New York Governor Signs 2021-2022 Budget

New York’s newly signed budget bill includes a temporary tax hike on certain high earners and a workaround on the federal $10,000 limit on state and local tax deductions, among other provisions. Signed by Governor Andrew Cuomo on April 19, 2021, the state’s Fiscal Year 2021-22 budget bill also extends various tax credits and includes incentive programs for business development and industries affected by COVID.

Below are several highlights of the income tax modifications effective for the state’s fiscal year, beginning January 1, 2021.

Personal Income Tax

• The top personal income tax bracket will increase from 8.82% to rates ranging from 9.65% to 10.90% through 2027 in the following manner:
  • 9.65% for income over $2,155,350 (married filing joint); $1,616,450 (filing as head of household) and $1,077,550 (single/married filing separately) up to $5 million.
  • 10.30% for all filers with income between $5 million and $25 million.

New Pass-Through Entity Tax

• The plan provides for an elective tax on pass-through entities effective for taxable years beginning January 1, 2021.
  • Eligible partnerships or S corporations must make an annual irrevocable election by the due date of the first estimated payment (generally March 15).
  • For calendar year 2021, the election must be made by October 15, 2021.
  • Estimated payments are not required for taxable year 2021.

Business Income Tax

• Effective for taxable years beginning on or after January 1, 2021, and before January 1, 2024, the budget imposes an increased corporate tax rate of 7.25% for any taxpayer with a business income base of more than $5 million for the taxable year.
  • The plan leaves the rate of 6.5% unchanged for companies with income of $5 million or below.
  • The change to the corporate tax rate does not apply to Qualified New York Manufacturers (QNYM), Qualified Emerging Technology Companies (QETC), or small business taxpayers.
• The previously set to expire business capital base tax of 0.1875% is being restored for tax years beginning on or after January 1, 2021, and before January 1, 2024.
  • For cooperative housing corporations, QNYM, QETCs, and small business taxpayers, the capital base tax rate is 0% for years beginning on or after January 1, 2021.

Sales and Use Tax

• Effective immediately, exemptions from sales and use tax are extended to certain otherwise taxable sales of tangible personal property or services between financial institutions and their subsidiaries, as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
  • The exemption is extended through June 30, 2024, except with respect to sales made or services rendered pursuant to a binding, in which case the exemption is extended until June 30, 2027.
• The total dollar amount for vendors’ gross receipts necessary for registration filing is being increased to $500,000 from $300,000.
• Effective immediately, the sales tax exemption on certain food and drinks sold through vending machines is being extended until May 21, 2022.
• Breast-pump replacement parts and certain supplies from sales and compensating use taxes are being exempted.
  • This provision is set to take effect and apply to sales made on or after the first day of the sales tax quarterly period and at least 90 days after it becomes law.

Credits and Incentives

• Credits in relation to expenditures for childcare services are being enhanced under the Excelsior Job Program and the Employer Provided Child Care Credit.
• Rehabilitation of Historic Properties Tax Credit: This provision entitles small projects of $2,500,000 or less to 50% of the amount of the credit allowed to the taxpayer under the Internal Revenue Code.
• In addition, the following tax credits are extended:
  • Empire State Film Production Credit and Post Production Credit.
  • Farm Workforce Retention Credit.
  • Low Income Housing Credit.
  • Musical and Theatrical Production Credit.
  • Hire A Vet Tax Credit.
  • Economic Transformation and Facility Redevelopment Credit.
• The plan creates new incentives for industries affected by COVID-19:
  • Enacts the Restaurant Return To Work Tax Credit.
  • Enacts the New York City Musical and Theatrical Production Tax Credit.
• A provision is being enacted to address the effect of COVID-19 on work location-based tax credits for remote work performed during COVID-19.
  • A taxpayer who required employees to work remotely due to the pandemic may designate such remote work as having been performed at the location where such work was performed prior to the disaster emergency for tax benefits that are based on maintaining presence within the state or within specific areas of the state.
    • This provision takes effect immediately and shall deemed to have been in full force and effect on or after March 7, 2020; it is set to expire the earlier of the expiration date of the state disaster emergency under executive order or on December 31, 2021.

Other Highlights in the Budget Bill

• Decouples from gain excluded under the federal Opportunity Zone provisions for NYS/NYC Personal Income Tax, Corporate tax, Insurance tax, NYC Business Corporation Tax, and NYC General Corporation Tax.
• Establishes the COVID-19 Pandemic Small Business Recovery Grant Program.
• Promotes the development of renewable energy projects, including solar or wind energy systems.
• Extends the alternative fuel tax exemptions for five years.
• Establishes the Real Property Tax Relief Credit.
• Enables the Commissioner, for good cause shown, to waive interest on certain tax underpayments in 2020 due solely to insufficient withholding of tax on unemployment compensation.
• Provides a modification reducing federal adjusted gross income by the amount of the COVID-19 family death benefit paid, pursuant to the Metropolitan Transportation Authority program established in 2020 for purposes of determining New York State taxable income.
• Imposes liability for real estate transfer taxes on responsible persons; prohibits grantors from passing real estate transfer tax to grantees; and exempts certain organizations from the LLC disclosure requirement.
• Implements a tax on sports wagering gross revenue.
• Addresses the taxes imposed on revenue from gaming facilities.
• Addresses penalties for failure of tax return preparers to register and requires tax return preparers to display certain documents.
• Addresses liability for the collection of taxes on medallion taxicabs trips and congestion surcharge.
• Increases penalties for failure of an employer to provide complete and correct employee withholding information.

Marcum tax professionals will provide additional Tax Flashes to address additional details on some of these provisions. For additional information regarding the New York budget and how it may affect you or your business, contact Barry Halpern at [email protected] or your Marcum State and Local Tax professional.