“Of Curiosity” New York Invoice: What’s Remaining and What Might It Imply? Hodgson Russ LLP

This blog post covers some notable pieces of recently introduced New York tax law. While these bills are due to expire today at the end of the current legislative period, these bills can be reintroduced when the new legislative period begins in January 2021. If finally passed, these new laws could have a significant impact on New York taxpayers, so we plan to keep these bills on our radar and track their progress throughout the legislative process when the new session begins.

  1. S44B – Proposal for a new pied-à-terre tax

    As discussed in our previous one Blog postsThe idea of ​​levying a pied-à-terre tax was reintroduced. A pied-à-terre, borrowed from the French and literally means “foot on the ground”, refers to a small apartment, house or room that is kept for occasional use. Essentially, it is a small second home that is not the buyer’s primary residence. This bill would impose an additional tax on certain non-primary New York City residences. The earlier version of the pied-à-terre tax, S44A, was applicable covered here with a very detailed explanation of how this tax would work. The main change between the original version and the current version of the proposed pied-à-terre tax in S44B is that a condominium or cooperative owner could now receive an appraisal to prove that the property has an estimated value of less than 5 million .USD and therefore should be exempt from tax. The Independent Budget Office in New York City is using the pied-à-terre tax as a source of income and would raise property taxes on high-quality second homes in New York City.

  2. S7677 – Proposal for a new millionaires tax

    This bill would increase personal income tax rates for those earning more than $ 1 million per year. Currently, the tax rate for the highest bracket is 8.82%. However, this calculation is intended to create new parentheses with the highest parenthesis (income over $ 100 million) subject to a tax rate of 11.82%. According to the bill, the applicable tax rates would be increased as follows:

    The bill is estimated to increase government revenues by more than $ 4.5 billion. The stated purpose of this new income tax bracket is to promote economic equity and avoid cuts in spending on public education and Medicaid, as half of the revenue generated will be used to fund public education and the other half to fund Medicaid .

  3. S9037A – PPP loans issued that are exempt from income

    This invoice would exclude the Federal Paycheck Protection Program (“PPP”) loan cost for Adjusted Gross Income (“AGI”). The purpose of this bill is to clarify that PPP loans to small businesses that are converted into grants will not be included in the AGI as was intended when the CARES bill was passed. The PPP was part of the $ 2.2 trillion CARES bill passed by Congress in March to keep small businesses alive during the current pandemic. When PPP loan proceeds are used for qualified costs – payroll; Health insurance for paid sick leave, sick leave or family leave; Mortgage interest payments; Rental fee; and utilities – and 60% of the loan proceeds are used for labor costs, then the federal government makes the loan. However, two IRS provisions (Notice 2020-32 and Rev. Ruling 2020-27) declared converted loans as income, conflicting with the original intent and scope of the law. The New York proposed legislation was intended to clarify that these converted loans for New York purposes are tax exempt and should not be considered as gross adjusted income. The recently enacted Consolidated Funds Act of 2021 was incorporated into the law on December 27th. clarifies that qualified expenses paid with proceeds from a forgivable PPP loan are deductible for federal income tax purposes. It remains to be seen how New York will react.

  4. S8627 – Short term rental tax

    This bill would amend the tax law to allow state sales taxes and short-term rental taxes to be levied on certain short-term rental companies and hosting platforms outside of New York City. The rationale says the proceeds from this bill would help the state raise revenue to maintain and support key government programs to help alleviate the significant financial hardship New York is experiencing due to the COVID-19 pandemic. It is important that this draft law extends tax collection obligations by stipulating that hosting platforms have the same tax collection obligations as an operator or host, unless there is an agreement with the operator or host that exempts the hosting platform from its tax collection obligations .

  5. S5686 – Taxes on free commercial space on the ground floor

    This bill would allow New York City to collect business tax, a tax on vacant commercial space on the first floor. The tax would be imposed on owners of downstairs commercial space that has been vacant for six months or more. The bill would set both a minimum idle time (six months) before property tax liability and a maximum tax amount ($ 2,000 per square foot per year). The applicable vacancy period will not apply until at least thirty days after a first floor commercial building owner was required to register such premises in accordance with local job posting requirements, subject to certain exceptions. The tax is intended to provide landlords with incentives for vacant space and options to rent the space to tenants in order to take advantage of these options and “restore the vibrancy of the city’s streetscapes”.

  6. S8872 – Removing the “knowledge requirement” from the False Claims Act

    The New York False Claims Act is a powerful and effective tool for combating civil fraud and reporting complaints in New York State or a local government. The bill would allow the New York False Claims Act to be used as a tool to reclaim large unpaid tax liabilities based on false claims by high net worth individuals or companies without any legal requirement that such false claims be knowingly made. Compensation in such claims would be limited to the tax liability owed plus consequential damages including any interest on the unpaid obligation, as opposed to the (often substantial) triple damages and statutory civil penalties provided elsewhere in the New York False Claims Act .

While this remarkable piece of legislation expires today at the end of the current term, these bills are expected to be reintroduced when the new two-year term begins next month. For example, Senate Draft 5686 has already been proposed as Senate Draft 83 for the 2021-2022 legislative period. While some of these efforts may fail, New York is experiencing billions of dollars in lost revenue and will increasingly seek high earners to pay for more expenses to eradicate the lost revenue from the COVID-19 pandemic.