New York enacts marketplace provider rules, GILTI apportionment


Matthew DiDonato
New York City
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Art Burkard
New York City
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Spiro Dorizas
New York - Melville
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Howard Polonetsky
New York City
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Jamie C. Yesnowitz
Washington, DC
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Chuck Jones
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Lori Stolly
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Gov. Andrew Cuomo signed the final FY19-20 New York State budget legislation on April 12, 2019, which includes several important sales and income tax provisions.1 For sales made on or after June 1, 2019, marketplace providers lacking physical presence but meeting specific sales thresholds are required to collect and remit applicable New York sales and use taxes. The new law also codifies apportionment treatment for global intangible low-taxed income (GILTI), adopts a “millionaire’s tax,” and modifies several tax credit programs. Finally, the legislation creates a novel tolling program intended to address traffic congestion in midtown and downtown Manhattan.

Marketplace provider provisions New York law generally defines “persons required to collect tax” to include all vendors of tangible personal property or services, every recipient of amusement charges, and every operator of a hotel.2 The new legislation expands this definition to include marketplace providers with respect to facilitated sales of tangible personal property made on or after June 1, 2019.

A marketplace provider is defined as a person who, pursuant to an agreement with a marketplace seller, facilitates sales of tangible personal property by such marketplace seller or sellers.3 Persons that have no physical presence in New York, but have cumulative total gross receipts of more than $300,000 from sales (made or facilitated) of property delivered in New York, and have facilitated more than 100 such transactions, during the previous year are considered marketplace providers.4 To be considered a person who facilitates a sale of tangible personal property, the person must: (i) provide the forum in which, or by means of which, a sale takes place or the offer of sale is accepted, including a shop, store, or booth, an internet website, or catalog; and (ii) the person (or an affiliate) collects the receipts paid by a customer to a marketplace seller for a sale of tangible personal property, or contracts with a third party to collect the receipts.5 A marketplace seller is defined as a person who has an agreement with a marketplace provider under which the marketplace provider will facilitate sales of tangible personal property.6

Marketplace providers are considered vendors with respect to the sales of tangible personal property they facilitate and are, therefore, subject to the general requirements to register, collect and remit sales and use tax, file returns and accept exemption certificates from customers.7 Accordingly, marketplace sellers who are also vendors are generally relieved of the requirement to collect sales and use taxes on transactions made through a marketplace provider’s marketplace.8 An exception to this relief applies in the case of affiliated marketplace sellers and providers.9 Further, a marketplace provider is relieved of the liability for failure to collect the correct amount of tax if the error was due to incorrect or insufficient information from the marketplace seller.10

Corporate income tax provisions New York generally conforms to the current version of the Internal Revenue Code (IRC) and previously responded to the adoption of federal tax reform provisions contained in H.R. 1, commonly referred to as the Tax Cuts and Jobs Act (TCJA),11 with its 2018 budget.12 While the 2018 budget bill made significant changes to the New York State corporate tax system, the newly adopted budget legislation makes more subtle modifications.

IRC Sec. 951A – GILTI As part of the TCJA’s effort to create a more territorial regime of taxation, it added IRC Sec. 951A which created a new class of income, GILTI, recognized by U.S. shareholders of controlled foreign corporations for tax years beginning after 2017.13

For taxable years beginning on or after Jan. 1, 2018, New York generally requires that net GILTI income be included in the denominator of a corporate taxpayer’s apportionment fraction, and be excluded from the numerator.14 This treatment mirrors similar guidance recently released by the New York State Department of Taxation and Finance.15 The Department’s guidance further specifies that this treatment applies only if the stock of the foreign corporation generating GILTI is business capital. If the stock of the foreign corporation that generates GILTI is investment capital, only the net GILTI income may be deducted as investment income in the computation of business income. In that case, the net GILTI amount would be excluded from both the numerator and denominator of the apportionment fraction. Further, the net GILTI amount is disregarded in determining whether a taxpayer qualifies as a manufacturer eligible for preferential tax treatment.16

Entire net income “Entire net income” is a defined term used to compute New York taxable income. Applicable to taxable years beginning on or after Jan. 1, 2018, the enacted budget excludes from the calculation certain contributions to capital from governmental entities or civic groups, as defined in IRC Sec. 118(b)(2).17 Specifically, this provision decouples from the change adopted by the TCJA which made grant proceeds from governmental entities or civic groups to a corporation taxable upon receipt as gross income for federal income tax purposes. Further, the legislation provides that this provision applies to New York City,18 and similar provisions apply for NYS insurance franchise tax purposes.19

Qualified manufacturer New York provides favorable tax treatment, including a preferential tax rate of 0%, for qualified manufacturers.20 Effective for taxable years beginning on or after Jan. 1, 2018, the law modifies a consideration for determining whether a taxpayer is a qualified manufacturer. Specifically, it changes the adjusted basis for the manufacturer’s property to the amount determined for New York State tax purposes (rather than the federal amount).21

Personal income tax provisions Millionaire tax Beginning with the 2020 tax year, the budget legislation extends application of the highest individual income tax rate of 8.82% on income over $2,155,350 for married resident taxpayers for five additional years.22 For resident head of households, the top rate applies to income over $1,616,450, and for resident single individuals and married residents filing separately, income over $1,077,550. For the 2021-2024 tax years, the same tax rate applies to increased income limits, which are indexed to reflect inflation.

Other changes The New York itemized deduction for charitable contributions is modified to generally match the amount permitted for federal income tax purposes under IRC Sec. 170 for taxable years beginning on or after Jan. 1, 2018.23 Notably, the allowable itemized deduction for taxpayers with New York adjusted gross income between $1 million and $10 million remains limited to 50% of the federal deduction allowed, and for income above $10 million, to 25% of the federal amount.24 Further, for taxable years beginning on or after Jan. 1, 2019, gambling winnings in excess of $5,000 must be included in New York source income and are subject to state income tax withholding requirements.25

Other provisions The new law enacts changes affecting several tax provisions, including sales and use tax, credits and incentives, and real estate transfer taxes. Some of the more notable alterations are addressed below.

Sales and use tax Effective June 1, 2019, sales and use tax is imposed on the transportation, transmission, and distribution of electricity and gas, regardless of whether it is sold separately from the product.26 Also, from June 1, 2019, to May 31, 2021, both bottled water and items sold for up to $2 from vending machines that accept any form of payment are exempt from sales tax.27

Credits and incentives Several new tax credits were established and others modified or extended, including:

  • Recovery tax credit program under Sec. 32.38 of the New York mental hygiene law;28
  • Employer-provided child care credit;29
  • Farm workforce retention credit;30
  • Rehabilitation of historic properties credit;31
  • Empire State film production credit;32
  • Workers with disabilities tax credit program;33
  • Bioheating fuel credit;34 and
  • Congestion pricing fee credit.35

Real estate transfer tax Currently, a 0.4% real estate transfer tax is generally imposed on transfers of real estate at the New York state level.36 Effective on transfers occurring on or after July 1, 2019, the new law retains the historic tax, and imposes two additional transfer taxes. The first additional real estate transfer tax of 0.25% is imposed on transfers of New York City residential real property sold for at least $3 million, or on other New York City real property sold for at least $2 million.37 The second additional transfer tax, which ranges from 0.25% to 2.9% (based on the value of the property transferred), is imposed on New York residential real property sold for at least $2 million.38 These new taxes are levied at the state level and do not impact existing New York City transfer tax rates.39

Other The new legislation implements a new opioid excise tax40 and a supplemental tax on vapor products.41 Further, it repeals, replaces and modifies tax preparer penalty provisions imposed on those taking improper tax return positions.42

Congestion pricing program for Manhattan traffic The legislation establishes a congestion pricing fee for downtown and midtown Manhattan by creating the Central Business District Tolling Program.43 Citing New York City’s status as the second most congested city in the United States and third most congested in the world, along with the related economic cost, the law establishes a program aimed at addressing this issue. Planning, design, construction, installation and maintenance of the program are left to the discretion of the New York City Department of Transportation. Specifically, the Department of Transportation is tasked with installing electronic tolling portals in Manhattan, south of 60th Street. Cars passing these toll booths will be charged a fee to be determined. The program may begin as early as Dec. 31, 2020.

As noted above, a related tax credit is also established and available to residents living in downtown or midtown Manhattan with adjusted gross income of less than $60,000 for a taxable year, effective beginning with taxable years beginning on or after Jan. 1, 2021.44

Commentary The FY19-20 Budget Bill is somewhat anticlimactic in comparison with its FY18-19 counterpart, which made significant changes to New York’s state tax structure. With the new legislation, New York addressed the lingering impact of select federal tax reform provisions while not addressing others such as IRC Sec. 163(j), joined the ranks of several other states imposing sales tax collection responsibilities on marketplace providers, and attempted to address several pertinent societal issues. In declining to decouple from the federal limitation of interest expense prescribed in IRC Sec. 163(j), which depends upon a calculation at the federal consolidated group level, New York has created a potentially significant issue for certain taxpayers. Specifically, New York taxpayers with combined groups that differ from their federal consolidated counterparts (in certain cases resulting from the application of unitary or special industry tax rules) may be required to perform complex calculations to correctly apply the interest expense limitation at the state level.

With respect to the treatment of GILTI income, New York is a frontrunner in providing codified instruction for appropriate apportionment treatment. Taxpayers filing returns for the 2018 tax year are sure to welcome the certainty that legislative action has provided, rather than relying solely on regulatory guidance.

In requiring marketplace providers meeting certain requirements to register to collect and remit sales and use tax, New York joins a growing number of states with variant rules and thresholds. New York’s $300,000 annual sales bar for marketplace providers to be treated as vendors is consistent with existing law using that threshold for remote sellers (along with a transactional threshold), and is significantly higher than the $100,000 amount enacted by several other states, including most recently Virginia. Taxpayers who engage in this type of business activity will need to be increasingly aware of these novel requirements.

Finally, New York has addressed several societal concerns with this latest legislation. For example, the state has imposed new “sin” taxes on opioids and vapor products. Also, the Central Business District Tolling Program intended to address traffic woes is the first of its kind in the United States. The adoption of the program surely will engender some level of controversy, and will be viewed negatively by out-of-state employees that commute from the New Jersey and Connecticut suburbs to the heart of New York City on a regular basis. While many pertinent details of the program are not yet apparent, including its impact on ride-sharing companies and cab drivers, its outcome could have a significant influence on other cities facing similar concerns.


1 S1509-C/A2009-C, Laws 2019.
2 N.Y. TAX LAW § 1131(1).
3 N.Y. TAX LAW § 1101(e)(1).
4 Id. To qualify for exemption from this provision, such taxpayers must be able to show that these thresholds were not met during the immediately preceding four quarterly periods ending in February, May, August and November. Further, taxpayers not meeting the required thresholds may affirmatively elect to register as marketplace providers and, if so, will be treated as such.
5 Id. For purposes of this test, persons are generally affiliated if one person has a direct or indirect ownership interest of more than 5% in another person, including ownership by a group of persons that are affiliated persons with respect to each other.
6 N.Y. TAX LAW § 1101(e)(2).
7 N.Y. TAX LAW § 1132(l)(1).
8 N.Y. TAX LAW § 1132(l)(2).
9 N.Y. TAX LAW § 1132(l)(2). The same affiliate rules as stated above apply to determine relationship for this purpose.
10 N.Y. TAX LAW § 1133(f). This exception is not available for affiliated marketplace sellers and providers.
11 P.L. 115-97. For a discussion of this Act, see GT Alert: Tax Reform Law Transforming Business and Tax Planning.
12 A9509-C/S7509-C, Laws 2018.
13 IRC § 951A. GILTI is the excess of the aggregated “tested income” over a routine return on certain tangible assets.
14 N.Y. TAX LAW § 210-A.5-a. Net GILTI is defined as the amount required to be included in the taxpayer’s federal gross income pursuant to IRC Sec. 951A(a) less the amount of the deduction allowed under IRC Sec. 250(a)(1)(B)(i). Similar provisions apply to New York City’s business taxes. N.Y.C. ADMIN. CODE §§ 11-654.2.5-a; 11-604(3)(a)(2)(E).
15 TSB-M-19(1)C: New York State Tax Treatment of Repatriation, Foreign-Derived Intangible Income Deduction, and Global Intangible Low-Taxed Income for Businesses, New York Department of Taxation and Finance (Feb. 8, 2019).
16 Id.
17 N.Y. TAX LAW § 208.9(a)(20).
18 N.Y.C. ADMIN. CODE § 11-602.8(a)(14).
19 N.Y. TAX LAW § 1503(b)(1)(T).
20 N.Y. TAX LAW § 210.1(a)(vi).
21 Id.
22 N.Y. TAX LAW § 601(a)(1)(B). Previously, the highest rate was set to return to 6.85% starting with taxable years beginning in 2020.
23 N.Y. TAX LAW § 615(g). This rule is subject to certain modifications and limitations. Similar rules apply for New York City income tax purposes. N.Y.C. ADMIN. CODE § 11-1715(g).
24 These provisions apply to taxable years beginning before 2025.
25 N.Y. TAX LAW § 631(b)(1).
26 N.Y. TAX LAW § 1105(b)(1)(A).
27 N.Y. TAX LAW § 1115(a)(1)(B). Currently, this exemption generally applies for vending machine sales of $1.50 or less.
28 This new program, effective for tax years beginning on or after Jan. 1, 2020, is generally established to provide tax credits to employers who employ eligible individuals recovering from a substance abuse disorder. See N.Y. TAX LAW §§ 210-B.53; 606(jjj); 1511(dd).
29 N.Y. TAX LAW § 44. This new credit available for taxable years beginning on or after Jan. 1, 2020, is for qualified employer-provided childcare expenditures. See N.Y. TAX LAW §§ 210-B.53; 606(jjj); 1511(dd).
30 N.Y. TAX LAW § 42(c), (d)(1).
31 N.Y. TAX LAW §§ 210-B.26(e); 606(oo)(5); 1511(y)(5).
32 N.Y. TAX LAW §§ 24(a)(5), (e)(4); 31(a)(6). The credit expiration date is modified from 2022 to 2024.
33 Ch. 59 (A.B. 8559 / S.B. 6359), Laws 2014, Part MM, § 5. The credit expiration date is extended from Jan. 1, 2020, to January 1, 2023.
34 N.Y. TAX LAW §§ 210-B.25(a); 606(mm)(1). The credit expiration date is extended from Jan. 1, 2020, to Jan. 1, 2023.
35 N.Y. TAX LAW § 606(jjj). This new credit is intended to mitigate the impact of the congestion pricing fee on low-income residents.
36 N.Y. TAX LAW § 1402(a)(2). Notably, an additional 1% tax also applies to the transfer of residential real property of at least $1 million. N.Y. TAX LAW § 1402-A.
37 Id.
38 N.Y. TAX LAW § 1402-b.
39 The New York City transfer tax is generally applied at a rate of 1% for transfers of up to $500,000, and 1.425% for transfers exceeding this amount. N.Y.C. ADMIN. CODE § 11-2102(b)(1)(B).
40 N.Y. TAX LAW Art. 20-D, §§ 497-498.
41 N.Y. TAX LAW, Art. 28-C, §§ 1180-1181.
42 N.Y. TAX LAW § 685(aa).
43 N.Y. TAX LAW Art. 44-C, §§ 1701-1706.
44 N.Y. TAX LAW § 606(jjj).

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