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New York State Tax Reform Update

Qualified manufacturers subject to the New York State Business Corporation Tax may now pay no tax on business income earned in New York.

Recently enacted New York State tax reform legislation allows qualified corporate manufacturers to reduce the tax rate on business income to zero for tax years beginning in 2014 and thereafter. The reform includes a provision that allows manufacturers that have Investment Tax Credit (ITC)–eligible property in New York State with a federal tax basis of as little as $1 million to qualify. Corporate manufacturers that meet this minimum property requirement must also meet certain additional requirements, including the following:

  • More than 50% of the manufacturer’s gross receipts must be derived from the sale of its manufactured goods.

  • Combined filers must meet the 50% test on a combined basis.

In addition, the following is noteworthy:

  • The distribution of natural gas and generation, the distribution of electricity, and the related production of steam are not considered manufacturing.

  • ITC-eligible property includes property depreciable under Internal Revenue Code (IRC) Section 167 with a useful life of four years or more acquired by purchase per IRC Section 179(d) and principally used by the taxpayer in the production of goods by manufacturing, processing, and assembling, or certain other activities.

Although having at least $1 million of ITC-eligible property is not the only way a manufacturer may qualify for the zero tax rate, the key takeaway is that an out-of-state manufacturer that is a New York State corporate taxpayer may eliminate its tax on business income by simply acquiring as little as $1 million in qualified property.

Copyright © 2022 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume IV, Number 141
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About this Author

Cosimo Zavaglia, Morgan Lewis, Corporate tax lawyer
Associate

With a focus on state and local tax issues involving corporations, partnerships, and individuals, Cosimo A. Zavaglia advises clients on a range of multistate tax issues, including controversy, planning, and compliance. Cosimo handles matters related to state and local income and franchise taxes, gross receipts taxes, entity-level taxes, sales and use taxes, telecommunications taxes, and real estate transfer taxes. He also develops state tax planning strategies for corporate restructurings, mergers, acquisitions, and dispositions.

212.309.6646
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