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New York Budget Legislation Contains Significant Tax Provisions

by Richard C. Call, Michael J. Hilkin and David Jasphy | May 2, 2023 | False Claims Act, Franchise Tax, Income Tax, Interest and Penalties, New York, Procedure

New York Governor Kathy Hochul and the New York State Legislature have reached an agreement on the state’s fiscal year 2024 budget legislation. Most surprisingly, the legislation grants the New York State Department of Taxation and Finance the right to petition for judicial review of New York State Tax Appeals Tribunal decisions that are “premised on interpretation of the state or federal constitution, international law, federal law, the law of other states, or other legal matters that are beyond the purview of the state legislature.” If the Department appeals a Tribunal decision, any interest and penalties that would otherwise accrue on the underlying tax liability would be stayed until 15 days after the issuance of a final judicial decision. This represents a significant change in law as currently, only taxpayers (and not the Department) may appeal Tribunal decisions.

Other notable provisions in the budget legislation include the following:

The False Claims Act will now apply to a person who is alleged to have knowingly or improperly failed to file a tax return.

The top metropolitan commuter transportation mobility tax rate on employers in New York City has been increased from 0.34% to 0.6% of payroll expense.

The “temporary” top corporate franchise tax rate for taxpayers with a business income base of more than $5 million will stay at 7.25% through 2026 (rather than expiring in 2024), and the scheduled expiration of the franchise tax business capital base has been delayed from 2024 to 2027.

The budget legislation containing these changes in law passed both houses of the New York State Legislature on May 1, 2023, and is expected to be signed by Governor Hochul.

Seattle Payroll Expense Tax Upheld by State Appellate Court

by Troy M. Van Dongen | Jun 23, 2022 | Federal Tax, Local Tax, Nationwide Importance, Washington

This week, the Washington Court of Appeals affirmed a lower court’s decision to dismiss a challenge to the recently enacted payroll expense tax in Seattle, WA. Seattle Metro. Chamber of Commerce v. City of Seattle, No. 82830-4-I, 2022 WL 2206828 (Wash. Ct. App. June 21, 2022).

The tax, which went into effect on January 1, 2021, applies to entities “engaging in business within Seattle” and is measured using the business’s “payroll expense” (defined as “compensation paid in Seattle to employees,” including wages, commissions, salaries, stock, grants, gifts, bonuses and stipends). The tax only applies to businesses with a payroll expense of more than $7 million in the prior calendar year, and compensation is considered “paid in Seattle” if the employee works more than 50% of the time in the city. Additionally, if the employee does not work in any city more than 50% of the time, the employee’s compensation is treated as though it was “paid in Seattle” only “if the employee resides in Seattle.”

Although the tax is based on employee compensation, the Washington Court of Appeals held that incidence of the tax is on the employer, not the employee. This was a critical distinction because, under Washington law, municipalities generally are prohibited from levying taxes directly on wages (e.g., an income tax). By finding that the tax incidence fell on the employers, the Court was able to define the tax as an excise tax on the employer’s privilege of doing business in the city.

As expected, the tax is already bringing in significant revenue for Seattle. In its first year on the books, the tax brought in more than $230 million. Yet, despite this new revenue (as well as revenue from several other recently enacted taxes), Seattle is still projecting a financing gap of more than $100 million for 2022. Taxpayers are concerned that the city will explore even more revenue options to help close the gap.

The McDermott tax team is constantly monitoring tax developments on a state-by-state basis and will provide updates on the PNW specifically as they are made known.

Washington State’s Mandatory Withholding for Long-Term Care Put on Hold

by Troy M. Van Dongen | Jan 27, 2022 | Insurance Tax, Local Tax, Nationwide Importance, Washington

In 2019, the Washington State Legislature (Legislature) established the Long-Term Services and Supports Trust Program (LTSS Trust Program) to provide funding for eligible beneficiaries that they can apply to the cost of their long-term care. The LTSS Trust Program is funded through a 0.58% payroll tax on employee wages, which went into effect on January 1, 2022.

Though the LTSS Trust Program was intended to provide a baseline of benefits to Washingtonians lacking private long-term care insurance, the program drew public criticism in recent months because, among other things, employees had no easy way to opt out of it. The legislation provided that individuals could opt out by purchasing private long-term care insurance before November 1, 2021, and applying for an exemption by the end of 2021. However, shortly after the program went into law, most (if not all) private long-term care insurance providers pulled out of the state.

When the Legislature convened earlier this month, it fast-tracked new legislation to put the LTSS Trust Program on hold. Though many lawmakers were calling for an outright repeal of the program, the majority ultimately passed a bill to delay its implementation until July 2023. Washington Governor Jay Inslee is expected to sign the measure by Friday, January 28.

Since this delay comes after employers have already started withholding the tax from their employees’ wages and, in some cases, after the tax has been remitted to the Employment Security Department (ESD), refunds will be necessary. Under the new law, employers are required to provide refunds to their employees within 120 days of the collection. If the employer already remitted the tax to the ESD, the ESD is required to refund that money to the employer who is then required to pass it on to the employee.

If you have questions about the LTSS Trust Program or its delayed implementation, please contact the author of this article.

New York Budget Legislation Contains Significant Tax Provisions

Seattle Payroll Expense Tax Upheld by State Appellate Court

Washington State’s Mandatory Withholding for Long-Term Care Put on Hold

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