BILL NUMBER: S7323
SPONSOR: KRUEGER
 
TITLE OF BILL:
An act to amend the tax law, in relation to enacting the MEGA corpo-
rations act mandating worldwide combined reporting for large corpo-
rations
 
PURPOSE OR GENERAL IDEA OF BILL:
The MEGA Corporations Act would ensure that large multinational corpo-
rations pay their fair share of New York State's corporate franchise
tax. The bill closes a significant gap in the way that this tax is
calculated, which currently allows multinationals to shift domestic
profits, including those derived from sales in New York, to foreign
affiliates.
 
SUMMARY OF SPECIFIC PROVISIONS:,
Section 1 titles the bill the "multinational earnings and global
accountability for (MEGA) corporations act."
Section 2 describes the legislative intent of the bill, which is to
ensure that multinational corporations pay their fair share of tax so
that New York-based businesses that cannot shift profits overseas are no
longer at a competitive disadvantage with large multinational companies
that can.
Section 3 amends section 210-c of Article 9-A of the tax law to repeal
the existing rule that alien (i.e. foreign) corporations cannot be
included in a combined tax return for the corporate franchise tax. The
repeal applies only where the combined annual gross receipts of the
corporation's unitary business exceeds one billion dollars.
Section 4 amends section 208 of the tax law to include worldwide income
in the definition of entire net income for alien corporations required
to file a combined report under the bill.
Section 5 amends section 210-a of the taw law to exclude global intangi-
ble low-taxed income from the denominator of the apportionment formula
for any corporation required to file a combined report Under the bill.
Section 6 provides that the commissioner of tax and finance shall
promulgate any rules or regulations necessary to administer the
provisions of this title, including but not limited to rules and regu-
lations necessary to prevent the double-taxation of income.
Section 7 provides that the bill shall apply to taxable years commencing
on or after January 1, 2026.
 
JUSTIFICATION:;
The MEGA Corporations Act would ensure that large multinational corpo-
rations pay their fair share of New York State's corporate franchise tax
(more commonly referred to as the corporate income tax). The bill closes
a significant gap in the way that this tax is calculated, which current-
ly allows multinationals to shift domestic profits, including those
deriving from sales in New York, to foreign affiliates, often located in
tax haven jurisdictions.
The State's corporate franchise tax generally operates by calculating
the fraction of a corporation's total sales that are made to purchasers
in New York. This is known as the "apportionment fraction." The appor-
tionment fraction is then applied to the corporation's total profits, in
order to calculate the share of those profits subject to tax by New
York.
When multiple corporations operate effectively as a single business, New
York requires them to file what is known as a "combined report," in
order to capture all profits. The combined report, however, only
includes (with some exceptions) domestic entities. This is known as
"water's edge" combined reporting, and it allows multinational corpo-
rations to reduce their New York State tax liability by shifting profits
overseas. This gives them a significant advantage over purely domestic
businesses that cannot engage in such tax avoidance, while depriving the
State of significant tax revenue to which it is reasonably entitled.
This is both a matter of basic fairness in taxation and one with signif-
icant fiscal implications. The institute on Taxation and Economic Policy
(ITEP) estimates that roughly 14% of state corporate income tax revenues
across the country - or nearly $20 billion annually - is being lost to
overseas profit-shifting under existing state tax laws. While the Biden
Administration made progress on international cooperation to reduce
global tax avoidance, an early Trump Administration Executive Order
withdrew from the agreement to establish a global minimum tax, known as
Pillar II.
In New York, every year, we arc losing more than $700 million in corpo-
rate franchise tax revenue. This money could be recovered by shifting
from water's edge combined reporting to worldwide combined reporting.
The MEGA Corporations Act would make this reform for multinationals that
have gross receipts in excess of $1 billion, in order to recoup most, if
not all, of this revenue.
Even as it accounts for worldwide sales and profits, this corporate
franchise tax would still only tax a share of profits that is propor-
tional to New York's share of a company's worldwide sales. A company
with significant foreign sales would see the denominator of its appor-
tionment fraction grow, making the fraction smaller. For a hypothetical
company that is not engaged in profit shifting, and for which profits
track sales, the reduction of the apportionment fraction would offset
the inclusion of foreign profits, and the company's tax liability would
not change. Along the same lines, a company with substantial foreign
losses might see their Lax liability in New York decrease.
It is also important to note that a company's corporate franchise tax
liability is based on sales in New York, and not whether the company is
headquartered in New York or employs New Yorkers. As a result, shifting
from water's edge combined reporting to worldwide combined reporting,
and doing so only for large multinational corporations, should have
little effect on the state's business climate or economic competitive-
ness.
 
PRIOR LEGISLATIVE HISTORY:
None.
 
FISCAL IMPLICATIONS:
Significant additional revenue for the State of New York.
 
EFFECTIVE DATE:
This act shall take effect immediately.

Statutes affected:
S7323: 208 tax law, 208(9) tax law, 210-A tax law, 210-A(5-a) tax law