Corporate Close-Up: Tax Reform on the Horizon for New York City

New York City’s corporate tax system has long been a font of controversy within the business community. Its arcane nature, lack of significant reforms and failure to conform to the state of New York’s tax system have caused distress for years to corporate taxpayers. However, New York recently implemented sweeping reforms at the state level for corporate tax (previous coverage can be seen here and here). Mayor Bill de Blasio and Governor Andrew Cuomo have cooperated to produce a plan to overhaul the New York City corporate tax system and bring it into harmony with the state.

Cuomo has released his Executive Budget for fiscal year 2015-2016, which contains several key reforms intended to address consistent problems within the New York City corporate tax system. Among those issues is the problems with compliance to the city’s tax system for different types of entities. Under the current system, banks and other financial corporations are taxed under separate parts of the New York City Administrative Code. The newly proposed budget would change the rules so that the same corporate tax would apply to general business corporations and banks.

Additionally, both Governor Cuomo and Mayor de Blasio emphasized in public statements in support of reforms that they would include tax relief measures for smaller corporations and local manufacturers. That tax rate for non-manufacturing based corporations with less than $1 million in business income allocated to the city would be reduced to 6.5 percent. For manufacturing corporations located within New York City with less than $10 million in business income allocated within the city the tax rate would drop to 4.425 percent.

Another issue that the proposed reforms intend to address is the sourcing of receipts from various services. The plan is to move to market-based sourcing, which memoranda supporting the reforms claim would incentivize expansion of business activity in New York by preventing additional taxation on corporations that add employees and office real estate in the city.

Also, a significant element to the proposed reforms is the application of new standards for combined returns. The new rules would require corporations with more than 50 percent of the voting power of the capital stock of another corporation and are engaged in a unitary business with that corporation must file a combined return.

These proposed reforms to New York City’s Administrative Code are intended to modernize the system and make compliance easier. The reforms, if implemented, would lower the tax burden on smaller corporations and manufacturers, while addressing issues with sourcing of receipts that could dissuade corporations from increasing their business contacts within the city. Whether or not the reforms will be implemented remains to be seen.

Memoranda in support of the reforms found at:

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: will tax reforms be implemented for New York City?

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