Incentives Watch: Practitioner Analyzes Proposed Tax Credit Changes in New York’s Budget Bill

In the “Inside the New York Budget Bill” series, Maria Eberle, Lindsay LaCava and Leah Robinson, partners at McDermott Will & Emery LLP, examine various aspects of the proposed 2014-2015 budget bill. In Part Five of the series, they specifically focus on the proposed changes to tax credits available in New York. 

In this interview, Maria Eberle explains why these proposed changes, including the elimination of the investment tax credit for the financial services industry, have been put in the budget bill in the first place and offers her own prediction regarding which proposed changes will eventually be enacted in New York.


Bloomberg BNA: If the budget bill is passed with the provision requiring tax credits to be claimed on originally filed tax returns (and allowing them to be claimed for the first time on amended returns only under certain circumstances), what will be the effect on taxpayers seeking credits in New York? 

Eberle: As a matter of course, taxpayers would not generally have an incentive for delaying a valid tax credit claimed on its originally filed report.  Thus, imposing a requirement on taxpayers that credits must be claimed on an originally filed return would have the effect of penalizing taxpayers that make an innocent mistake on their originally filed report in not claiming the tax credit.

If this provision is enacted, taxpayers must carefully evaluate the availability of credits before filing original returns.


Bloomberg BNA: As noted in the “Inside the New York Budget Bill series, one proposed change in the budget bill is to make the investment tax credit no longer available for the financial services industry.  Why is the focus on the financial services industry?

Eberle: Many observers viewed the investment tax credit afforded to the financial services industry (“FSI ITC”) as a costly, complicated credit that benefits relatively few taxpayers.  For example, according to a study prepared and submitted to the Tax Reform and Fairness Commission (“Commission”), in 2009, six taxpayers received the benefit of 93.5% of the FSI ITC.  Meanwhile, the Commission estimated that repealing the FSI ITC would save the state approximately $30 million annually.  


Bloomberg BNA: The proposed budget bill also provides a credit against telecommunications excise taxes for businesses involved in the START-UP NY Program.  The START-UP NY Program already offers businesses numerous tax incentives, including a refundable tax elimination credit against franchise tax and personal income tax, a metropolitan commuter transportation district mobility tax exemption, a real estate transfer tax exemption, and sales and use tax refunds on purchases of tangible personal property and services. Why was the telecommunications excise tax credit added to the proposed budget bill?

Eberle: As you note, the START-UP New York Program already exempts businesses involved in the program from essentially every type of New York tax.  The public messaging surrounding the program touts 100% tax-free operations for qualified businesses.  However, currently, those companies are not technically exempt from all New York taxes.  For example, New York’s telecommunications excise tax is imposed on all taxpayers and is customarily passed through to the taxpayer’s customers, which could include START-UP New York businesses. The Memorandum in Support of the 2014-2015 New York State Executive Budget indicates that the excise tax refundable credit is intended to “eliminate an inconsistency in the current START-UP NY statute.”  In other words, this new credit would eliminate the remaining tax that was borne by START-UP New York businesses. 


Bloomberg BNA: Are there any other tax credit issues that taxpayers need to be aware of in the proposed budget bill?  

Eberle: The investment tax credit-related changes have certainly been the most talked about credit provisions in the Budget Bill.  There has also been some buzz around a provision in the Budget Bill that would create a real property tax credit for “qualified New York manufacturers,” permitting such a manufacturer to claim a refundable tax credit under either the corporation franchise tax or the personal income tax equal to 20% of such manufacturer’s real property tax paid on property used for manufacturing (this provision would take effect as of Jan. 1, 2014). Both the current Senate and Assembly Bills have essentially rejected this proposed credit. 


Bloomberg BNA: Which of the proposed tax credit changes do you predict will make into the budget bill that is signed by Governor Cuomo?

Eberle: As mentioned, there has been a lot of buzz surrounding the investment tax credit.  The Budget Bill had originally proposed sweeping changes to the credit that would have limited the types and number of taxpayers that could qualify for the credit.  At this time, both the Senate and Assembly have generally reinstated the investment tax credit as it exists in current law, but, the Senate has eliminated the FSI ITC.  Given the concerns raised by many regarding the cost/benefits of the FSI ITC, it is likely that this credit will be eliminated from the final legislation signed by Governor Cuomo with the remaining provisions of the current investment tax credit staying largely intact.     


Bloomberg BNA: Do you have any other comments about the proposed New York budget bill? 

Eberle: This proposed reform is sweeping and, if enacted, is likely to result in major changes for many New York corporate taxpayers and those that are not currently New York corporate taxpayers.  Such proposed changes include a new economic nexus standard, the adoption of a market-based sourcing approach for purposes of apportionment, the adoption of a unitary combined reporting regime, and significant changes to the current tax base computation (with the elimination of the subsidiary capital base and limitations on what qualifies as investment capital).  We are monitoring each of these developments (please see Parts One through Four of the “Inside the New York Budget Bill”series for additional information on each of these proposed changes).  We expect that the final legislation will reflect the vast majority of the proposals contained within the original Budget Bill. 


Continue the discussion on LinkedIn: What tax credit changes do you think will make it into the enacted budget bill in New York?

*For more information about New York’s tax credits and incentives, check out Bloomberg BNA’s Credits and Incentives Portfolios by signing up for a free trial of the Bloomberg BNA Premier State Tax Library today.


Interviewed By:  Kathleen Caggiano

Follow Kathleen on Twitter at:  @katcaggiano .

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