On August 3, 2010, the New York State Senate approved an $869 million revenue bill, S.6610C/A 9710D (the "Revenue Bill"), which was the last major bill necessary to complete the legislative work on the state's Fiscal 2010-2011 Budget. Through a combination of new and increased taxes, fees and tax credit deferrals, the Revenue Bill will provide more than $1 billion in increased state revenues for Fiscal 2011, and even higher net revenues for the state in subsequent years. The Revenue Bill will provide $160 million in increased tax revenues for New York City.

The Senate voted along party lines, but eliminated a controversial proposal to tax the carried interests of nonresident fund managers who work in New York. In July, the Assembly approved a measure imposing state tax on carried interests of nonresident fund managers, but many state leaders opposed such a measure, claiming it would prompt fund managers to move their offices to other, more tax-friendly states, such as Connecticut. As a result, the Senate did not include the carried interest measure in the Revenue Bill. (See prior Mayer Brown Legal Update, July 7, 2010, “New York State Seeks to Recharacterize a Nonresident Partner’s ‘Carried’ Interest”). The Revenue Bill includes an increase in the New York City personal income tax rates for residents with taxable income greater than $500,000.

The Revenue Bill includes a number of business-related revenue and tax credit changes, which include:

  • Repealing the provisions that allowed private label credit card lenders to take sales tax bad debt credits or refunds on uncollectible accounts;
  • Amending the New York bank tax deductions for bad debts;
  • Reducing the dormancy period for unclaimed property for unused gift certificates and money orders; 
  • Deferring most major business tax credits exceeding $2 million for tax years beginning on or after January 1, 2010, and before January 1, 2013, including the Brownfield, Empire Zone, and QEZE credits. New York will not pay interest on the amounts of the credits deferred. For non-refundable credits, taxpayers may first claim deferred credits in the tax year beginning on or after January 1, 2013, and before January 1, 2014, with no limits on carry-forwards, and can claim these deferred credits until exhausted. For refundable credits, taxpayers may claim 50 percent of deferred refundable credits in the tax year beginning on or after January 1, 2013, and before January 1, 2014, 75 percent of remaining deferred credits in the tax year beginning on or after January 1, 2014, and before January 1, 2015, and the remainder of deferred refundable tax credits in the tax year beginning on or after January 1, 2015, and before January 1, 2016. Credits cannot reduce a taxpayer’s annual tax below the applicable alternative minimum tax;
  • Requiring "settlement entities" subject to information returns under Internal Revenue Code Section 6050-W to file duplicate reports with the state;
  • Treating certain S corporation income as New York source income by nonresident shareholders;
  • Requiring hotel room remarketers, such as online travel companies, to collect state sales tax. "Remarketers" is defined very broadly in the Revenue Bill and may include more parties than intended. The Revenue Bill also amends the New York City hotel room occupancy tax to conform the tax to the methodology of the amended state sales tax in regard to room remarketers; and
  • Making permanent prior amendments related to closely held REITS and RICs previously set to expire on January 1, 2011, and clarifying that certain publicly traded REITS are not subject to the above provisions for closely held REITs.

For more information regarding the changes included in the Revenue Bill, or any other matter raised in this Legal Update, please contact C. Wells Hall or Christine Cagnina. Learn more about our Tax Transactions & Consulting and Private Investment Fund practices.