2026–27 Executive Budget tax expenditure proposals

2026–27 Executive Budget tax expenditure proposals

This section describes the proposals contained in the 2026-27 Executive Budget that modify, add, or repeal specific tax expenditures. Each description begins with background information regarding the proposal, a summary of the proposal, reasons for recommending the change, and an estimate of the revenue implications. Table 9 provides a listing of these provisions.

1. Enhance and Reform the Child and Dependent Care Credit

Background: The New York State child and dependent care credit (CDCC) is a benefit for working taxpayers to defray the costs of care for a dependent child under the age of 13 or an older disabled dependent or disabled spouse. The New York credit is computed as a share of the federal credit, with some additional state-specific enhancements. Taxpayers may be eligible for the State CDCC even if the federal credit was not claimed. The state CDCC is fully refundable for resident taxpayers, while part-year residents may claim a partially refundable credit and nonresidents may claim nonrefundable state CDCC.

Proposal: This proposal would replace the current child and dependent care credit with a new New York State child and dependent care credit that is no longer coupled with the federal counterpart. The reformed, refundable credit would provide a greater benefit to families and reduce complexity in claiming the credit. Eligibility for the credit would be limited to full-year New York residents.

Discussion: Computing the State’s child and dependent care credit is currently complicated. Furthermore, the credit suffers from fairness issues due to its regressivity across some income ranges. These issues were compounded by the enhancement of the Federal child and dependent care credit by H.R. 1. This proposal corrects these problems while simultaneously making child and dependent care more affordable, dramatically simplifying the benefit calculation, enhancing the benefit, and making the credit fully progressive.

Revenue: This proposal would have no effect on state revenues in SFY 2026-27.

2. Eliminate Income Taxes on Tipped Wages

Background: Under current law, the Internal Revenue Code allows taxpayers a temporary deduction for qualified tips. The maximum annual deduction is $25,000 that phases out for taxpayers with income over $150,000 ($300,000 for joint filers). The design of the federal deduction does not allow the benefit to flow through to the state level.

Proposal: This proposal would create a state level subtraction that would reduce New York adjusted gross income by the same amount as the equivalent Federal deduction, up to $25,000.

Discussion: This proposal supports the State’s goals of addressing affordability for New York taxpayers. 

Revenue: This proposal would reduce state revenues in SFY 2026-27 by $52 million. 

3. Retain Deductibility of Certain Charitable Contributions

Background: New York itemized deductions currently allow a deduction for contributions made to charitable organizations. The amount of the deduction is computed using the corresponding federal rules in place for the tax year. These federal rules generally require that donations be made to a qualified organization, which includes entities that are tax-exempt under Internal Revenue Code § 501(c)(3).

Proposal: This proposal would retain the state deductibility of certain charitable contributions to entities that lose their Internal Revenue Code §501(c)(3) federal tax-exempt status.

Discussion: Federal officials have threatened to revoke the tax-exempt status of certain §501(c)(3) organizations for reasons unrelated to their compliance with the Internal Revenue Code. This threat has put tax-exempt organizations at risk of losing their preferential tax treatment. This bill would preserve the tax-exempt treatment for individual taxpayer donations to entities that continue to operate as charitable organizations that are or would be eligible for exemption from New York State sales tax, even if the Internal Revenue Service revokes their Internal Revenue Code §501(c)(3) recognition. The organization must establish that the revocation was unrelated to its charitable mission.

Revenue: This proposal would have no effect on state revenues in SFY 2026-27.

4. Extend the Refundability of the Investment Tax Credit for Farmers for Five Years

Background: Taxpayers making qualifying investments in business property, primarily tangible personal property (like equipment) and certain structures used in production, may be eligible for the Investment Tax Credit (ITC). For eligible farmers, the credit rate is twenty percent of the qualified investment in certain farming related property. The ITC was temporarily made refundable for eligible farmers effective for taxable years beginning on or after January 1, 2023, for property placed in service on or after that date. This refundability provision currently applies through tax year 2027. 

Proposal: This proposal would extend the refundability of the investment tax credit for farmers by five years, through tax year 2032. 

Discussion: This proposal would maintain existing support for farmers and incentivize additional investment in New York State’s agricultural sector by providing increased financial predictability for producers and farmers interested in relocating or expanding in the State.

Revenue: This proposal would have no effect on state revenues in SFY 2026-27.

5. Standardize the Definition of Farmer for Certain Tax Credits

Background: A taxpayer generally qualifies as an eligible farmer for certain credits if two-thirds of the farm’s income is derived from farming. The computation of the two-thirds amount varies slightly across the investment tax credit, farmers’ school tax credit, farm donation to food pantries credit, farm workforce retention credit, and farm overtime credit. These differences force farmers to determine eligibility for each credit separately, which results in farmers being eligible for some credits, but not others.

Proposal: This proposal would make one consistent definition of eligible farmer to be applied uniformly for the farm related tax credits under Articles 9-A and 22. Under this new definition, taxpayers are eligible for farm-related credits if gross income from farming in the current year (or the 3-year average) is at least two-thirds of their federal gross income less $30,000. This definition clarifies that gross income from farming includes payments from the state's farmland protection program, income from a commercial horse boarding operation, and income from the production or sale of maple syrup, Christmas trees, and cider or wine from a licensed New York state farm cidery or winery.

Discussion: New York State supports its farmers through a variety of programs, including various tax credits. Current inconsistency in the definition of “eligible farmer” can result in farm businesses qualifying for some benefits but not others. This proposal alleviates this issue by unifying the definition of eligible farmer across multiple farm-related tax credits, streamlining the credit claim process. Additionally, it would allow the Department to administer these benefits in a more efficient and timely manner.

Revenue: This proposal would have no effect on state revenues in SFY 2026-27.

6. Extend the Commercial Security Tax Credit for Three Years

Background: Taxpayers that are subject to Article 9, 9-A, or 22 and have received a certificate of tax credit issued by the Division of Criminal Justice Services (DCJS) are able to claim a refundable tax credit equal to $3,000 for each retail location of a business entity that has incurred qualified retail theft prevention measure expenses for tax years 2024 and 2025. To be eligible, businesses that have between 26 and 50 total employees statewide must exceed $6,000 in retail theft prevention expenses per location, while businesses with 25 or fewer employees must spend more than $4,000 in retail theft prevention expenses per location.

Proposal: This proposal would extend the commercial security tax credit by three years, through tax year 2028.

Discussion: This proposal would continue to provide support for businesses investing in needed retail theft prevention measures for an additional three years. 

Revenue: This proposal would have no effect on state revenues in SFY 2026-27.

7. Enhance the New York City Musical and Theatrical Production Tax Credit

Background: This credit program was enacted in 2021 to encourage musical and theatrical productions in New York City theaters. Taxpayers that are a qualified New York City musical and theatrical production company and have received a certificate of tax credit issued by Empire State Development (ESD) are eligible to claim a refundable credit equal to 25 percent of qualified production expenditures paid during the credit period under Articles 9-A and 22. A qualified level 1 production can receive a maximum credit of $3 million, while a qualified level 2 production can receive a maximum credit of $350,000. The total amount allocated for the credit is $400 million for the duration of the program and is available for tax years 2021 through 2027.

Proposal: This proposal would increase the aggregate credit cap for the New York City musical and theatrical production tax credit by $150 million for productions whose initial performances were on or after December 1, 2025.

Discussion: This proposal would expand existing financial incentives for musical and theatrical productions in New York City by increasing the aggregate cap from $400 million to $550 million for eligible productions.

Revenue: This proposal would have no effect on state revenues in SFY 2026-27.

8. Extend Reduced Transfer Tax Rates for Qualifying REITs (Three Year Extension)

Background: Certain real estate investment trusts (REITs) are eligible for reduced rates under the New York State Real Estate Transfer Tax (RETT). These reduced rates are currently set to expire on September 1, 2026. 

Proposal: This proposal would extend the tax rate reductions for REITs under the New York State RETT until September 1, 2029.

Discussion: These provisions have been routinely extended since 1999. The extension of these preferential provisions would maintain and encourage new investments in real estate across the state.

Revenue: This proposal would have no effect on state revenues in SFY 2026-27.

9. Extend the Sales Tax Vending Machine Exemption for Three Years

Background: Candy, soft drinks, bottled water and certain fruit juice purchased from a vending machine that accepts only cash or coins are exempt from sales tax if the items are priced at $1.50 or less. If the vending machine can accept payment in some other form (such as a credit card), then the tax exemption threshold is $2.00 or less per item. These exemptions are set to expire after May 31, 2026.

Proposal: The 2026-27 Executive Budget would extend the existing sales tax exemption for certain food and drink purchased from vending machines for three years, through June 1, 2029. 

Discussion: This proposal would incentivize the industry to continue to transition to cashless machines that are able to collect tax at the time of sale.

Revenue: This proposal would reduce state revenues by $8 million in SFY 2026-27.

10. Establish a Sales Tax Exemption for EV Charging Stations

Background: Electricity sold at EV charging stations is subject to state and local sales tax.

Proposal: The 2026-27 Executive Budget would provide a sales and use tax exemption for the retail sale of electricity at a commercial EV charging station. In addition, the purchase of electricity to be sold by a commercial EV charging station would be taxable.

Discussion: This proposal would encourage businesses to install and operate these stations by lowering the cost of owning and operating an EV charging station. These incentives will further the state’s zero-emissions targets and simplify tax compliance for EV charging station operators.

Revenue: This proposal would have no effect on state revenues in SFY 2026-27.

11. Extend the Residential Energy Storage Exemption for Two Years

Background: Residential energy storage systems equipment and the service of installing these systems are exempt from state and local sales and use taxes. This exemption is set to expire after May 31, 2026.

Proposal: The 2026-27 Executive Budget would extend this exemption for two years, through June 1, 2028.

Discussion: This proposal would retain an incentive for New York households to purchase and use energy storage systems.

Revenue: This proposal would have no effect on state revenues in SFY 2026-27.

12. Extend Alternative Fuels Exemptions for Five Years

Background: E-85, CNG and hydrogen are fully exempt from the sales tax, motor fuel tax, and petroleum business tax. B20 is partially exempt from these taxes. Under current law, these exemptions are set to expire after August 31, 2026.

Proposal: The 2026-27 Executive Budget would extend these exemptions for five years, until September 1, 2031.

Discussion: This proposal would continue to encourage the use of alternative fuels and promote the consumption of cleaner energy sources.

Revenue: This proposal would have no effect on state revenues in SFY 2026-27.