On January 20, 2026, New York Governor Kathy Hochul released her FY 2027 Executive Budget proposal. Unlike prior years’ proposals seeking sweeping tax reforms, the FY 2027 proposal contains more narrowly targeted changes to New York’s Tax Law. A focus of the proposal is the decoupling from certain Internal Revenue Code provisions enacted by H.R. 1 (OB3), as well as maintaining policies from prior years.

The Governor’s proposal decouples from OB3’s provisions allowing immediate expensing for qualified production property, as provided in IRC §§ 168(a) and (n), and domestic research and experimental (R&E) expenditures under IRC § 174A.  When calculating entire net income for tax years beginning on or after January 1, 2025, the Executive Budget proposes to maintain New York’s current treatment of depreciation for qualified production property and allows deductions for both qualifying foreign and domestic R&E expenditures over the same 5-year term.  In contrast, New York does not conform to IRC § 168(k), which federally provides for accelerated depreciation of certain qualified property in the year it was placed in service, and, instead, provides for depreciation deductions consistent with the iteration of IRC § 167 in effect as if the property were purchased on September 10, 2001.  Per the revenue estimations featured in the Executive Budget Briefing Book, the Governor’s proposal to decouple from OB3 is estimated to save the state $1.68 billion during FY 2027.

The New York State legislature controls New York City’s corporate franchise tax law, so the Executive Budget likewise proposes to decouple New York City’s corporation franchise tax’s entire net income computation from OB3.  Under the Executive Budget, New York City would (i) allow both foreign and domestic R&E expenditures to be deducted over a 5-year period, (ii) maintain the City’s current treatment of qualified production property, business interest expenses, and depreciable business assets, and (iii) decouple from OB3’s deduction limit increase for qualifying equipment and software purchases.

Governor Hochul’s FY 2027 Executive Budget also extended the current Article 9-A Franchise Tax rates for three more years, declining New York City Mayor Mamdani’s invitation to raise the state’s corporate franchise tax rates.  The FY 2022 budget established a temporary tax rate for corporations with business income bases over $5 million and reinstated the capital base tax rate in the same year.  These rates were also extended in the FY 2024 budget.  In addition to maintaining the current corporation franchise tax rates, the Executive Budget also did not change the state’s personal income tax rates.

Other notable components of the proposal include:

  • Eliminating state income taxes on tipped wages, consistent with OB3 and the federal level elimination of income tax on tipped wages.  Here, employees will not be subject to income tax on tips up to $25,000 per taxable year for single filers earning $150,0000, and joint filers earning up to $300,000;
  • Establishing a sales tax exemption on the retail sale of electricity by commercial EV charging stations; and
  • Preserving the deductibility of charitable contributions to certain tax-exempt entities at risk of losing their IRC § 501(c)(3) tax-exempt status.

Governor Hochul’s Executive Budget is only the first step in the New York budget process. The legislature will now analyze the Governor’s budget, hold public hearings, and seek out further information from state agencies.  After such review, both houses of the legislature must reach an agreement on spending and revenue recommendations that may result in an amendment of the Governor’s proposed appropriations bill and other related legislation.

It is possible that some significant tax proposals could arise during this process. New York’s fiscal year begins April 1, 2026, thus, the timeline for the legislature to review and approve the Executive Budget is limited. The Eversheds Sutherland SALT team will continue to monitor the Executive Budget and keep you apprised of any relevant updates as it progresses through the legislature.