After almost eight years of proposed regulations and comment periods, the New York State Department of Taxation (the “Department”) finally released 417 pages of final regulations implementing comprehensive franchise tax reforms adopted under the State Administrative Procedure Act.
The Department considered taxpayer comments, but no substantial revisions were made from the proposed regulations. The regulations cover a range of topics, including apportionment, combined unitary reporting, nexus, qualified New York State manufacturers, and protected/unprotected activities under P.L. 86-272. The state had previously issued more than 40 versions of some sections of the regulations while sorting through more than 80 comments submitted by taxpayers and industry representatives.
Retroactivity of the final regulations is an area of concern for taxpayers. The regulations implement tax reform legislation that applies to tax years beginning on or after January 1, 2015, and the Department maintains will be applied to the same tax periods. The Department may, however, “choose not to apply penalties in cases where taxpayers took a position in their tax filings prior to the adoption of the proposed rule in reliance upon prior Article 9-A regulations or prior drafts of the proposed rule.”1
It should be noted that the final version of the regulations incorporates the Multistate Tax Commission’s (MTC’s) updated interpretation of P.L. 86-272, which drew pushback from some business groups during review. The MTC’s interpretation broadens the scope of activities that would generate nexus in the state to include many internet-based activities. Although we certainly expect future litigation regarding the MTC’s updated interpretation and the Department’s incorporation of that guidance into the regulations, New York has at least insulated itself from procedural challenges under the New York State Administrative Procedures Act. New York City noted previously that it would generally mirror the state’s regulations where applicable.
Please contact one of the Ryan tax professionals below for assistance in interpreting the applicability of these changes to your tax planning.
1 Assessment of Public Comment, Department of Taxation and Finance (December 11, 2023) page 20.
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