Multiple Taxes: Enacted Budget Includes New Credits, Marketplace Provider Requirements, Permanent Property Tax Cap, Increased Transfer, Mansion Taxes, and Other Provisions16 April 2019
Enacted as part of New York’s 2019-20 budget package, Ch. 59 (S.B. 1509) contains a variety of corporate franchise, personal income, sales and use, property, and other tax changes, including those detailed below.
Sales And Use Taxes
Marketplace providers. Marketplace providers are required to collect and remit sales tax on taxable sales of tangible personal property that they facilitate, applicable to sales made on or after June 1, 2019. A “marketplace provider” is a person who facilitates sales of tangible personal property by marketplace sellers.
A person “facilitates a sale of tangible personal property” when the person meets both of the following conditions:
- such person provides the forum where the sale takes place or the offer of sale is accepted, including a shop, store, or booth, an Internet website, catalog, or similar forum; and
- such person or an affiliate of such person collects the receipts paid by a customer to a marketplace seller for a sale of tangible personal property, or contracts with a third party to collect such receipts.
A “marketplace seller” is any person (whether or not such person is required to obtain a certificate of authority) who has an agreement with a marketplace provider under which the marketplace provider will facilitate sales of tangible personal property by such person.
A person that is not otherwise registered is not a marketplace provider if such person has no physical presence in New York and, for the immediately preceding four sales tax quarters, can show:
- that the cumulative total gross receipts of sales it has made or facilitated of property delivered in New York does not exceed $300,000, or
- that such person has not made or facilitated more than 100 sales of property delivered in New York.
A marketplace provider has all of the obligations and rights of a vendor, including but not limited to, the duty to obtain a certificate of authority, to collect tax, file returns, and remit the tax collected. The law relieves sellers using marketplace providers of any such responsibilities, as long as the seller receives in good faith a certification from the marketplace provider on a form authorized by the Department of Taxation and Finance that the marketplace provider is collecting the tax on such transactions. In fact, a seller of tangible personal property that makes all of its sales through marketplace providers who certify that they will collect the tax would have no New York sales tax collection and remittance responsibilities.
A marketplace provider is relieved of liability for failure to collect the correct amount of tax to the extent that the marketplace provider can show that the error was due to incorrect or insufficient information given by the marketplace seller.
Tax on vapor products. Effective December 1, 2019, an additional 20% tax is imposed on receipts from the retail sale of vapor products sold in New York (there is also a corresponding compensating use tax). The tax is imposed on the purchaser and collected by the vapor products dealer. “Vapor product” means any noncombustible liquid or gel, regardless of the presence of nicotine, that is manufactured into a finished product for use in an electronic cigarette, electronic cigar, electronic cigarillo, electronic pipe, vaping pen, hookah pen or other similar device. It does not include any product approved by the U.S. FDA as a drug or medical device. “Vapor products dealer” means a person licensed to sell vapor products in New York.
Every person who intends to sell vapor products in New York must receive a certificate of registration before engaging in business. Such person must electronically submit a properly completed application for a certificate of registration for each location at which vapor products will be sold in New York, along with a non-refundable $300 application fee. A vapor products dealer certificate of registration is valid for the calendar year for which it is issued unless earlier suspended or revoked.
In addition, every vapor product dealer must publicly display a vapor products dealer certificate of registration in each place of business in New York where vapor products are sold at retail. A vapor products dealer who has no regular place of business must publicly display such valid certificate on each of its carts, stands, trucks or other merchandising devices through which it sells vapor products.
Special supplemental tax on passenger car rentals. Effective June 1, 2019, the special supplemental tax on passenger car rentals within the Metropolitan Transportation District (MCTD) increases from 5% to 6%. Likewise, a supplemental tax of 6% is imposed on passenger car rentals outside the MCTD. If a passenger car rental is billed on a monthly, quarterly or other period basis, the tax applies to the rental for such period if more than half of the days included in such period are days after June 1, 2019.
Energy service exemptions. Effective June 1, 2019, the law repeals the sales and use tax exemption for receipts from transportation, transmission, or distribution of gas or electricity when provided by someone other than the vendor of the gas or electricity (i.e. a third-party energy service company). The law also clarifies that transportation, transmission and distribution charges are taxable even if sold separately from gas or electricity.
Monuments. Effective June 1, 2019, the exemption for monuments is expanded to include tangible personal property that will become a physical component part of such monuments.
Exemption for sales or service transactions between financial institutions and their subsidiaries. The exemption provided to financial institutions that are required under the Dodd-Frank Wall Street Reform and Consumer Protection Act to create subsidiaries and then transfer property or services to those subsidiaries without the transfer being considered a taxable sale is extended for two years. Specifically, the date by which transfers must be made, or a binding contracted entered into, is extended from June 30, 2019 to June 30, 2021.
GILTI Sourcing. The law provides that net global intangible low-taxed income is included in the denominator of the apportionment fraction, but not in the numerator. This codifies the Commissioner of Taxation and Finance’s discretionary adjustment for GILTI, which was already reflected in the Form CT-3 instructions. The law applies to taxable years beginning on or after January 1, 2018.
Contributions to Capital. New York is decoupled from the federal Tax Cuts and Jobs Act provision that limited the exemption for contributions to the capital of a corporation. Thus, for taxable years beginning on or after January 1, 2018, New York allows an exclusion from entire net income for contributions to the capital of a corporation by a governmental entity or civic group.
Fiduciary Adjustment. The law is amended to add estate and trust modifications as follows: (1) a subtraction for certain taxes not deducted at the federal level because of limitation under IRC Sec. 164(b)(6)(B) or denial under IRC Sec. 164(b)(6)(A); (2) a subtraction for certain miscellaneous itemized deductions; and (3) an addition for the amount of any deduction allowed under IRC Sec. 199A.
Electronic Filing Mandate. Electronic filing mandate provisions are extended for five years, until December 31, 2024.
E-TIP Credit. Employee training incentive program provisions are amended to allow business entities that conduct their own training to claim the credit. Previously, applicants had to procure training services from a third-party provider. In addition, the definition of “eligible training” is expanded to include internship programs in software development or clean energy.
Qualified New York Manufacturers. The law decouples New York from the federal adjusted basis for property used to determine if a manufacturer is a qualified New York manufacturer, applicable to taxable years beginning on or after January 1, 2018.
Workers With Disabilities Credit. The credit for employing individuals with developmental disabilities is extended for three years, until January 1, 2023.
Employer-Provided Child Care Credit. A new credit is allowed, based on IRC Sec. 45F, equal to 25% of qualified child care expenditures related to a child care facility located in New York, plus 10% of qualified child care resources and referral expenditures for employees working in New York. The credit, which is capped at $150,000 per taxable year, applies to taxable years beginning on or after January 1, 2020.
Nonresident Gambling Winnings. Gambling winnings over $5,000 from wagering transactions in New York are included in a nonresident’s New York source income. Also, the law requires withholding on gambling winnings when withholding is required at the federal level. These amendments apply to taxable years beginning on or after January 1, 2019.
Farm Workforce Retention Credit. The law expands the farm workforce retention credit to include the same farming activities that are eligible for the farmers school tax credit. This allows additional operations, such as cider production and Christmas tree farming, to qualify. In addition, for certain farm cideries and wineries, the law provides that the farm workforce retention credit is available only for eligible farm employees who are employed on qualified agricultural property. These law changes apply to taxable years beginning on or after January 1, 2019.
Tax Shelter Reporting. The expiration date of tax shelter reporting provisions is delayed from July 1, 2019, until July 1, 2024.
Amendments also clarify the penalties against preparers who take positions not properly supported by the Tax Law and, for documents filed for taxable years beginning after 2018, ensure that penalties for failing to sign a return or provide a required identification number apply to all tax preparers.
Top Tax Bracket. The law extends the top personal income tax bracket for five years, through 2024.
Charitable Contribution Deduction Limit. The law extends the high-income charitable contribution deduction limitation for five years, through 2024.
Clean Heating Fuel Credit. The clean heating fuel credit is extended for three years so that it applies to purchases before January 1, 2023.
Historic Rehabilitation Credit. The law allows the credit for rehabilitation of historic properties to be claimed for qualified projects in a state park, at a state historic site, or on other state-owned land under the jurisdiction of the Office of Parks, Recreation and Historic Preservation, regardless of the project’s census tract location. These amendments apply to taxable years beginning on and after January 1, 2020.
In addition, under the historic homeownership rehabilitation credit, the definition of “qualified historic home” is expanded to include certain structures located in a city having a population of less than one million and a poverty rate over 15%. This amendment applies to taxable years beginning on and after January 1, 2019.
Recovery Tax Credit. A refundable credit is created for employment of individuals who are in recovery from a substance use disorder, applicable to taxable years beginning on and after January 1, 2020. The credit amount is based on one dollar per hour worked by each eligible employee, but it cannot exceed $2,000 per eligible employee. Up to $2 million of tax credits can be allocated annually for the recovery tax credit program.
Film and Commercial Production Credits. The law makes various revisions to the empire state commercial production credit, applicable to taxable years beginning on or after January 1, 2019.
Also, the empire state film production and post-production credits are extended for two years, through 2024.
Driver’s License Suspension. The law adds additional grounds for challenging a driver’s license suspension, including (1) undue economic hardship, and (2) the taxpayer’s receipt of public assistance or supplemental security income. These amendments take effect on the 90th day after the law’s enactment.
Toll Credit. A central business district toll credit is created for resident individuals whose primary residence is located in the district and whose New York adjusted gross income is less than $60,000 for the taxable year. This applies for taxable years beginning on or after January 1, 2021. The credit is equal to the aggregate amount of central business district tolls paid by the taxpayer during the taxable year, not including any toll that would constitute a trade or business expense under IRC Sec. 162.
Transfer Taxes, Including Mansion Tax
The law increases the real estate transfer tax rates, including the so-called mansion tax, on conveyances of real property in New York City.
Real estate transfer tax. The law increases the real estate transfer tax by 0.25% for conveyances of:
- residential real property when the consideration is $3 million or more, and
- any other real property (i.e., commercial property) when the consideration is $2 million or more.
The increased real estate transfer tax rate is in addition to the existing 0.4% real estate transfer tax on all conveyances.
Mansion tax. The law also imposes an additional mansion tax, ranging from 0.25% on transfers of $2 million or more to 2.9% on transfers of $25 million or more. This new/additional mansion tax is in addition to the existing 1% mansion tax on transfers of residential real property of $1 million or more.
Total combined top rate. As a result of these increases and additional tax, the total combined top rate is 4.55% on the sale of residential properties valued at $25 million or above in New York City.
Effective date of rate increases. The new rates go into effect on July 1, 2019, other than conveyances that are made pursuant to binding written contracts entered into on or before April 1, 2019, provided that the date of execution of such contract is confirmed by independent evidence or other facts and circumstances.
Effective July 1, 2019, an excise tax is imposed on the first sale of every opioid unit in New York at the following rates:
- 0.25 cents per morphine milligram equivalent where the wholesale acquisition cost is less than 50 cents, or
- 1.5 cents per morphine milligram equivalent where the wholesale acquisition cost is 50 cents or more.
However, no such tax applies when such first sale is to any program operated as a hospice (Article 40, Public Health Law) and services for chemical dependency and compulsive gambling (Article 32, Mental Hygiene Law).
The tax must be charged against and paid by the registrant making such first sale, and accrues at the time of such sale. It is presumed that any sale of an opioid unit in New York by a registrant is the first sale of such in the state until the contrary is established, and the burden of proving that any sale is not the first sale in the state is upon the registrant.
Definitions related to the opioid tax. For purposes of the tax, an “opioid” means an “opiate” as defined in the public health law and any natural, synthetic, or semisynthetic “narcotic drug” that has agonist, partial agonist, or agonist/antagonist morphine-like activities or effects similar to natural opium alkaloids, and any derivative, congener, or combination thereof. The term “opioid” does not mean buprenorphine, methadone, or morphine. The term “unit” means a single finished dosage form of an opioid, such as a pill, tablet, capsule, suppository, transdermal patch, buccal film, milliliter of liquid, milligram of topical preparation, or any other form.
Permanent 2% property tax cap. The existing 2% property tax cap is made permanent.
Exemption for qualified energy systems. A local real property tax exemption is authorized for specified energy systems and the owner of such property is not required to enter into a contract for payments in lieu of taxes (PILOT agreement). Specifically, a local exemption is authorized for the following (individually or collectively, “energy system”):
- solar or wind energy systems;
- farm waste energy systems;
- microhydroelectric energy systems;
- fuel cell electric generating systems;
- microcombined heat and power generating equipment systems
- electric energy storage systems, or
- fuel-flexible linear generators.
Also, any owner of property that comprises or includes an energy system is not required to enter into a contract for payments in lieu of taxes (PILOT agreement) if:
- the energy system is installed on real property that is owned or controlled by New York or a state entity; and
- New York or a state entity has agreed to purchase the energy produced by such energy system, or the environmental credits or attributes created by virtue of such energy system’s operation, in accordance with a written agreement with the owner or operator of such energy system.
The project owners would need to file applications with the local assessor.
Basic STAR income limit. Beginning with the 2019-2020 school year, the income limit for the Basic STAR exemption is lowered to $250,000. For purposes of the STAR credit, the existing $500,000 income limit remains intact.
Cap annual growth in STAR exemption benefits. A 0% cap is imposed upon the growth in Basic and Enhanced STAR benefits for purposes of the STAR exemption, beginning with the 2019-20 school year. For purposes of the STAR credit, the existing 2% cap remains intact.