"On March 31, 2014, Governor Cuomo signed into law what could be the most substantial tax reform package in New York since 1987. The primary area of change occurred in the corporate tax law." Per the new law, the majority of the corporate tax provisions take effect in tax years beginning on and after January 1, 2015. The new tax law provisions are shown below;

1.Reduction of the Corporate Franchise Tax
The corporate franchise tax rate on the entire net income for all taxpayers subject to the general business corporation tax is reduced from 7.1% to 6.5%, effective for tax years beginning on or after January 1, 2016.

In addition, the tax rate on the entire net income will be effectively reduced to 0% for qualified New York manufacturers for tax years beginning on or after January 1, 2014.

The Metropolitan Transportation Authority surcharge will increase to 25.6% of the corporate franchise tax rate (7.1% for 2015, then 6.5% thereafter).

2. Expanded Nexus Standard
Currently in New York Corporate Tax is generally based on physical presence. Under the newly adopted economic nexus standard, a corporation is subject to tax if it derives receipts from activity in New York.

A corporation is deemed to derive receipts from activity in New York if it has $1 million or more of receipts included in the numerator of its apportionment factor. Corporations with less than $1 million but at least $10,000 of receipts within New York would be considered to derive receipts from activity in New York if the corporation is a member of a combined group that has $1 million or more in receipts attributable to New York under the revised sourcing rules.

Economic nexus will apply to certain credit card corporations if they have Issued credit cards to 1,000 or more customers who have a New York mailing address as of the last day of the financial institution’s tax year entered into merchant-customer contracts for which it has remitted payments for credit card transactions with merchants at 1,000 or more locations in New York, or Issued credit cards to customers with New York mailing addresses and entered into merchant contracts with merchants with locations in New York that total 1,000 or more on a combined basis Alien corporations—those organized in a jurisdiction outside of the United States—will be subject to the New York State tax if they have effectively connected income as defined under the Internal Revenue Code (IRC).

3. New Corporate Income Tax Base
There are new rules simplify the system of computing the income tax base and eliminate what were considered significant loopholes in calculating the tax base. The starting point for business income is still federal taxable income. Business income is now defined as entire net income minus investment income and other exempt income. The definition of investment income is substantially narrowed to include only income from shares in non-unitary corporations held for more than six consecutive months. Other exempt income is defined as the sum of exempt controlled foreign corporation income and exempt unitary corporation dividends. Taxpayers will now have the option to either subtract expenses directly or indirectly attributable to investment and exempt income or, in the alternative, elect to take a 40% safe-harbor reduction. If electing the 40% safe harbor, it must be applied to both investment and exempt income.

Further, the capital base tax (capped at $350,000 for manufacturers and $5 million for all other taxpayers) will be phased out over a five year period.

4. Apportionment of Income for Businesses
Previously under Article 9-A, taxpayers apportioned business income and business capital by reference to a single-receipts factor. Under Article 32 taxpayers apportioned income by utilizing receipts, deposits, and payroll factors. These new provisions make the single sales factor standard for both and adopt a customer-based approach to sourcing receipts to New York. While the former rules with regard to sourcing sales of tangible personal property (destination) and leasing of real or personal property (situs of the property) remain in effect, other types of sales from licensing or services will now be sourced to the location where the benefit of the sale is provided (generally the customer location).

Per the new law, effective this year, "sales of digital products will be sourced according to a hierarchy of rules that will include geographic location of the users, internet protocols, or location of receipt. Digital products include property, services or the combination of property and services delivered to a purchaser through the use of wire, cable, fiber-optic, laser, microwave, radio wave, satellite or similar successor media, or in any combination of the foregoing."

5.Net Operating Loss (NOL)
"Taxpayers are no longer allowed to carry NOLs back to offset income in prior years. Instead, they may only carry NOLs forward 20 years. In addition, NOLs must be calculated on a post-apportioned basis. A credit will be available for NOLs incurred before 2015, calculated by using the taxpayer’s unabsorbed NOLs, business-allocation percentage and tax rate, all determined under the law in effect through 2014."

The credit can be used in a year when the tax is measured by business income. The taxpayer would be able to use up to 10% of the total amount of credit against current-year tax, limited to the higher of the tax on the capital base or the fixed-dollar minimum tax.

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