New York: Governor Cuomo’s proposed Budget Includes Numerous Income Tax Changes

Recently, the Fiscal Year 2020 New York State Executive Budget and the corresponding Memorandum in Support of the Budget, were released. As always, the budget includes a number of proposed tax changes. A couple of the changes address federal tax reform. Notably, the budget would require, for New York State and City purposes, that the net amount of GILTI - assuming the GILTI is classified as business income - be added to a taxpayer’s receipts factor denominator, but that no GILTI would be added to the numerator. This law change would codify guidance on apportioning GILTI that was recently added to New York’s corporate tax forms. The budget would also amend New York State and City law to provide an exclusion from entire net income for any contributions to the capital of a corporation by any governmental entity or civic group. Both of these changes would be retroactive to tax years beginning on or after January 1, 2018.

On the individual income tax side, the Governor proposes to extend for five years the top personal income tax rate of 8.82 percent, which is currently scheduled to expire for taxable years beginning after 2019. Finally, Governor Cuomo proposes to close the “carried interest tax loophole” by taxing the carried interest income of hedge fund and private equity investors as ordinary earned income. In addition to recharacterizing the income for New York State purposes, the budget bill would subject this income to a special 17 percent carried interest “fairness fee.” The fee would remain in effect until federal legislation revises the treatment of investment management service fees as capital gains, rather than ordinary income. The carried interest provisions would become effective only if Connecticut, New Jersey, Massachusetts and Pennsylvania adopt similar legislation. New Jersey is the only state that has adopted a similar provision at this juncture. Please stay tuned to TWIST for future updates on the New York budget process.