By Mark H. Levin, CPA, H.J. Behrman & Company LLP

On May 15, Governor George Pataki signed the 2000/2001 Budget Bill into law. This budget and previous years’ budgets contain tax reductions that affect most businesses in the state. Following are brief descriptions of some of the business tax reductions enacted in the 2000/2001 and other recent budget acts.

Corporate Franchise Tax

The 1998/1999 Budget Act reduced the corporate franchise tax for all corporations to 7.5% over the three-year period from tax-years beginning on or after July 1, 1999, through tax-years beginning on or after July 1, 2001. The 2000/2001 Budget Act further reduces the Article 9-A corporate franchise tax for small businesses with entire net income of $200,000 or less to 6.85%. For businesses with entire net income between $200,000 and $290,000, the tax rate would range from 6.85–7.5%. Exhibit 1 details the reduction in the corporate franchise tax during the period that the tax rate is phased down.

Similarly, the 1998/1999 Budget Act reduced the differential tax rate (the difference between the Article 9-A tax rate and the Article 22 rate reduction) over a three-year period from tax-years beginning on or after July 1, 1999, through tax-years beginning on or after July 1, 2001. Small S corporations with entire net income of $200,000 or less will see an additional reduction in the differential tax rate for years beginning on or after July 1, 2003. For S corporations with entire net income between $200,000 and $290,000, the rate differential would range from .0275% to .05%. Exhibit 2 shows the reduction in the S corporation franchise differential tax rate during the period that the tax rate is phased down.

Homeowners Associations

The 2000 Budget Act amends Article 9-A to exempt qualified homeowners associations, which have no homeowners’ taxable income, from payment of the fixed dollar minimum tax. The associations will still be subject to the other taxable bases under Article 9-A, if applicable. This provision is effective for taxable years beginning on or after January 1, 2000.

Low-Income Housing Credit

The 2000 Budget Act establishes a low-income housing credit based on the existing federal program. It requires an agreement between the taxpayer and the commissioner of the New York State Division of Housing and Community Renewal for a long-term commitment to low-income housing. The amount of the credit depends upon the applicable percentage of the qualified basis of each low-income building. The credit amount allocated is allowed as a credit against tax for 10 tax-years. Unused credits can be carried forward indefinitely, and the total amount available is $20 million, or $2 million each year. This credit is effective May 15, 2000, and applies to corporate franchise taxpayers, personal income taxpayers, banks, and insurance companies.

The 1999 Budget Act repealed provisions relating to mergers, acquisitions, and consolidations, and as a result prevents the elimination of investment tax credits for these companies, effective for tax years beginning on or after January 1, 2000. The 2000 Budget Act further prevents the elimination of investment tax credits for companies involved in mergers and acquisitions. It applies retroactively to taxable years beginning on or after January 1, 1997. Amended returns cannot be filed prior to April 1, 2001.

Green Buildings Tax Credits

New credits would provide incentives for the purchase of recyclable building materials and other environmentally preferred tangible personal property. There are also tax credits for the purchase of fuel cells, photovoltaic modules, and environmentally sensitive non–ozone depleting refrigerants. The credits apply to costs incurred on or after June 1, 1999, for property placed in service or that has received a final certificate of occupancy in tax years beginning on or after January 1, 2001. In addition to corporate franchise taxpayers, the credits would also apply to taxpayers under the personal income tax, the utilities tax, the bank tax, and the insurance tax (according to the New York State Budget Summary).

To qualify for the green buildings tax credits, the taxpayer must apply to the Department of Environmental Conservation (DEC). The DEC may issue certificates for credits for each year from 2001 through 2009 in the cumulative amount of $25 million. A taxpayer may apply for and utilize credits for any or all of the above-mentioned components.

The credits are not available for all types of buildings or for all costs. However, it may be worthwhile to explore the possibility of receiving the credit for a building currently under construction (or even substantially complete, if it has not received a final certificate of occupancy) or for planned future construction.