New York Tax - CARES Act

New York Becomes First State to Decouple from Key Business Tax Provisions of the CARES Act

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which among numerous other provisions, modifies certain business tax provisions in the Internal Revenue Code (IRC). Previously, we highlighted several aspects of the CARES Act and what it means for state income taxes. On April 3, 2020, New York became the first state to decouple from particular features of the CARES Act for corporation franchise tax and personal income tax purposes. Because the New York state legislation was a budget act, the decoupling extends to New York City taxes, as well.

New York 2020-2021 Budget Package

New York is a “rolling” Internal Revenue Code (IRC) conformity state. That means, the state automatically conforms to federal amendments to the IRC unless the state formally decouples from a particular IRC section or an entire IRC amendment. By enacting S. 7508, New York has done both with respect to the CARES Act.

First, for New York state corporation franchise tax purposes, for taxable years beginning in 2019 and 2020, the increase in the business interest expense deduction limitation from 30% to 50% in Section 163(j), as amended and adopted by the CARES Act, will not be followed by New York state. As a result, the lesser 30% limitation will apply. S. 7508 makes the same decoupling change with respect to the New York City corporation tax, general corporation tax, and unincorporated business tax.

Because New York state provides its own net operating loss (NOL) deduction and carryback regime (already decoupled from the IRC), the budget legislation did not have to further decouple from the CARES Act NOL amendments.

Second, for state and city personal income tax purposes, the decoupling is broader. For taxable years beginning before January 1, 2022, New York state and City IRC conformity will be changed to a fixed-date conformity from “rolling” conformity and any amendments to the IRC made after March 1, 2020, will not apply. This means that the CARES Act temporary deferral of the business loss limitation for non-corporate taxpayers under Section 461(l) is not adopted for state and city personal income tax purposes. Further, not only is the CARES Act increase in the Section 163(j) limitation not adopted for state and city personal income taxes (or city unincorporated business tax), but the CARES Act NOL carryback amendment and temporary suspension of the NOL limitation are also not adopted for state and city personal income tax.

MFA Observations

  • It is doubtful that New York will be the only state to decouple from some or all of the CARES Act. Taxpayers will need to monitor 2020 state tax legislation.
  • Twenty-four state legislatures suspended their 2020 legislative sessions on March 31, while another 13 state legislatures adjourned sine die (indefinitely) on March 31. Eight state legislatures do remain in session.
  • How a state conformed to or decoupled from TCJA provisions, and the state effective dates of such conformity or decoupling, will also determine to implications of the CARES Act at the state level.

This will continue to be a developing and evolving situation. Please stay up-to-date by visiting MFA’s Coronavirus Resource Center.

MFA's COVID-19 Resource Center

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