On February 1, 2023, New York Governor Kathy Hochul released her Fiscal Year 2024 Executive Budget and accompanying legislation (the Budget Bill). The Budget Bill includes several tax rate adjustments and technical fixes to the Tax Law, among other provisions. Notable proposals contained in the Budget Bill include:

• Increasing the top Metropolitan Commuter Transportation Mobility Tax (MCTMT) rate: The Budget Bill proposes raising the top MCTMT rate from 0.34% to 0.50%. If passed, the rate increase for employers would be effective on July 1, 2023. The bill proposes a gradual increase on self-employment net earnings from 0.34% to 0.42% for tax years beginning on or after January 1, 2023, and 0.50% for tax years beginning on or after January 1, 2024.
• Extending the temporary Article 9-A tax rates: The Budget Bill proposes extending the current 7.25% business income tax rate for taxpayers with a business income base over $5 million, and the current 0.1875% capital base tax rate. The proposed extensions are for three (3) years, through tax year 2026. Without an extension, taxpayers with a business income base over $5 million would be subject to the general 6.5% business income tax rate for taxable years beginning on or after January 1, 2024 (provided a special reduced rate would not otherwise apply). An extension of the capital base tax rate would delay the phase-out of the rate, which is currently set to be reduced to 0.0% as of January 1, 2024. 
• Allowing the Department of Taxation and Finance the right to appeal Tax Appeals Tribunal decisions: The Budget Bill proposes allowing the Department the right to appeal adverse Tax Appeals Tribunal decisions to the Appellate Division, Third Department. Under current law, only a taxpayer may appeal an adverse Tribunal decision. Similar proposals have been introduced in prior executive budgets. 
• Eliminating the New York state-specific S-corporation election: The Budget Bill proposes requiring federal S-corporations to be treated as S-corporations for New York tax purposes, removing the separate New York S-corporation election. S-corporations that are considered qualified New York manufacturers may file a request with the Department to be treated as a subchapter C-corporation. If an entity subsequently fails to meet the qualified New York manufacturer requirements, the entity would revert back to being treated as an S-corporation.
• Correcting how pass-through entities compute taxable income: For the New York State and New York City Pass-Through Entity Tax (PTET), the Budget Bill proposes amending the definitions of “pass-through entity taxable income” and “city pass-through entity taxable income.” When entities compute their pass-through entity taxable income and city pass-through taxable income, the proposal requires entities to include both PTET taxes and substantially similar taxes paid to other jurisdictions, which for federal income tax purposes were paid and deducted in the taxable year. The Budget Bill would also expand the definition of “city taxpayer” for New York City PTET purposes, allowing subchapter S-corporations and partnerships with city resident trusts and estates the ability to make the PTET election. The proposal adjusts the PTET election deadline for the State and City, requiring an entity’s PTET election to be made on or before the due date of the first estimated payment, becoming irrevocable after the due date.
• Extending the reduced transfer tax rates for qualifying REITs: The Budget Bill proposes extending tax rate reductions for real estate investment trusts (REITs) under the New York State real estate transfer tax and the New York City real property transfer tax for conveyances. The extension would be for three (3) years, through 2026.
• Providing authority to abate interest and penalties for taxpayers impacted by declared disasters: The Budget Bill proposes authorizing the Commissioner of the Department to abate interest regardless of a tax deadline extension in very limited circumstances (i.e., declared disasters) for specific taxpayers. The proposal also includes a provision authorizing the Department to abate or reduce underpayment of estimated tax penalties for corporations impacted by casualty, disaster, or other unusual circumstances. This would extend the Department’s penalty abatement authority to conform to the treatment of personal income taxpayers.
• Extending the film tax credit: The Budget Bill proposes extending the Empire State film post-production credit for an additional five (5) years. The proposal also includes increasing the aggregate amount of the tax credit from $420 million to $700 million starting in 2024, capping the credit for salaries of certain works, and increasing the credit for qualified expenses to 30%.
• Creating a NYC biotech tax credit: The Budget Bill proposes creating a biotechnology credit against the general corporation tax, unincorporated business tax, and banking corporation tax. A taxpayer would be entitled to a credit if the company: (1) is a qualified emerging technology company engaging in biotechnologies; (2) has no more than one hundred (100) full-time employees, of which at least 75% are employed in the City; (3) has a ratio of research and development funds to net sales of at least 6%; (4) has gross revenues not exceeding $20 million, including affiliates; and (5) has annual sales not exceeding $10 million. This credit would expire in three (3) years.

Next Steps

The Governor is responsible for preparing a comprehensive budget proposal that the Legislature will modify before it is ultimately enacted into law. Over the next few weeks, the Governor will coordinate requests from agencies and submit a final budget to the Legislature, along with appropriation bills and other related legislation. The Legislature will then analyze the Governor’s budget, hold public hearings, and seek further information from agencies. Following that review, both houses of the Legislature must reach agreement on spending and revenue recommendations that may amend the Governor’s proposed appropriation bills and related legislation. It is possible that some significant tax proposals arise during that process. The State’s fiscal year begins April 1, so the timeline for the Legislature to review and approve the Budget Bill is fairly limited.

The Eversheds Sutherland SALT team is closely monitoring the Budget Bill and will keep you apprised of relevant updates.

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