United States

New York: Department Issues Preliminary Report Addressing How Federal Tax Reform Impacts New York

Jan 22, 2018
From KPMG TaxWatch

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The New York Department of Taxation and Finance has issued a preliminary report addressing New York’s conformity to the recently-enacted federal tax reform bill and how the federal changes will affect New York taxpayers. The report, which has been presented to Governor Cuomo, outlines certain actions that the state may want to take in light of tax reform. It should be noted this is a “preliminary report,” and the Department believes the state will likely need to undertake an extensive analysis as it considers how best to respond to federal tax reform.

Certain of the options presented were directed by the Governor and are intended to address the repeal of the uncapped state and local tax deduction and provide relief to New York residents adversely affected by the federal changes. In particular, the report outlines several options for converting some or all of the individual income tax to an “employer compensation expense” tax (aka a payroll tax) as a means of retaining the deductibility of that portion of the personal income tax converted to the payroll levy. The report also identifies options for offering a tax credit to offset some percentage of charitable contributions made to state-operated charities as a means again of converting a non-deductible state tax to a deductible item at the federal level.

However, the report also addresses how New York business taxpayers are affected by the reforms, including how amounts included in income under the deemed mandatory repatriation will be treated in New York and how/whether the state will tax new global intangible low taxed income or GILTI.  Under New York law, Subpart F income is “other exempt income” excluded from the entire net income tax base. Thus, amounts deemed repatriated as Subpart F income will not be taxable in New York. However, the report notes that interest expense that is attributable to the exempt income that is deducted at the federal level is required to be added back in computing entire net income and that this addback will indirectly increase taxable business income in New York. The report also notes that a deduction allowed under new IRC section 965(c) effectively reduces the rate of tax that will be imposed on the deemed repatriated amounts. The report notes that New York may want to enact a specific addback for the new 965(c) deduction to avoid taxpayers getting both an exemption for the Subpart F income and a deduction. With respect to GILTI, the report notes that if no action is taken New York will tax a portion of GILTI income. Only a portion will be taxed in New York because the state will conform to the new deduction for GILTI under IRC section 250. The report also addresses the effect on New York (due to the state’s current rolling conformity) of numerous other business tax changes. Please stay tuned to TWIST for future updates on New York’s (and other states’) reactions to federal tax reform.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.