In April 2021, the New York Governor endorsed the FY 2021/2022 Budget legislation just a few days after approval by the legislature. The Budget Act provides a state spending of $212 billion while incorporating changes to the New York City and State tax provisions. If you are a tax-paying business person in New York, remain informed about the recent tax amendments to avoid the hefty penalties resulting from late or failure to comply. This post does just that and discusses the 2021-22 New York tax updates you should know.
Sales & Use Tax Updates
You pay sales tax for retail sales of specific tangible personal property and services. However, if you buy these tangible personal properties and services outside New York State and use them within the state, you are required to pay a use tax.
The following are the sales tax changes made by the new legislation.
Sales & Use Tax- Correction
The Budget Bill technically corrects the definition of the term "vendor" for sales tax reasons. This correction sheds light on the past legislation and administrative guideline that has been in place from November 2019. This then states that remote vendors who garner sales revenue of $500,000 and over 100 sales in New York have an economic nexus.
Sales and Use Tax- Thresholds
The Bill sets the threshold for gross receipts from property delivered into the NYS at $500,000 up from $300,000. It also upholds the threshold of 100 sales transactions in the states to compel vendors to register.
Sales Tax Exemptions - Food and Drinks
On sales tax exemptions, the Bill also extends the exemption from sales tax on food and drinks sold for:
- A maximum of $1.50 via any vending machine that uses currency or coin only
- A maximum of $2.00 for machines that accept other forms of payment.
New York Real Estate Transfer Tax Updates
The Budget Legislation clarifies that a grantor has the sole responsibility for Real Estate Transfer Tax and cannot pass the liability to a grantee unless there is a written consent between the two parties. In case the grantor fails to pay, the Bill states that the two are jointly liable for the tax.
New York Corporate Franchise Tax Rate
The Act states that companies with a business income tax above $5 million will pay a corporate franchise tax rate of 7.25% for tax years starting on or after January 1, 2021. This is up from the previous 6.5%. But for companies whose income tax base is $5 million or less, the corporate tax rate remains unchanged at 6.5% until on or after January 2021.
Additionally, the capital tax base application set to end in 2021 will continue until January 1, 2024. Small businesses and manufacturers are exempt. However, the legislation establishes a 0.1875% tax rate for tax years starting on or after January 1, 2021.
New Pass-Through Entity (PTE)
The Budget legislation creates a new and elective PTE tax available to qualifying S corporations and partnerships starting in 2021. The objective here is to assist individual taxpayers to work around the $10,000 cap on state and local tax deductions.
S corporations and partnerships can elect to pay an optional PTE income tax at rates between 6.85% and 10.9%. Besides, the shareholders of electing S corporations and partnerships can compensate personal income tax credit for the part of the PTE tax settled by the entity attributable to such shareholders.
Annual elections must be made by March 15 (the elections are irrevocable) in New York. However, the elections for the 2021 tax year must be made by October 15.
Disengagement from the Federal Opportunity Zones Program
The Budget Bill dissociates from the Federal opportunity Zones Programs for tax years beginning January 1, 2021. New York taxpayers have to add back any gain exempted from federal gross income to calculate total net income.
Learn More About the New York Tax Updates
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