New York tax reform almost a year later

New York tax reform almost a year later

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Today s presenters Keith Eisenstein Ernst & Young LLP New York, NY Bill Korman Ernst & Young LLP New York, NY David Schmutter Ernst & Young LLP New York, NY Page 3 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

Agenda Enactment of new law Subsequent guidance Areas of focus Manufacturer classification Net operating losses (NOLs) Modeling of income tax impacts/elections Other New York City (NYC) conformity Q&A Page 4 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

Enactment of new law Page 5 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

Summary of key provisions Effective date 1 January 2014 1 January 2015 Key provisions 0% income tax rate and other benefits for qualified New York manufacturers (principally engaged in manufacturing; $1 million or more of New York Investment Tax Credit (ITC)-eligible assets) Repeals the bank franchise tax (Article 32) and merges it into a substantially modified corporation franchise tax (Article 9-A) Provides for expanded economic nexus and market-based receipts sourcing Eliminates the subsidiary capital regime; modifies the investment capital regime Modifies New York State NOL Alters the combined reporting rules, with a potentially significant impact on inbound companies Alters treatment of alien corporations Repeal (minimum taxable income base) and phase-out (capital base) of the alternative tax bases 1 January 2016 Income tax rate reduction from 7.1% to 6.5%, but consider Metropolitan Transit Authority (MTA) rate increase for downstate taxpayers that begins in 2015 Page 6 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

Subsequent guidance Page 7 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

Subsequent guidance New York State Corporate Tax Reform Outline (April 2014) Summary of Tax Provisions in SFY 2014-15 Budget (April 2014) Corporate tax reform FAQs (July 2014 October 2014) Still waiting on: Technical Services Bulletin (TSB)-M regarding manufacturers TSB-M regarding interest expense attribution Technical corrections (expected in next budget bill) Regulations (not until late 2015, at the earliest) Page 8 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

Areas of focus Page 9 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

Manufacturer classification Benefits 0% income tax rate Alternative taxes minimum taxable income (2014 only) and capital tax capped at $350,000 Refundable credit for 20% of real property tax paid Initial impression Too good to be true /limited shelf life New York State (NYS) Department Will not issue advisory opinions Does not view as complex focused on ITC-eligible property Page 10 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

Manufacturer classification ITC-eligible property Manufacturing and R&D assets Adjusted basis Contract manufacturer Testing; design/prototype; other activities Software developers Alien manufacturer/us distributor Page 11 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

NOLs Application to manufacturers IRC Section 382 limitations Adjustment of 2014 receipts factor Page 12 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

Modeling of income tax impacts/elections New tax base New combined reporting requirement Numerous elections Two-year NOL utilization (v. 20 year carryforward) Safe harbor interest expense attribution Controlled group reporting 8% sourcing related to qualified financial instruments Page 13 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

Other Interplay between provisions (economic nexus, combined reporting, market-based sourcing) Economic nexus standard New investment capital rules Receipts sourcing hierarchy/recordkeeping considerations Page 14 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

NYC conformity Page 15 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

NYC conformity NYC s initial reaction was not to conform, based on revenue shortfall. NYC reconsidered due to impact on audit/enforcement. On 12 January 2015, Mayor de Blasio announced NYC tax reform that will be retroactive to 1 January 2015 and substantially conform to the NYS changes: Merge the bank franchise tax into a modified general corporation tax Rate reductions for small business, but not the NYS 0% rate for manufacturers Adoption of mandatory unitary combined reporting Single sales factor apportionment formula with market-based sourcing Increased cap on the capital tax (from $1 million to $10 million) for some taxpayers; elimination of the capital tax only for small businesses Page 16 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

Questions? Page 17 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

Contacts Keith Eisenstein Ernst & Young LLP New York, NY +1 212 773 9052 keith.eisenstein@ey.com Bill Korman Ernst & Young LLP New York, NY +1 212 773 4180 william.korman@ey.com David Schmutter Ernst & Young LLP New York, NY +1 212 773 3455 david.schmutter@ey.com Page 18 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015