Corporate Close-Up: New York Could See Increase in Corporate Tax Revenue as a Result of the Federal Tax Act

According to the New York Department of Taxation and Finance, recent changes to international tax provisions for U.S. corporate taxpayers as part of the 2017 federal tax act (Pub. L. No. 115-97) would raise approximately $94 million dollars of additional business income tax revenue for the state. The prediction, made in a revised preliminary report on the act, was issued on Jan. 23, 2018. Though the report was largely focused on Gov. Andrew Cuomo (D)’s proposal for an employer-based compensation tax system to replace New York’s personal income tax on wages, there are important changes on the corporate side.

With respect to corporate taxpayers, the amended provisions of the Internal Revenue Code marginally expand the New York tax base by broadening what foreign-source income is currently taxable by the U.S. At the same time, the act provides a deduction for qualifying dividends received from controlled foreign corporations (CFCs). Although New York generally does not tax Subpart F income or foreign-source income, the Department of Taxation and Finance expects an increase in taxable business income as a result of the changes. 

Correspondingly, under the new I.R.C. § 951A, federal taxpayers must now include their pro rata share of low taxed intangible income (GILTI) generated by a CFC in their gross income base. Because this newly taxable federal income is not Subpart F income, it does not qualify as exempt income under New York law and would be included in the New York tax base.

New York anticipates that these changes to the federal tax scheme will generate tax revenue of approximately $64 million of the broadening of the Subpart F base and the resulting increase in interest expense deductions attributable to exempt income. Additionally, New York estimates a revenue increase of $30 million on GILTI income that flows through to New York taxpayers.

However, the report importantly notes that there could be an unintended double benefit to taxpayers if the deemed repatriation of foreign earnings is not considered a dividend. The report recommends that the New York legislature enact a statutory addback for the I.R.C. § 965(c) deduction but could not quantify the potential revenue impact without one.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What will the long-term impact of federal tax reform be on New York businesses?

For more information on the impact of Pub. L. No. 115-97, examine Bloomberg Tax’s Tax Reform Roadmap, showing detailed comparisons between pre-reform law and the impending changes, with pertinent cites attached.

Get a free trial to Bloomberg BNA Tax & Accounting’s State Tax solution, a comprehensive research service that provides deep analysis and time-saving practice tools to help practitioners make well-informed decisions.