Special Tax Alert

New York Sets Precedent as First to Decouple from CARES Act Key Business Tax Provisions

Brian Pedersen, Managing Director

bpedersen@alvarezandmarsal.com

Ellen Bone, Associate

April 21, 2020 / North America

On April 3, 2020, New York became the first state to decouple from the CARES Act that was signed by President Trump on March 27, 2020, following New York Governor Andrew M. Cuomo’s signing of the FY 2020-2021 Budget Act. Both New York State and New York City have since decoupled from certain features of the CARES Act relating to corporation franchise tax and for personal income tax purposes.

New York is specifically decoupling from the CARES Act’s updated IRC Section 163(j) interest expense deduction limitation. New York will continue to provide a limitation of 30% of ATI, instead of increasing the deduction to 50% of ATI as allowed under the CARES Act. New York State has its own net operating loss (NOL) deduction and carryback regime that have already decoupled from the IRC. As such, New York need not decouple from the CARES Act’s NOL amendments. New York State and New York City have also decoupled personal income taxes from all CARES Act amendments. New York has instead chosen to amend and extend certain state and city tax credits and programs.

New York State tax credits and New York City programs that have been amended or extended include a new “green project” category under the “Excelsior” tax credit program, with program funding extended to 2029. Credits can now be taken until tax years beginning on or after January 1, 2040. The state film credit has been extended through 2025. The state hire-a-veteran credit is extended one year through 2022. New York City’s “Relocation and Employment Assistance Program” (REAP) is extended through June 30, 2025, and the “Industrial and Commercial Abatement Program” (ICAP) is extended through March 1, 2025. The current personal income tax rates in New York City are extended through 2023. Finally, the tax on subsidiary capital has been extended to 2023.

It is anticipated that more states will follow New York in decoupling from certain features of the CARES Act, though the situation is continuing to evolve…

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