A New York State Administrative Law Judge ruled that the retroactive application of amendments to the state’s Empire Zones statute—disqualifying a taxpayer from the tax reduction credits—did not violate the taxpayer’s constitutional due process rights. Acknowledging that the stated public purposes of curtailing perceived abuses and raising revenue were better accomplished in prospective legislation, the Division nevertheless found that the application of statutory amendments to the tax year in which the amendments were enacted was an “extremely short period of retroactivity” that outweighs the lack of a public purpose. (In the Matter of the Petition of NRG Energy, Inc., Dkt. No. 826921 (N.Y. Div. Tax App. 11/08/2018)).
New York State Governor Andrew Cuomo released his Fiscal Year 2020 budget and accompanying legislation on January 15, 2019 (the Budget Bill). Among other things, the Budget Bill proposes statutory revisions to respond to the Tax Cut and Jobs Act of 2017 (TCJA) and to impose a sales tax collection obligation on “marketplace providers.”
The New York State Department of Taxation and Finance released guidance in the form of tax return instructions addressing how it will account for global intangible low-taxed income (referred to as GILTI) for apportionment purposes. These instructions allow a taxpayer to include its net GILTI amount (rather than the total receipts related to the generation of GILTI) in the denominator of its apportionment factor, but do not require a taxpayer to include any amount related to GILTI in its numerator.
This is the tenth edition of the Eversheds Sutherland SALT Scoreboard, and the second edition of 2018. Each quarter, we tally the results of what we deem to be significant taxpayer wins and losses and analyze those results. This edition of the SALT Scoreboard includes a discussion of the United States Supreme Court’s decision in South Dakota v. Wayfair, Inc., insights regarding Chicago’s taxation of streaming video, and a spotlight on New York cases.
View our Eversheds Sutherland SALT Scoreboard results from the second quarter of 2018!
On June 11, 2018, Senate Bill 8991 was introduced by New York Senate Majority Leader John Flanagan. The Bill would decouple from the federal treatment of Global Intangible Low-Taxed Income (GILTI).
The IRS intends to issue regulations pertaining to states’ attempts to subvert the state and local tax deduction cap.
- The Tax Cuts and Jobs Act imposed a $10,000 ($5,000 for married individuals filing separately) limit on state and local tax deductions for federal income tax purposes.
- Certain states, including New York, New Jersey, and Connecticut, have enacted legislation to allow taxpayers to claim a federal tax deduction in excess of the SALT cap.
- The pending regulations will emphasize that federal income tax substance-over-form principles, not state laws, dictate the characterization of the charitable contributions.
The New York Legislature passed its 2018-2019 Fiscal Year budget on March 30, 2018, which is expected to be signed into law by Governor Cuomo. The Legislature responded to the Tax Cuts and Jobs Act (TCJA) passed by the United States Congress late last year by excluding IRC § 965 repatriated income from New York taxable income. However, the final budget failed to address other TCJA provisions, such as the tax on global intangible low-taxed income (GILTI) and the interest expense limitation under IRC § 163(j). Thus, New York will conform to these federal tax changes.
The New York State Department of Taxation and Finance issued an advisory opinion determining that non-US unauthorized life insurance companies’ premiums were not includable in the New York State insurance franchise tax apportionment factor. The Department reasoned that the apportionment statute requires a life insurance company to report its premiums on a basis “consistent with” the Insurance Law filing requirements for authorized insurers. The applicable Insurance Law statute: (1) does not apply to unauthorized insurers; and (2) requires (authorized) non-US insurers to report only their US business and assets. Therefore, the Department concluded that a non-US unauthorized life insurance company’s premiums were neither “New York premiums” nor “total premiums” (the premium factor numerator and denominator, respectively). Notably, the Department relied on Insurance Law filing requirements to determine the insurance companies’ tax treatment. N.Y. Advisory Opinion TSB-A-17(2)C (Oct. 4, 2017).
The New York State Supreme Court, Appellate Division, affirmed the New York City Tax Appeals Tribunal’s (Tribunal) determination that certain real estate transactions were subject to the New York City Real Property Transfer Tax (RPTT) under the step transaction doctrine.
The taxpayer and a nonparty owned, respectively, 45% and 55% tenant-in-common interests in New York City real estate. They contributed their tenant-in-common interests to a newly formed LLC in exchange for 45% and 55% LLC membership interests, respectively. On the same day, the taxpayer transferred its 45% LLC membership interest to the nonparty in exchange for cash and debt relief.
In the Tribunal proceeding, the taxpayer argued that the contribution of the 45% tenant-in-common interest to the LLC was exempt from RPTT as a “mere change of form of ownership” and the transfer of the 45% LLC membership interest was exempt as a transfer of a noncontrolling interest in an entity that owns real property. However, the Tribunal applied the step transaction doctrine to characterize these transactions as a taxable transfer of the 45% tenant-in-common interest in exchange for cash and debt relief. The Tribunal found that the contribution agreement contained provisions more typical of a sale than the formation of a joint venture. The Tribunal noted, in part, that the taxpayer was released under its obligations under the mortgage on the property and received back its collateral while the nonparty was not released and had to provide a replacement letter of credit. The nonparty’s obligation to close also was conditioned on the LLC’s interest in the property being insured while the taxpayer’s obligation to close was not.
The Appellate Division affirmed the Tribunal’s application of the step transaction doctrine. The Appellate Division also held that even if the step transaction did not apply, the taxpayer’s contribution to the LLC did not constitute a “mere change of form of ownership” because the taxpayer no longer held a 45% direct or indirect interest in the real property at the conclusion of the same-day transactions. GKK 2 Herald LLC v. N.Y.C. Tax App. Trib., No. 82/16 4074 (N.Y. App. Div., 1st Dep’t Oct. 10, 2017).
The New York State Supreme Court, Appellate Division, affirmed the New York City Tax Appeals Tribunal’s (Tribunal) decision that Aetna’s subsidiary health maintenance organizations (HMOs) were subject to the New York City General Corporation Tax (GCT) for 2005 and 2006. The Appellate Division determined that the Tribunal’s reasoning was not arbitrary and capricious. The Tribunal reasoned that the GCT exemption for companies doing an insurance business in New York State did not apply because the HMOs were regulated almost entirely under New York’s Public Health Law, not the Insurance Law, and therefore were not doing an insurance business in the state. Aetna, Inc. v. N.Y.C. Tax App. Trib., No. 70/16-4533 (N.Y. App. Div., 1st Dep’t Oct. 19, 2017).