What's happening
This bill creates a zero percent tax rate for qualified pass-through manufacturers in New York and disallows certain investment tax credits for them.
Why it matters
Targets tax relief at qualified pass-through manufacturers. By setting a zero percent tax rate for these entities, the bill aims to boost manufacturing investment and job creation specifically among businesses structured as partnerships, S-corporations, and sole proprietorships that meet certain manufacturing definitions.
Excludes qualified manufacturers from small business tax benefits. The bill prevents businesses that qualify for the new zero tax rate from also claiming existing small business tax rate reductions, ensuring that only one form of preferential tax treatment applies and avoiding double benefits.
Denies investment tax credits for qualifying manufacturers. Pass-through manufacturers that benefit from the zero percent tax rate will not be eligible for the state's investment tax credit on new property or equipment, which could affect the overall value of the tax relief depending on a business's capital investment plans.
Phased implementation could impact business planning. The new tax treatment and credit disallowance are phased in over three years, starting at 40% in 2021, 80% in 2022, and fully in effect by 2023, giving businesses time to adjust strategies but also potentially creating short-term planning complexities.
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Who cares
Headline styles
Zero Tax for Manufacturers
Plain English, a few words. Used as the page title.
Sponsors
Senator · Senate District 7
1 Co-sponsor
History
- Reported and committed to finance
- Print number 4671a
- Amend and recommit to budget and revenue
- Referred to budget and revenue
- Reported and committed to finance
- Referred to budget and revenue
Companion bill
The same bill in the other chamber. A bill becomes law when one version passes both houses and the governor signs it, so either number can carry it.
Zero Tax for Manufacturers
In Assembly Committee · Ways And Means · Sponsor Albert A. Stirpe
Full text
3 pagesUnderlined is new[Struck] is removedOfficial text on nysenate.gov ↗
STATE OF NEW YORK
4671--A
2019-2020 Regular Sessions
IN SENATE
March 20, 2019
Introduced by Sen. KAPLAN -- read twice and ordered printed, and when printed to be committed to the Committee on Budget and Revenue -recommitted to the Committee on Budget and Revenue in accordance with Senate Rule 6, sec. 8 -- committee discharged, bill amended, ordered reprinted as amended and recommitted to said committee
AN ACT to amend the tax law, in relation to pass-through manufacturers zero percent tax rate
The People of the State of New York, represented in Senate and Assembly, do enact as follows:
Section 1. Subsection (b) of section 612 of the tax law is amended by adding a new paragraph 42 to read as follows:
(42) Any income, gain, loss and deduction, to the extent it is included in federal adjusted gross income and is, when combined and combined with additions for federal deprecation required by paragraph eight of this subsection and subtractions for New York allowed by subsection (k) of this section, less than zero, of an individual or trust from a qualified pass-through manufacturer, as defined in paragraph forty-three of subsection (c) of this section.
§ 2. Paragraph 39 of subsection (c) of section 612 of the tax law, as added by section 1 of part Y of chapter 59 of the laws of 2013, is amended and a new paragraph 43 is added to read as follows:
(39) In the case of a taxpayer who is a small business who has business income and/or farm income as defined in the laws of the United States, an amount equal to three percent of the net items of income, gain, loss and deduction attributable to such business or farm entering into federal adjusted gross income, but not less than zero, for taxable years beginning after two thousand thirteen, an amount equal to three and three-quarters percent of the net items of income, gain, loss and deduction attributable to such business or farm entering into federal adjusted gross income, but not less than zero, for taxable years beginning after two thousand fourteen, and an amount equal to five percent of
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD10804-02-9
S. 4671--A 2
the net items of income, gain, loss and deduction attributable to such business or farm entering into federal adjusted gross income, but not less than zero, for taxable years beginning after two thousand fifteen. For the purposes of this paragraph, the term small business shall mean a sole proprietor or a farm business who employs one or more persons during the taxable year and who has net business income or net farm income of less than two hundred fifty thousand dollars. For the purposes of this paragraph, the term small business shall exclude any business that is a qualified pass-through manufacturer, as defined in paragraph forty-three of this subsection for the current tax year.
(43) (A) Any income, gain, loss and deduction, to the extent included in federal adjusted gross income and is, when combined and combined with additions for federal deprecation required by paragraph eight of this subsection and subtractions for New York allowed by subsection (k) of this section, greater than zero, of an individual or trust from a qualified pass-through manufacturer. Income from a qualified pass-through manufacturer shall include wages of an individual controlling ten percent or more of the qualified business or entity. Income or loss from a qualified pass-through manufacturer shall not include an amount representing reasonable compensation for personal services, as defined in the internal revenue code section one hundred sixty-two regulations, for an individual controlling ten percent or more of the qualified business or entity.
(B) The qualified pass-through manufacturer may be organized as a sole proprietorship, a partnership, a limited liability company electing to be treated as a partnership or sole proprietorship, or an S corporation.
(C) For the purposes of this subsection, the term qualified passthrough manufacturer shall mean a business that is a qualified New York manufacturer, as defined by subparagraph (vi) of paragraph (a) of subdivision one of section two hundred ten of this chapter, except that the term "gross receipts" shall be replaced by "business receipts" in determining whether the business is "principally engaged" in manufacturing. A qualified pass-through manufacturer shall not include a business that is currently participating in the START-UP NY program.
§ 3. Paragraph 2 of subsection (a) of section 606 of the tax law is amended by adding a new subparagraph (B-1) to read as follows:
(B-1) Property placed in service during the tax year that is otherwise eligible for the investment tax credit described in subparagraph (A) of this paragraph, will not be eligible for the investment tax credit if the use of the property is by a qualified pass-through manufacturer, as defined in paragraph forty-three of subsection (c) of section six hundred twelve of this article for the current tax year.
§ 4. Subdivision 1 of section 210-B of the tax law is amended by adding a new paragraph (g) to read as follows:
(g) Property placed in service during the tax year that is otherwise eligible for the investment tax credit described in this subdivision, will not be eligible for the investment tax credit if the use of the property is by a qualified New York manufacturer, as defined in subparagraph (vi) of paragraph (a) of subsection one of section two hundred ten of this article for the current tax year.
§ 5. For purposes of determining the modifications of paragraphs 39 and 43 of subsection (c) of section 612 of the tax law and the investment tax credit disallowance of subparagraph (B-1) of paragraph 2 of subsection (a) of section 606 of the tax law, the amounts shall be multiplied by the following percentages: (a) for tax years beginning on or after January 1, 2021: forty percent; (b) for tax years beginning on
S. 4671--A 3
or after January 1, 2022: eighty percent; and (c) for tax years beginning on or after January 1, 2023: one hundred percent.
§ 6. This act shall take effect immediately and shall apply to tax years beginning on or after January 1, 2021.
Reflowed for reading: line numbers and page breaks removed. Cite the official text.
Sponsor's memo
Purpose or general idea of bill
This legislation extends the zero percent franchise tax rate to all manufactures in NY. Currently this tax rate is only extended to the largest C Corps.
Summary of specific provisions
Section one: Amends subsection (b) of section 612 of the tax law, adding a new paragraph 42, requiring an addition to NY income, for net loss of a qualified NY pass-through manufacturer, where the loss is determined in the same manner as net income from a pass-through manufacturer, as provided in Section two.
Section two: Amends paragraph 39 of subsection (c) of section 612 of the tax law, as added by section 1 of part Y of chapter 59 of the laws of 2013 and adds a new paragraph 43 to disallow qualified pass-through manufacturers from also taking the small business tax exemption, by excluding qualified pass-through manufacturers from the definition of a small business for this purpose. Adds new paragraph 43 of subsection (c) of section 612 of the tax law, where subsection 43(A) allows a deduction from NY income, for net income of a NY qualified pass-through manufacturer, where net income is adjusted for NY deprecation (vs. Federal bonus deprecation), as well as ensuring that the reasonable compensation of the owners is not included in the deduction (is fully taxable). Subsection 43(B) defines qualified pass-through manufacturers to be sole proprietorships, partnerships, LLCs electing to be treated as a sole proprietorship or partnership, or an S corporation. Subsection 43(C) defines qualified pass-through manufacturers by reference to the definition of qualified NY manufacturer in the franchise tax law: subparagraph (vi) of paragraph (a) of subdivision one of section two hundred ten, and substitutes business receipts for gross receipts, in qualifying as a NY manufacturer, reflecting the different tax reporting of pass-throughs.
Read the full memo (804 words)
Also excludes a START-UP NY participant business from the definition of a pass-through manufacturer.
Section three: Amends paragraph 2 of subsection (a) of section 606 of the tax law by adding a new subparagraph (B-1) to disallow pass-through manufacturers from taking the investment tax credit, by disqualifying property placed in service during a tax year when they are a pass-though manufacturer.
Section four: Amends subdivision 1 of section 210-B of the tax law by adding a new paragraph (g) to disallow C-corporations from taking the Investment tax credit, by disqualifying property placed in service during a tax year when they are a qualified NY manufacturer.
Section five: Provides for a three-year phase-in of addition and subtraction provided in Section one and two, as well as the disquali- fication of investment tax credit property. For tax years beginning on or after January 1, 2021: 40%; for tax years beginning on or after Janu- ary 1, 2022: 80%; and for tax years beginning on or before January 1, 2023: 100%
Section six - This act shall take effect immediately and shall apply to tax years beginning on or after January 1, 2021.
Justification
In 2014, a zero percent corporate franchise tax rate was enacted for manufacturers organized as C corps. This accounted for only 25% of manufacturers in New York State. While this was a significant help to those manufacturers, it left 75% of manufactures still paying the higher rate, putting them at a competitive disadvantage with manufacturers located in states with no income tax.
This legislation would extend the zero percent Corporate Franchise Tax rate to all manufacturers in New York State regardless of how they are organized. The proposed changes lower the income tax rate to zero for NY pass-through manufacturers by: creating a "NY modification" that subtracts the income, or adds back a loss (if any); disallowing any Investment Tax Credits for affected entities/taxpayers; disallowing the existing 5% subtraction modification for small businesses (for affected entities/taxpayers); and disallowing a resident credit for taxes payable to another state (not applicable if.NY tax is zero).
According to a study conducted by The Beacon Hill Institute in November 2017, "the elimination of the PIT for pass-through manufacturers would Increase private sector jobs by 3,455 the first full-year and by 4,850 in 2022. The increase in economic activity sparked by extending the zero-percent tax rate to income from pass-through manufacturers would mitigate the loss of revenue to New York State and boost local tax collections.
Enacting this proposal could catapult New York's ranking as a manufac- turing friendly state from 49th to one of the top-ranked states, estab- lishing New York as a safe haven for manufacturers. This would allow existing manufacturers to continue.to invest in their operations and workforce in New York as well as attract manufacturers from across the country and worldwide.
Prior legislative history
New Bill
Fiscal implications
Approximately $35 million.
Effective date
This act shall take effect immediately and shall apply to tax years beginning on or after January 1, 2021.
Summaries, headlines and scores are AI-generated from the official bill text. How we score bills. Source: NYS Open Legislation.