The New York Legislature has passed bills related to the 2015–2016 budget (S2009-B/A3009-B and S4610-A/A6721-A, collectively referred to herein as the Budget Bill) containing several significant “technical corrections” to the New York State corporate income tax reform enacted in 2014, along with sales tax provisions and amendments to reform New York City’s General Corporation Tax. The Budget Bill’s technical corrections to last year’s corporate income tax reform include changes to the economic nexus, tax base and income classification, tax rate (including clarifications to rules applicable to certain taxpayers, such as qualified New York manufacturers), apportionment, combined reporting, net operating loss and tax credit provisions. The technical corrections are effective on the same date as last year’s corporate income tax reform, which was generally effective for tax years beginning on or after January 1, 2015.
This post is the fifth in a series analyzing the New York Budget Bill, and summarizes the technical corrections to New York’s combined reporting provisions.
Last year’s corporate reform provisions provided that (1) the election to reduce investment income or other exempt income by 40 percent in lieu of attributing interest expenses to that income and (2) the election to apportion income and gains from qualifying financial instruments using the 8 percent rule apply to all members of a combined group. The Budget Bill provides that the following elections also apply to all members of the combined group: the election to waive the net operating loss carryback period and the election to deduct up to one-half of the prior year net operating loss conversion subtraction pool over a two-year period beginning with the tax year beginning on or after January 1, 2015.
The Budget Bill also provides that the new 8 percent cap on investment income (for more information about this cap see our prior post, Inside the New York Budget Bill: Tax Base and Income Classifications) applies by comparing the investment income of the combined group (before the deduction of attributable interest expenses) to the entire net income of the combined group.
Under current law, each combined group must have one designated agent, and that designated agent must be a New York taxpayer (i.e., must have nexus with New York). The Budget Bill eliminates the requirement that the designated agent be the parent corporation of the combined group (taxpayers were permitted to choose another designated agent only if there was no parent corporation included in the combined group or the parent was not a taxpayer). This change gives combined groups greater flexibility in selecting the designated agent for the combined group.
The Budget Bill made a few additional clarifying amendments to the combined reporting provisions:
- When computing the combined business income base, the apportioned business income of the group is reduced by any prior net operating loss conversion subtraction as well as any net operating loss deduction (the original reform provision referred to only the net operating loss deduction).
- A combined net operating loss is composed of net operating losses that are carried back or carried forward to the taxable year (the original reform provision referred only to net operating losses carried forward to the income year).
- The timeliness of the commonly owned group election that must be made on an original return will be determined with regard to extensions.