New York: Budget Bills Enacted

On April 12, 2019, the New York bills (A.2009C and S.1509C) that adopt certain tax changes proposed in the Executive Budget were signed into law by Governor Cuomo. The most significant changes for corporations, perhaps, address certain aspects of federal tax reform. Specifically, for New York State and City purposes, the bills require net global intangible low-taxed income (GILTI) to be added to a taxpayer’s receipts factor denominator. No GILTI is added to the numerator. The term "net global intangible low-taxed income" means the amount required to be included in the taxpayer's federal gross income under IRC section 951A(a) less the amount of the deduction allowed under IRC section 250(a)(1)(B)(i). This change codifies guidance on apportioning GILTI that was added to the 2018 New York corporate tax forms. As a result of tax reform, IRC section 118(b) was amended to require corporate taxpayers to include in income any contributions by a governmental entity or civic group that is other than in exchange for stock. New York, as a rolling conformity state, adopted this change and so, absent decoupling, such contributions would have been included in computing New York entire net income. The bills 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 are retroactive to tax years beginning on or after January 1, 2018. Finally, the bills make a subtle change to preserve benefits for “qualified New York manufacturers” that are subject to tax on entire net income at a rate of zero percent, and are subject to a reduced capital tax. The definitions of a "qualified New York manufacturer" make reference to companies that have property in New York with a certain adjusted federal basis. The bills amend the reference to federal basis to the basis for “New York state tax” purposes. This reflects that the federal and New York bases may be different due to enhanced federal expensing.

On the individual income tax side, the top personal income tax rate of 8.82 percent, which was currently scheduled to expire for taxable years beginning after 2019 is extended through 2024.

On the sales tax side, effective June 1, 2019, the current sales and use tax exemption for receipts from transportation, transmission, or distribution of gas or electricity when the transportation, transmission or distribution is provided by someone other than the vendor of the gas or electricity is eliminated.

Effective June 1, 2019, the bills amend the definition of “persons required to collect tax” under New York state sales tax law to include marketplace providers. A marketplace provider is defined as a person who, pursuant to an agreement with a marketplace seller, facilitates sales of tangible personal property by a marketplace seller. A marketplace seller is any person who has an agreement with a marketplace provider under which the marketplace provider will solicit sales of tangible personal property by the marketplace seller.

Both of the following conditions must be met for a marketplace provider to be considered to be facilitating a sale of tangible personal property. First, the marketplace provider must provide the “forum in which, or by means of which, the sale takes place or the offer of sale is accepted, including a shop, store, or booth, an internet website, catalog, or similar forum. The second condition is that the marketplace provider must collect the receipts paid by a customer to a marketplace seller for a sale of tangible personal property (either directly or through an affiliated person), or contract with a third party to collect such receipts.  A “sale of tangible personal property” does not include the rental of a passenger car, but does include a lease of a vehicle or a vessel for a term of a year or more.

The bills provide that a person is not considered a marketplace provider if the person lacks a physical presence in the state and (in the immediately preceding four quarterly periods) can establish that its cumulative total gross receipts from sales it has made or facilitated for delivery into New York did not exceed $300,000 or that the person has not made or facilitated more than 100 sales of property delivered into New York.

Note that a marketplace provider’s obligation to collect and remit sales tax on sales it facilities is limited to sales of tangible personal property. As a word of caution, however, New York considers the sale of a license of prewritten computer software to be a sale of tangible personal property and takes an expansive interpretation of when the use of software, particularly remotely-hosted software, occurs in the state. A marketplace provider required to collect will have all the rights and obligations of a vendor, including the right to accept exemption certificates and file refund claims.

Under the bills, a marketplace seller who is a “vendor” under New York law, is relieved of its collection and remittance obligation to collect in regard to a particular sale of tangible personal property and is not required to include receipts from such sale in its total receipts if the marketplace seller can show (typically through a certificate of collection) that a marketplace provider is registered to collect and remit applicable sales tax on such sale. Further, the marketplace seller must show that any failure by the marketplace provider to collect the proper amount of tax was not the result of the marketplace seller providing incorrect information to the marketplace provider.

The bills also provide the Commissioner with discretion to “develop a standard [contract] provision, or approve a standard provision developed by a marketplace provider, in which the marketplace provider obligates itself to collect the tax on behalf of all the marketplace sellers for whom the marketplace provider facilitates sales of tangible personal property.” This provision would essentially operate as a collection certificate for the marketplace seller. Lastly, (assuming the parties are not affiliated) the bills provide relief to a marketplace provider if it fails to collect and remit the correct amount of tax due to incorrect information provided by a marketplace seller. Please stay tuned to TWIST for more additional legislative updates.