New York state enacts tax increases in budget


On April 19, 2021, Gov. Andrew Cuomo signed the FY21-22 New York State budget legislation that increases income tax rates on corporations and high-income individuals and enacts a pass-through entity (PTE) tax applicable to partnerships and S corporations.1 The legislation also reinstates and increases the alternative tax on business capital and creates an addback for federal opportunity zone gains. The tax revisions are significant, not only with respect to the material tax rate increases that were ultimately enacted, but with respect to several proposed tax changes contained in earlier versions of the bills that were ultimately omitted from the final legislation.




Corporate income tax



Tax rate increase for taxpayers with New York State income over $5 million


For taxable years beginning in 2021, 2022, and 2023, the New York State corporate income tax rate imposed on the New York State business income base increases from 6.5% to 7.25% for any taxpayer with New York State apportioned income for the taxable year of more than $5 million.2 The 7.25% tax rate applies to all income subject to tax if the $5 million apportioned income base is exceeded. Small business taxpayers, qualified New York manufacturers, and qualified emerging technology companies continue to qualify for their current respective preferential tax rates. Taxpayers with business activity in New York City and the surrounding New York suburbs are also subject to a 2.175% Metropolitan Transit Authority (MTA) Surcharge (30% of the New York State corporate tax rate),3 and a New York City general corporate income tax rate of 8.85%.4 Therefore, the combined New York State and New York City corporate income tax rate for 2021, before federal benefit, for taxpayers that solely do business in New York City will be a staggering 18.275%.



Alternative tax on business capital reinstated and increased to 0.1875%


For taxable years beginning in 2021, 2022, and 2023, the New York State alternative tax on business capital will be reinstated and set at 0.1875%.5 Small business taxpayers, cooperative housing corporations, and qualified New York manufacturers continue to benefit from a zero percent tax rate. The business capital tax rate prior to 2016 had been 0.15% and was gradually being phased out of existence, with the rate previously scheduled to go to zero percent in 2021.6 New York City did not plan to phase out its tax on business capital and continues to impose a 0.15% tax on business capital.7



Addback for federal opportunity zone gains


For taxable years beginning on or after Jan. 1, 2021, the legislation creates a new addition modification requiring a taxpayer to include any opportunity zone gains that were excluded from federal income in its New York State and New York City corporate income tax base.8 The legislation does not include a similar modification for the New York City Unincorporated Business Tax.




Personal income tax


The legislation raises New York State’s highest existing marginal personal income tax rate for 2021 through 2027 from 8.82% on income over $2,155,350 to 9.65% for resident joint filers with income over $2,155,350 but not more than $5 million.9 The 9.65% tax rate applies for resident head of households with income over $1,616,450 but not more than $5 million, and to resident single individuals and married residents filing separately with income over $1,077,550 but not more than $5 million.10 Two new tax brackets also are added by the legislation for 2021 through 2027. The first new bracket increases the tax rate to 10.3% for all taxpayers, regardless of filing status, with income in excess of $5 million but less than $25 million. The second new bracket increases the tax rate to 10.9% for income in excess of $25 million. The combined 2021 New York State and New York City (3.876%) highest personal income tax rate is now 14.776%.11

Middle-class tax rate reductions enacted in 2016 and being phased in from 2018 through 2025 are unchanged by the legislation,12 and ultimately will become the lowest tax rates applied to New York middle-class taxpayers in over 70 years.13 Scheduled changes for income tax rate reductions from 5.85% in 2022 to 5.5% in 2025 for taxpayers filing jointly with income over $27,900 but not over $161,550, and from 6.25% in 2022 to 6% in 2025 for taxpayers filing jointly with income over $161,550 but not over $323,200 will proceed.14



Other modifications


For taxable years beginning on or after Jan. 1, 2021, the legislation creates two new modifications. An addition modification requires individual taxpayers (similar to corporate taxpayers) to include any opportunity zone gains excluded from federal income in their New York State and New York City personal income tax base.15 A subtraction modification is available for lump sum payments up to $500,000 pursuant to the COVID-19 family death benefit program established by the MTA.16




Creation of PTE tax regime


The legislation allows PTEs to make an election to pay New York State tax at the entity level for tax years beginning on or after Jan. 1, 2021.17 Owners of the PTE can obtain a corresponding tax credit against their personal income tax liability.18 New York State joins a growing number of states that have enacted elective PTE taxes in an effort to circumvent the $10,000 state and local tax (SALT) deduction limitation implemented by the Tax Cuts and Jobs Act of 2017 (TCJA).19



Election to file the PTE tax


The PTE must submit an annual irrevocable election to file the PTE tax by the due date of its first estimated payment.20 The election and first estimated PTE tax payment are generally due on March 15 of the tax year.21 Because the legislation was enacted after March 15, special provisions for the 2021 tax year allow for the election to be made by Oct. 15, 2021.22 The PTE does not require approval from each partner or shareholder in order to make the election. Instead, the election may be made by a member or partner of the PTE with authority to bind the entity or sign returns, or by a duly authorized officer or shareholder of the S corporation.23



Tax computation


In the case of an electing partnership, the PTE tax is imposed on the New York State source income (computed under the personal income tax law provisions) of each nonresident individual partner.24 The PTE tax is imposed on all income from the partnership for each resident partner. For S corporations, the tax is computed on the New York sourced income for both residents and nonresidents. Only direct owners are considered, and income attributable to owners that are corporate or pass-through entities is not considered in the PTE tax base. Disregarded entities owned by individuals are considered in the PTE tax computation.



Estimated PTE tax payments


Electing PTEs are not required to make estimated tax payments for the 2021 tax year.25 After the 2021 tax year, estimated PTE tax payments generally are due in four equal installments on March 15, June 15, Sept. 15, and Dec. 15 of the preceding calendar year.26 An underpayment of estimated tax safe harbor is provided if at least 90% of the tax shown on the PTE tax return for the current year or 100% of the prior year’s PTE tax was paid.27

For the 2021 tax year, the legislation provides that partners or shareholders of an entity that elects to file a PTE tax return must continue to make personal income tax estimated tax payments as required, calculated as if they were not entitled to the PTE tax credit.28 Any underpayment of estimated tax penalty must be calculated as if the partner or shareholder was not entitled to the PTE tax credit.29



Tax rates


The New York State PTE tax rates are not computed on an individual owner basis, and the determination of the applicable tax rate considers the taxable income of the entity.30 Applying the following PTE tax rate tables to the entity, rather than to each individual owner, will result in PTEs overpaying tax on the owner’s behalf for most individual owners.




Due date


The due date for calendar and fiscal year filers is March 15 following the close of the taxable year or calendar year that contains the final day of the entity’s taxable year.31 A six-month extension is allowed for filing the PTE tax return.32 Once a PTE tax return has been filed, it may not be amended without the Commissioner’s consent.33



Tax credits


Owners will be allowed a refundable credit for their share of PTE tax paid by the PTE itself.34 Any taxpayer claiming a PTE tax credit must add back the PTE tax deducted.35 The legislation also allows a resident to claim a credit for payment of a “substantially similar” PTE tax imposed by another state.36




Payroll tax penalties


For tax returns filed on or after June 1, 2021, the penalty for the failure to provide complete and correct employee withholding reconciliation information on a quarterly combined withholding, wage reporting, and unemployment insurance return is increased from $50 to $100 per employee.37 The maximum penalty that can be imposed on an employer for each quarter is increased from $10,000 to $20,000.38




Employer tax benefits – remote work


The legislation provides that a taxpayer may continue receiving tax benefits based on maintaining a presence in New York.39 An employer requiring its employees to work remotely due to the COVID-19 pandemic may designate the remote work as having been performed at the location where the work was performed before the pandemic emergency was declared through executive order.40 The designation will apply until the executive order is rescinded or through Dec. 31, 2021, whichever is sooner.41




Sales tax


Technical corrections clarify that registration and collection of sales taxes by out-of-state vendors is only required if New York sales receipts exceed $500,000 and the vendor has 100 or more sales over the previous four sales tax quarters.42 This amendment corrects and updates a section of the law missed in previous legislative updates that had reflected $300,000 as the threshold for registration.

The legislation also extends sales and use tax exemptions for certain transactions between financial institutions and their affiliates pursuant to a resolution plan to satisfy certain requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act.43 As amended, the exemptions generally are set to expire on June 30, 2024 (previously, June 30, 2021). However, for binding contracts entered into by June 30, 2024 (previously, June 30, 2021), the exemptions are now set to expire on June 30, 2027 (previously, June 30, 2024).






This year’s budget legislation is particularly significant because it raises corporate income tax rates for corporations with New York State income over $5 million and personal income tax rates for high-income individuals. Also, New York State is following the state trend of enacting an elective PTE tax.

While the budget legislation contains significant tax rate increases, other items designed to enhance revenue were not included in the final draft. During the budget process, there was talk of: (i) a capital gains surcharge; (ii) a stock transfer tax; (iii) a mortgage recording tax for mezzanine debt secured by real property; (iv) increased property taxes for nonresidents with second residences in New York; (v) allowing New York State to appeal Tax Appeals Tribunal decisions; and (vi) requiring S corporations with a federal S corporation election to have a New York S corporation election. Some of these proposals may sound familiar, as they were proposed in previous years and were raised once again during the current year’s budget process. While this may come as good news for taxpayers that would have been impacted by these changes, it stands to reason that these measures will continue to be considered in future budget debates, especially if New York’s economic recovery from the pandemic is slow.

As discussed above, the legislation creates a new modification requiring corporations and individuals to include any opportunity zone gains that were excluded from federal income in their New York State and New York City income tax base. The opportunity zone program was part of the 2017 federal tax overhaul enacted by the TCJA and was aimed at incentivizing private investment in economically distressed areas.44 Under the federal program, developers who invested in an opportunity zone project could defer federal and state capital gains taxes for up to seven years and not owe any capital gains taxes as long as they did not sell the property for at least 10 years. A number of New York census tracts were designated as opportunity zones. Critics of the opportunity zone program viewed it as an inappropriate giveaway to wealthy developers who did not need the money to engage in development. In part due to this criticism, the legislation decouples New York State and New York City tax law from the federal treatment of opportunity zone gains, and creates a new addition requiring taxpayers to include any opportunity zone gains that were excluded from federal income.

The legislation contains a SALT deduction workaround and removes one of the major roadblocks for participating in an elective PTE tax return of another state. Allowing New York State residents to claim a credit for a substantially similar PTE tax imposed by another state allows a partner to benefit from a federal deduction of the other state’s PTE tax, without the risk of losing the credit for taxes paid to another state, though some practical questions remain.

Pending further guidance, it is currently unclear whether the New York State Department of Taxation and Finance will impose or abate underpayment of estimated tax penalties on the personal income tax return of an owner of an entity that, while not required, elects to submit PTE tax estimated tax payments in 2021 in lieu of the owner submitting personal estimated tax payments. Estimated PTE tax payments, while not required in 2021, may nonetheless be beneficial for a cash basis taxpayer that wishes to claim a federal deduction of the SALT payments. Also unclear is whether an accrual basis taxpayer would need to pay the PTE tax amounts due for the 2021 year with its PTE tax extension in March 2022, when the owners have already submitted estimated tax payments on their personal income tax filings on the same income. As many tax practitioners may recall, when Connecticut enacted its PTE tax, it allowed individuals to request that the Connecticut Department of Revenue Services transfer estimated tax payments to the PTE from their individual accounts in order to avoid double payments being required.

Finally, the legalization and taxation of cannabis sales was removed from the budget bill and passed via separate legislation, which is intended to bring significant tax revenue into New York’s coffers.45 Middle-class personal income tax rate reductions were not halted despite the imposition of increased tax rates for high-income taxpayers. We will be following the State’s revenue projections for these tax increases, as well as population outflows, to determine if the targeted revenues are met. Also, New York City’s fiscal year starts on July 1 and its budget process typically follows shortly after the State’s budget process. We will be monitoring the City’s budget developments for any potential tax changes.



1 Ch. 59 (A.B. 3009-C / S.B. 2509-C), Laws 2021.
2 N.Y. TAX LAW § 210.1(a).
TSB-M-20(2)C, New York State Department of Taxation and Finance, Dec. 15, 2020.
4 N.Y.C. ADMIN. CODE § 11-654.1(e)(1)(i).
5 N.Y. TAX LAW § 210.1(b).
6 New York State’s corporate tax rate increase and reinstatement of expired taxes follows New Jersey’s retroactive reinstatement of its Corporation Business Tax Surcharge of 2.5% in September 2020, which amounts to a combined 11.5% New Jersey Corporation ¬Business Tax rate. N.J. A.B. 4721, Laws 2020. For further discussion of this legislation, see GT SALT Alert: New Jersey increases tax rate on millionaires.
7 N.Y.C. ADMIN. CODE § 11-654.1(e)(1)(ii).
8 N.Y. TAX LAW §§ 208.9(a)(21), (b)(27); 1503(b)(1)(W), (b)(2)(Z); N.Y.C. ADMIN. CODE §§ 11-602.8(a)(15), (b)(22); 11-652.8(a)(16), (b)(23).
9 N.Y. TAX LAW § 601(a)(1)(B)(iv)-(ix).
10 N.Y. TAX LAW § 601(b)(1)(B)(iv)-(ix), (c)(1)(B)(iv)-(ix).
11 Instructions for New York State Form IT-2105.
12 N.Y. TAX LAW § 601(a)(1)(B)(iv)-(viii), (b)(1)(B)(iv)-(viii), (c)(1)(B)(iv)-(viii).
13 Press Release: Governor Cuomo Signs FY 2022 Budget and Announces Continuation of Middle-Class Tax Cuts to Help New Yorkers Recover From Economic Hardship During the COVID-19 Pandemic, Office of New York Governor, April 19, 2021.
14 The corresponding brackets for head of households are income over $20,900 but not over $107,650 and income over $107,650 but not over $269,300. The corresponding brackets for single individuals and married residents filing separately are income over $13,900 but not over $80,650 and income over $80,650 but not over $215,400.
15 N.Y. TAX LAW § 612(b)(42), (c)(43); N.Y.C. ADMIN. CODE § 11-1712(b)(39), (c)(38).
16 N.Y. TAX LAW § 612(c)(44).
17 N.Y. TAX LAW §§ 860-866.
18 N.Y. TAX LAW §§ 606(kkk); 863.
19 P.L. 115-97.
20 N.Y. TAX LAW § 861(c).
21 N.Y. TAX LAW § 864(b)(1).
22 A.B. 3009-C / S.B. 2509-C, Part C, § 8(a).
23 N.Y. TAX LAW § 861(b).
24 N.Y. TAX LAW § 860(h).
25 A.B. 3009-C / S.B. 2509-C, Part C, § 8(a).
26 N.Y. TAX LAW § 864(b)(1).
27 N.Y. TAX LAW § 864(b)(3). Taxpayers with a short taxable year have the same estimated tax payment dates as calendar year filers. N.Y. TAX LAW § 864(c).
28 A.B. 3009-C / S.B. 2509-C, Part C, § 8(b).
29 Id.
30 N.Y. TAX LAW § 862.
31 N.Y. TAX LAW § 865(a).
32 N.Y. TAX LAW § 865(f)(1).
33 N.Y. TAX LAW § 865(f)(2).
34 N.Y. TAX LAW §§ 606(kkk); 863.
35 N.Y. TAX LAW § 612(b)(43).
36 N.Y. TAX LAW § 620(b).
37 A.B. 3009-C / S.B. 2509-C, Part G, § 2; N.Y. TAX LAW § 685(v)(3).
38 Id.
39 A.B. 3009-C / S.B. 2509-C, Part NN, § 1.
40 Pursuant to Executive Order 202 of 2020.
41 A.B. 3009-C / S.B. 2509-C, Part NN, § 2.
42 N.Y. TAX LAW § 1134(a)(1)(vi).
43 N.Y. TAX LAW § 1115(jj).
44 IRC §§ 1400Z-1; 1400Z-2.
45 Ch. 92 (A.B. 1248-A / S.B. 854-A), Laws 2021.





Arthur C.E. Burkard

Art Burkard is a managing director with Grant Thornton’s Metro New York/New England market territory State and Local Tax practice. Burkard was a law clerk with the New York State Tax Appeals Tribunal and has more than 21 years of public accounting experience at Grant Thornton, KPMG and Deloitte & Touche.

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