Raises the tax rate on corporate income; increases the state conformity to federal taxation of corporate profit shifting; imposes an additional tax on individual business income in response to federal tax benefits for pass-through business income.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A1971
SPONSOR: Kelles TITLE OF BILL:
An act to amend the tax law, in relation to raising the tax rate on
corporate income; in relation to increasing the state conformity to
federal taxation of corporate profit shifting; and in relation to impos-
ing an additional tax on individual business income in response to
federal tax benefits for pass-through business income
PURPOSE OR GENERAL IDEA OF BILL:
To generate increased tax revenue for New York State by addressing the
federal under-taxation of corporate profits and pass-through business
income as a result of the 2017 Tax Cuts and Jobs Act.
SUMMARY OF SPECIFIC PROVISIONS:
Section 1 of the bill amends subdivision 6-A of section 208 of the Tax
Law, as amended by section 1 of part I of chapter 39 of the laws of 2019
to lower the "exempt CFC income" from 95% to 50% of the income required
to be included in a taxpayer's federal gross income.
Section 2 of the bill adds to section 210 of the tax law, as amended by
section 1 of part HHH of chapter 59 of the laws of 2021, an increased
corporate tax rate as of January 1, 2024 of 8% on corporations with
income over $2.5 million, 12% on corporations with income over $10
million, and 14% on corporations with income over $20 million.
Section 3 of the bill amends section 210-A of the tax law, as amended by
section 3 of part I of chapter 39 of the laws of 2019, to raise the
percentage of global intangible low-taxed income included in a corpo-
ration's taxable income from five to fifty percent.
Section 4 of the bill amends subsection kkk of section 606 of the tax
law, as added by section 2 of part C of chapter 59 of the laws of 2021,
to reduce the pass-through entity, tax rebate to 75%, rather than 100%,
of a pass-through business' share of an entity's federal income tax
deduction.
Section 5 of the bill adds section 608 to the tax law, creating an addi-
tional New York state income tax to offset the 20% deduction available
under section 199A of the 2017 tax legislation known as the Tax Cuts and
Jobs Act. Small business owners who benefit from the pass-through
deduction are not subject to this additional tax.
Section 6 is the effective date.
JUSTIFICATION:
New York is an exceptionally wealthy state. Treated as a separate coun-
try, it would have one of the world's largest economies. With such a
strong economy, all New Yorkers should have fundamental economic rights:
access to high-quality education, affordable health care, affordable
housing, and adequate public and social services. New York must also
finance investments in green energy, green jobs, and green infrastruc-
ture to mitigate the catastrophic risks and current impact of climate
change.
New York has a vast inequality in the standard of living, in part
because the tax system has not kept pace with changes in the economy,
leaving the many high-earning professionals and wealthy families in this
state' not paying their fair share and those who earn middle and lower
incomes living very close to the edge, paycheck-to-paycheck. Economic
growth in recent decades has overwhelmingly benefitted a small segment
of the population, while inflation-adjusted wages have stagnated for
most working people since the 1970s. The state government, with strained
tax revenue, has had to make difficult budget decisions year after year,
forcing flat and reduced funding for essential public services, includ-
ing maintaining and upgrading our infrastructure, repairing existing and
developing more public housing, protecting public education for the most
vulnerable communities and financing a health care system to actually
meet the needs of our residents.
While the Federal Government could aid the states in providing essential
services through progressive tax and spending measures, it instead
continues to support tax policy which benefits corporate interests. In
2017, the Federal Government enacted the tax legislation known as the
"Tax Cuts and Jobs Act" (the "TCJA"), which reduced the corporate tax
rate from 35% to 21%. The TCJA also created a 20% deduction for business
income received from pass-through entities --- with additional benefits
for the real estate industry -- and added a global intangible low-taxed
income (GILTI) provision to target multinational corporations hiding
profits in overseas subsidiaries.
Big business, already adept at dodging taxes, hardly needed a tax cut.
Moreover, these tax cuts cost the Federal government trillions of
dollars in tax revenue. Tax revenue from corporate income are at a
historic low and instead of funding desperately needed public services,
federal tax policy continues to boost corporate earnings and inflated
stock values while working class people struggle to maintain their costs
of living.
New York can respond to regressive federal tax policy by structuring our
own tax policy to offset the loss of revenue passed through from the
federal government. The state has a significant number of large corpo-
rations and pass-through business owners which were doing well before
federal tax cuts enacted in 2017.
This bill raises the New York state's corporate tax rate. It does so via
a graduated rate structure, where corporations with incomes over $2.5
million pay an 8% corporate tax rate, corporations making over $10
million pay a 12% corporate tax rate, and corporations making over $20
million in income pay a 14% corporation tax rate. For the latter two tax
brackets, only the income over $10 million, and $20 million may be taxed
at the 12% and 14% rates, respectively.
To address the 20% federal pass-through entity deduction enacted in
2017, this bill reduces the state pass-through entity tax rebate from
100% to 75% of a partner's share of the federal pass-through entity tax.
The bill also increases the amount of Global Intangible Low-Taxed Income
included in a corporation's taxable income for state corporate tax
purposes.
PRIOR LEGISLATIVE HISTORY:
2023-2024 - A3690 referred to Ways & Means
FISCAL IMPLICATIONS:
TBD
EFFECTIVE DATE:
This act shall take effect immediately and shall apply to taxable years
commencing on and after such effective date.
STATE OF NEW YORK
________________________________________________________________________
1971
2025-2026 Regular Sessions
IN ASSEMBLY
January 14, 2025
___________
Introduced by M. of A. KELLES, SHRESTHA, GONZALEZ-ROJAS, SIMONE, RAGA,
LEVENBERG, DINOWITZ, RAMOS, ALVAREZ, REYES, FORREST, MAMDANI,
MITAYNES, GALLAGHER, R. CARROLL, MEEKS, SHIMSKY, SIMON, LEE,
DE LOS SANTOS, ROSENTHAL, SEAWRIGHT, BICHOTTE HERMELYN, SAYEGH, DAVILA
-- read once and referred to the Committee on Ways and Means
AN ACT to amend the tax law, in relation to raising the tax rate on
corporate income; in relation to increasing the state conformity to
federal taxation of corporate profit shifting; and in relation to
imposing an additional tax on individual business income in response
to federal tax benefits for pass-through business income
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Paragraph (b) of subdivision 6-a of section 208 of the tax
2 law, as amended by section 1 of part I of chapter 39 of the laws of
3 2019, is amended to read as follows:
4 (b) "Exempt CFC income" means (i) except to the extent described in
5 subparagraph (ii) of this paragraph, the income required to be included
6 in the taxpayer's federal gross income pursuant to subsection (a) of
7 section 951 of the internal revenue code, received from a corporation
8 that is conducting a unitary business with the taxpayer but is not
9 included in a combined report with the taxpayer, (ii) such income
10 required to be included in the taxpayer's federal gross income pursuant
11 to subsection (a) of such section 951 of the internal revenue code by
12 reason of subsection (a) of section 965 of the internal revenue code, as
13 adjusted by subsection (b) of section 965 of the internal revenue code,
14 and without regard to subsection (c) of such section, received from a
15 corporation that is not included in a combined report with the taxpayer,
16 and (iii) [ninety-five] fifty percent of the income required to be
17 included in the taxpayer's federal gross income pursuant to subsection
18 (a) of section 951A of the internal revenue code, without regard to the
19 deduction under section 250 of the internal revenue code, received from
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD01693-01-5
A. 1971 2
1 a corporation that is not included in a combined report with the taxpay-
2 er, less, (iv) in the discretion of the commissioner, any interest
3 deductions directly or indirectly attributable to that income. In lieu
4 of subtracting from its exempt CFC income the amount of those interest
5 deductions, the taxpayer may make a revocable election to reduce its
6 total exempt CFC income by forty percent. If the taxpayer makes this
7 election, the taxpayer must also make the elections provided for in
8 paragraph (b) of subdivision six of this section and paragraph (c) of
9 this subdivision. If the taxpayer subsequently revokes this election,
10 the taxpayer must revoke the elections provided for in paragraph (b) of
11 subdivision six of this section and paragraph (c) of this subdivision. A
12 taxpayer which does not make this election because it has no exempt CFC
13 income will not be precluded from making those other elections. The
14 income described in subparagraphs (ii) and (iii) of this paragraph shall
15 not constitute investment income. The income described in subparagraph
16 (iii) of this paragraph shall not constitute exempt unitary corporation
17 dividends.
18 § 2. The opening paragraph of paragraph (a) of subdivision 1 of
19 section 210 of the tax law, as amended by section 1 of subpart A of part
20 I of chapter 59 of the laws of 2023, is amended to read as follows:
21 For taxable years beginning before January first, two thousand
22 sixteen, and before January first, two thousand twenty-three, the amount
23 prescribed by this paragraph shall be computed at the rate of seven and
24 one-tenth percent of the taxpayer's business income base. For taxable
25 years beginning on or after January first, two thousand sixteen, the
26 amount prescribed by this paragraph shall be six and one-half percent of
27 the taxpayer's business income base. For taxable years beginning on or
28 after January first, two thousand twenty-six for any taxpayer with a
29 business income base for the taxable year of more than two and one-half
30 million dollars, the amount prescribed by this paragraph shall be eight
31 percent of the taxpayer's business income base; for any taxpayer with a
32 business income base for the taxable year in excess of ten million
33 dollars, the amount prescribed by this paragraph shall be twelve percent
34 of the taxpayer's business income base in excess of ten million dollars;
35 for any taxpayer with a business income base for the taxable year in
36 excess of twenty million dollars, the amount prescribed by this para-
37 graph shall be fourteen percent of the taxpayer's business income base
38 in excess of twenty million dollars. For taxable years beginning on or
39 after January first, two thousand twenty-one and before January first,
40 two thousand twenty-seven for any taxpayer with a business income base
41 for the taxable year of more than five million dollars, the amount
42 prescribed by this paragraph shall be seven and one-quarter percent of
43 the taxpayer's business income base. The taxpayer's business income base
44 shall mean the portion of the taxpayer's business income apportioned
45 within the state as hereinafter provided. However, in the case of a
46 small business taxpayer, as defined in paragraph (f) of this subdivi-
47 sion, the amount prescribed by this paragraph shall be computed pursuant
48 to subparagraph (iv) of this paragraph and in the case of a manufactur-
49 er, as defined in subparagraph (vi) of this paragraph, the amount
50 prescribed by this paragraph shall be computed pursuant to subparagraph
51 (vi) of this paragraph, and, in the case of a qualified emerging tech-
52 nology company, as defined in subparagraph (vii) of this paragraph, the
53 amount prescribed by this paragraph shall be computed pursuant to
54 subparagraph (vii) of this paragraph.
A. 1971 3
1 § 3. Paragraph (b) of subdivision 5-a of section 210-A of the tax law,
2 as amended by section 3 of part I of chapter 39 of the laws of 2019, is
3 amended to read as follows:
4 (b) For New York C corporations, global intangible low-taxed income
5 shall not be included in the numerator of the apportionment fraction.
6 [Five] Fifty percent of global intangible low-taxed income shall be
7 included in the denominator of the apportionment fraction.
8 § 4. Paragraph 2 of subsection (kkk) of section 606 of the tax law, as
9 added by section 2 of part C of chapter 59 of the laws of 2021, is
10 amended to read as follows:
11 (2) The credit shall be equal to seventy-five percent of the part-
12 ner's, member's or shareholder's direct share of the pass-through entity
13 tax.
14 § 5. The tax law is amended by adding a new section 608 to read as
15 follows:
16 § 608. Additional tax. (a) There is imposed an additional tax upon the
17 amount of an individual's New York taxable income that corresponds to
18 any deduction taken pursuant to section 199A of the internal revenue
19 code, or any successor provision thereto. This section shall not apply
20 to a taxpayer with a federal taxable income below the threshold amount,
21 as defined in section 199A(e) of the internal revenue code, plus fifty
22 thousand dollars for a single filer taxpayer or one hundred thousand
23 dollars in the case of a joint return.
24 (b) The rate of the additional tax imposed pursuant to this section
25 shall be equal to the highest federal income tax rates in effect for the
26 taxable year that would apply to the amount deducted under section 199A
27 of the internal revenue code, or any successor provision thereto, but
28 for the application of such section. The amount of an individual's New
29 York taxable income that corresponds to the amount of any deduction
30 taken pursuant to section 199A is the amount that bears the same
31 relationship to the taxpayer's total New York taxable income as the
32 amount deducted under section 199A bears to the taxpayer's total federal
33 taxable income as determined without regard to such deduction.
34 (c) The additional tax under this section shall be administered, and
35 penalties shall be imposed, in the same manner as the other taxes
36 imposed by this article.
37 § 6. This act shall take effect immediately and shall apply to taxable
38 years commencing on and after such effective date.
