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2022 New York Tax Update – Year in Review

Daniel Kelly
Published Date:
Jan 3, 2023

It turned out that 2022 was a busy year for New York State and City tax purposes.  Highlights included a large and impactful 2022–2023 budget bill, off–budget-cycle major new and increased incentive credits, the introduction of a New York City Pass-Through Entity Tax (PTET) and other City corporate tax clarifications, a significant update to New York State’s PTET for S corporations, draft regulations that will drastically alter New York’s interpretation of Public Law 86-272, and a host of updated New York Tax Department policies and court decisions that impact New York State and City residency status. It will be interesting to see if future budget bills are as active / progressive now that Kathy Hochul has won re-election and has a grip on the Governor’s office. Her governorship extends through the point when New , York’s millionaire’s tax (also, its corporate tax) surcharges are set to sunset—will those rates go back to 8.82%, or go even higher?

Also, 2022 was  a busy year for tax practitioners. The tax community faced a fire hose of existing and new challenges in New York State and City, across other states, with the Internal Revenue Service, and so on. If you’ve been too busy to catch up with all of the New York State and City highlights, this article covers many key 2022 New York tax updates and issues as we close the year out and head to 2023. This article focuses on legislative and administrative updates, a second article will focus on cases and advisory opinions.

2022–2023 Budget Bill

The New York State Legislature passed the Revenue portions of the State’s 2022-23 Budget (“Budget”) on April 7, 2022 (Assembly Bill A 9009C/Senate Bill S 8009C), which Governor Hochul signed on April 9 (2022 Laws of NY Ch. 59). Here are some highlights of the Budget:

Accelerating low- and middle-income tax reductions. Modest rate reductions for married-filing-jointly taxpayers earning less than $323,200 previously scheduled for tax years beginning after 2024 now begin after the 2022 tax year (Part A, Subpart A). Beginning this year, any student loan forgiveness award included in federal AGI will be subtracted when calculating New York AGI (Part D).

Increase to the Small Business Subtraction modification. Part C of the Budget increased the small business subtraction modification percentage in both the State and City personal income taxes, and expanded the modification—previously available only to proprietorships with at least one employee and net business income or farm income of less than $250,000—to include members of certain flow-through entities that are small businesses or farm businesses. 

Beginning in 2022, the subtraction modification will be increased from 5% to 15%, and it will be available to: (a) sole proprietors with one or more employees and less than $250,000 of net business income or net farm income; (b) owners of New York S corporations and tax-partnerships with one or more employees and net farm income of less than $250,000; and (c) owners of New York S corporations and tax-partnerships with one or more employees and less than $1.5 million of “New York gross business income” attributable to a non-farm business. 

For tax partnerships, “New York gross business income” is defined by reference to Tax Law § 658(c)(3)(B)’s definition of “New York source gross income.” And for New York S corporations, “New York gross business income” is defined by reference to the receipts included in the numerator of the corporation’s apportionment factor. Non-farm flow-through entity owners otherwise entitled to the small business subtraction modification will be disqualified if the sum of their income from such entities exceeds $250,000.

State PTET Changes for S Corps. Perhaps the most noteworthy changes arise with a couple important modifications to New York State’s PTET. New York State’s PTET was installed through the 2021–2022 budget and was a huge success, despite some administrative and technical challenges. Through the Budget, the Legislature made two changes that make the State’s PTET an even better way to capture a federal income tax deduction for New York taxes paid on flow-through business income.

Under the original law, the tax base for S corporations included only New York source income, which for many New York-based businesses is low, due to New York’s corporate market-sourcing apportionment rules. The same source-limitation applied to partnerships subject to the PTET, but only with respect to their nonresident partners. From what we understand, the reason for the source-limitation was the Tax Department’s concern that, for federal tax purposes, S corporations could not specially allocate the deduction for the PTET among resident and nonresident shareholders without putting the entity’s S corporation status in jeopardy. To eliminate this perceived problem, the original State PTET regime put all S corporation shareholders on the same footing by limiting the PTET to New York sourced-income only.  Unfortunately, this also limited the PTET benefit for S corporations with only New York resident shareholders, all of whom paid tax on the share of their corporation’s un-apportioned income.

With this new legislation, and effective beginning with this tax year (2022), the source-limitation will go away for S corporations with only resident shareholders. To qualify for this benefit, the entity taxed as an S corporation will have to file a certification (with its PTET filing for 2022, then with its PTET election for post-2022 tax years) that all shareholders are residents.  Therefore, electing S corporations with only New York resident shareholders get to pay more tax, thereby permitting their shareholders to claim bigger federal tax deductions and bigger state tax credits.[1]

New York City PTET. Initially slated for 2023, but then advanced to include 2022 for qualifying pass-through entities, City residents are now able to enjoy the same federal tax benefits for the City taxes paid on flow-through income that are available for the State taxes paid on flow-through income. Here are highlights of the new City PTET (“CPTET”) that shifts the liability for the City personal income tax up to electing entities:

  • The tax is in new article 24-B of the Tax Law.
  • The CPTET is available only through an annual election, and the election deadline is March 15 of the year for which CPTET is going to apply. This was adjusted for 2022, so qualifying pass-through entities that had made a timely State PTET election for 2022 may make the City election any time prior to March 15, 2023.
  • The election is available for partnerships required to file a New York State tax return (that includes any partnership with a New York State resident partner), and New York S corporations with only New York City resident shareholders. Notable: The partnerships and S corporations for which CPTET elections may be made do not need to be doing any business in New York City.
  • Elections may be made by authorized members of eligible tax-partnerships and authorized officers of eligible S corporations.
  • The CPTET tax base for partnerships is the sum of the un-apportioned and un-allocated pro rata shares of the partnership’s income flowed through to partners who are individual residents of New York City. Absent special allocations of the CPTET deductions to the City resident partners, all of an electing partnership’s partners (including corporate partners and nonresident partners) will bear their pro rata share of the economic burden (and thus, the federal tax benefit) of the CPTET even though only the City resident partners will receive the CPTET credits (see below).
  • Because only those S corporations with only City resident shareholders are eligible for the CPTET, the tax base for S corporations is all of the income of the S corporation, un-apportioned.
  • The CPTET tax rate is 3.876%.
  • CPTET estimates are due on March 15, June 15, September 15 and December 15, with the tax return due March 15 of the year after the tax year closes. Estimated taxes are payable for the calendar year during which the tax year ends, and the tax is due on March 15 of the year following the calendar year in which the tax year ends.
  • City resident owners (and only City resident owners) of electing entities are entitled to a credit against their City personal income tax. The credit is equal to their direct share of the entity’s CPTET.
  • State personal income tax payers are required to add-back any CPTET credit they receive when calculating their state income.

State/City PTET add-back. In calculating income subject to the City’s General Corporation Tax and Banking Corporation Tax, the State PTET and CPTET are required to be added back in computing City taxable income (Part MM, Subpart B, §§ 9 and 10). Curiously, these addbacks are retroactively effective for tax years beginning on and after January 1, 2021.

Real Property Tax-Related Amendments. The following real property tax laws were extended, modified and/or enhanced:

  • Part Y amended the procedures for an owner of local public utility mass real property to challenge an assessed value.
  • Part Z provided a good cause extension to the filing deadline on an application for the enhanced STAR exemption. Further, Subpart C clarified the applicable income tax year for the basic STAR credit. Subpart D allowed the name of STAR credit recipients to be shared with assessors outside of New York State. Finally, Subpart E permits certain information pertaining to a decedent to be shared with assessors of the assessing unit in which the address reported on the decedent’s real property tax return is located.
  • Part AA amended provisions in the real property tax law related to the assessment grievance process for owners of solar and wind energy systems.
  • Part BB expanded the Homeowner Tax Rebate Credit into 2022.
  • Part HH created the Childcare Center Tax Abatement for Certain Properties in New York City. The abatement applies to eligible buildings in which construction, conversion, alteration, or improvement completed on or after April 1, 2022, has resulted in the creation of a childcare center or the expansion of an existing childcare center.  The abatement is up to seven dollars for each square foot of the premises, but shall not exceed $20,000.

Video Game Production. Part OO created a new Empire State digital gaming media production credit. Qualified digital gaming media production costs incurred and paid in New York may be eligible for a credit up to 25% of their production costs. The credit is available for qualified taxpayers from January 1, 2023 through December 31, 2027.

Odds and Ends: Saving the credit provisions of the Budget, and following the Budget for their own section, there were several other notable adjustments:

  • Part T exempts from the Petroleum Business Tax the gallons of motor fuel, diesel motor fuel, and residual petroleum product used in tug boats and tow boats.
  • Withholding tables and methods, and quarterly interest rates may now be published on the Department’s website and do not need to be published in regulations (Part W).
  • The current exemptions for certain food and beverages sold through vending machines will continue through May 31, 2023. They were set to expire May 31, 2022 (Part GG).
  • Cannabis trade or business expense deductions denied under IRC § 280E will, effective this year, be subtraction modifications for the income tax bases of both the State corporate franchise and personal income taxes (Part PP).  It doesn’t appear that this applies to any of the City taxes.

Non-Budget Policy Update Worth Mentioning—New York Statutory Residency

Individual taxpayers can be subject to New York State and City resident taxation in one of two ways.  First, they can be taxed as residents based on their domicile—their permanent, primary home—in the State / City. Second, they can be taxed as residents based on their status as New York State / City “statutory residents” during the tax year.[2]  To be considered a statutory resident, the taxpayer must meet a two part test.  The taxpayer must: (1) maintain a permanent place of abode in New York State / City, and (2) the taxpayer must spend in excess of 183 whole or part days in New York State / City during the year. If the taxpayer does not meet both parts of the test, he or she is not a statutory resident during the year at issue.

There was an important New York statutory residency case issued by the Appellate Division Third Department during 2022, Matter of Nelson Obus, which added more context to what it means to maintain a “permanent place of abode” in New York. Assume for the moment that everyone agrees the taxpayer maintained a “permanent place of abode” in New York—how long must that abode be maintained during a tax year to trigger New York “statutory residency” concerns?

The New York Tax Department’s regulations indicate that the taxpayer must maintain a permanent place of abode for “substantially all of the taxable year.” The term “substantially all” is not defined in the Tax Department’s regulations, but has long been construed to mean a period exceeding 11 months—basically the entire year less small portions. With its Nonresident Audit Guidelines re-issued in December 2021, the New York Tax Department audibled out of the 11-month rule, and into the new “10-month rule.”

As stated in the Tax Department’s updated Nonresident Audit Guidelines: “Prior to tax year 2022, Audit Division policy defined ‘substantially all of the year’ to mean a period exceeding 11 months. Beginning with tax year 2022, Audit Division policy will define ‘substantially all of the year’ to generally mean a period exceeding 10 months. This ‘10-month rule’ will be applied by Audit in tax years where a taxpayer either acquires or disposes of their residence.”[3]

Although this adjustment appears slight, it can be significant in New York statutory residency cases. Taxpayers should be aware of this adjustment, which was tucked nearly 50 pages into the Tax Department’s updated audit guidelines, and be ready to address it to manage New York statutory residency risks.

Credit Bonanza

The Budget was already notably filled with credits when another major credit adjustment was announced in June following the formal Budget process. Here’s a lengthy list of credits that were created, extended, or modified by this election-year Budget and the June 2022 update:

Creation of new credits/exemptions. The following credits/exemptions were created: Farm Employer Overtime Credit (Part B, Subpart C); COVID-19 Capital Costs Credit (Part E); Conversion from Grade No. 6 Heating Oil Usage to Biodiesel Heating Oil and Geothermal Systems Credit (Part I); Geothermal Energy Systems Credit (Part FF); NYC Child Care Credit (Part II).

Extension/modification of existing credits/exemptions.  The following credits/exemptions were extended, modified and/or enhanced: Investment Tax Credit for Farmers (Part B, Subpart A); Farm Workforce Retention Credit (Part B, Subpart B); NYC Musical & Theatrical Production Credit (Part F); Hire-a-Vet Credit (Part H); Low Income Housing Credit (Part J); Clean Heating Fuel Credit (Part K); Transportation for Persons with Disabilities Credit (Part L); Empire State Film Production and Post-Production Credit (Part M); Youth Jobs Program Credit (Part N); Empire State Apprenticeship Credit (Part O); Alternative Fuels and Electric Vehicle Recharging Property Credit (Part P); Workers with Disabilities Credit (Part Q); Earned Income Credit (Part JJ); Restaurant Return to Work Credit (Part KK); Supplemental Empire State Child Credit, Earned Income Tax Credit, and Enhanced Earned Income Tax Credit (Part NN).

Major extension/and modest expansion of the Brownfield Cleanup Program. Part LL of Assembly Bill A9008C/Senate Bill S8008C (now 2022 Laws of NY Ch. 58) enacted significant changes to New York State’s Brownfield Cleanup Program (BCP) and its associated tax credits.  Here is a recap of the more significant provisions:

  • The Budget extends the BCP, which was set to expire at the end of this year, for an additional 10 years to 2032. Projects can submit applications to participate in the program through December 31, 2032. Projects must receive a Certificate of Completion (CoC) by December 31, 2036 (Section 31).
  • Projects that received a CoC between July 1, 2015 and June 24, 2021, may now claim additional site preparation credits and on-site groundwater remediation credits for seven years following the issuance of the CoC. Previously the credits had to be claimed within five years of the issuance of the CoC (Sections 4, 5, 7, and 8).
  • For sites that received a CoC between March 20, 2010 and December 31, 2015, tangible property credits (TPCs) will be allowed for 180 months after the issuance of the CoC.  Previously such TPCs were required to be claimed within either 120 months or 144 months of the issuance of the CoC (Section 9).
  • Unlike BCP sites located elsewhere in the state, BCP sites located in New York City are not entitled to TPCs related to development on the site unless they satisfy additional requirements or “gates.” The Budget adds two new gates: (1) projects satisfying applicable conformance requirements in disadvantaged communities within designated Brownfield Opportunity Areas, and (2) projects being developed as renewable energy facility sites (Section 2).
  • Under the current BCP, the applicable percentage for calculating TPCs starts at 10%.  However, this percentage can be increased (but not to exceed 24%) by various factors.  The Budget adds the following new factors that may increase the applicable percentage by five percentage points for projects accepted into the BCP after January 1, 2023: (1) sites in a disadvantaged community, and (2) sites developed as renewable energy facilities (Section 6).

The Budget also clarified that, beginning in 2022, for sites remediated to Track 1 (the highest standard), the TPC calculation can include costs paid for stadiums, baseball parks, basketball courts, and other athletic facilities including sports field turf, site lighting, sidewalks, access and entry ways, and other improvements (Section 9). The Budget also instituted a new program fee of $50,000 payable once the project is admitted into the BCP. The fee may be waived upon a showing of financial hardship by the applicant. The new program fee cannot be used to calculate tax credits under the program (Section 3).

New Excelsior CHIP Tax Credit Program. On June 2, New York legislators created one of the biggest tax credit programs in the state’s history. The bill, A. 10507/S. 9467 (2022 Laws of NY ch. 494), allows for eligibility of Green Chips projects in the Excelsior jobs tax credit program, which encourages businesses to relocate to or expand in New York. Through the program, New York seeks to significantly expand its semiconductor and microchip manufacturing sectors.

On its face, the legislation provides incentives for computer chip manufacturers to build new factories in New York by creating a subset of tax incentives through the Excelsior business tax credit program that the manufactures can use. Tax credits total $500 million per year from 2022 to 2041. That’s a $10 billion investment in tax dollars, and shortly after the program was announced in June, New York landed its first major investment through this project through a deal with Micron, an Idaho-based chip manufacturer that agreed to make truly historic investments in Upstate New York over the next several years.[4]

The new CHIP Tax Credit program offers multiple enhanced Excelsior credits (based on employment, capital investment, and R&D activities), and qualifying applicants must meet or exceed a 15-to-1 benefit-to-cost ratio through the project. Under the legislation, a Green Chips benefit-cost ratio is defined as one in which the numerator is the sum of: (a) the value of all remuneration projected to be paid for all net new jobs during the period of participation in the program; (b) the value of all capital investments to be made by the business enterprise during the period of participation in the program; and (c) all research and development expenditures by the participant in New York during the period of participation in the program. The Syracuse-area Micron project made headlines for the eye-popping investment the taxpayer agreed to make over the next two decades (up to $100 billion); however, mathematically this is the required investment if the State actually delivers up to $6 billion of credits over the 20-year credit period in order to slightly exceed / reach a 15-to-1 benefit-to-cost.

The NY Tax Department Signals Desire to Reduce the Protections Offered by Public Law 86-272

United States federal Public Law 86-272 (86-272), codified at 15 U.S.C. Sections 381-384 and passed in September 1959, has prevented states from imposing taxes based on net income on businesses whose only activities in the state are limited to the “mere solicitation” of sales of tangible personal property. The law has provided narrow, but effective, protection to interstate commerce (out-of-state sellers of tangible personal property) for more than 60 years. After a tremendous run of success, and in the face of recent headwinds resulting from expanding the scope of digital / remote sales activities that trigger tax nexus, New York and other states are looking to pare back the activities that would be protected under 86-272.

For quick background, 86-272 only applies to net income taxes. It does not apply to gross receipts taxes (e.g., Ohio commercial activity tax, Texas margin tax, Washington B&O tax), withholding taxes, sales tax, or other non-net-income taxes including unemployment tax and a host of other taxes / fees levied across the United States. Also, 86-272 only applies to taxpayers whose in-state sales are limited to the sale of tangible personal property. Taxpayers engaged in sales of services and digital products are not covered (unless considered tangible personal property), and in-state activities by the out-of-state business that are permissible under 86-272 are limited to “mere solicitation.”[5]  Therefore it is entirely possible that, for example, Widget Co., a Florida widget manufacturer that limits its California activities to mere solicitation, is subject to California sales and use tax collection requirements due to its California solicitation activities, but is not subject to California income / franchise tax on account of 86-272 (but is still subject to California’s annual fee for doing business in the state, which is not an “income” tax and therefore not protected by 86-272).[6]

In August 2021, the Multistate Tax Commission (MTC) issued revised guidance proposing that states further limit the protections of 86-272 in numerous circumstances—for example, post-sale assistance to in-state customers via either electronic chat or e-mail that customers initiate by clicking on an icon on the business’s website; the business’s website invites viewers in a customer's state to apply for non-sales positions with the business; the business contracts with in-state customers to stream videos and music to electronic devices for a charge—primarily around the use of the Internet, phone or table-based applications, and other digital connections that exceeded “mere solicitation” by an out-of-state business. [7] California followed suit by updating its 86-272 guidance in May 2022 with similar / modified adjustments; around the same time, New York issued new draft regulations that would disqualify many internet activities from 86-272 protections, conforming with the previous MTC statement.[8]

New York’s revised draft regulations acknowledge 86-272 protections are for corporations engaged in “the solicitation of orders via the Internet in New York State for sales of tangible personal property [where] the orders are sent outside New York State for approval or rejection.”  This includes an out-of-state Internet vendor “presenting static text or images on its website” or engaging in specific, limited presale solicitation activities. New York then blurs the line between protected out-of-state activities and unprotected in-state activities by noting that solicitation does not include some activities that out-of-state corporations may engage in “via the Internet, including interacting with customers or potential customers through the corporation’s website or computer application.”

What does New York’s proposed adjustment mean? Should the regulation be approved first or will it be applied by the New York Tax Department prior to its final approval? Out-of-state sellers of tangible personal property could have new exposure to New York’s corporation franchise tax (which contains a fail-safe $1 million economic nexus provision that could still act as a buffer to taxation) based on Internet and other remote activities that exceed “mere solicitation.” The draft regulations contain examples illustrating the application of the new rule, while providing guidance on activities that the State believes will exceed protected “mere solicitation”:

  • Example 7: A foreign corporation regularly provides assistance to its customers after its products have been delivered, either by e-mail or electronic chat that customers initiate by clicking on an icon on the corporation’s website. For example, the corporation regularly advises customers on how to use products after the products have been delivered. Because this activity does not constitute, and is not entirely ancillary to, the solicitation of orders for sales of tangible personal property, the corporation is not exempt from tax under this section.
  • Example 10: A foreign corporation places internet cookies onto the computers or other electronic devices of is customers. These cookies gather customer search information that will be used to adjust production schedules and inventory amounts, develop new products, or identify new items to offer for sale. Because this activity does not constitute, and is not entirely ancillary to, the solicitation of orders for sales of tangible personal property, the corporation is not exempt from tax under article 9-A under this section.

The rout of 86-272 is on, at the MTC level, in California, in New York and likely elsewhere.  Companies that have relied on 86-272 to avoid net income taxes should be re-visiting their positions in light of these new rules. Taxation may not be automatic, as 86-272 still exists federally and offers protection, but business practices may require conformity to the evolving interpretation of 86-272 at the state level.[9]

Daniel Kelly is a member of Hodgson Russ’s Tax Practice.  He is licensed to practice in New York, California, and Florida, and focuses on a variety of state and local tax matters in jurisdictions across the United States.  Dan has assisted clients with over 1,000 tax and other legal matters, regularly advising individuals and businesses on different aspects of personal income tax, sales and use tax, corporate franchise tax, and several other lesser-known taxes.  Dan’s clients frequently rely on his guidance for tax planning around significant liquidity events; changing or establishing state and local tax residency; income, franchise, and sales tax substantial nexus issues; complex business income and earnings allocation issues; and related matters.  He has extensive experience representing taxpayers in audits conducted by several tax jurisdictions, and also represents taxpayers at various levels of tax controversy dispute resolution and appeal.

[2] New York Tax Law § 605(b); New York City Admin. Code § 11-1705(b).

[3] New York Tax Department Nonresident Audit Guidelines, page 49 (December 2021),

[4] See, e.g., “Micron picks Syracuse suburb for huge computer chip plant that would bring up to 9,000 jobs,” Mike Weiner, (October 4, 2022)  

[5] Wisconsin Dept. of Revenue v. William Wrigley, Jr. Co., 505 U.S. 214 (1992).

[6] For more information on California’s interpretation of 86-272, which like New York was recently updated and narrowed, see Franchise Tax Board Publication 1050 (Rev. May 2022),

[8] Draft Regulation Section 1-2.10, updated August 2022, available at:

[9] For more complete coverage of New York’s draft 86-272 / nexus regulations, see “New York Proposes to Drastically Limit P.L. 86-272 Protections,” Joseph N. Endres, Christopher L. Doyle, and K. Craig Reilly, State Tax Notes May 30, 2022, 3%20Endres%20Doyle%20Reilly.pd

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