Over the past few years, we’ve seen a major expansion of enforcement efforts by the New York City Department of Finance, particularly with respect to the City’s unique Unincorporated Business Tax (the “UBT”). In these audits, DOF has been taking increasingly aggressive positions around the application of various statutory provisions.
On May 15, 2018, Amazon Services, which assists third parties selling their products through the online Amazon Marketplace, sent an email notifying third-party sellers that “Amazon has received a valid and binding legal demand from the New York State Department of Revenue (DOR)” (we assume the request came from the New York State Department of Taxation and Finance—the state agency responsible for administering tax laws in New York State). According to Amazon’s email, Amazon plans to release the following information to New York regarding its third-party sellers by June 1, 2018:
The New York State Department of Taxation and Finance has been drafting new Corporation Franchise Tax Regulations to incorporate the changes made by the corporate tax reform legislation that went into effect in 2015.
The newest draft regulations address net operating losses carried forward from pre-2015 tax years. In order to preserve the value of unused NOLs that arose prior to 2015, New York has created a prior net operating loss conversion (PNOLC) subtraction pool that can be applied against apportioned income in post-2015 tax years.
Last week we had the opportunity to attend the first annual New York State Tax Summit, a daylong seminar put on by the New York State Department of Taxation and Finance at their offices in Brooklyn. It was a fantastic event, with senior Department officials presenting a wide variety of topics and issues for discussion. There were close to 200 attendees present. And the Agenda was impressive. Here are some of the highlights of the day:
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On April 13, 2016, Governor Andrew M. Cuomo signed the 2016-17 New York State Budget into law. We summarize the highlights of the revenue provisions below.
During the spring of 2014, Hodgson Russ LLP (“Hodgson”) received a letter from the Minnesota Department of Revenue (“Minnesota Revenue”) that attempted to establish a new low in the states’ “race to the bottom” to establish the most minimal constitutional standard required to satisfy substantial nexus with an out-of-state taxpayer. Minnesota Revenue asserted that under suspect provisions of the Minnesota tax code, Hodgson had nexus with the state of Minnesota based upon a single, un-audited fact: between the 2004 and 2012 tax years, Hodgson received federal Forms 1099 from payors using a Minnesota mailing address. On account of this single fact – with no revenue floor or other safeguards – Minnesota Revenue asserted that Hodgson had nexus with Minnesota, and was therefore required to file Minnesota franchise tax returns and apportion its business income to the state.
2014 brought significant corporate income tax reform to New York State. This year, 2015, followed suit and brought many of those same corporate income tax reforms to New York City. To quote Donald Trump, these reforms are “HUUUUUUUUUGE,” and corporate taxpayers and tax practitioners need to take note. You can read some of our prior coverage here and here.
Among the most significant changes—and there were many—are the reforms to the methods of allocating business income. The Empire State and the Big Apple have shifted to customer-based sourcing for most types of receipts, including receipts from digital products, miscellaneous services, and other business activities. Further, both the state and city have created analytical cascades (referred to below as the “waterfall approach”) to determine the location of the customers and have imposed new “due diligence” standards on corporate taxpayers with respect to the application of each stage of the waterfall approach to the various categories of receipts. And the state has just issued draft regulations. So, not only are there new allocation rules to understand and follow, but there are also new rules regulating “how” taxpayers must comply with those new rules.
Questioning the constitutionality of state personal income tax provisions seems to be all the rage these days. On the heels of the Supreme Court’s decision in Comptroller v. Wynne discussed in our recent blog post, New York’s highest court heard oral arguments on Thursday, June 4, for two related cases to determine whether the taxation of nonresident shareholders of S corporations is constitutional.