BILL NUMBER: S8411

SPONSOR: JACKSON
 
TITLE OF BILL:

An act to amend the administrative code of the city of New York, in
relation to disallowing, for purposes of the unincorporated business
corporation tax, the general corporation tax, the city banking tax, and
the city business corporation tax, certain amendments, with respect to
taxable years beginning before January 1, 2021, made to the internal
revenue code by sections 2303, 2304 and 2306 of public law 116-136

 
SUMMARY OF PROVISIONS:

Sections 1, 4 and 8 amend paragraph 17 of subdivision (b) of section
11-506, subparagraph 21 of paragraph (b) of subdivision 8 of section
11-602, and subparagraph 22 of paragraph (b) of subdivision 8 of section
11-652 of the Administrative Code of the City of New York

("Administrative Code"), and section 6 adds a new paragraph 17 to subdi-
vision b of section 11641 of the Administrative Code, to disallow, for
purposes of the City unincorporated business corporation tax ("UBT"),
              

the City general corporation tax ("GCT"), the City business corporation
tax ("BCT"), and the City banking tax deductions for interest payments
allowed pursuant to Section 163(j)(10)(A)(ii) of the internal revenue
code ("IRC"), and elections to use 2019 adjusted taxable income for
taxable years beginning in 2020 allowed pursuant to section
163(j)(10)(B) of the IRC.

Section 2 adds a new paragraph 18 to subdivision (b) of section 11-506
of the Administrative Code to disallow, for purposes of the UBT, the
amount of increase in the federal deduction allowed pursuant to any
amendment to section 461(1) of the IRC made after March 1 , 2020.

Sections 3, 5 and 7 add a new paragraph c to subdivision 2 of section
11-507, a new subparagraph 6 to paragraph (f) of subdivision 8 of
section 11-602, and a new subdivision k-2 to section 11-641 of the
Administrative Code to provide that, for taxable years beginning before
January 1, 2021, any amendment to section 172 of the IRC made after
March 1, 2020 shall not apply for purposes of the UBT, the GCT, and the
City banking tax.

Section 9 provides that the act shall take effect immediately.

 
REASONS FOR SUPPORT:

Part WWW of Chapter 58 of the Laws of 2020 decoupled certain provisions
of State and City tax laws from certain amendments made by the federal
Coronavirus Aid, Relief, and Economic Security Act, or "CARES Act"
(Public Law 116-136). In particular, all terms used in the State and
City personal income taxes were decoupled from amendments to the inter-
nal revenue code ("IRC") made by the CARES Act. In addition, for
purposes of the State's franchise tax and the City's business corpo-
ration tax ("BCT"), general corporation tax ("GCT"), and tax on unincor-
porated businesses ("UBT"), deductions for interest payments allowed
pursuant to section 163(j)(10)(A)(i) of the IRC were disallowed.

However, Part WWW did not decouple the City's GCT, UBT or Bank Tax from
the amendments made by the CARES Act to section 172 of the IRC, which
regulates the amount of the net operating loss (NOL) deduction and when
a deduction can be taken for NOLs. Because the CARES Act's amendments to
section 172 would allow unincorporated businesses and S-corporations to
use NOLs to offset up to 100% of taxable income and to have a greater
ability to carryover or carryback NOLs, it is in the City's fiscal
interest to decouple the GCT, UBT and Bank Tax from those amendments for
taxable years beginning before January 1, 2021.

Part WWW also did not decouple the City's GCT, UBT, and Bank Tax from
the amendments made to section 461(1) of the IRC, which regulates the
ability of non-corporate taxpayers to deduct excess business losses
against other types of income. The failure to decouple for taxable years
beginning before January 1, 2021 is likely to have some impact on the
City's UBT revenue because section 461(1) operates to limit excess busi-
ness losses for UBT taxpayers that are trusts and estates, or that are
treated as individuals for federal income tax purposes.

In addition, Part WWW did not decouple the BCT, GCT, UBT, or Bank Tax
from sections 163(j)(10)(A)(ii) and 163(j)(10)(B) of the IRC, added by
the CARES Act. The new clause (ii) of subparagraph (A) of paragraph (10)
of subdivision (j) of section 163 allows greater deduction of interest
payments for partners in a partnership. To the extent that filers of the
BCT, GCT, UBT or Bank Tax are partners in a partnership, they can bene-
fit from the increased deduction, and City revenue will decline corre-
spondingly. The new section subparagraph (B) of paragraph (10) of subdi-
vision (j) of section 163 permits BCT, GCT, UBT and Bank Tax filers to
use 2019 income (rather than income in the current taxable year) to
calculate the allowable interest expense deduction for any taxable year
beginning in 2020. To the extent that 2019 income is higher for filers
of BCT, GCT, UBT or Bank Tax than income in any taxable year beginning
in 2020, such filers can benefit from the increased deduction, and City
revenue will decline correspondingly. It is in the City's fiscal inter-
est to decouple the BCT, GCT, UBT and Bank Tax from both of these amend-
ments.

If the decoupling provisions in this bill are not enacted, New York City
stands to lose at least $50 million in City fiscal year 2020/21 and $25
million in fiscal year 2021/22. Given that the City is facing a poten-
tial revenue gap of $5.4 billion in fiscal year 2020/21, the City cannot
afford to lose these millions of dollars in revenue at this time. Note
that regarding the amendments pertaining to the NOL deduction, taxpayers
will not lose the ability to carryover unused NOLs caused by this bill
to future tax years.

Accordingly, the Mayor urges the earliest possible favorable consider-
ation of this proposal by the Legislature.

Respectfully submitted,

SIMONIA BROWN

Legislative Representative