the Empire State entertainment diversity job training development fund.
• Extending the alternative fuels and electric vehicle recharging property credit: The Budget Bill proposes to push back the expiration date of the alternative fuels and electric vehicle recharging property credit an additional five years to December 31, 2027.
• Extending the New York City musical and theatrical production tax credit: The Budget Bill proposes to extend the initial application deadline from December 31, 2022 to June 30, 2023, and double the program cap from $100 million to $200 million.

Next steps

New York’s budget process is extensive. The Legislature will now begin analyzing the Governor’s budget, hold public hearings, and seek further information from agencies. Following that review, both houses of the Legislature reach agreement on spending and revenue recommendations that may amend the Governor’s proposed appropriation bills and related legislation. It is possible that we may see some significant tax proposals arise during the process. The State’s fiscal year begins April 1, so the timeline for the Legislature to review the Budget Bill is limited.

The Eversheds Sutherland SALT team is closely monitoring the Budget Bill and will keep you apprised of relevant updates.

[View source.]