STATE BUDGET BRIEFING

Transcription

1 STATE BUDGET BRIEFING NEW YORK STATE FY BUDGET CHANGES June 10, 2014 Presented with support from:

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3 Eric Armenat, President & Chief Executive Officer Willcare As President and Chief Executive Officer for Willcare, Mr. Armenat provides strategic leadership and oversees all organizational operations. Prior to joining Willcare in 2012, he served as Chief Operating Officer for Avox Systems, a subsidiary of Zodiac Aerospace, located in Western New York. Prior to his role with Avox he served as President and General Manger of Carleton Technologies a subsidiary of Cobham PLC. Mr. Armenat focuses on development of top level and mid-level management, execution of strategic plan objectives, and implementation of best practices while incorporating a Lean Six Sigma approach to process improvement initiatives. He received a Bachelor s of Science in Industrial Engineering from Southern Illinois, and earned his MBA from St. Bonaventure University. He also proudly served in the United States Air Force. Adam F. Mikols, CFO Seal & Design Inc. amikols@sealanddesign.com Adam F. Mikols, is a 1997 graduate of Canisius College with an degree in Accounting. In 2004 he received his Master of Business Administration from Canisius College. Mr. Mikols is currently the Chief Financial Officer of Seal & Design Inc, a manufacturer and distributor of gaskets, orings and seals located in Clarence, NY. A resident of Lancaster, NY, Mikols began his career at Smith McDonald Corporation as an accounting intern. He continued his career at Smith McDonald Corporation, as a Staff Accountant, working in various capacities in the accounting department. In late 1997 Mikols was hired by Seal & Design Inc to run their accounting department as well as Information Technology, Human Resources and Administration. He was promoted to Controller in 2004 after completing his MBA at Canisuis College. In 2006 Mikols assumed his current position as Chief Financial Officer after the purchase of Able Orings & Seals, which is a small manufacturer and distributor of seals, gaskets and orings in Toronto, Canada. His primary responsibility is to oversee all financial activities of the company both in Toronto and Clarence. Mr. Mikols is a member of the Canisius College Council of Accountancy and the Buffalo Niagara Partnership Can-Am Council, and also serves on the board of directors for World Trade Center Buffalo Niagara. He is a member of the Institute of Management Accountants and Financial Executives International, Buffalo Chapter. Raymond P. Reichert, Partner Jaeckle Fleischmann & Mugel, LLP rreichert@jaeckle.com Raymond P. Reichert is a partner in Jaeckle Fleischmann s Tax practice group. He has devoted substantially his entire career to the practice of tax law, including federal and New York income tax, New York sales and use tax, and other miscellaneous taxes. From 1990 to 1992, he held the position of

4 Adjunct Assistant Professor of Law at the State University of New York at Buffalo School, where he taught the basic federal income tax course, and currently teaches the partnership tax course. He has lectured on numerous occasions on a variety of tax related subjects. In addition to general transactional tax planning, his practice includes structuring real estate joint ventures, low income housing and historic tax credit partnerships, and economic development planning. Mr. Reichert received his B.A. from Fordham University, magna cum laude and his J.D. from the State University of New York at Buffalo, cum laude. He is a member of the American, New York State and Erie County Bar Association Tax Committees, and currently serves as a Director for the Oncologic Foundation of Buffalo, Inc., as Vice- President & Director for the University Heights Collaborative, Inc. and as Director and President of the St. Joseph Neighborhood Housing Initiative, Inc. Alicia Sears, CPA, Manager Lumsden McCormick, LLP asears@lumsdencpa.com ext. 128 A member of our tax team since 2009, Alicia is responsible for tax compliance services to commercial businesses and individuals with a focus on business development incentives. She is a graduate of SUNY Geneseo where she earned a Bachelor of Science degree in accounting. Alicia is Treasurer and member of the Board of Directors for Danceability, Inc and member of the Firm s Business Development committee. She is a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants Courtland (Cory) VanDeusen, CPA, Principal Lumsden & McCormick, LLP cvandeusen@lumsdencpa.com Ext. 138 Cory is a tax principal with over 13 years of experience in providing tax services to commercial and personal tax clients. He specializes in helping clients navigate the myriad of business development incentives offered by various Federal, State and Local agencies to encourage regional investment, spur job creation and to foster economic growth. The available incentives include refundable tax credits, tax abatements, grants and forgivable loans. He has extensive knowledge in programs such as the Empire Zone, Excelsior Jobs Program, Start-Up NY and various local incentives such as Industrial development Agency (IDA) benefits as well as many others. Additionally he spends his time providing clients with services related to compliance, research, transaction structuring and family planning. Cory has experience in all areas of U.S. Federal and New York State Taxation. He has been with Lumsden & McCormick since 2001 and is a graduate of Niagara University. Cory is a member of the American Institute of Certified Public Accountants, New York State Society of Certified Public Accountants, Chairman of the Niagara University Accounting Advisory Board and a Leadership Buffalo Graduate.

5 STATE BUDGET BRIEFING NEW YORK STATE FY BUDGET CHANGES Presented with support from: June 10, 2014 Presenters & Panelists Eric Armenat, President & CEO, Willcare Adam Mikols, CFO, Seal & Design Raymond Reichert, Partner, Jaeckle Fleischmann & Mugel, LLP Alicia Sears, Manager, Lumsden & McCormick, LLP Cory Van Deusen, Principal, Lumsden & McCormick, LLP 1

6 Qualified New York Manufacturer What is manufacturing? The process of working raw materials into wares suitable for use or which gives new shapes, new quality or new combinations to matter which already has gone through some artificial process by the use of machinery, tools, appliances and similar equipment The mass production of food products for wholesale commercial distribution and sale does constitute manufacturing. Who are manufacturers? A taxpayer principally engaged in production of goods by manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture or commercial fishing. Qualified New York Manufacturer What manufacturing is not: The generation and distribution of electricity, the distribution of natural gas, and the production of steam associated with the generation of electricity. The creation, production or reproduction of a film, television shower or commercial. The blending of two or more fuels. 2

7 Qualified New York Manufacturer Principally Engaged in Manufacturing A taxpayer is principally engaged in manufacturing if more than 50% of the gross receipts during the year are derived from the sale of goods produced by manufacturing. Qualified New York Manufacturer What makes a Qualified New York Manufacturer? Has property in the state that is used in manufacturing FMV of the property at the close of the year must be at least $1 million or All of the real and personal property must be located in NYS If the manufacturer does not satisfy the Principally Engaged receipts test, the taxpayer may be a qualified New York Manufacturer if the taxpayer has At least 2,500 employees in manufacturing in New York Has property in the state that is used in manufacturing and The total federal adjusted basis of manufacturing property is at least $100 million 3

8 Real Property Tax Credit Provisions 20% of the real property tax paid during the taxable year for real property. The real property must be owned by such manufacturer and principally used during the taxable year for manufacturing. The credit is allowed for property taxes paid on property leased from an unrelated third party if the taxes are paid pursuant to explicit requirements written in the lease and remitted directly to the taxing authority. Effective for tax years beginning on or after January 1, 2014 Real Property Tax Credit Provisions Article 9-A (c-corporation) tax credit can reduce tax to $25. Article 22 (personal) tax credit is refundable or may be treated as an overpayment of tax to be credited to the next tax year. A refund of the NYS credit may be taxable as Federal other income in the year of receipt. 4

9 Real Property Tax Credit Provisions The credit is not allowed if the real property taxes that are the basis of the credit are also included in the calculation of another credit claimed by the taxpayer. A credit cannot be claimed of the 20% manufacturer property tax credit credit if the QEZE real property tax credit is claimed for the same taxes. Real Property Tax Credit Provisions Real property taxes for the purposes of this credit: Imposed upon real property by or on behalf of a county, city, town, village or school district for municipal or school district purposes. Must be levied for the general public welfare by the proper taxing authorities at a like rate against all property over which such authorities have jurisdiction. Does not include a charge for local benefits (i.e. sewer, storm, fire, etc.) including any portion of that charge that is attributable to maintenance or interest. Does not include a PILOT (payment in lieu of taxes). Must be paid in the year the taxes become a lien. 5

10 Real Property Tax Credit Provisions The taxes paid cannot be deducted in determining New York State entire net income. $100,000 in property taxes yields a $20,000 credit but increases NYS taxable income by $100,000. Effective credit rate of 13.15% for Article 22 taxpayers Corporate Tax Elimination Provision C corporation qualified manufacturers will pay a reduced corporate income tax, the higher of: 0.15% of capital base (phased out by 2021) or Fixed Dollar Minimum Net income tax base rate is reduced to 0% Effective for tax years beginning on or after January 1,

11 Corporate Tax Elimination Provision New York Corporate Tax Rate and Bases for Manufacturers, 2014 to Corporate Tax Rate (Manufacturers) Capital Stock Base Rate (Manufacturers) Zero Zero Zero Zero Zero Zero Zero Zero 0.136% 0.15% 0.106% 0.085% 0.056% 0.038% 0.019% Repealed New York Fixed Dollar Tax for C Corporation Manufacturers, 2014 to 2018 Receipts >$0 $12.50 $22 $21 $21 $19 >$100,000 $37.5 $66 $63 $63 $56 >$250,000 $87.5 $153 $148 $148 $131 >$500,000 $250 $439 $423 $423 $375 >$1,000,000 $750 $1,316 $1,269 $1,269 $1,125 >$5,000,000 $1,750 $3,070 $2,961 $2,961 $2,625 >$25,000,000 $2,500 $4,385 $4,230 $4,230 $3,750 Corporate Tax Elimination Provision These rate reductions only apply to taxpayers that are C Corporations, and do not apply to S corporations or Limited Liability Companies. The fixed dollar minimum tax schedule remains unchanged for S Corporations. New York Fixed Dollar Tax for S Corporation Manufacturers Receipts >$0 $12.5 $25 >$100,000 $25 $50 >$250,000 $87.5 $175 >$500,000 $150 $300 >$1,000,000 $500 $1,000 >$5,000,000 $1,500 $3,000 >$25,000,000 $2,250 $4,500 7

12 Example Assumptions A qualified manufacturer with: Federal taxable income of $500,000 Gross receipts of $6,000,000 Capital base of $1,000,000 $40,000 of property taxes No NYS modifications other than for the property taxes used as a basis of the credit Shareholders/partners/members are NYS residents Example #1 100% of sales to customers in NYS C Corporation Federal Taxable Income $ 500,000 $ 500,000 $ 500,000 Add back for property taxes - 40,000 40,000 NYS taxable income 500, , ,000 Entire Net Income Tax 16, Fixed Dollar Minimum Tax 1,750 1,750 3,070 Capital Base Tax 1,500 1,360 1,500 New York State Tax 16,250 1,750 3,070 Real Property Tax Credit - (1,725) (3,045) New York State Tax Due $ 16,250 $ 25 $ 25 NYS C Corporation Income Tax Savings $ 16,225 $ 16,225 Compared to 2013 tax rates 8

13 Example #1 100% of sales to customers in NYS S Corporation Federal Taxable Income $ 500,000 $ 500,000 $ 500,000 Add back for property taxes - 40,000 40,000 NYS taxable income 500, , ,000 Personal Income Tax on S Corporation Income 34,250 36,990 36,990 Fixed Dollar Minimum Tax 1,500 1,500 3,000 New York State Tax 35,750 38,490 39,990 Real Property Tax Credit - (8,000) (8,000) New York State Tax Due $ 35,750 $ 30,490 $ 31,990 NYS S Corporation Income Tax Savings $ 5,260 $ 3,760 Compared to 2013 tax rates Example #1 100% of sales to customers in NYS Partnership/LLC Federal Taxable Income $ 500,000 $ 500,000 $ 500,000 Add back for property taxes - 40,000 40,000 NYS taxable income 500, , ,000 Personal Income Tax on Partnership Income 34,250 36,990 36,990 New York State Tax 34,250 36,990 36,990 Real Property Tax Credit - (8,000) (8,000) $ 34,250 $ 28,990 $ 28,990 NYS Partnership Income Tax Savings $ 5,260 $ 5,260 Compared to 2013 tax rates 9

14 Example #2 20% of sales to customers in NYS C Corporation Federal Taxable Income $ 500,000 $ 500,000 $ 500,000 Add back for property taxes - 40,000 40, , , ,000 NYS taxable income (20% apportionment) 100, , ,000 Entire Net Income Tax 3, Fixed Dollar Minimum Tax ,316 Capital Base Tax New York State Tax 3, ,316 Real Property Tax Credit - (725) (1,291) $ 3,250 $ 25 $ 25 NYS C Corporation Income Tax Savings $ 3,225 $ 3,225 Compared to 2013 tax rates Example #2 20% of sales to customers in NYS S Corporation Federal Taxable Income $ 500,000 $ 500,000 $ 500,000 Add back for property taxes - 40,000 40,000 NYS taxable income 500, , ,000 Personal Income Tax on S Corporation Income 34,250 36,990 36,990 Fixed Dollar Minimum Tax ,000 New York State Tax 34,750 37,490 37,990 Real Property Tax Credit - (8,000) (8,000) $ 34,750 $ 29,490 $ 29,990 NYS S Corporation Income Tax Savings $ 5,260 $ 4,760 Compared to 2013 tax rates 10

15 Example #2 20% of sales to customers in NYS Partnership/LLC Federal Taxable Income $ 500,000 $ 500,000 $ 500,000 Add back for property taxes - 40,000 40,000 NYS taxable income 500, , ,000 Personal Income Tax on Partnership Income 34,250 36,990 36,990 New York State Tax 34,250 36,990 36,990 Real Property Tax Credit - (8,000) (8,000) $ 34,250 $ 28,990 $ 28,990 NYS Partnership Income Tax Savings $ 5,260 $ 5,260 Compared to 2013 tax rates Estate Tax Changes Amends the estate tax to decouple the tax from Federal law. Unified threshold of $1 million is replaced with a credit. The credit is reduced for NY taxable estates exceeding the basic threshold amount and equals zero for those exceeding 105% of such amount. Similar to the loss of benefit of the $1 million unified threshold under previous law. 11

16 Estate Tax Changes New York Estate Tax Exclusion Changes Year Exclusion Prior to April 1, 2014 $1,000,000 April 1, 2014 through March 30, 2015 $2,062,500 April 1, 2015 through March 30, 2016 $3,125,000 April 1, 2016 through March 30, 2017 $4,187,500 April 1, 2017 through December 31, 2018 $5,250,000 January 1, 2019 and thereafter Recoupled to federal exemption (estimated to be approximately $5.8 million) Estate Tax Changes Illustration of Estate Tax Cliff Phase-In on Select Estates Estate Value Tax from Tax Table Exclusion Amount of $2,062,500 and Cliff Credit Tax Due Effective Tax Rate Additional Tax on Last $25,000 Effective Marginal Tax Rate on Last $25,000 $2,000,000 $100, % $0 0% $2,025,000 $101,925 All (estate is below 100% of exclusion) 0 0% $0 0% $2,050,000 $103, % $0 0% $2,075,000 $105,175 ($88,113) $17, % $17, % $2,100,000 $106,800 ($57,488) $49, % $32, % $2,125,000 $108,800 ($30,925) $77, % $28, % $2,150,000 $110,800 ($9,563) $87, % $9, % $2,175,000 $112,800 $112, % $25, % $2,200,000 $114,800 None (estate is above 105% of $114, % $2, % exclusion) $2,225,000 $116,800 $116, % $2, % 12

17 Estate Tax Changes Gifting During Life NY residents can no longer make unlimited lifetime gifts within a 3 year period prior to death Decedent s estate will be increased by the amount of any taxable gift not otherwise included in the decedent's federal gross estate and made during a 3 year period ending on the date of death Does not include any gift made when the decedent was not a resident of NYS Does not include any gift made prior to April 1, 2014 or any gift made on or after January 1, 2019 QUESTIONS 13

18 CONTACT Raymond P. Reichert, Esq. Partner Cory Van Deusen V, CPA Tax Principal Alicia R. Sears, CPA Tax Manager Jaeckle Fleischmann & Mugel, LLP Direct: Lumsden & McCormick, LLP Tel: x138 Lumsden & McCormick, LLP Tel: x128 CIRCULAR 230 In accordance with Internal Revenue Service Circular 230, please be advised that unless otherwise expressly stated, any discussion or any attachments to this communication is not intended to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on any taxpayer. 14

19 NOTES

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