On March 15, 2023, the two houses of the New York State Legislature released their respective amendments (Senate Bills S.4008 and S.4009, Assembly Bills A.3008 and A.3009, collectively the Amendments) to New York Governor Kathy Hochul’s Fiscal Year 2024 Executive Budget (the Budget Bill) (see our prior legal alert). While the Amendments make notable changes to the Budget Bill, outlined below, which tax proposals the Amendments do not include is equally important to the future of New York’s tax climate.

Notable Tax Proposals Not Included in the Amendments

• Changes to the treatment of GILTI: The Amendments do not include earlier proposals to expand the state’s taxation of Global Intangible Low-Taxed Income (GILTI) set out in A.3690 and S.1980, as well as in a proposal from the NYS Black, Puerto Rican, Hispanic and Asian Legislative Caucus (the Assembly Caucus Proposal).
  • A.3690 and S.1980, both still pending in their respective house committees, propose to increase the percentage of GILTI subject to franchise tax from 5% to 50%, with a commensurate increase for GILTI included in a corporate taxpayer’s sales factor denominator. The Assembly Caucus Proposal, without as much detail as the pending bills, similarly advocates for an increase in the amount of GILTI subject to tax.
    • New York currently affords a deduction from the franchise tax base for 95% of a corporation’s GILTI (treated as “exempt CFC income”), without application of the deductions in I.R.C. Section 250 for GILTI and Foreign-Derived Intangible Income (FDII).
• Digital advertising and data taxes: The Amendments do not include the pending digital advertising tax proposals (A.4821, S.3192, and S.5551) or data tax proposals (A.3959, S.1845, and S.2012).
• Reduction in PTET credit: The Amendments do not include the proposals in A.3690 and S.1980 to reduce, as applicable, partners’, members’, and shareholders’ direct share (credit) of pass-through entity tax (PTET) paid from 100% of PTET paid to 75%.

Notable Changes to the Budget Bill

• Increases the franchise tax (Article 9A) rate: The Amendments (A.3009, Part I) would impose a tax rate of 9% for taxpayers with a business income base in excess of $5 million for tax years 2024 through 2027, as well as extending the Budget Bill’s extension for the capital base tax rate of 0.1875% from 2026 to 2027.
• Applying the sales tax to digital products: The Amendments (A.3009, Part FF) would expand taxable receipts from the retail sale of tangible personal property to include sales of “digital products.” For this purpose, the term “digital products” broadly includes the following items, among others, when electronically or digitally delivered, streamed, or accessed: (i) television shows and movies (excluding cable and satellite); (ii) music, audiobooks, and podcasts; (iii) apps and games; and (iv) printed matter electronically delivered or accessed, or any other taxable tangible personal property electronically delivered, streamed, or accessed. The proposed amendment does not define what it means to be electronically or digitally delivered, streamed, or accessed.
• Omitting the proposed increase to the Metropolitan Commuter Transportation Mobility Tax (MCTMT) rate: The Amendments (S.4008, Part Q and A.3008, Part Q, respectively) omit (strike) the Budget Bill’s proposal to increase the top MCTMT rate from 0.34% to 0.50%.
• Increasing the MTA corporate surcharge: The Amendments (S.4008, Part BBBB) would increase the tax surcharge on corporate business activity within the metropolitan commuter transportation district from a rate of 30% to a rate of 45% for 2023 and subsequent years.
• Imposing new fees on transportation network companies (TNCs): The Amendments (S.4008, Part FFFF) would impose two new $0.50 fees on TNCs. One fee is imposed on every TNC trip that originates in New York (but outside of New York City) and terminates anywhere in New York. The other fee is imposed on every TNC trip that originates in New York City and terminates anywhere in New York.
• Omitting the Budget Bill’s requirement that all federal S corporations be treated as S corporations for New York tax purposes: The Amendments (A.3009, Part CC and S.4009, Part C, respectively) omit the Budget Bill’s proposal to require that all federal subchapter S corporations be treated as S corporations for New York tax purposes.
• Expanding the New York False Claims Act: The Amendments (A.3009, Part KK and S.4009, Part KK, respectively) propose expanding the False Claims Act to include a “person alleged to have knowingly concealed or knowingly and improperly avoided an obligation to pay taxes to the state or a local government.”
• Imposing a fee on delivery transactions: The Amendments (A.3009, Part JJ) would add a $0.25 fee for each delivery transaction in the state, starting September 1, 2023. For this purpose, a delivery transaction is as “a transaction that results in the delivery of tangible personal property from retail sale, whether purchased online or not, to the purchaser within the state.” However, certain purchases are exempt, including the delivery of medicine, diapers, and baby formula. Sellers would generally be obligated to collect the fee from purchasers, but may be relieved of the obligation if a marketplace provider collects the fee on their behalf.
• Amending the proposed extension of the film tax credit: The Amendments (S.4009, Part D) would alter the Budget Bill’s film tax credit extension by providing authority to the Department of Economic Development to allocate the credit and remove the credit cap for salaries of certain workers.
• Raising the personal income tax rate: The Amendments (A.3009, Part DD) would raise the highest personal income tax rate for 2023-2027, from 10.3% to 10.8% for income over $5 million and from 10.9% to 11.4% for income over $25 million.
• Omitting the Budget Bill’s proposal to allow the Department of Taxation and Finance to appeal Tax Appeals Tribunal decisions: The Amendments (S.4009, Part V and A.3009, Part V, respectively) would maintain the current tax appeals procedure, which does not provide the Department of Taxation and Finance a right to appeal adverse Tax Appeals Tribunal decisions.

Next Steps

New York’s fiscal year start is April 1. But the distance between the initial Budget Bill and the Amendments could see that deadline for budget adoption missed.

Governor Hochul may use her line item veto power to disapprove the Amendments, completely or in part, while approving the remainder of the Budget Bill. As provided in the New York State constitution, the Legislature may override the Governor’s veto by a two-thirds vote in each house.

The Eversheds Sutherland SALT team will continue to monitor the New York budgetary process and keep you apprised of relevant updates.

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