New York: State Tax Reform and Fairness Commission Issues Final Report

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By KPMG's Washington National Tax practice | Nov. 25, 2013


From TaxWatch

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Recently, the New York State Reform and Fairness Commission issued a 157-page report recommending certain changes to New York’s tax regime. Governor Cuomo established the Commission in December 2012 to conduct a comprehensive and objective review of the State’s tax structure, including its corporate, sales, estate, and personal income taxes. The report includes the Commission’s recommendations to modernize the tax structure, promote administrative efficiency, improve tax fairness, and enhance tax collection, and enforcement. The changes, presented in five self-contained, revenue neutral packages, will be considered and possibly included in the Governor’s 2014-2015 Executive Budget. 

 

On the sales and use tax side, the Commission recommends modernizing the sales tax by taxing certain personal services, eliminating the exemption for clothing and footwear costing less than $110, and expanding the sales tax to digital equivalents, such as downloaded movies, books, and music. The Commission further proposes that the revenue from these changes be used to provide targeted relief to low-and middle-income households through the state earned income credit, residential property tax relief or other targeted measures.

 

On the corporate tax side, the proposal largely builds off an earlier plan to merge the Article 9A corporate franchise tax with the Article 32 banking tax, thus creating one tax that applies to general and financial corporations.  The new corporate tax would have an economic nexus standard for all businesses. Currently, economic nexus applies only to certain credit card banks. Similar to the current corporate franchise tax, the new tax would use single-sales factor apportionment, and receipts would generally be sourced to customer location. The Commission has also recommended eliminating the requirement that substantial intercorporate transactions exist before unitary corporations are required or allowed to file a combined report.  As such, water’s edge combined filing would be required for unitary corporations with greater than 50 percent common ownership. Foreign corporations would be combinable with U.S. affiliates, but the tax base for foreign corporations (whether filing separately in New York or combined) would be limited to ‘1120-F’ effectively connected income, rather than the “worldwide tax base” that currently applies to Article 9A filers.  The report also suggests repealing and revising certain tax incentives, including the investment tax credit.  Recognizing that corporate tax reform would apply only to state-level taxes, the Commission notes that ideally, New York City would conform its tax laws to any new corporate tax structure adopted by the State. Finally, the report includes a number of proposed tax simplifications including codifying the audit threshold of 14 allowable New York work-days prior to imposing the personal income tax on wage earners.  Please contact Russ Levitt at 212-872-6717 and stay tuned to TWIST for future updates on New York tax reform.

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