Tax Breaks and Incentives: Highlights of the New York State 2023-2024 Budget

On May 3, 2023, New York Governor Kathy Hochul signed A3008/S3008 and A3009/S3009 into law. Among its various tax provisions, legislative highlights include:

CORPORATE TAX RATES

• The legislation maintains the current 7.25% tax rate for three additional years for all tax years ending before January 1, 2027 (previously scheduled to be reduced to 6.5% for tax years beginning January 1, 2024).
• The capital base tax rate of .1875% is extended for three additional years through tax years ending before January 1, 2027. The capital base tax rate was originally scheduled to phase out via a 0% rate for tax years beginning on January 1, 2021 (now delayed until January 1, 2027). The legislation marks the second time that the capital tax has been extended.
• The Metropolitan Transportation Business Tax Surcharge (MTA Surcharge) is now fixed at 30% for tax years beginning on or after January 1, 2024.

CREDITS AND INCENTIVES

The legislation also extends and expands several credits and incentives, including:

• Investment Tax Credit. Modified the Investment Tax Credit for certain farmers and new business owners into a refundable credit for five years and repealed the transferability of the credit.
• Extension and Enhancement of the Film Tax Credit. New York State will raise the film tax credit’s annual cap to $700 million and restore the credit to 30% for qualified expenses.
• Authorization of a NYC biotech tax credit. The Biotechnology Tax Credit allows investors and owners of qualified emerging technology companies (QETCs) focused on biotechnology to claim a tax credit against the General Corporation Tax and Unincorporated Business Tax for amounts paid or incurred for certain facilities, operations, and employee training in New York City. The extension of the credit for a three-year period begins Jan. 1, 2023 and runs through Dec. 31, 2025.
• Childcare Creation and Expansion Tax Credit. Expands the Empire State Child Credit to include children under four years of age.
• Extending COVID-19 Capital Costs Tax Credit Program. The legislation extends the application deadline for the COVID-19 Capital Costs Tax Credit Program from March 31, 2023, to September 30, 2023, to allow small businesses more time to apply for this tax credit.

DISASTER RELIEF

• The legislation provides the Commissioner additional authority to abate underpayment interest for taxpayers affected by a presidentially declared disaster or by a disaster emergency declared by the governor, where the Commissioner has not postponed a tax deadline.
• Effective immediately, sub-section (e-1) is added to Tax Law Section 1085. This subsection provides: “Waiver of addition for underpayment of estimated tax. No addition to tax shall be imposed under subsection (c) of this section with respect to any underpayment to the extent the commissioner determines that by reason of casualty, disaster, or other unusual circumstances the imposition of such addition to tax would be against equity and good conscience.”

PASS THROUGH ENTITY TAX

• The legislation retroactively amends the definition of pass-through entity taxable income (including NYC PTET) to require an addback of PTE taxes paid to other jurisdictions. The legislation codifies the Department of Taxation and Finance’s previously announced guidance requiring such addbacks.
• For NYC PTET purposes, the legislation also retroactively amends the definition of “city taxpayer” to specifically include city resident trusts and estates.

PAYROLL MOBILITY TAX

• The legislation increases the top Metropolitan Commuter Transportation Mobility Tax (MCTMT) for certain New York City employers and self-employed individuals. Effective July 1, 2023, employers, including professional employer organizations (PEOs), who engage in business within the counties of Bronx, Kings, New York, Queens, and Richmond with payroll expense in excess of $437,500 in any calendar quarter are now subject to payroll expense tax of .6% (previously .34%).
• Effective January 1, 2023, Individuals with net earnings from self-employment in excess of $50,000 in these counties are now subject to a payroll expense tax of .47% (previously .34%). This increases to .6% beginning on January 1, 2024.
• For purposes of determining an individual’s net earnings from self-employment, the legislation now includes an individual limited partner’s distributive share of income or loss if the limited partner, directly or indirectly, takes part in the control or participates in the management or operations of the partnership and is not a passive investor, regardless of the individual’s title or characterization in a partnership or operating agreement.

TAX APPEALS TRIBUNAL DECISIONS

• The legislation allows the Commissioner to appeal state-level Tax Appeals Tribunal decisions. Before the legislation, such decisions were binding on the state, but not on taxpayers. The legislation does not apply to New York City Tax Appeals Tribunal decisions, which are still binding on the City but not on taxpayers.

Several significant tax proposals that were introduced but did not make it into the final legislation include:

• Automatic S-election for most taxpayers that made federal S-elections
• Sales tax on digital products
• Fee on delivery transactions

These legislative proposals may be revisited, and Marcum will continue to monitor all significant legislative tax proposals.

If you have any questions, please reach out to a member of Marcum’s State and Local Tax practice or your local Marcum partner.