NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A4595
SPONSOR: Kelles TITLE OF BILL:
An act to amend the tax law, in relation to the imposition of additional
tax on certain business income and on business income included in an
individual's New York taxable income
PURPOSE OR GENERAL IDEA OF BILL:
To generate increased tax revenue for New York State by off-setting the
federal under-taxation of corporate profits and pass-through business
income as a result of the 2017 Tax Cuts and Jobs Act.
SUMMARY OF SPECIFIC PROVISIONS:
Section 1 of the bill amends Article 9-A of the Tax Law ("Franchise Tax
on Business Corporations") by adding a new section 209-N, calculating a
tax on corporate income equal to the difference between the federal
corporate income tax rate (currently 21%) and the progressive corporate
income tax rate that applied prior to the enactment of the 2017 tax
legislation, known as the Tax Cuts and Jobs Act (when the top progres-
sive rate was 35%).
Section 2 of the bill amends Article 22 of the Tax Law ("Personal Income
Tax") by adding a new section 608, which taxes any amount deducted from
an individual's pass-through business income for federal income tax
purposes. This tax offsets the 20% deduction available under section
199A of the 2017 tax legislation known as the Tax Cuts and Jobs Act, and
applies at the highest federal income tax rates that would otherwise
apply to the taxpayer. Small business owners who benefit from the pass-
through deduction are not subject to this additional tax.
Section 3 is the effective date.
JUSTIFICATION:
New York is an exceptionally wealthy state. Treated as a separate coun-
try, it would have one of the world's largest economies. With such a
strong economy, all New Yorkers should have fundamental economic rights:
access to high-quality education, affordable healthcare, guaranteed
housing, and basic social services and social insurance. New York must
also finance investments in green energy, green jobs, and green infras-
tructure in order to mitigate the catastrophic risks of climate change.
New York is also the most unequal state in the nation, in part because
our tax system has not kept pace with changes in the economy, leaving
the many high-earning professionals and wealthy families in this state
undertaxed. Economic growth from recent decades has overwhelmingly bene-
fitted a small segment of elites, while inflation-adjusted wages have
stagnated for the vast majority of working people since the 1970s. The
state government, lacking adequate tax revenues, has been unable to
afford essential public investment and social spending, including
upgrading our infrastructure, repairing public housing, protecting
public education, and financing Medicaid.
While the Federal Government could aid the states in providing essential
services through progressive tax and spending measures, it instead
continues to give tax benefits to corporate interests. In 2017, the
Federal Government enacted the tax legislation known as the "Tax Cuts
and Jobs Act" (the "TCJA"). That Act replaced a progressive corporate
tax structure that topped out at 35%, with a 21% flat tax. The TCJA
also created a 20% deduction for business income received from pass-
through entities, with additional benefits for the real estate industry.
Big business, already adept at dodging taxes, hardly needed a tax cut.
Moreover, these tax give-aways cost the Federal Government trillions of
dollars in tax revenues. Tax revenues from corporate income are now at a
historic all-time low. Now, instead of funding desperately needed social
services and social insurance, these revenues have been diverted to
artificially boosting corporate earnings and inflating stock values.
New York can respond to regressive federal tax policy by offsetting
these cuts. The state is full of both large corporations and pass-
through business owners that were doing perfectly well before Congress
changes the federal corporate tax structure in 2017. This bill re-es-
tablishes the combined state and federal level of business taxation in
2017.
Under this bill, the state corporate tax rate adjusts to whatever the
current federal corporate tax rate is, so that the combined state and
federal corporate tax rate is equal to what it was in 2017. If the
Federal Government increases the corporate tax rate, the rate imposed by
New York will adjust downwards. The tax on pass-through business income
similarly adjusts to offset the federal deduction (currently 20% under
199A). An exemption is provided for small business owners who benefit
from the pass-through deduction.
LEGISLATIVE HISTORY:
New bill.
FISCAL IMPLICATIONS:
The sponsors estimate the bill would generate an additional $9 billion
in annual revenue for the state.
EFFECTIVE DATE:
This act shall take effect immediately.
STATE OF NEW YORK
________________________________________________________________________
4595
2021-2022 Regular Sessions
IN ASSEMBLY
February 4, 2021
___________
Introduced by M. of A. KELLES -- read once and referred to the Committee
on Ways and Means
AN ACT to amend the tax law, in relation to the imposition of additional
tax on certain business income and on business income included in an
individual's New York taxable income
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. The tax law is amended by adding two new sections 209-N and
2 608 to read as follows:
3 § 209-N. Additional tax. 1. There is imposed an additional tax on a
4 taxpayer's business income base, as defined in section two hundred ten
5 of this article, at a rate equal to the difference between (i) the rate
6 of tax imposed in subparagraph (b) of paragraph one of section 11 of the
7 Internal Revenue Code (26 U.S. Code § 11(1)(b)), as in effect for the
8 year two thousand sixteen, and (ii) the current rate of tax imposed in
9 paragraph (b) of section 11 of the Internal Revenue Code (26 U.S. Code §
10 11(1)(b)).
11 2. The additional tax under this section shall be administered, and
12 penalties shall be imposed, under the same provisions of this article as
13 the tax imposed under section two hundred nine of this article.
14 § 608. Additional tax. 1. There is imposed an additional tax upon the
15 amount of an individual's New York taxable income that corresponds to
16 any deduction taken pursuant to section 199A of the Internal Revenue
17 Code (26 U.S. Code § 199A), or any successor provision thereto. This
18 section shall not apply to a taxpayer with a federal taxable income
19 below the threshold amount, as defined in section 199A(e) of the Inter-
20 nal Revenue Code, plus fifty thousand dollars for single filers or one
21 hundred thousand dollars in the case of a joint return.
22 2. The rate of such additional tax shall be equal to the highest
23 federal income tax rates in effect for the taxable year that would apply
24 to the amount deducted under section 199A of the Internal Revenue Code
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD07723-01-1
A. 4595 2
1 (26 U.S. Code § 199A), or any successor provision thereto, but for the
2 application of such section.
3 3. The amount of an individual's New York taxable income that corre-
4 sponds to the amount of any deduction taken pursuant to section 199A of
5 the Internal Revenue Code (26 U.S. Code § 199A) is the amount that bears
6 the same relationship to the taxpayer's total New York taxable income as
7 the amount deducted under section 199A of the Internal Revenue Code (26
8 U.S. Code § 199A) bears to the taxpayer's total federal taxable income
9 as determined without regard to such deduction.
10 4. The additional tax under this section shall be administered, and
11 penalties shall be imposed, in the same manner as the other taxes
12 imposed by this article.
13 § 2. This act shall take effect immediately and shall apply to tax
14 year 2021.
