On April 19, 2021, tax legislation included in the New York State fiscal-year 2022 budget bill was signed into law. This includes important amendments impacting Article 9-A corporate taxpayers highlighted below and could require additional consideration as corporations approach their quarter or fiscal-year end.
Corporation Tax Rates
Franchise Tax Rate
- The business corporation franchise tax rate increased from 6.5% to 7.25% for three years through 2023 for taxpayers with “business income” greater than $5 million. The $5 million “business income” base refers to post-apportionment NYS taxable income. This change is effective for taxable years beginning on or after January 1, 2021, and before January 1, 2024.
Capital Base Tax Rate
- The capital base tax originally set to phase out for tax years beginning on or after January 1, 2021, was reinstated. The new tax rate is imposed at .1875% and applies to any non-exempt taxpayers for taxable years beginning on or after January 1, 2021, and before January 1, 2024.
MTA Surcharge Rates
- Exclusive of the NYS budget bill the MTA surcharge rate has continued to rise year over year. On December 3, 2020, the Commissioner established the MTA surcharge rate for tax years beginning on or after January 1, 2021, and before January 1, 2022, at 30% of your NYS tax due prior to credits plus the fixed dollar minimum tax of each member of the combined group that is subject to the MTA surcharge.
What Impact Could This Have on Banks?
Tax Accrual
- Although there was no impact on tax rates for the quarter that ended March 31, 2021, banks and other corporations alike will need to take into consideration tax rate changes for the quarter in which the legislation was enacted. Therefore, tax rates will need to be adjusted for June 30, 2021, current tax accruals, as well as for state deferred balances potentially resulting in a discrete period item as it relates to revaluing at the new tax rate, if applicable.
Estimated Tax Payments & Mortgage Recording Tax Credits
- Banks which paid only the fixed dollar minimum tax based on gross receipts and which had sufficient special additional mortgage recording tax to cover their tax liability often received refunds of these unused credits. However, due to the change in capital base tax rate to .1875%, corporations may now be on the hook for increased quarterly estimated tax payments to New York. The capital base tax computed at the newly enacted rate will need to be recalculated to determine the cash flow impact resulting from the increased utilization of MRT credits to offset the increased capital base tax.
With all the changes 2021 has brought to date we are here to help. Please contact a member of the Bonadio Tax Team if you have any questions or would like assistance determining applicable rates for your accruals and estimated tax payments, or to discuss the impact these changes may have on your mortgage recording tax credits.
Additionally, we encourage you to reference other Bonadio tax-related articles listed below and watch in the following weeks for further updates and alerts as developments occur.
- NYS Addresses Limitation on SALT Deduction for Pass-Through Entity Owners
- NYS Adopts Tax Increases for High Income Taxpayers Along with Other Significant Tax Code Changes
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
