Highlights of Tax Provisions in NYS 2011-2012 Budget

E-filing - Scheduled to take effect after 2012, New York will require that all tax documents prepared by a tax preparer to be filed electronically if they prepared more than five tax returns during any calendar year after 2010, and if they use tax software. In addition, in situations where a taxpayer does not use a tax return preparer, but instead prepares its own income tax returns using tax software, those returns must be electronically filed. This requirement will be in effect on September 15, 2011, but only if the Tax Department determines that less than 85% of 2010 individual returns were electronically filed. It is possible that the Commissioner may require that any amount due on an electronically filed return must be paid electronically.

To further force e-filing, penalties have been increased. Taxpayers who prepare their return using tax software who do not e-file will be subject to a $25 penalty (compared to the $50 penalty for all other taxpayers), unless the taxpayer can show that the failure was due to a reasonable cause. Further, if a taxpayer or tax return preparer fails to e-file when required to do so, the taxpayer will not be eligible to receive interest on any overpayment until the return is filed electronically. These provisions will be in effect after 2012.

LLC's - Effective immediately, the due date for LLCs and partnership's (with New York source income) annual filing fee has been changed from 30 days after the close of their tax year to 60 days after the close (usually March 1st for calendar year entities, except on a leap year).

Abandoned Property - Effective immediately, debit cards issued by New York State in payment of a tax refund shall be considered abandoned property if the debit card has not been activated within one year from the date of issuance.

Sales Tax Compliance - Effective immediately, the new law grants the Tax Dept. authority to require any person who does not properly collect & remit sales tax or file sales tax returns to deposit any sales tax collected into a separate account at an approved bank, which account the Tax Department can debit directly. If a vendor fails to comply, the Tax Dept. can require that the vendor file a bond with the Department, or face revocation or suspension of their certificate of authority if they fail to obtain the required bond. The Commissioner also has discretion to require a quarterly filer to file monthly (part-quarterly) returns in order to protect governmental revenue.

Real property taxes - The new law limits growth of the STAR exemption to 2 percent annually beginning in the 2011-12 school year. In addition, taxpayers are provided a means for renouncing prior year STAR exemptions they received and wish to pay back (to qualify for a benefit like a Homestead Exemption in another state). The new law is limited to 10 years of past payments and includes the imposition of a fine. In addition, the Commissioner is authorized to establish a uniform parcel ID system, effective for 2013 assessment rolls.

Excelsior Jobs Program - The Excelsior Program provides job creation and investment incentives to firms in such targeted industries as biotechnology, pharmaceutical, high-tech, clean- technology, green technology, financial services, agriculture and manufacturing. Firms in these industries that create and maintain new jobs or make significant financial investment are eligible to apply for up to four tax credits. The Program encourages businesses to expand in and relocate to New York while maintaining strict accountability standards to guarantee that businesses deliver on job and investment commitments. Firms in the Excelsior Jobs Program may qualify for four fully refundable tax credits. To earn any of the following credits, firms must meet and maintain the required job and investment thresholds:

1. The Excelsior Jobs Tax Credit

2. The Excelsior Investment Tax Credit

3. The Excelsior Research and Development Tax Credit

4. The Excelsior Real Property Tax Credit

The new law made several changes, effective immediately, to the Excelsior Jobs Program to make it more widely available and more lucrative, created a new energy incentive, lengthened the benefit period from five to ten years, and made several administrative changes..

Tax Credit Changes

-The jobs tax credit component formula was revised to be the uncapped product of gross wages multiplied by 6.85 percent (previously it was a marginal wages computation capped at $5,000 per job);

-The Research and development (R&D) credit component is increased from 10 percent to 50 percent of the taxpayer's federal R&D credit, subject to a limit of 3 percent of qualified R&D expenditures attributable to New York activity;

-Costs and expenses included in the basis of the Excelsior R&D credit component are allowed to be used for the qualified emerging technology company facilities, operations, and training credit;

-The same property and expenses that qualify for the excelsior investment tax credit (ITC) component are allowed for the traditional R&D ITC;

-The real property tax credit (RPTC) component schedule is amended to phase down from 50 percent to 5 percent over 10 years ( 5 percent each year) instead of over 5 years (10 percent each year) previously, reflecting the lengthening of the benefit period;

-Property improvements that increase the value of real property will be factored into the amount of the RPTC component (previously the credit base was fixed at the amount of taxes assessed and paid in the year prior to application).

Administrative Changes

-The strategic Industries qualifying test will be applied to the location where the activity will take place, instead of on the entity as a whole;

-An Empire zone participant will only be required to give up its Empire Zone certification at the location where it will claim Excelsior benefits, rather than at all its locations;
-Participants will be allowed to claim credit as interim milestones are reached;

-The tax credit recapture provisions will be limited to instances where the Empire State Development Corporation (ESDC) revokes a taxpayer's certification for violating worker protection or environmental laws or failure to pay state and local taxes.

Financial Services Taxpayers- The investment tax credit for financial services taxpayers was extended to apply to property placed in service before October 1, 2015. The credit had previously been scheduled to expire for property laced in service on or after October 1, 2011. The credit is provided for qualifying property principally used in the ordinary course of the taxpayer's trade or business as a broker or dealer or in connection with the purchase/sale of stocks, bonds or other securities.