Tax News Highlights: 2015 New York City Tax Reform

| 4/30/2015

On April 1, the New York State Legislature passed bills that contain New York City tax reform legislation. The New York City general corporation tax changes basically conform to recent changes in New York state taxation and are effective for tax years beginning on or after Jan. 1, 2015. However, some differences remain between New York state and New York City taxation.

Partnerships and S Corporations
The recent New York City tax provisions merge the banking corporation and the general corporation taxes. However, the new provisions do not affect the taxation of partnerships, S corporations, and other unincorporated entities. These entities will continue to be taxed as they were previously. S corporations will continue to be subject to the existing general corporation tax, and unincorporated entities will continue to be subject to the existing unincorporated business tax.

Economic Nexus
Unlike the state, New York City did not implement an economic nexus standard. Effective for taxable years beginning on or after Jan. 1, 2015, New York state imposes tax on corporations that have $1 million or more in New York source receipts (based on market-based apportionment). New York City did not adopt this economic nexus standard. The city generally retains a physical nexus standard and conforms to the state economic nexus standard only for certain credit card corporations.

Income Tax Rates and Tax on Capital
Unlike New York state, New York City did not reduce its income tax rate. The New York City general corporate tax rate on income will remain at 8.85 percent, with a 9 percent rate imposed on financial corporations with assets in excess of $100 billion. New York City is increasing the maximum tax on the capital base to $10 million, less a $10,000 deduction. (New York state is phasing out the tax on capital, with a maximum tax of $5 million and a complete phaseout by 2021.) New York City will provide a reduced income tax rate of 4.425 percent for qualified New York City manufacturers.

Apportionment
New York City is continuing to phase in the single-sales factor, with 2018 being the first year with a single-receipts factor. Until then, taxpayers are using a weighted three-factor formula, gradually eliminating the property and payroll factors. Beginning in 2018, New York City will allow a modified three-factor apportionment formula election for a taxpayer or a combined group of taxpayers with $50 million or less of receipts allocated to the city.

 

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