New York City Corporation Tax Reform Proposal

By Brian Gordon

Following in the footsteps of New York State’s corporation tax reform, which for the most part became effective for tax years that began on or after January 1, 2015, New York City Mayor Bill de Blasio has now proposed similar changes to NYC corporation tax laws which would be retroactive to January 1.

Currently, since New York State has new laws in effect, and New York City does not; filing in both of these jurisdictions will become much more difficult if New York City does not make these proposed changes. In the past a New York State Corporation Tax Return and a New York City Corporation Tax Return was very similar. Now, even the definition of who is required to file is different. For example, a corporation may be doing business in New York City under the state’s new laws, but not doing business under the city laws.

Under the mayor’s proposal, the city would align with many of the state’s laws.

Economic Nexus:

One of the state’s major changes which the mayor is proposing to align with is economic nexus. Under this methodology, a corporation with no physical presence in New York City may have nexus (i.e. a determination that they are doing business in NYC) and be required to file and pay tax if they have sales which are sourced to New York City in excess of $1 million.

Market Based Sourcing:

Under market based sourcing, a corporation that provides a service will have to apportion their sales to the location where the customer is receiving the benefit of the service – generally the customer’s place of business – rather than where the service is performed. Professional firms will generally be affected by this change, because they usually perform their service at their own office (accountants, attorneys, architects) for the benefit of a client at another location.

Combined Reporting:

The proposal also includes alignment with the state’s new combined filing requirements. Under New York State’s new laws the focus is on unitary businesses with common ownership of 50%. The city still requires intercompany transactions which could result in the state and city having different combined groups.

In addition, the mayor is proposing to reduce tax rates. Tax rates for small corporations (net income less than $1 million) would be reduced from 8.5 percent to 6.5 percent. Also following in the footsteps of the state, there would be added benefits for manufacturing corporations. Tax rates for small manufacturers would be reduced to 4.425 percent. Mid-sized manufacturers with net income between $10 million and $20 million would have a smaller reduction.

Mayor de Blasio stated that this proposal would be revenue neutral, however it would appear to this author that it might reduce taxes for corporations inside the city, while increasing taxes or adding taxpayers from outside the city.

It must be noted, that this proposal, as was with New York State’s new laws, only affects corporations. Partnership laws were not changed by New York State, nor are they included in the New York City proposal.

For more information regarding State and Local Taxes, please visit
Brian Gordon's S.A.L.T Blog at:
www.st-cpas.com/blog.