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New York State Tax Updates

Just before midnight on March 31, 2014, New York Governor Andrew Cuomo signed into law S6359-D, which implements components of the state’s fiscal plan for the 2014-2015 fiscal year, including Article 9-A reforms. The Article 9-A reforms, most of which are effective for taxable years beginning on or after January 1, 2015, unless otherwise noted in the bill, include, among many others:

(1) The addition of a bright-line nexus standard based on receipts;

(2) Modification of the income tax and capital tax bases as well as phase-out of the capital tax;

(3) Repeal of the tax on subsidiary capital and the alternative tax on minimum taxable income;

(4) Expansion of customer-focused receipts sourcing for purposes of apportionment; and

(5) A change to mandatory unitary combined reporting.


  • New York manufacturers are the real winners in this legislation. The bill adds new benefits for qualified New York manufacturers such as a zero percent tax rate on income and a credit for real property taxes. These benefits to qualified New York manufacturers are layered onto existing New York tax provisions that help New York manufacturers already, including the investment tax credit, single sales factor, and no throwback rule. The key for corporations will be to determine eligibility as a qualified New York manufacturer.
  • Disagreements over subsidiary capital and non-interest expense allocations will cease, inasmuch as these provisions were eliminated by the new law.
  • New York has finally adopted mandatory combined reporting for unitary groups, with an election available to combine non-unitary corporations. The endless battles with the New York Department of Taxation and Finance over distortion and substantial inter-corporate transactions should finally wane as pre-2015 taxable years are closed by the statute of limitations or through the examination process. The controversy may shift somewhat to whether or not corporations are unitary.
  • The expanded market sourcing apportionment rules under the new law similarly should temper some audit challenges on whether an item is a service or sale of an intangible, because both will now be market-sourced for purposes of the sales factor.
  • The switch from taxing worldwide income of alien corporations (subject to New York tax) to taxing effectively connected income may on its face be welcomed by multinationals. This is only a partial measure, however, as effectively connected income that is treaty protected and not otherwise precluded from state taxation, and interest and dividends effectively connected to a United States trade or business are also within New York’s reach under the new law.
  • It is ironic that the Metropolitan Transportation Authority (MTA) surcharge, enacted in the 1980s as a temporary surcharge, will actually increase for many taxpayers under the new law.
  • The tax simplifications from this legislation will be somewhat elusive until New York City decides whether to follow suit.

Click on the PDF to read more on the Article 9-A reforms.

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