Better Late…New York Finally Passes its 2024 Fiscal Year Budget

Despite being more than a month late, New York lawmakers have finally passed the state’s 2024 fiscal year budget. The delay was primarily due to lengthy negotiations over non-tax agenda items. With regard to taxes, unlike previous years’ budgets in which substantial tax increases took center stage, this year’s budget has limited tax hikes.

Below are some of the notable new tax provisions and extenders from the budget:

• Corporate Franchise Tax: The 2021 increase to the state’s corporate franchise tax from 6.5% to 7.25% for businesses with an income base of more than $5 million is extended through tax year 2026. The temporary increase was originally set to expire as of January 1, 2023. The rate for businesses with an income base under $5 million remains at 6.25%. In addition, the phase-out of the 0.1875% capital base tax is extended through 2026, after which it will expire.
• Metropolitan Transportation Tax (MTA) Surcharge: The current 30% MTA surcharge on a business’s franchise tax liability will now be set as the fixed rate for future tax years.
• Metropolitan Commuter Transportation Mobility Tax (MCTMT): The MCTMT will increase from 0.34% to 0.6% beginning as of July 1, 2023. The 0.6% rate applies to New York City employers with payroll expenses above $437,500 in any calendar quarter. Self-employed New York City individuals subject to the MCTMT will see their rates increase to 0.47% for tax year 2023 and then increase again to 0.6% beginning as of January 1, 2024. Note, the 0.34% rate will remain for those taxpayers operating in the counties surrounding New York City. Furthermore, the budget clarifies that the tax will apply to limited partners who participate directly or indirectly in the management or operations of a partnership (i.e., non-passive investors).
• Pass-Through Entity Tax (PTET): The budget provides technical corrections to the calculation of a pass-through entity’s taxable income for purposes of the PTET. Moving forward, taxable income will include PTETs paid to New York State and City, and similar taxes paid to other jurisdictions, provided such taxes are included in the shareholders’ or partners’ taxable income and deducted for federal income tax purposes.
• Film Credit: The state’s film credit program will be expanded from 25% of qualified production costs to 30% and is also extended through 2034.
• Earned Income Tax Credit: Residents and nonresidents with children under the age of four can now claim the Empire State child tax credit and the supplemental earned income tax credit is extended one additional year.
• Tax Tribunal Appeals: Changes to the state’s procedural rules will now permit the Department of Taxation and Finance to appeal tribunal decisions. Prior law allowed taxpayers to appeal tribunal losses to the state’s appellate courts but did not grant the state appeal rights when it lost before the tribunal. However, the Department’s new appeals rights will be limited to matters pertaining to the U.S. or New York constitutions, federal or international law, other states’ laws, or other matters that are outside the purview of the New York legislature.
• Tax Due Date Federal Conformity: The budget bill grants the state’s tax commissioner the authority to postpone certain tax deadlines up to 90 days in declared disaster zones to align with the IRS and to abate interest charges for underpaid taxes in circumstances when there is no applicable federal postponement. Moreover, the commissioner is authorized to waive corporate underpayment penalties when a casualty, disaster or other similar-type situation affects taxpayers.
• False Claims Act: Individuals and corporations with net income or sales of over $1 million may now be held liable for “knowingly and improperly” failing to file a tax return when state tax liability is at least $350,000. This revision of the law closes a loophole that exempted taxpayers from certain civil penalties under the False Claims Act if they knowingly concealed tax liabilities by not filing a tax return. Previously, the statutory language limited the penalty application to only those that did file a tax return.

For more on the tax changes contained in New York’s 2024 fiscal year budget, please contact Alan Goldenberg, Principal and Leader of the State and Local Tax and Tax Controversy groups, or your Anchin Relationship Partner.