Governor Cuomo’s Amended Budget Bill Would Address the Deemed Repatriation Dividend Provisions

By and on February 20, 2018

New York is the latest state to address certain state tax implications of the 2017 federal tax reform bill, the Tax Cuts and Jobs Act. Governor Andrew Cuomo’s 30-day amendments to the Governor’s Budget Bill were released on February 15 and one piece of the amended Bill explicitly addresses the foreign-earnings, deemed federal repatriation provisions in the new section 965 of the Internal Revenue Code (IRC).

Even before the release of the 30-day amendments, we expected the amount of foreign earnings deemed repatriated and brought into the federal income tax base under IRC § 965 would be considered “other exempt income” under the New York Tax Law and, thus, not subject to tax in New York as long as received from a unitary subsidiary. However, the Governor’s 30-day amendments make it clear that any amount included in the federal tax base under the repatriation transition provisions would be excludable from income, even if such amounts were received from a non-unitary subsidiary. This proposed exclusion for amounts deemed received from non-unitary subsidiaries is an expansion of New York’s usual policy. This expansion, however, would apply only with respect to the deemed repatriation of foreign earnings under IRC § 965.

The 30-day amendments also would make clear the federal deduction permitted under IRC § 965(c) (which facilitates a reduction of the effective federal tax rate on the deemed repatriated foreign earnings) would not be allowed in computing New York taxable income. We expected New York would make this proposed change because disallowing the § 965(c) deduction from New York taxable income would be consistent with excluding the deemed repatriation from taxable income.

Unlike other states, i.e., Connecticut, the Governor’s Bill does not address the amount of expenses attributable to the amount deemed repatriated under IRC § 965 and includable in the New York tax base. The Governor’s Bill would, however, provide that no penalties would be imposed for any failure to make sufficient estimated payments if the short-fall in payments is due to the increase in tax resulting from the inability to deduct such expenses from taxable income.

Please reach out to us with any questions about New York’s proposed treatment of the federal repatriation provisions or other questions about the potential law changes in New York.

Diann Smith
Diann Smith focuses her practice on state and local taxation and unclaimed property advocacy. Diann advises clients at any stage of an issue, including planning, compliance, controversy, financial statement issues and legislative activity. Her goal is to find the most effective method to achieve a client's objective regardless of when or how an issue arises. Diann emphasizes the importance of defining a client's objective - whether it is finality of a frequently audited issue, quick resolution of a stand-alone tax liability, or avoiding competitive disadvantages in the application of a tax. The defined objective then governs the choice of the path to a solution. Read Diann Smith's full bio.


Stephen P. Kranz
Stephen (Steve) P. Kranz is a tax lawyer who solves tax problems differently. Over the course of his extensive career, Steve has acquired specific skills and developed a unique approach that helps clients develop and implement holistic solutions to all varieties of tax problems. He combines strategic thinking with effective skills for the courtroom, the statehouse and the conference room. Read Stephen Kranz's full bio.

STAY CONNECTED

TOPICS

ARCHIVES

jd supra readers choice top firm 2023 badge