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 third in a series analyzing the New York Budget Bill, and discusses changes to the tax rates and to the qualified New York manufacturer provisions.
Qualified New York Manufacturers
Effective for tax years beginning on or after January 1, 2014, qualified New York manufacturers are subject to a 0 percent business income tax rate and to beneficial rates for purposes of the tax on business capital and the fixed dollar minimum tax.
Under the original corporate tax reform provisions enacted in 2014, a “qualified New York manufacturer” is a manufacturer (either a single taxpayer or a combined group) that meets two qualifications. First, it has property in New York that is described in section 210-B.1 of the Tax Law (i.e., property that is eligible for the investment tax credit), and either (1) the adjusted basis of such property for federal income tax purposes at the close of the taxable year is at least $1 million, or (2) all of its real and personal property is located in New York. Second, it is principally engaged in qualifying activities (e.g., manufacturing, processing or assembling) (the “principally engaged” test).
A taxpayer—or, in the case of a combined report, a combined group—that does not satisfy the principally engaged test may still be a qualified New York manufacturer if the taxpayer or the combined group employs during the taxable year at least 2,500 employees in manufacturing in New York, and has property in the state used in manufacturing, the adjusted basis of which for federal income tax purposes at the close of the taxable year is at least $100 million.
The technical corrections in the 2015 Budget Bill restrict the types of property eligible for consideration in the principally engaged test to property mentioned in Tax Law section 210-B.1(b)(i)(A) (property that is principally used by the taxpayer in the production of goods by manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture or commercial fishing), rather than property described in the entirety of section 210-B.1. This correction mirrors the definition of eligible property before the 2014 law changes.
The technical corrections also contain an important clarification with respect to the application of the qualified New York manufacturer test in the context of combined reporting groups. The new provisions make it clear that the qualified New York manufacturer test must be applied at the combined group level, meaning that even if a corporation, on its own, is a qualified New York manufacturer, if that corporation is part of a combined reporting group that does not meet the test on a combined basis, no member can qualify.
The technical corrections also clarify that the rate of tax applicable to the capital base for a qualified New York manufacturer for tax years beginning on or after January 1, 2015, and before January 1, 2016, is 0.132 percent, rather than 0.15 percent.
Other Tax Rate Changes
- Clarifications to the language regarding the tax rates applicable to the business income base for qualified emerging technology companies;
- New fixed dollar minimum tax tables for S corporations that are qualified New York manufactures or qualified emerging technology companies; and
- A reduction of New York receipts for part-year taxpayers for purposes of applying the fixed dollar minimum rate tables (taxpayers that are subject to tax for more than six months but not more than nine are permitted to reduce their part-year calculations by 25 percent; taxpayers that are subject to tax for no more than six months are permitted to reduce their part-year calculation by 50 percent).