Changes in the New York State 2004–2005 Budget
Mark H. Levin
11, 2004 (133 days late), the New York State Legislature passed
the 2004–2005 budget. On August 20, Governor George
Pataki signed the revenue provisions of the budget, while
exercising his line veto to remove certain appropriation provisions.
Assembly Speaker Sheldon Silver was unsuccessful in his attempts
to override the governor’s vetoes on certain spending
provisions. As usual, the 2004 Budget Act contains numerous
provisions amending the New York State Tax Law as well as
the New York City Administrative Code.
Rights to Appeal Certain Notices
the various changes enacted in the budget act was an onerous
administrative provision that potentially affects virtually
all taxpayers. Previously, a taxpayer who received a notice
of an additional amount due on a Notice and Demand, or a
Notice of Additional Tax Due because of a mathematical or
clerical error or failure to pay tax, was entitled to use
the administrative appeals procedures, including hearings
before the Bureau of Conciliation and Mediation Services
(BCMS), the Division of Tax Appeals, and the Tax Appeals
creating the new Tax Law section 173-A, the 2004 budget
act eliminated a taxpayer’s right to a hearing if
the taxpayer disagrees with a Notice and Demand or a Notice
of Additional Tax Due because of a mathematical or clerical
error. A taxpayer who wants to contest a Notice and Demand
or a Notice of Additional Tax Due issued because of a mathematical
or clerical error must first pay the tax due plus all interest
and penalties included on that notice, then file a claim
for a refund of the amount paid. When the refund claim is
denied, the taxpayer may then proceed to request a hearing
before BCMS or the Division of Tax Appeals. This provision
creates an undue hardship for most taxpayers, who may have
to obtain professional assistance to navigate these administrative
Commuter Transportation District surcharge.
The “temporary” 17% Metropolitan Commuter Transportation
District surcharge, first effective for taxable years beginning
on or after January 1, 1982, is extended to taxable years
ending before December 31, 2009. This surcharge continues
to be computed based on
the franchise tax rates in effect on June 30, 1998.
minimum tax. The fixed-dollar minimum tax
is amended to apply as follows:
payroll $250,000 or less $ 100
Over $250,000 but less 225
Over $500,000 but less than 325
Over $1 million but less 425
Over $6,250,000 but less 5,000
than $25 million (formerly $ 1,000)
Over $25 million 10,000
(formerly $ 1,000)
$800 fixed-dollar minimum tax remains in effect for corporations
Gross payroll of $1,000 or less;
Total receipts within and outside of New York of $1,000
or less; or
An average value of assets of $1,000 or less.
new rates are effective for taxable years beginning on or
after January 1, 2004, and expire for taxable years beginning
on or after January 1, 2006.
of nonresidents on the gain on the sale of co-op shares.
Nonresidents who sold or will sell, convey,
or otherwise dispose of shares of stock in a cooperative
housing corporation (co-op) in 2004 and thereafter will
be subject to personal income taxation on the gain on the
sale. This change eliminates the disparity in sales treatment
between co-ops and condominiums.
effective November 18, 2004, nonresidents who sell, convey,
or otherwise dispose of shares in a co-op located in New
York State will be required to pay estimated tax on the
gain on the sale, conveyance, or other disposition in the
same manner as currently applies to sales of real property.
tax will be due at the closing, along with Form IT-2664,
and will be computed at the highest personal income tax
rate in effect at the time of sale.
care insurance. The credit for long-term care
insurance is increased to 20% (formerly 10%) of the premiums
paid. This increase is effective for premiums paid in tax
years beginning after 2003.
fuel vehicle credit. Effective for taxable
years beginning on or after January 1, 2004, hybrid fuel
vehicles will be removed from the definition of clean fuel
vehicles eligible for the clean fuel vehicle credit. Hybrid
fuel vehicles will remain eligible for the hybrid fuel vehicle
Empire Zones. The qualification of an area as an Empire
Zone shall remain in effect until March 31, 2005 (formerly
September 13, 2004).
State film production credit. A new 10% credit
is available to a “qualified film production company”
for “qualified production costs” expended in
the production of a “qualified film” at a “qualified
film production facility.” This credit is effective
for costs paid or incurred in taxable years beginning on
or after January 1, 2004, and will expire and be deemed
repealed four years after such date.
film production company is a corporation, partnership, or
other entity or individual that is engaged in the production
of a qualified film at a qualified film production facility
and controls the qualified film during the production. A
qualified film production facility is a film production
facility in New York State that contains at least one soundstage
having a minimum of 7,000 square feet of contiguous production
space. Qualified production costs are limited to the extent
that such costs are attributable to the use of tangible
property or used in the performance of services within New
York State directly and predominantly in the production
(including preproduction and postproduction) of a qualified
film. Production costs generally include technical and crew
production costs, such as expenditures for film production
facilities or any part thereof, props, makeup, wardrobe,
film processing, camera, sound recording, set construction,
lighting, shooting, editing, and meals. Production costs
do not include costs for a story, script, or scenario to
be used for a film; nor do they include wages, salaries,
or other compensation for writers, directors, music directors,
producers, and performers (other than background actors
with no scripted lines).
film is a feature-length film, television film, television
pilot, or television episode, regardless of the medium in
which the film, pilot, or episode is created or conveyed.
A qualified film does not include a documentary film; news
or current affairs program; interview or talk program; instructional
program; film or program consisting primarily of stock footage;
sporting event or sporting program; game show; award ceremony;
film or program intended primarily for industrial, corporate,
or institutional end-users; fundraising film or program;
daytime drama (i.e., soap opera); commercial; music video;
reality program; or a production for which performer records
are required under USC 18 section 2257 (reporting with respect
to sexually explicit conduct).
I of the budget legislation amends the estate tax to address
a likely unconstitutional calculation for estates with property
in states other than New York. Previously, the credit for
tax paid to other states was limited to either the share
of property in other states or the amount of tax actually
paid to other states. Because many states’ estate
taxes are now lower than New York’s, this resulted
in an inordinately high effective tax on non–New York
property in certain cases.
for estates of decedents dying on or after January 1, 2002,
the credit for tax paid to other states is not limited to
tax actually paid. Instead, the credit will be computed
solely by multiplying the federal credit for state death
taxes by the ratio of non–New York property to total
property. The change will avoid the imposition of a potentially
unconstitutional tax on non–New York property located
in states with lower estate taxes than New York’s.
addition, the legislation changes the date when interest
begins to run for late payments made with extensions effective
for estates of decedents dying on or after February 1, 2000.
Interest will no longer accrue from the date of death, but
instead will accrue from the date the return is actually
filed, which can be extended to up to twelve months from
the date of death.
effective August 20, 2004, the legislation repeals the obsolete
former inheritance tax.
and footwear exemption. The suspension of
the exemption from sales and use tax for clothing and footwear
costing less than $110 was again extended to June 1, 2005.
At this date, clothing and footwear costing less than $110
will again be exempt from sales and use tax. In addition,
the exemption will be suspended for the week of January
31, 2005, through February 6, 2005.
maintenance exemption. Effective for sales
made, services rendered, and uses occurring on or after
December 1, 2004, but before December 1, 2009, certain costs
incurred in the maintenance of an aircraft are exempt from
sales and use tax. The exempt items include tangible personal
property that becomes a component part of the aircraft,
lubricant applied to the aircraft, and the cost of storage
of an aircraft in conjunction with the servicing of the
or credit for certain vessels. Effective for
sales made, services rendered, and uses occurring on or
after December 1, 2004, parts, equipment, lubricants, diesel
motor fuel, maintenance, servicing, and repair of certain
vessels shall be eligible for a refund or credit of any
sales or use tax paid. To qualify, the vessel must have
a seating capacity of more than 20 passengers and be used
for transportation on water of passengers for hire within
New York State. The refund or credit is based on the percentage
of total hours that the vessel is operated in New York State.
for fuel sold on or after November 1, 2004, aviation fuel
(kero-jet and aviation gas) consumed on overflight miles
on intra–New York State flights will be exempt from
the petroleum business tax (PBT). While the overflight fuel
consumed will be exempt from the PBT, fuel burned on takeoffs
and landings on both interstate and intrastate flights from
points within New York State remains subject to the PBT.
Also exempt from the PBT, effective June 1, 2005, is aviation
fuel used by airlines that service four or more cities within
New York State with direct nonstop flights between these
Affecting New York City
debts owed to New York City. Effective August
20, 2004, the Commissioner of the New York State Department
of Taxation and Finance is empowered to enter into a written
agreement with the New York City Commissioner of Finance
that will set forth the procedures for crediting any overpayment
by a taxpayer and the interest thereon against City of New
York tax warrant judgment debt owed by such taxpayer.
on certain sport utility vehicles. Sport utility
vehicles (SUV) placed in service in tax years beginning
on or after January 1, 2004, weighing in excess of 6,000
pounds, must be depreciated subject to IRC section 280F
as it applied on September 10, 2001. Upon the sale or other
disposition of such SUV, a disposition adjustment (similar
to the ACRS/MACRS disposition adjustment) will be made so
that the gain or loss for New York City purposes shall be
the same as for federal income tax. Contrast this with the
complete disallowance of the IRC section 179 deduction by
New York State.
income credit. Effective August 20, 2004,
New York City and all cities with a population of over 1
million are authorized to establish an earned income credit
equal to 5% of the federal earned income credit against
New York City’s and other cities’ resident income
of real property taxes by electronic funds transfer (EFT).
Effective August 20, 2004, New York City
may require the payment of real property taxes by electronic
funds transfer where the annual real property tax liability
is equal to or greater than $300,000.
on underpayments. Effective November 18, 2004,
a 6% floor is set on the underpayment rate for interest
charged for the unincorporated business tax and the tax
on foreign and alien insurers. This floor applies to any
interest chargeable or due on taxes or any other amounts,
or any portion thereof, which are due on or after August
property tax rebates. Effective August 20,
2004, New York City and all cities with a population of
over 1 million are authorized to issue a rebate of the residential
real property tax in an amount not to exceed $400. This
authorization expires for any real property tax fiscal year
beginning on or after July 1, 2006.
recording tax loophole closed. The 2004 budget
amends the definition of a mortgage in New York City to
include certain mortgages if the Commissioner of Taxation
and Finance finds that transfer of one or both properties
in connection with the recording of a spreading agreement
or additional mortgage was undertaken to avoid or evade
tax rather than for an independent business or financial
purpose. Tax has previously been avoided by “spreading”
an existing mortgage from one property with a mortgagor
(owner) and mortgagee (lender) to another property with
a different mortgagor and mortgagee. This change applies
to mortgages recorded on or after November 18, 2004.
H. Levin, CPA, is manager, state and local taxes,
at H.J. Behrman & Company, LLP.