New York Governor Signs into Law 2023–24 Budget Bill Containing Important Tax Changes
The BR State + Local Tax Spotlight
On May 3, 2023, New York Governor Kathy Hochul signed into law two bills containing several important tax changes, several of which were not in the Governor’s proposed budget: Bill Nos. S4009-C (Budget) and S4008-C (Transportation). Among the more notable changes are the following:
- Significant increase in the Metropolitan Commuter Transportation Mobility Tax (“MCTMT”) within New York City. The most significant tax increase is to the top MCTMT rate—imposed on employers and self-employed individuals engaging in business in New York City and the seven surrounding counties—from 0.34 percent to 0.60 percent of payroll expenses, but only for employers engaged in business within New York City. The tax rates for employers and individuals within the seven surrounding counties remain unchanged. The increase for employers takes effect beginning July 1, 2023 (with the top rate on self-employed individuals not fully implemented until 2024). The Governor had proposed a more modest rate increase to 0.50 percent applicable to the entire district, but reportedly faced considerable opposition from legislators in the surrounding counties whose businesses rely less on the transportation services that the tax supports than do businesses in the five boroughs of New York City.
- Extends “temporary” top corporate tax rate for three more years. A temporary increase in the tax rate on corporations with business income in excess of five million dollars for the taxable year, from 6.5 percent to 7.25 percent, had been set to expire on January 1, 2024. The legislation extended the top rate for another three years (until January 1, 2027).
- Extends New York State and City transfer tax rate reductions for real estate investment trusts (“REITs”) for three more years. The reduced rates for New York State real estate transfer tax and New York City real property transfer tax applicable to conveyances to a REIT, other than upon initial formation, which were scheduled to expire on August 23, 2023, are extended for three more years (until August 31, 2026).
- Repeals provisions relating to the transfer of investment tax credits. A provision relating to transfers of New York State investment tax credits for corporate income tax purposes has been repealed.
- Expands the scope of False Claims Act. Tax “whistleblowers” will now be allowed to bring false claims actions in the New York courts against non-filers who “knowingly concealed or knowingly and improperly avoided” their state or local tax obligations. This represents a significant expansion since until now the law required actual “false claims” to have been made—that is, the filing of false or fraudulent tax returns. The expanded provision is retroactive to tax obligations knowingly concealed or avoided on or after May 1, 2020.
- Gives the NYS Tax Department the right to appeal certain decisions of the Tax Appeals Tribunal. After unsuccessful attempts by successive administrations over many years to give the New York State Tax Department the right to appeal decisions of the Tax Appeals Tribunal—since its inception more than 35 years ago, only taxpayers have the right to appeal Tribunal decisions into the courts—the legislature approved a somewhat scaled back right of appeal. Under the new law, which applies to Tribunal decisions issued after May 2, 2023, the Tax Department, “in consultation with the attorney general,” has the right to appeal Tribunal decisions that are “premised on interpretation of the federal or state constitution, international law, federal law, or other legal matters that are beyond the purview of the state legislature.” Presumably, the new law is intended to apply to Tribunal decisions that involve matters which cannot be addressed through legislation. Unfortunately, the new law introduces uncertainty as to the finality of Tribunal decisions that will merit clarification.
Among the Governor’s proposals that the legislature declined to enact was a proposed amendment that would have mandated New York State S corporation conformity with the federal tax treatment. This continues to leave New York State among a small minority of states that require a separate state S corporation election, a trap for the unwary.
This update is one in a series of updates written for the May 2023 edition of The BR State + Local Tax Spotlight.