NYS 2022-2023 Budget Covers a Broad Field: Expanded NY PTET, New NYC PTET, Extended Brownfield Credits, Middle Class Tax Cut, Small Business Relief, & More
BERDON STATE & LOCAL TAX TEAM
4.28.22 | Client Alert
On April 9, 2022, New York Governor Kathy Hochul signed the State’s fiscal year 2022-2023 budget bill into law. Below is the summary of notable tax provisions of the new budget.
NYS PASS-THROUGH ENTITY TAX (“NY PTET”) BASE EXPANDED FOR CERTAIN S CORPORATIONS
New York State first enacted a PTET for 2021. For S corporations, the NY PTET base was limited to New York source income. Effective for tax years beginning in 2022, the budget bill establishes the New York Resident S Corporation (“RSC”). New York RSCs include New York and non-New York source income in the NY PTE tax base — potentially increasing the NY PTET, the shareholders’ credit for PTET, and the shareholder’s federal tax savings. The RSC must certify that all shareholders are New York State residents. For tax years 2023 and forward, the certification required will be made with the NY PTET election (March 15, 2023, for the 2023 tax year.) For 2022, S corporations will have until March 15, 2023, to certify. For 2022 only, the RSC is required to make the first and second estimated tax payments based only on New York source income. Also, for 2022 only, RSCs are required to “catch up” and pay 75% of estimated taxes based on both New York source and non-New York source income by September 15, 2022.
For more information on the NYPTET, click here.
ENACTMENT OF NEW YORK CITY PASS-THROUGH ENTITY TAX (“NYC PTET”)
For taxable years beginning on or after January 1, 2023, the NYC PTET is established for electing city partnerships and electing city resident S corporations. Making the NY PTET election is a prerequisite for the NYC PTET. The NYC PTET election must be made by March 15 of the year of the election (e.g., March 15, 2023, is the deadline for the 2023 tax year). The election is irrevocable as of the election due date. The NYC PTET is imposed at a rate of 3.876% on NYC pass-through entity taxable income, which is the sum of all items of income, gain, loss, or deduction to the extent they are included in the NYC taxable income of a resident owner of the electing PTE. A New York City resident who is subject to the NYC personal income tax and is a direct owner of an electing NYC PTE receives a credit for City resident income tax equal to the owner’s share of NYC PTET. The NYC PTET election requires that at least one partner is a New York City resident, and in the case of S Corporations, all shareholders must be residents.
EXTENSION AND EXPANSION OF BROWNFIELD TAX CREDITS
The current Brownfield Cleanup Program (“BCP”), which was set to expire at the end of 2022, has been extended an additional ten years to December 31, 2032.
New York State provides more detail on the Brownfield Tax Credits here.
ADDITIONAL RESTAURANT RETURN-TO-WORK CREDIT
The budget creates an additional restaurant return-to-work tax credit. The credit amount is equal to $5,000 per each full-time equivalent net employee increase above 10, not to exceed 20 (i.e., the maximum credit is $50,000). The application for the additional credit must be submitted by July 1, 2022 (note, that the due date for the original restaurant return to work credit is extended until May 1, 2022). The Department of Economic Development will issue a certificate of additional tax credit specifying the exact amount of the credit after the Department has verified that the applicant’s business entity has met all eligibility criteria. A taxpayer that is an owner of a pass-through entity that has received a certificate of an additional tax credit is allowed its pro-rata share of the credit earned by the pass-through entity, provided that the taxpayer was an owner of such pass-through entity as of April 1, 2022.
For more on the original Restaurant Return-To-Work Credit click here.
FOOD AND DRINKS SOLD THROUGH VENDING MACHINES
The sales and use tax exemption for certain food and drinks sold through vending machines is extended from May 31, 2022, to May 31, 2023.
MIDDLE-CLASS TAX CUT
The budget accelerates to 2023, the existing middle-class tax cut originally scheduled to apply in 2025. For 2023, the tax rate for married filing joint taxpayers for income between $27,900 and $161,550 is 5.5% (vs. pre-acceleration rate of 5.73%), and for income between $161,551 and $323,200 the rate is 6% (vs. pre-acceleration rate of 6.17%).
STUDENT LOAN FORGIVENESS
Effective for tax year 2022, any student loans forgiven that are required to be included in federal income will be excluded when computing your New York tax liability.
INCREASE IN SMALL BUSINESS RELIEF
Effective for 2022, the budget expands the small business tax relief subtraction modification under the personal income tax. Specifically, the subtraction is increased from 5% to 15% of the net business or net farm income included in federal adjusted gross income of a taxpayer who is a small business or an owner of a pass-through entity that is a small business. Previously, the term small business included only a sole proprietor who employs one or more persons during the taxable year and has a net business income or net farm income of greater than zero but less than $250,000. Now a pass-through entity is also considered a small business if it (i) employs one or more persons during the taxable year and (ii) has net farm income attributable to a farm business that is greater than zero but less than $250,000 or has NY gross business income attributable to a non-farm business that is greater than zero but less than $1,500,000.
COVID-19 CAPITAL COSTS TAX CREDIT PROGRAM
The budget creates a refundable tax credit relief program targeting COVID-19-related expenses for small businesses. It provides up to $25,000 in credits to a taxpayer and caps out at $250 million across the State. The credit is available for qualifying capital costs incurred from January 1, 2021, through December 31, 2022, at a business location in New York. Applications must be submitted to the Department of Economic Development by March 31, 2023. Eligible COVID-19-related capital investments include but are not limited to: costs associated with expanding space to accommodate social distancing; air purifying systems; expenses related to outdoor space expansions; and machinery and equipment to facilitate contactless sales. The credit amount is 50% of the applicant’s qualifying costs, up to the $25,000 limit.
HEATING OIL CONVERSION CREDIT
The budget provides a refundable tax credit for the costs incurred by corporate and individual taxpayers to convert from grade “no. 6” heating oil usage to biodiesel fuel or a geothermal system for 50% of the conversion costs paid on or after January 1, 2022, and before July 1, 2023, at a facility regulated pursuant to certain provisions of the New York State environmental conservation law. The credit cannot exceed $500,000 per facility. Applications must be submitted to and approved by the New York State Energy Research and Development Authority. The application due date is currently unknown.
ABATEMENT OF REAL PROPERTY TAXES FOR THE CREATION OR EXPANSION OF CHILDCARE CENTERS
Applicable to tax years beginning on and after July 1, 2023, an abatement of real property taxes is provided for certain eligible buildings in New York City that create or expand childcare centers. Specifically, the property tax abatement is provided to an eligible building in which construction, conversion, alteration, or improvement that is completed on or after April 1, 2022, has resulted in the creation of a childcare center or an increase in the maximum number of children allowed on the premises of an existing childcare center. “Childcare center” means a childcare program for which a permit to operate such program has been issued by the Department of Health and Mental Hygiene pursuant to the City’s health code. Only one such abatement may be granted to any eligible building and be applied to the real property tax liability of the building for the tax year. If unexhausted, any remaining amount of the abatement can be carried forward to 4 succeeding tax years (together with the initial tax year the abatement is taken, this is referred to as the “abatement period”). The amount of abatement is equal to the certified costs incurred in the construction, conversion, alteration, or improvement that has created or expanded the childcare center. For any tax year, such abatement cannot exceed $7 per square foot of the childcare center or the lesser of (i) $20,000 or (ii) the real property tax liability for the eligible building. During the abatement period, such abatement cannot exceed $35 per square foot of the childcare center or $100,000.
In addition, an enhanced tax abatement is provided to an eligible building located within a “childcare desert.” Childcare desert means a census tract in a city having a population of one million or more where, at the time of an application for tax abatement, there are three or more children under five years of age for each available childcare slot. The definition also applies in cases where there are no available childcare slots as of the most recently published determinations by the Office of Children and Family Services. The amount of the enhanced tax abatement is equal to the certified costs incurred in the construction, conversion, alteration, or improvement that has created or expanded childcare centers within a childcare desert. For any tax year, such abatement cannot exceed $15 per square foot of the childcare center or the lesser of (i) $45,000 or (ii) the real property tax liability for the eligible building. During the abatement period, such abatement cannot exceed $75 per square foot of the childcare center or $225,000. The enhanced tax abatement can also be carried forward for four tax years if unexhausted.
An application must be filed by March 15 before the tax year, beginning on July 1, for which the tax abatement is sought (i.e., March 15, 2023, for the tax year beginning July 1, 2023) but may not be filed later than March 15, 2025.
For Article 9-A and Article 22 tax purposes, subtraction modifications are allowed for any federal deduction disallowed under IRC Sec. 280E related to the production and distribution of adult-use cannabis products, applicable to taxable years beginning on and after January 1, 2022.
REMOTE WORK DURING PANDEMIC
The budget clarifies that certain work performed remotely due to COVID-19 may qualify for tax credit programs that are based on maintaining a presence within the State or within specific areas of the State, including but not limited to the Excelsior Jobs program and tax benefits provided for a business located in tax-free NY areas.
GAS TAX HOLIDAY
The budget suspended from June 1, 2022, to December 31, 2022, the following State taxes on motor fuel and highway diesel motor fuel: State fuel excise taxes (Article 12-A); State sales and use taxes (including the Metropolitan Commuter Transportation District sales and use tax); and prepaid sales taxes on motor fuel and diesel motor fuel. The current State fuel excise Article 12-A tax rate for motor fuel and highway motor fuel is 8 cents per gallon.
If you have questions, contact your Berdon advisor.