Senate Bill S8631

                                 
BILL NUMBER: S8631

SPONSOR: GOUNARDES
 
TITLE OF BILL:

An act to amend the tax law, in relation to the treatment of certain
deductions allowable under the internal revenue code in calculating
federal adjusted gross income

 
PURPOSE OR GENERAL IDEA OF BILL:

This bill would pause conformity in the Tax Law to changes made to the
Internal Revenue Code of the United States by Public Law 119-21.

 
SUMMARY OF PROVISIONS:

Section one amends subsection (b) of section 612 of the Tax Law to add a
new paragraph 44 to decouple the New York State tax code from section
168(n) of the Internal Revenue Code (IRC), which creates a new first-
year expensing business deduction for certain types of property placed
in service before the end of 2030.

              

Section two amends subsection (b) of section 612 of the Tax Law to add a
new paragraph 45 to decouple the New York State tax code from section
174A(b) of the IRC, which allows first-year expensing for certain
research and experimentation (R&E) expenditures.

Section three amends subsection (b) of section 612 of the Tax Law to
create a new paragraph 46 to decouple the New York State tax code from
section 179 of the IRC, which increases the cap of covered business
expenses which may be expensed in a single year from $1 million to $2.5
million.

Section four sets the effective date.

 
JUSTIFICATION:

The 2025 One Big Beautiful Bill Act (OBBBA) One Big Beautiful Bill Act
caused three major changes to corporate expensing under the federal
Internal Revenue Code which will cost New York a staggering amount of
revenue without returning any notable benefits. By letting businesses
write off expenses for long-lasting products in their first year of use,
these provisions are essentially a corporate giveaway.

Because corporate income taxes are intended to be a levy on only net
income, or profits, the IRC generally lets businesses deduct expenses
like compensation, the cost of purchasing goods, and other ordinary
business expenses. The IRC distinguishes between short vs. long-term
expenses, however, by requiring businesses to deduct them over two
different types of timelines: a taxpayer can deduct an expense in the
year in which it was incurred for items used within the year like
employee compensation, travel expenses, food, or other supplies; or they
can deduct it over the expected life of the product for long-term
investments like buildings and machinery. This latter method of
deduction is called depreciation or amortization, and reflects the basic
maxim that a tax deduction should reflect the actual deterioration of
the item being expensed.


Despite this tax maxim, certain provisions of the IRC allow for immedi-
ate, year one expensing for items with a long shelf life as an alleged
means of spurring investment and increasing a business's cash flow.
While NYS has already decoupled from certain parts of the IRC that allow
expensing, there are three specific provisions to which the state remain
coupled which were recently dramatically expanded under OBBBA.

Firstly, OBBBA created a new business expensing deduction under IRC §
168(n) for "qualified production property" which includes manufacturing,
agricultural production, chemical production, and refining facilities
placed in service by the end of 2030. New York has historically not
allowed expensing for real property, as buildings are a classic example
of a long-lived asset that should be deducted over time, which is why
the legislature decoupled years ago from generalized "bonus depreci-
ation" under IRC § 168(k) after studies found that this tax break led to
little new investment and returned only 27 cents on the dollar. Since we
have already decoupled from IRC § 168(k), there is little reason to
remain coupled to only IRC § 168(n), which is an even more targeted
corporate handout. As described by ITEP, "(§ 168(n)) means...that a
highly profitable corporation can make it appear that it does not have
any taxable profits at all, so long as it is buying up equipment and
building factories."' Furthermore, remaining coupled to IRC § 168(n)
will cost the state $370 million in the 2026 tax year.2

Secondly, OBBBA restores a previous provision in IRC § 174a that had
allowed businesses to immediately write off research and experimentation
(R&E) expenses despite the fact that the vast majority of R&E invest-
ments, like software and machinery, have more than a one-year shelf
life. OBBBA also allows businesses with less than $31 million of
receipts in 2025 to retroactively deduct R&E expenses that were made
between 2022 and 2025. As ITEP notes, not only does this type of immedi-
ate expensing for R&E investments not match economic reality, but allow-
ing expensing for R&E purchases that were already made is pure windfall,
as the legislature cannot incentivize investments that have already
happened.' Failing to decouple from IRC § 174a could cost the state up
to a staggering $2.422 billion in tax year 2026.2

Finally, New York remains coupled to IRC § 179, which allows year one
expensing for qualifying assets like machinery, equipment, software, and
property improvements (i.e. roofing, HVAC, security systems) that are
below a certain dollar amount. Businesses have historically been allowed
to write off up to $1 million of long-term assets in a single tax year
so long as total purchase price of such assets remained below $2.5
million. Businesses could purchase assets of more than $2.5 million and
take the § 179 deduction, but the $1 million deduction would then start
to phase out dollar by dollar, with each dollar above the $2.5 million
threshold reducing a dollar of the $1 million deduction.3 OBBBA more
than doubles the writeoff cap in IRC § 179 from $1 million to $2.5
million, while pushing the phaseout threshold from $2.5 million to $4
million. These caps are also indexed to inflation.

While IRC § 179 is frequently represented by proponents as a tax boon
for small businesses, its expansion is illogical for three reasons:  1)
it violates the economic principle outlined above that long-term assets
should be deducted over time; 2) analysis generally suggests that the
increased investment spurred by IRC § 179 does not offset lost tax
revenue; and 3) it's extremely unclear how much raising the expense cap
actually increases investment in small businesses as opposed to just
including larger businesses. Remaining coupled to IRC § 179 will cost
the state $68 million in tax year 2026.

Evidence suggests that even at the national level, these tax breaks lose
far more revenue than any economic activity they might bring in, and
each provision favors certain industries over others. But business
expensing makes even less sense at a state level, since, as ITEP
explains, state taxes on corporations who do business in multiple states
are calculated by: "1. Taking the company's nationwide gross receipts,
2. Subtracting nationwide deductions, and 3. Taxing the state's share of
that nationwide profit" Accordingly, New York taxpayers may be taking
deductions on investments that did not even occur in-state, causing
massive revenue losses with no investment gain.1

Taken together, these three business expensing expansions in OBBBA will
cost the state up to a staggering $2.86 billion in 2026.2 Decoupling
from this regressive federal tax bill, which as a whole will send one-
third of its net tax reductions to those making over $500,000 by 2027,
will save the state billions of dollars in lost revenue while avoiding
the pitfalls of wasteful and ineffective corporate handouts.4

 
PRIOR LEGISLATIVE HISTORY:

None

 
FISCAL IMPLICATIONS:

This bill will save the state $2.86 billion in 2026.

 
EFFECTIVE DATE:
Immediate
1 Mazerov, Michael, and Nick Johnson. "Why States Shouldn't Go along
with OBBBA's Corporate Tax Breaks: A Practical Guide." ITEP, Institute
on Taxation and Economic Policy (ITEP), 27 Oct. 2025, itep.org/states-
obbba-corporate-tax-breaks-a-practical-guide/.  Accessed 5 Dec. 2025.
2 Higgs, Milly. "The One Big Beautiful Bill Act Gets Expensing Right.
States Should Follow Suit." Tax Foundation, 22 July 2025,
taxfoundation.org/blogione-big-beautiful-bill-expensing-state-tax-confor
mity/. Accessed 5 Dec. 2025.
3 Lautz, Andrew. The 2025 Tax Debate: Section 179 Expensing for Small
Businesses I Bipartisan Policy Center." Bipartisanpolicy.org, Bipartisan
Policy Center, 19 July 2025,
bipartisanpolicy.org/explainer/the-2025-tax-debate-section-179-expensing
-for-small-businesses/.
4 New York State Comptroller Thomas DiNapoli. Tax Provisions under the
Federal Reconciliation Bill. Sept. 2025.