New York State 2013-2014 Budget Enacted into Law

On March 20, 2013, Governor Cuomo and the State Legislative Leaders reached a new Budget for the fiscal year beginning April 1, 2013. Subsequently, the Governor signed the Legislation into law.

The 2013-2014 Budget closes a $1.3 billion gap with no new taxes or fees. Here are a few of the more noteworthy provisions.

• The top personal income tax rate of 8.82% for couples with annual incomes of more than $2 million will be extended for 3 years (it was to sunset in 2014);
• A $350 tax credit available for families who earn between $40,000 and $300,000 per year for three years and have a child 18 years old or younger beginning in 2014;
• Over three years, a phase out of the 2% assessment on the sale of electricity and gas by New York utilities;
• Creation of two employment tax credits for employers who hire youths over a three-year period and a permanent credit for those hiring veterans;
• The 17% Metropolitan Transportation Authority (MTA) surcharge applicable to corporate franchise, bank franchise, insurance franchise and Article 9 corporation taxes is extended from December 31, 2013 through taxable years ending on or before December 31, 2018;
• The new law extends through December 31, 2015, the itemized deduction limitation reducing the amount of charitable contributions as a itemized deduction from 50% to 25% if the taxpayer has adjusted gross income above $10 million;
• Current personal income tax rates are extended through 2017;
• Electronic filing mandate provisions are extended through December 31, 2016;
• The royalty expense add-back provisions have been amended effective January 1, 2013 by creating a new exception allowing taxpayers to demonstrate that the related member paid significant taxes on the royalty income in other jurisdictions. A related member has been defined as one that is 50% or more owned;
• For qualified New York manufacturers, there will be a 25% tax rate reduction for years beginning on or after January 1, 2018;
• A funding of the “Innovation Hot Spots” program for private-sector growth by creating 10 high-tech innovation incubators at locations affiliated with higher education institutions; creation of a $50 million “Innovation Venture Capital Fund” that will provide critical seed and early-stage funding to incentivize new business formation and growth in New York State;
• Provide $5 million for the “Next Generation Job Linkage Program” that will work with employers to identify jobs and skills needed and provide training for same;
• For education, implementation of a program that will offer $15,000 in annual stipends for 4 years to the most effective teachers beginning with math and science teachers, and
• Raise the minimum wage from $7.25 per hour to $9.00 per hour by the end of 2015.

New York State "Amazon Tax" Related to "Click-Through" Sales Tax Nexus Held Constitutional

The New York State Court of Appeals, New York State’s highest court, held the “Amazon Tax” to be Constitutional under the Commerce Clause and the Due Process Clause of the US Constitution.

The Amazon Tax, enacted in April, 2008, (New York State Tax Law Sec. 1101(b)(8)(vi)) created a rebuttable presumption that sales tax nexus exists for a non-New York remote seller when the remote seller/retailer solicits business in New York (NY) by using a New York resident or entity qualified to do business in New York that is compensated by the remote seller for referring New York customers under a written agreement. The solicitation can done by the in-State person or entity by a link on an internet website or otherwise. The cumulative gross receipts from these and other New York referrals must exceed $10,000 during the preceding four quarterly periods. See Amazon.com, LLC v. New York State Department of Taxation and Finance and Overstock.com, LLC v. New York State Department of Taxation and Finance.

The Court, in the opinion written by Chief Judge Lippman, found that the “substantial nexus” requirement under the U.S. Commerce Clause was met since the remote seller, under its written agreements, established an in-State sales force. The Court held that the statute also satisfied the U.S. Due Process Clause since the in-State entities were engaged in “continuous and widespread solicitation of business” on behalf of Amazon.com and Overstock.com. The Court found a “direct correlation between referrals and compensation”.

Each plaintiff may appeal this decision to the U.S. Supreme Court as the next forum, but the U.S. Supreme Court may or may not grant certiorari to review the case.

Join Us On May 14 For Affordable Care Act Seminar

Effective January 1, 2014, affected employers must offer qualifying health care coverage to full-time employees or pay a tax. Regulators have recently issued an avalanche of guidance addressing the basics and nuances of the law. Beyond the basic compliance questions (which employees must be offered coverage, when and at what cost?) lie various compliance strategies (some more creative than others). And beyond that, are significant HR data concerns.

Come hear the latest information on the Affordable Care Act from our specialists on this important and timely subject. This seminar will take place on May 14 from 8-10 a.m. at 685 Third Avenue and is co-hosted by Marks Paneth and the law firm of Davis & Gilbert LLP. To register or for more information, please contact Marketing@markspaneth.com.

Doing Business in The Cloud is Great, Except for Tax Traps

New York State, along with other states, is zeroing in on services that haven’t been taxed before, and cloud computing is right up there on the list. In this short video, which can be found on the Library on the Marks Paneth website, Steven Bryde discusses the complications of taxation on companies using the Internet to do business. He has also written a related article entitled “Facing Up to the State and Local Tax Headache The Internet Era Serves Up to the Hospitality Industry.”

For More Information

If you have questions about the information contained in this alert or any state or local tax matter, please contact Steven P. Bryde by phone at 212.503.8806 or by email at sbryde@markspaneth.com.

IRS Circular 230 Disclosure

Treasury Regulations require us to inform you that any Federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

About Steven P. Bryde