New York’s Recent Legislation for PTET Election and Other Tax Provisions
Recently, New York Gov. Kathy Hochul signed the state’s 2022-23 budget package, S.B. 8009. The budget sets forth a myriad of legislative changes to the state’s personal income, corporate franchise, sales and use, motor fuel, property and miscellaneous tax provisions. This alert will address some of the more significant provisions enacted that are applicable to our clients.
In addition, this summary will discuss New York state legislation signed late last week by Gov. Hochul that defers the state’s pass-through entity tax (PTET) election due date for the 2022 tax year to Sept. 15, 2022. This legislation also contains modified estimated tax payment requirements with respect to pass-through entities (PTEs) that make their 2022 PTET election post March 15, 2022, and S corporations that elect to be resident S corporations for the New York state 2022 PTET tax year.
The following is a summary of the significant provisions enacted by the budget.
Enhanced PTE tax for certain S corporations
The budget includes provisions that may enhance the benefit of making a New York state PTET election for certain S corporations.
Prior to the enactment of the budget, those S corporations that made a New York PTET election calculated their New York state PTET based on the S corporation’s apportioned income to New York state. Such S corporation’s New York PTET was determined based on New York-sourced income only. This potentially resulted in a lower New York state PTET and PTET credit to such S corporation owners.
Therefore, the New York state PTET election to New York resident owners of S corporations with low New York state business apportionment percentages received a diminished benefit from the New York PTET election.
It should be noted that this was a significant distinction from how qualifying electing partnerships and limited liability companies calculated their New York state PTET. For qualifying electing partnerships and LLCs, the New York PTET is determined differently for the resident pool of owners and the nonresident pool of owners.
The budget modifies the definition of an “electing S corporation.” The definition is amended to say that an electing S corporation will either elect and qualify to be subject to the PTET as a resident S corporation or an electing S corporation will elect to be subject to the PTET as a standard S corporation. The budget sets forth the following definitions for the two potential electing S corporation:
Electing resident S corporation. An electing resident S corporation is an electing S corporation that certifies at the time of its election that all its shareholders are residents of New York for purposes of Article 22 of this chapter.
Electing standard S corporation. An electing standard S corporation is an electing S corporation that is not an electing resident S corporation.
For an electing S corporation to qualify as an electing resident S corporation, the electing resident S corporation must certify “at the time of its election that all of its shareholders are residents of New York for purposes of Article 22 of this chapter.” To date, the state has not provided guidance as to how to effect this certification.
For an electing entity that is an electing resident S corporation, the electing resident S corporation’s PTET taxable income includes the sum of all items of income, gain, loss or deduction to the extent included in the taxable income of the resident shareholders. If an electing entity is an electing standard S corporation, then its PTET taxable income includes the sum of all items of income, gain, loss or deduction derived from or connected with New York sources, i.e., apportioned to New York state.
Extended PTET election due date for 2022 PTET tax year
The budget indicates the aforementioned amendments are applicable for tax years beginning on or after Jan. 1, 2022. The budget was signed into law in mid-April, i.e., after the PTET election due date of March 15, 2022, for the New York state PTET for 2022. S corporations with low New York business apportionment that would qualify as electing resident S corporations may have foregone making a New York PTET election for 2022.
In response to the missed opportunity, both the New York state Senate and Assembly passed the NYS Assembly and Senate bill (A10080/S8948) that for 2022 extends the date for pass-through entities to elect into the PTET to Sept. 15, 2022.
Late last week, Gov. Hochul signed the legislation, which amends section 861 of Article 24-A, the state’s PTET provisions by adding the following two significant modifications:
- The election to be taxed pursuant to Article 24-A of the tax law for taxable year 2022 must be made by Sept. 15, 2022, and
- The certification to be taxed as an electing resident S corporation for the taxable year 2022 must be made by March 15, 2023, in a manner prescribed by the commissioner.
The legislation specifically addresses the estimated payment due dates and required payments for those PTEs that did not previously make their New York state 2022 PTET election by March 15, 2022, but now choose to make their 2022 PTET election by Sept. 15, 2022. The legislation’s estimated due dates and required payments are dependent upon when the eligible PTE makes its 2022 PTET election within the extended due date period ending Sept. 15, 2022.
In addition, the legislation addresses the estimated payment due dates and required payments for those S corporations that for the 2022 PTET tax will be an electing resident S corporation.