Corporate franchise tax: Tax expenditure estimates
Corporate franchise tax: Tax expenditure estimates
The 2014–15 Enacted Budget contained the most significant reform of the state’s corporate tax system since the 1940s. The new structure modernized and streamlined the tax code, made numerous simplifications, created clarity and certainty, and addressed the most common areas of dispute between taxpayers and the Tax Department.
The biggest change was the merger of the Article 32 Bank Tax into the Article 9-A Corporate Franchise Tax. Prior to reform, New York taxed banks and other financial corporations under separate tax articles respectively. Merging the bank tax with the corporate franchise tax reflects the modern landscape of New York’s leading industry. Corporate reform also recognized the shift to a service and knowledge-based economy by adopting a comprehensive market state tax approach. Certain other corporations (public utilities and insurance companies) continue to pay tax under other articles of the tax law.
This section of the report lists 97 separate tax expenditures for the corporation franchise tax on general business corporations and banks. This year’s report contains the seventh year of data for the new structure—tax year 2021. There are no estimates for tax years prior to 2015 because either the provisions did not previously exist or the changes under reform were of such significance that a historical estimate would be inappropriate. Pre-reform descriptions of Articles 9-A and 32 and historical estimates of the tax expenditures for pre-reform tax years (prior to 2015) are reported in Appendices A and B in the FY 2020 Tax Expenditure Report. The list of tax expenditures is based on the tax law as of January 1, 2025. Table 2 summarizes the tax expenditure estimates and includes total Article 9-A corporate franchise tax liability for the 2021 tax year to provide a benchmark for the tax expenditure estimates.
Description of tax
The corporate franchise tax has three separate bases. The business income base is the primary tax base, while the business capital and fixed dollar minimum tax bases are alternatives. Corporations pay the highest tax computed on these bases less applicable credits, but generally not less than the fixed dollar amount.
The computation of the tax on business income begins with federal taxable income for U.S. corporations (including domestic banks) or effectively connected income, with treaty benefits added back, for alien (non-U.S.) corporations. Taxpayers then make several state specific modifications to arrive at entire net income. Many of these modifications are the tax expenditures included in this section. Investment income and other exempt income are then subtracted from entire net income, resulting in business income. Taxpayers use a single receipts factor with market-based sourcing rules to apportion business income to New York State.
The following table provides the tax rate schedule as it applies to the business income base:
| Type of business | Tax year 2015 | Tax year 2016 | Tax year 2017 | Tax years 2018–2020 | Tax years 2021–2026 | Tax year 2027 and thereafter |
|---|---|---|---|---|---|---|
| Qualified New York manufacturers | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% |
| Qualified emerging technology companies | 5.7% | 5.5% | 5.5% | 4.875% | 4.875% | 4.875% |
| Small businesses1 | 6.5% | 6.5% | 6.5% | 6.5% | 6.5% | 6.5% |
| Taxpayers with business income base of more than $5 million | 7.1% | 6.5% | 6.5% | 6.5% | 7.25% | 6.5% |
| Remaining taxpayers | 7.1% | 6.5% | 6.5% | 6.5% | 6.5% | 6.5% |
1 For the 2015 tax year, graduated rates apply to small businesses with business income over $290,000 but below $390,000. A flat 6.5% rate applies to tax years beginning on or after January 1, 2016.
The tax on business capital starts with the taxpayer’s total assets reduced by its liabilities to arrive at total capital before apportionment. Taxpayers then subtract out investment capital as only business capital is subject to tax. Taxpayers multiply business capital by the business apportionment factor to determine the apportioned business capital base. For tax years beginning on or after January 1, 2021, qualified New York manufacturers, qualified emerging technology companies, cooperative housing corporations, and small business taxpayers are exempt from the capital base tax. The tax is capped at $5 million for remaining taxpayers subject to the base.
The capital base that was set to expire in tax year 2021 has been temporarily reinstated through tax year 2026. The following rate schedule applies to the capital base:
| Type of business | Tax year 2015 | Tax year 2016 | Tax year 2017 | Tax year 2018 | Tax year 2019 | Tax year 2020 | Tax years 2021–2026 | Tax year 2027 and thereafter |
|---|---|---|---|---|---|---|---|---|
| Qualified New York manufacturers & qualified emerging technology companies | 0.132% | 0.106% | 0.085% | 0.056% | 0.038% | 0.019% | 0% | 0% |
| Cooperative housing corporations | 0.04% | 0.04% | 0.04% | 0.04% | 0.04% | 0.025% | 0% | 0% |
| Small businesses | 0.15% | 0.125% | 0.100% | 0.075% | 0.050% | 0.025% | 0% | 0% |
| Remaining taxpayers | 0.15% | 0.125% | 0.100% | 0.075% | 0.050% | 0.025% | 0.1875% | 0% |
The fixed dollar minimum tax ranges from $25 to $200,000 depending on the taxpayer’s amount of New York receipts for the taxable year. Manufacturers, qualified emerging technology companies, noncaptive real estate investment trusts, and noncaptive regulated investment companies are subject to lower amounts.
Qualified New York manufacturers and qualified emerging technology companies are subject to the following fixed dollar minimum schedule:
| New York receipts | Tax year 2015 | Tax year 2016 | Tax year 2017 | Tax year 2018 and thereafter |
|---|---|---|---|---|
| Not more than $100,000 | $22 | $21 | $21 | $19 |
| More than $100,000 but not over $250,000 | $66 | $63 | $63 | $56 |
| More than $250,000 but not over $500,000 | $153 | $148 | $148 | $131 |
| More than $500,000 but not over $1,000,000 | $439 | $423 | $423 | $375 |
| More than $1,000,000 but not over $5,000,000 | $1,316 | $1,269 | $1,269 | $1,125 |
| More than $5,000,000 but not over $25,000,000 | $3,070 | $2,961 | $2,961 | $2,625 |
| Over $25 million | $4,385 | $4,230 | $4,230 | $3,750 |
Noncaptive real estate investment trusts and noncaptive regulated investment companies are subject to the following fixed dollar minimum schedule:
| New York receipts | Tax year 2016 and thereafter |
|---|---|
| Not more than $100,000 | $25 |
| More than $100,000 but not more than $250,000 | $75 |
| More than $250,000 but not over $500,000 | $175 |
| More than $500,000 | $500 |
Remaining taxpayers are subject to the following fixed dollar minimum schedule:
| New York receipts | Tax year 2015 and thereafter |
|---|---|
| Not more than $100,000 | $25 |
| More than $100,000 but not more than $250,000 | $75 |
| More than $250,000 but not over $500,000 | $175 |
| More than $500,000 but not over $1,000,000 | $500 |
| More than $1,000,000 but not over $5,000,000 | $1,500 |
| More than $5,000,000 but not over $25,000,000 | $3,500 |
| More than $25,000,000 but not over $50,000,000 | $5,000 |
| More than $50,000,000 but not over $100,000,000 | $10,000 |
| More than $100,000,000 but not over $250,000,000 | $20,000 |
| More than $250,000,000 but not over $500,000,000 | $50,000 |
| More than $500,000,000 but not over $1 billion | $100,000 |
| Over $1 billion | $200,000 |
Data sources and methodology
In 2014, New York enacted comprehensive corporate tax reform, which took effect for tax years beginning on or after January 1, 2015. Given the significant changes to the tax structure, all of the individual expenditures listed in this section are considered effective for tax years beginning on or after January 1, 2015, even if they existed in years before reform.
Certain federal tax expenditure provisions flow through and impact the New York corporate franchise tax. The tax begins with definitions of income that are derived from provisions of the federal Internal Revenue Code. As a result of this coupling of state definitions of the income base to federal definitions, exclusions or deductions from income at the federal level become exclusions or deductions at the state level. Therefore, these provisions automatically become tax expenditures at the State level. The U.S. Congressional Joint Committee on Taxation publishes an annual report (Estimates of Federal Tax Expenditures) that estimates federal tax expenditure items. Many items generally flow through to New York, but since state-level data for federal exclusion or deduction items are not available, state-specific estimates are not possible. Furthermore, it should be noted that New York does not conform to all federal tax expenditure provisions. States can decide to not follow (or decouple from) federal provisions. For example, in 2003 New York decoupled from federal bonus depreciation provisions under Internal Revenue Code § 168(k). [4]
[4] Several provisions of the Tax Cut and Jobs Act limited the amount of allowable deductions or exclusions at the federal level. New York did not decouple from these changes, so their impact would be reflected in a larger taxable income starting point for New York State purposes. See Preliminary report on the federal tax cuts and jobs act.
| Tax item | 2017 ($ millions) | 2018 ($ millions) | 2019 ($ millions) | 2020 ($ millions) | 2021 ($ millions) | Forecast 2025 ($ millions) | Reliability level |
|---|---|---|---|---|---|---|---|
| New York modifications to federal taxable income/effectively connected income | |||||||
| 1. Deduction of distributions made to victims or targets of Nazi persecution | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 1 |
| 2. Deduction of receipts from school bus operations | 1.8 | 3.2 | 3.1 | 3.2 | 5.3 | 5.0 | 1 |
| 3. Deduction of taxable refunds or credits of state tax | 4.5 | 7.1 | 14.1 | 7.1 | 9.1 | 9.0 | 1 |
| 4. Wage and salary expense allowed as federal credits but not as federal expenses | 7.0 | 4.6 | 4.6 | 9.7 | 22.5 | 23.0 | 1 |
| 5. Deferred gain on qualified emerging technology investment | * | * | * | * | * | * | 1 |
| 6. Federal Internal Revenue Code § 179 deduction recapture for a sport utility vehicle (SUV) | * | * | * | * | * | * | 1 |
| 7. Modification for qualified residential loan portfolios | 5.8 | 7.4 | 2.2 | 6.1 | 10.5 | 11.0 | 1 |
| 8. Modification for community banks and small thrifts | 13.3 | 15.2 | 15.5 | 17.2 | 22.0 | 22.0 | 1 |
| 9. Captive real estate investment trust modification for small thrifts and community banks | 36.8 | 46.2 | 48.7 | 60.4 | 56.8 | 57.0 | 1 |
| 10. Exclusion of income for foreign airlines | N/A | N/A | N/A | N/A | N/A | N/A | 5 |
| 11. Deductions for qualified public utility corporations, power producers, and pipeline companies | 2.2 | 1.8 | 1.9 | 0.4 | 1.4 | 1.0 | 1 |
| 12. Contributions to capital of a corporation | -- | 6.2 | 1.3 | 2.5 | 1.8 | 2.0 | 1 |
| 13. New York’s COVID-19 pandemic small business recovery grants | -- | -- | -- | -- | 0.6 | 0.0 | 4 |
| 14. Deduction for commercial cannabis activity | -- | -- | -- | -- | -- | 15.0 | 4 |
| New York modifications to entire net income | |||||||
| 15. Deduction for investment income | 37.7 | 70.4 | 49.1 | 58.6 | 65.3 | 65.0 | 1 |
| 16. Deduction for other exempt income1 | 5,590.6 | 1,018.9 | 1,027.0 | 1,058.0 | 1,455.6 | 1,456.0 | 1 |
| Corporate exemptions | |||||||
| 17. Companies operating in an innovation hot spot | 0.0 | * | * | * | * | * | 2 |
| 18. Exempt companies | N/A | N/A | N/A | N/A | N/A | N/A | 5 |
| 19. Homeowners association exemption from fixed dollar minimum tax | N/A | N/A | N/A | N/A | N/A | N/A | 5 |
| 20. New small business capital base exemption | 0.1 | 0.0 | * | * | -- | -- | 1 |
| 21. Capital base exemption | -- | -- | -- | -- | 155.1 | 155.0 | 1 |
| Preferential tax rates | |||||||
| 22. Special tax benefits for New York manufacturers/qualified emerging technology companies | |||||||
| a. Manufacturers | |||||||
| 1. Zero percent business income rate | 85.0 | 145.9 | 148.8 | 119.8 | 373.0 | 373.0 | 1 |
| 2. Reduced business capital base rate | 0.7 | 1.4 | 1.0 | 0.4 | -- | -- | 1 |
| 3. Lower capital base liability cap | 8.3 | 2.4 | 1.0 | * | -- | -- | 1 |
| 4. Reduced fixed dollar minimum base amounts | 2.5 | 2.5 | 3.0 | 2.7 | 3.6 | 4.0 | 1 |
| b. Qualified emerging technology companies | |||||||
| 1. Reduced business income rate | 4.9 | 15.0 | 19.6 | 31.2 | 55.6 | 56.0 | 1 |
| 2. Reduced business capital base rate | 0.1 | 0.2 | 0.2 | * | -- | -- | 1 |
| 3. Lower capital base liability cap | 0.8 | 0.0 | 0.0 | 0.3 | -- | -- | 1 |
| 4. Reduced fixed dollar minimum base amounts | * | 0.1 | 0.2 | 0.1 | 0.3 | * | 1 |
| 23. Special tax benefits for noncaptive real estate investment trusts and noncaptive regulated investment companies | |||||||
| a. Fixed dollar minimum amounts | 4.2 | 4.7 | 4.8 | 4.9 | 5.0 | 5.0 | 1 |
| b. Capital base exemption | N/A | N/A | N/A | N/A | N/A | N/A | 5 |
| Corporate franchise tax credits | |||||||
| 24. Credit for servicing SONYMA mortgages | 6.3 | 6.1 | 6.9 | 6.2 | 1.0 | 7.0 | 1 |
| Cross-article credits | |||||||
| 1. Investment tax credit and employment incentive credit | 95.4 | 119.5 | 63.6 | 61.4 | 95.8 | 105.0 | 1 |
| 2. Investment tax credit for the financial services industry | 4.3 | 5.2 | 1.8 | 0.8 | 0.2 | * | 1 |
| 3. Special additional mortgage recording tax credit | 22.6 | 21.9 | 26.3 | 25.8 | 32.3 | 30.0 | 1 |
| 4. Empire Zone and Qualified Empire Zone Enterprise credits | |||||||
| a. Empire Zone investment tax credit and employment incentive credit | 179.9 | 169.3 | 61.0 | 12.2 | 12.9 | 7.0 | 1 |
| b. Empire Zone/zone equivalent area wage tax credit | 2.6 | 1.8 | 2.5 | 1.5 | 3.0 | 1.0 | 1 |
| c. Empire Zone capital credit | * | * | 0.0 | 0.0 | 0.0 | * | 1 |
| d. Qualified Empire Zone Enterprise real property tax credit | 45.8 | 40.6 | 38.1 | 24.5 | 25.0 | 14.0 | 1 |
| e. Qualified Empire Zone Enterprise tax reduction credit | 3.5 | 2.0 | 1.7 | 0.2 | 0.1 | * | 1 |
| 5. Farmers’ school property tax credit | 1.5 | 1.4 | 1.5 | 1.2 | 1.2 | 2.0 | 1 |
| 6. Credit for employment of persons with disabilities | * | * | 0.1 | 0.1 | * | * | 1 |
| 7. Qualified emerging technology company credits | |||||||
| a. Qualified emerging technology company capital tax credit | 0.3 | 0.6 | 0.3 | 1.5 | 0.3 | 0.5 | 1 |
| b. Qualified emerging technology company employment credit | 2.0 | 2.9 | 4.3 | 3.7 | 3.5 | 5.0 | 1 |
| 8. Low-income housing credit | 47.5 | 53.1 | 52.7 | 57.0 | 55.9 | 60.0 | 1 |
| 9. Credit for purchase of an automated external defibrillator | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 1 |
| 10. Green building credit | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | * | 1 |
| 11. Long-term care insurance credit | 0.1 | 0.1 | 0.2 | * | * | 0.2 | 1 |
| 12. Empire State film and commercial credits | |||||||
| a. Empire State film production credit | 393.3 | 509.5 | 389.9 | 414.0 | 366.1 | 563.0 | 1 |
| b. Empire State film post-production credit | 16.5 | 14.8 | 10.9 | 16.4 | 20.0 | 43.0 | 1 |
| c. Empire State commercial production credit | 0.1 | 0.2 | 0.2 | 0.2 | 0.2 | 6.0 | 1 |
| 13. Security training tax credit | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | * | 1 |
| 14. Brownfields tax credits | |||||||
| a. Brownfield redevelopment tax credit | 93.0 | 144.1 | 136.5 | 112.3 | 230.4 | 113.0 | 1 |
| b. Remediated brownfield credit for real property taxes | 1.8 | 2.0 | 3.9 | 1.8 | 5.8 | 2.5 | 1 |
| c. Environmental remediation insurance credit | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | * | 1 |
| 15. Biofuel production credit | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | * | 1 |
| 16. Land conservation easement credit | * | * | * | * | * | * | 1 |
| 17. Clean heating fuel credit | 0.5 | 0.7 | 0.7 | 0.7 | 0.7 | 1.0 | 1 |
| 18. Rehabilitation of historic properties credit | 48.8 | 59.0 | 45.2 | 45.6 | 43.0 | 62.0 | 1 |
| 19. Excelsior Jobs Program tax credit | 17.1 | 24.5 | 19.8 | 28.6 | 29.3 | 180.0 | 1 |
| 20. Credit for companies who provide transportation to individuals with disabilities | * | * | 0.0 | * | * | * | 1 |
| 21. Economic Transformation and Facility Redevelopment Program tax credit | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | * | 1 |
| 22. New York Youth Jobs Program tax credit | 5.5 | 19.9 | 25.4 | 27.2 | 34.7 | 20.0 | 1 |
| 23. Empire State Jobs Retention Program tax credit | 8.4 | 3.2 | 3.2 | 3.2 | 3.2 | 6.0 | 1 |
| 24. Alcoholic Beverage production credit (beer production credit) | 2.6 | 2.7 | 2.8 | 2.8 | 2.9 | 5.0 | 1 |
| 25. Alternative fuels and electric vehicle recharging property credit | 0.4 | 0.4 | 0.7 | 0.4 | 0.1 | 1.0 | 1 |
| 26. START-UP NY tax elimination credit | 0.2 | 0.2 | 0.4 | 0.2 | 0.2 | 1.0 | 1 |
| 27. Credit for the excise tax on telecommunication services paid by START-UP NY businesses | * | * | * | 0.0 | 0.0 | * | 1 |
| 28. Real property tax relief credit for manufacturing | 2.3 | 2.3 | 1.9 | 1.1 | 0.6 | 2.0 | 1 |
| 29. Hire a vet credit | * | * | * | * | * | * | 1 |
| 30. Musical and theatrical production credit | 0.4 | 0.8 | 2.3 | 0.0 | 1.6 | 6.0 | 1 |
| 31. Workers with disabilities credit | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | * | 1 |
| 32. Employee Training Incentive Program | 0.0 | 0.0 | 0.0 | * | 0.0 | 2.0 | 1 |
| 33. Farm workforce retention credit | 0.7 | 0.8 | 1.4 | 1.2 | 1.8 | 4.0 | 1 |
| 34. Empire State apprenticeship tax credit | -- | * | 0.4 | 0.2 | 0.2 | 7.0 | 1 |
| 35. Life sciences research and development tax credit | -- | 1.6 | 3.4 | 2.2 | 2.4 | 9.0 | 1 |
| 36. Farm donations to food pantries credit | -- | * | * | * | * | * | 1 |
| 37. Employer provided child care credit | -- | -- | -- | 0.1 | 0.1 | 2.0 | 1 |
| 38. Recovery tax credit | -- | -- | -- | 0.0 | 0.0 | 1.0 | 1 |
| 39. Restaurant return-to-work tax credit | -- | -- | -- | -- | 1.1 | 0.0 | 1 |
| 40. New York City musical and theatrical production tax credit | -- | -- | -- | -- | 14.5 | 37.0 | 1 |
| 41. Covid-19 capital costs tax credit | -- | -- | -- | -- | -- | * | 4 |
| 42. Grade number 6 heating oil conversion tax credit | -- | -- | -- | -- | -- | 0.0 | 4 |
| 43. Farm employer overtime credit | -- | -- | -- | -- | -- | 1.0 | 4 |
| 44. Additional restaurant return-to-work tax credit | -- | -- | -- | -- | -- | * | 4 |
| 45. Empire State digital gaming media production tax credit | -- | -- | -- | -- | -- | 2.5 | 4 |
| 46. Child care creation and expansion credit | -- | -- | -- | -- | -- | * | 4 |
| 47. Newspaper and Broadcast Media Jobs Program credit2 | -- | -- | -- | -- | -- | 25.0 | 4 |
| 48. Commercial security tax credit2 | -- | -- | -- | -- | -- | 3.0 | 4 |
- The 2017 and 2018 values include the impact of exempting the one-time recognition of mandatory deemed repatriation income. The value includes the impact of exempting 95% of global intangible low-taxed income beginning in 2019.
- A new expenditure item, revision of the methodology or revisions in the data sources resulting in a change which better reflects the tax expenditure value.
| * | Less than $0.1 million |
|---|---|
| -- | The tax expenditure was not applicable for these years |
| N/A | No data available |
New York modifications to federal taxable income/effectively connected income
In computing New York entire net income, Tax Law Article 9-A allows certain modifications to entire net income/effectively connected income.
1. Deduction of distributions made to victims or targets of Nazi persecution
Citation: Tax Law § 13
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: A taxpayer may exclude the amount received (including accumulated interest) from an eligible settlement fund, or from an eligible grantor trust established for the benefit of the victims or targets of Nazi persecution when computing New York entire net income.
2. Deduction of receipts from school bus operations
Citation: Tax Law § 208(9)(a)(4)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: A taxpayer may exclude income less deductions with respect to amounts received from school districts and nonprofit religious, charitable, or educational organizations for the operation of school buses in determining entire net income.
3. Deduction of taxable refunds or credits of State Tax
Citation: Tax Law § 208(9)(a)(5)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: A taxpayer may exclude any refund or credit of a tax imposed under Tax Law Article 9 (§§ 183, 183-a, 184, and 184-a), or Article 9-A, 23, or former 32 that was properly included as income for federal income tax purposes, and for which no exclusion or deduction was allowed in determining the taxpayer’s entire net income for any prior year.
4. Wage and salary expenses allowed as federal credits but not as federal expenses
Citation: Tax Law § 208(9)(a)(7)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: A taxpayer may exclude the amount of wages disallowed under Internal Revenue Code § 280C in the computation of their applicable federal income from entire net income.
5. Deferred gain on qualified emerging technology investments
Citation: Tax Law § 208(9)(a)(14)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: A deferral of gain on the sale of a qualified emerging technology investment is available to taxpayers for a qualified emerging technology investment that is (1) held for more than 36 months and (2) rolled over into the purchase of a replacement qualified emerging technology investment within 365 days. Gain deferred under this provision must be recognized when the replacement qualified emerging technology investment is sold. However, gain on the sale of the replacement qualified emerging technology investment can be deferred if another replacement qualified emerging technology investment is acquired within 365 days.
6. Federal Internal Revenue Code § 179 deduction recapture for a sport utility vehicle (SUV)
Citation: Tax Law § 208(9)(a)(16)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: A taxpayer that previously claimed an Internal Revenue Code § 179 deduction with respect to an SUV may exclude the amount of that deduction that was recaptured in computing federal income.
7. Modification for qualified residential loan portfolios
Citation: Tax Law §§ 208(9)(a)(19), 208(9)(r)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: A thrift institution or a qualified community bank that maintains a qualified residential loan portfolio may deduct from federal taxable income the amount, if any, by which thirty-two percent of its entire net income exceeds the amounts deducted by the taxpayer pursuant to Internal Revenue Code §§ 166 and 585 less any amounts included in federal taxable income as a result of a recovery of a loan. A taxpayer utilizing this modification may not use the modifications described in items 8 and 9.
8. Modification for community banks and small thrifts
Citation: Tax Law §§ 208(9)(a)(19), 208(9)(s)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: A qualified community bank or a small thrift institution may be allowed a deduction in computing entire net income equal to the product of the taxpayer’s net interest income from loans, a ratio of gross interest income during the taxable year from qualifying loans to gross interest income during the taxable year from all loans, and fifty percent. A taxpayer utilizing this modification may not use the modifications described in items 7 and 9.
9. Captive real estate investment trust modification for small thrifts and community banks
Citation: Tax Law §§ 208(9)(a)(19), 208(9)(t)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: A small thrift institution or a qualified community bank that maintained a captive real estate investment trust as of April 1, 2014, and continues to maintain such real estate investment trust must utilize a subtraction equal to one hundred sixty percent of the dividends paid deductions allowed to that captive real estate investment trust for the taxable year for federal income tax purposes. A taxpayer utilizing this modification may not use the modifications described in items 7 and 8.
10. Exclusion of income for foreign airlines
Citation: Tax Law § 208(9)(c-1)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: Certain foreign airlines may exclude all income from international operations of aircraft effectively connected to the United States, foreign passive income, and income earned overseas from overseas operations of aircraft from entire net income. These foreign airlines may also exclude business and investment assets connected with such exempt income from the capital base tax. These tax benefits apply provided the “home country” provides similar treatment to United States airlines.
11. Deductions for qualified public utilities, power producers and pipeline companies
Citation: Tax Law §§ 208(9)(c-2)(4), (5), 208(9)(c-3)(4)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: Taxpayers which are qualified public utility corporations, qualified power producers, or qualified pipeline corporations are allowed certain depreciation and expense deductions in determining entire net income.
12. Contributions to capital of a corporation
Citation: Tax Law § 208(9)(a)(20)
Effective date: Effective for tax years beginning on or after January 1, 2018
Description: In computing New York entire net income, a taxpayer may subtract contributions to a corporation’s capital made by any governmental entity or civic group (other than a contribution made by a shareholder) that are included in gross income under Internal Revenue Code § 118(b)(2).
13. New York’s COVID-19 pandemic small business recovery grants
Citation: Tax Law § 208(9)(a)(22)
Effective date: Taxable years beginning on or after January 1, 2021
Description: Grants received pursuant to New York’s COVID-19 Pandemic Small Business Recovery Grant Program are excluded from taxable income.
14. Deduction for commercial cannabis activity
Citation: Tax Law § 208(9)(a)(23)
Effective date: Effective for tax years beginning on or after January 1, 2022
Description: A taxpayer engaged in commercial cannabis activity may subtract expenses related to adult-use cannabis products that are disallowed federally under Internal Revenue Code § 280E.
New York modifications to entire net income
In computing New York Business Income, Article 9-A allows certain modifications to entire net income.
15. Deduction for investment income
Citation: Tax Law §§ 208(6), 208(8)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: A taxpayer may deduct income, including capital gains in excess of capital losses, from investment capital in determining business income.
Investment capital is defined as investments in stocks that:
- satisfy the definition of a capital asset under Internal Revenue Code § 1221 at all times the taxpayer owned such stock during the taxable year;
- are held by the taxpayer for investment for more than one year;
- the dispositions of which are, or would be, treated by the taxpayer as generating long-term capital gains or losses under the Internal Revenue Code;
- for stocks acquired on or after January 1, 2015, at any time after the close of the day in which they are acquired, have never been held for sale to customers in the regular course of business; and
- before the close of the day on which the stock was acquired, are clearly identified in the taxpayer’s records as stock held for investment in the same manner as required under Internal Revenue Code § 1236(a)(1) for the stock of a dealer in securities to be eligible for capital gain treatment (whether or not the taxpayer is in fact a dealer of securities).
In addition, investment capital includes debt and other securities the income of which cannot be apportioned under the U.S. Constitution.
Investment capital does not include stock in a corporation that is conducting a unitary business with the taxpayer, stock in a corporation that is included in a combined group pursuant to the commonly owned group election, and stock issued by the taxpayer.
Investment income must be reduced by interest expenses directly and indirectly attributable to those items of income. In lieu of performing expense attribution, taxpayers may instead elect to reduce the income by 40 percent. Finally, the amount of investment income, determined without regard to interest deductions, cannot exceed eight percent of the taxpayer’s entire net income.
16. Deduction for other exempt income
Citation: Tax Law §§ 208(6-a), 208(8)
Effective date: § 208(6-a) is effective for tax years beginning on or after January 1, 2015; § 208(6-a)(ii) is effective for tax years beginning on or after January 1, 2017; § 208(6-a)(iii) is effective for tax years beginning on or after January 1, 2019
Description: A taxpayer may deduct other exempt income from entire net income. Other exempt income means the sum of exempt controlled foreign corporation (CFC) income and exempt unitary corporation dividends.
Exempt CFC income defined in Tax Law § 208(6-a)(a) includes:
- Subpart F income (other than that described in (2) below) required to be included in the taxpayer’s federal gross income pursuant to Internal Revenue Code § 951(a) received from a corporation conducting a unitary business with the taxpayer but not included in the taxpayer’s combined group;
- mandatory deemed repatriation income required to be included in the taxpayer’s federal gross income pursuant to Internal Revenue Code § 951(a) by reason of Internal Revenue Code § 965(a) received from a corporation that is not included in the taxpayer’s combined group; and
- ninety-five percent of global intangible low-taxed income (GILTI) required to be included in the taxpayer’s federal gross income pursuant to Internal Revenue Code § 951A received from a corporation that is not included in the taxpayer’s combined group.
The mandatory deemed repatriation related deduction allowed under Internal Revenue Code § 965(c) and the GILTI-related deduction allowed under Internal Revenue Code § 250 must be added back to entire net income in years when the income is included in other exempt income.
For tax years beginning on or after January 1, 2018, and before January 1, 2019, GILTI income as well as the corresponding Internal Revenue Code § 250 deduction for a portion of GILTI income, flowed through from the federal return to New York. As a result, the net GILTI amount was generally included in taxable business income.
Exempt unitary corporation dividends defined in Tax Law § 208(6-a)(b) includes:
- dividends received from a corporation conducting a unitary business with the taxpayer but taxable, or would be taxable, under a franchise tax imposed by Tax Law Article 9 or Article 33 (cross-article dividends); and
- dividends (other than those described in 1 above) received from a corporation conducting a unitary business with the taxpayer but not included in the taxpayer’s combined group (i.e. alien corporations with no effectively connected income and corporations less than 50 percent directly or indirectly owned by the taxpayer).
The income listed above must be reduced by interest expenses directly or indirectly attributable to the production of such income. In lieu of performing expense attribution, taxpayers may instead elect to reduce the income (other than cross-article dividends) by 40 percent.
Other exempt income cannot exceed entire net income.
Corporate exemptions
17. Companies operating in an innovation hot spot
Citation: Tax Law §§ 38, 208(9)(a)(18), 209(11)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: The New York State Business Incubator and Innovation Hot Spot Support Act created special tax benefits for qualified entities operating in Innovation Hot Spots. These tax benefits are allowed for five tax years beginning with the first tax year the qualified entity becomes a tenant in (or part of) an Innovation Hot Spot.
Qualified entities located completely within an Innovation Hot Spot are exempt from the business income and capital tax bases. Instead, these entities must only pay the fixed dollar minimum tax.
Qualified entities located both within and without an Innovation Hot Spot, or that are a corporate partner in a qualified entity, are allowed a deduction in computing entire net income for the amount of income or gain attributable to the operations at (or as part of) the Innovation Hot Spot.
18. Exempt companies
Citation: Tax Law §§ 3, 8, 208(9)(i), and 209(4)(9) and (12); Rural Cooperative Corporations Law § 77; Rural Electric Cooperative Law § 66; and Banking Law § 479
Effective date: Effective for tax years beginning on or after January 1, 2015.
Description: The following companies or organizations are exempt from taxation under Article 9-A:
- limited profit housing companies;
- limited dividend housing companies;
- trust companies organized under a law of New York, all of the stock of which is owned by not less than 20 savings banks organized under a law of New York;
- Urban Development Corporation and its subsidiaries;
- certain domestic corporations exclusively engaged in the operation of one or more vessels in foreign commerce;
- certain domestic international sales corporations;
- passive trusts;
- certain corporations organized other than for profit and those corporations that are generally exempt from federal tax by the Internal Revenue Code;
- corporations exempt pursuant to Public Law 86-272 wherein a foreign corporation has limited its activities in New York to the mere solicitation of orders for tangible property by its employees or representatives;
- real estate mortgage investment conduits;
- industrial development agencies;
- housing development fund companies;
- corporations exempt from tax under Internal Revenue Code §§ 501(c)(2) and (25);
- certain cooperative heating and cooling service companies that are organized without capital stock and that are exempt from tax pursuant to Internal Revenue Code § 501(c)(12);
- federal and state credit unions chartered under 12 U.S. Code § 1768, Internal Revenue Code § 501(c)(14)(A), or New York State Banking Law § 479; and
- all farmers, fruit growers, and other like agricultural corporations organized and operated on a cooperative basis for the purposes expressed in the Co-operative Corporations Law, whether or not such corporations have capital stock.
19. Homeowners association exemption from fixed dollar minimum tax
Citation: Tax Law § 210(1)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: Article 9-A exempts qualified homeowners associations that have no homeowner’s taxable income from payment of the fixed dollar minimum tax. The associations would still be subject to the other taxable bases under Article 9-A, if applicable.
20. New small business capital base exemption
Citation: Tax Law § 210(1-c)
Effective date: Effective for tax years beginning on or after January 1, 2015, and before January 1, 2021
Description: The law exempts new small businesses from the tax based on allocated business capital. This exemption applies to the first two years of operation of a business that:
- has an entire net income of not more than $390,000 for the taxable year;
- the aggregate amount of money and other property received by the corporation for stock, as a contribution to capital, and as paid-in surplus, does not exceed $1 million;
- has an average of one hundred or fewer individuals, excluding general executive officers, employed full-time in the state during the taxable year; and
- is not part of an affiliated group, as defined in Internal Revenue Code § 1504, unless such group, if it had filed a report under article 9-A on a combined basis, would have itself qualified as a small business taxpayer.
For tax years beginning on or after January 1, 2021, see item #21 below.
21. Capital base exemption
Citation: Tax Law § 210(1)(b)
Effective date: Taxable years beginning on or after January 1, 2021, and before January 1, 2027
Description: Taxpayers that are qualified New York manufacturers, qualified emerging technology companies, small businesses, and cooperative housing corporations are exempt from the capital base.
Preferential tax rates
22. Special tax benefits for New York manufacturers and qualified emerging technology companies
a. Special tax benefits for New York manufacturers
Manufacturers in New York are subject to reduced tax rates and fixed dollar minimum amounts, as well as a lower capital base liability cap.
A manufacturer is defined as a taxpayer…principally engaged in the production of goods by manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture, or commercial fishing. The generation and distribution of electricity, the distribution of natural gas, and the production of steam associated with the generation of electricity are not qualifying activities for a manufacturer.
To be a qualified New York manufacturer eligible for the preferential tax treatment, the taxpayer must meet two tests. First, the taxpayer, or the combined group, must be principally engaged in manufacturing. This test is satisfied if more than 50 percent of the taxpayer’s or group’s gross receipts are derived from the sale of goods produced by the activities listed above.
The second test requires the taxpayer to have manufacturing property in New York State with a New York adjusted basis of at least $1 million or have all of its real and personal property located in New York State.
A taxpayer, or combined group, that fails the receipts test may still be a qualified New York manufacturer if it has at least 2,500 New York manufacturing employees and manufacturing property in New York State with a New York adjusted basis of at least $100 million.
1. Zero percent business income rate
Citation: Tax Law § 210(1)(a)(vi)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: Taxpayers that are qualified New York manufacturers are subject to a 0 percent business income rate.
2. Reduced capital base tax rate
Citation: Tax Law § 210(1)(b)(1)
Effective date: Effective for tax years beginning on or after January 1, 2015, and before January 1, 2021
Description: Taxpayers that are qualified New York manufacturers are subject to the following reduced capital base rates:
| Tax year 2015 | Tax year 2016 | Tax year 2017 | Tax year 2018 | Tax year 2019 | Tax year 2020 |
|---|---|---|---|---|---|
| 0.132% | 0.106% | 0.085% | 0.056% | 0.038% | 0.019% |
For tax years beginning on or after January 1, 2021, see item #21.
3. Lower capital base liability cap
Citation: Tax Law § 210(1)(b)(1)
Effective date: Effective for tax years beginning on or after January 1, 2015, and before January 1, 2021
Description: The maximum liability under the capital base is $5 million, except taxpayers that are qualified New York manufacturers are subject to a lower cap of $350,000.
4. Reduced fixed dollar minimum amounts
Citation: Tax Law § 210(1)(d)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: Taxpayers that are manufacturers are subject to the following reduced fixed dollar minimum amounts:
| New York receipts | Tax year 2015 | Tax year 2016 | Tax year 2017 | Tax year 2018 and thereafter |
|---|---|---|---|---|
| Not more than $100,000 | $22 | $21 | $21 | $19 |
| More than $100,000 but not more than $250,000 | $66 | $63 | $63 | $56 |
| More than $250,000 but not more than $500,000 | $153 | $148 | $148 | $131 |
| More than $500,000 but not more than $1,000,000 | $439 | $423 | $423 | $375 |
| More than $1,000,000 but not more than $5,000,000 | $1,316 | $1,269 | $1,269 | $1,125 |
| More than $5,000,000 but not more than $25,000,000 | $3,070 | $2,961 | $2,961 | $2,625 |
| Over $25 million | $4,385 | $4,230 | $4,230 | $3,750 |
b. Special tax benefits for qualified emerging technology companies
Qualified emerging technology companies in New York are subject to reduced tax rates and fixed dollar minimum amounts, as well as a lower capital base liability cap. A corporation is a qualified emerging technology company if it meets the definition in Public Authorities Law § 3102-e(1)(c), except that the $10 million limitation under 3102-e(1)(c)(1) does not apply. A combined group may be considered a qualified emerging technology company if all members of the group meet the definition of a qualified emerging technology company.
A qualified emerging technology company must meet one of two tests:
-
- it must be engaged in creating or developing emerging technologies referenced in Public Authorities Law § 3102-e to qualify under the primary products or services test; or
- it must have research and development activities in New York State and have a ratio of research and development funds to net sales equal to or in excess of the average ratio for all surveyed companies classified as determined by the National Science Foundation in the most recent published results from its Survey of Industry Research and Development, or any comparable successor survey (the research and development test).
1. Reduced business income rate
Citation: Tax Law § 210(1)(a)(vii)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: Taxpayers that are qualified emerging technology companies are subject to the following reduced business income rates:
| Tax year 2015 | Tax year 2016 | Tax year 2017 | Tax year 2018 and thereafter |
|---|---|---|---|
| 5.7% | 5.5% | 5.5% | 4.875% |
2. Reduced capital base tax rate
Citation: Tax Law § 210(1)(b)(1)
Effective date: Effective for tax years beginning on or after January 1, 2015, and before January 1, 2021
Description: Taxpayers that are qualified emerging technology companies are subject to the following reduced capital base rates:
| Tax year 2015 | Tax year 2016 | Tax year 2017 | Tax year 2018 | Tax year 2019 | Tax year 2020 |
|---|---|---|---|---|---|
| 0.132% | 0.106% | 0.085% | 0.056% | 0.038% | 0.019% |
For tax years beginning on or after January 1, 2021, see item #21.
3. Lower capital base liability cap
Citation: Tax Law § 210(1)(b)(1)
Effective date: Effective for tax years beginning on or after January 1, 2015, and before January 1, 2021
Description: The maximum liability under the capital base is $5 million, except taxpayers that are qualified emerging technology companies are subject to a lower cap of $350,000.
4. Reduced fixed dollar minimum amounts
Citation: Tax Law § 210(1)(d)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: Taxpayers that are qualified emerging technology companies are subject to the following reduced fixed dollar minimum amounts:
| New York receipts | Tax year 2015 | Tax year 2016 | Tax year 2017 | Tax year 2018 and thereafter |
|---|---|---|---|---|
| Not more than $100,000 | $22 | $21 | $21 | $19 |
| More than $100,000 but not more than $250,000 | $66 | $63 | $63 | $56 |
| More than $250,000 but not more than $500,000 | $153 | $148 | $148 | $131 |
| More than $500,000 but not more than $1,000,000 | $439 | $423 | $423 | $375 |
| More than $1,000,000 but not more than $5,000,000 | $1,316 | $1,269 | $1,269 | $1,125 |
| More than $5,000,000 but not more than $25,000,000 | $3,070 | $2,961 | $2,961 | $2,625 |
| Over $25 million | $4,385 | $4,230 | $4,230 | $3,750 |
23. Special tax benefits for noncaptive real estate investment trusts and noncaptive regulated investment companies
a. Fixed dollar minimum amounts
Citation: Tax Law § 210(1)(d)(1)(D-1)
Effective date: Effective for tax years beginning on or after January 1, 2016
Description: Taxpayers that are noncaptive real estate investment trusts or noncaptive regulated investment companies are subject to the following reduced fixed dollar minimum amounts:
| If New York receipts are: | Fixed dollar minimum tax is: |
|---|---|
| Not more than $100,000 | $25 |
| More than $100,000 but not more than $250,000 | $75 |
| More than $250,000 but not more than $500,000 | $175 |
| Over $500,000 | $500 |
b. Capital base exemption
Citation: Tax Law §§ 209(5), 209(7)
Effective date: Effective for tax years beginning on or after January 1, 2015
Description: Noncaptive real estate investment trusts and noncaptive regulated investment companies are exempt from the capital base tax.
Corporate franchise tax credits
24. Credit for servicing State of New York Mortgage Agency mortgages
Citation: Tax Law § 210-b(10)
Pre-reform citation: Tax Law §§ 210(21-a), 1456(a)
Credit type: Nonrefundable/non-carryforward
Effective date of credit: Effective for tax years beginning on or after January 1, 2015
Description: Banking corporations and mortgage bankers registered under Banking Law, Article 12-D and meeting certain regulatory requirements established by the State of New York Mortgage Agency (SONYMA) may claim a credit for servicing mortgages acquired by SONYMA. The credit equals 2.93 percent of the total principal and interest collected for each SONYMA mortgage secured by a one-to-four family residence. In addition, banks and mortgage bankers may receive an amount equal to the interest collected during the taxable year on each SONYMA mortgage secured by a five or more family-residence multiplied by a fraction. The fraction depends on the types of properties which secure the serviced mortgage loans. The credit may reduce tax liability to zero.
Cross-article credits
Credits include amounts that the taxpayer may subtract in calculating New York tax liability or request as a refund or apply as a payment for the next tax period. Full descriptions of all the tax credits available under Article 9-A as well as other tax articles are contained in the Cross-article tax credits section of this report.