Business Corporation Tax

Corporate Tax Reform

On April 1, 2015, the New York State Legislature passed a bill that significantly reforms New York City’s corporate income tax system.  These changes were signed into law by the Governor on April 13, 2015 as Part D of Chapter 60 of the Laws of 2015 and will be effective for tax years beginning on or after January 1, 2015.

What the legislation accomplishes:

  • Substantially conforms New York City tax law to New York State corporate franchise tax changes enacted in 2014
  • Modernizes and streamlines the New York City corporate income taxation of C-corporations conducting business in the City
  • Provides tax relief to many small New York City corporations

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For tax years beginning on or after January 1, 2015, a new corporate tax applies to corporations and banks, other than federal S-corporations, that do business in New York City.  The new tax is being referred to as the Business Corporation Tax.

Corporations that do business, employ capital, or own or lease property, or maintain an office in the city in a corporate or organized capacity must pay this tax.

  • The term corporations includes any entity that is taxable as a corporation for federal tax purposes, by election or otherwise, and so may include:
    • Limited Liability Companies
    • Joint stock companies or associations, and
    • Businesses conducted by trusts
  • Publicly traded partnerships that did not elect out of City corporate taxation in 1996 are also characterized as corporations
  • A corporation may be considered to do business in the City if it is a partner or member in a partnership that does business, employs capital, own or lease property in the City, or maintains an office in the City
  • A corporation is also considered to do business in the City if it:
    • Issued credit cards to 1,000 or more customers who have a NYC mailing address;
    • Has merchant customer contracts with 1,000 or more merchants located in the City to whom the corporation remitted payments for credit card transactions; or
    • The sum of its NYC credit card customers and NYC credit card merchants equals 1,000 or more

 

S-corporations are exempt from the Business Corporate Tax, but they are still subject to the General Corporation Tax or Banking Corporation Tax

  • Publicly traded partnerships that were subject to the City Unincorporated Business Tax in 1995  and made a one-time election not to be treated as a corporation and, instead, to continue to be subject to the Unincorporated Business Tax for tax years beginning in 1996
  • Insurance corporations
  • Publicly supervised utilities
  • Partnerships and limited liability companies that are characterized as partnerships for federal income tax purposes (but see the Unincorporated Business Tax)
  • Foreign corporations that do not qualify as doing business in the city under a de minimis activities standard in Administrative Code section 11-653(2)
  • An alien corporations if:
    • Its activities are limited to investing or trading securities for its own account within the meaning of the federal safe-harbor contained in section 864(b)(2) of the Internal Revenue Code, or
    • It has not elected to be taxable as a domestic corporation and has no effectively connected income for federal income tax purposes.
  •  

    The tax applies to business income, however, business capital and gross receipts are alternative minimum tax bases
     
             Business Income Base Tax Rates


    Type of Business Rate in Tax Year 2015 and thereafter
    Qualified manufacturing corporations 4.425%-8.85%
    Small businesses
    6.5% - 8.85%
    Financial corporations 
    9%
    Remaining taxpayers
    8.85%

    Qualified manufacturing corporations must meet certain property and receipts tests.  For more information see here.

    Small businesses qualify depending on their level of income.

    Financial corporations are corporations, or combined groups that meet the definition set forth in Administrative Code section 11-654(1)(e)(1)(i).

           Business Capital Base Tax Rates

    Type of Business Rate in Tax Year 2015 and thereafter
    Cooperative housing corporations
    .04%
    All other corporations
    .15%
    Modification: The portion of total business capital directly attributable to stock in a subsidiary that is taxable as a utility within the meaning of the New York City Utility Tax or would have been taxable as an insurance corporation under the former New York City Insurance Corporation Tax .075%
    • The maximum tax is $10 million.
    • A $10,000 reduction applies to all capital tax calculations (provided that the capital tax cannot be less than $0).
     
              Fixed Dollar Minimum (FDM) Amounts

    If New York City Receipts are: Fixed Dollar Minimum Tax is:
    Not more than $100,000 $25
    More than $100,000 but not over $250,000 $75
    More than $250,000 but not over $500,000 $175
    More than $500,000 but not over $ 1 million $500
    More than $1 million but not over $5 million $1,500
    More than $5 million but not over $25 million $3,500
    More than $25 million but not over $50 million $5,000
    More than $50 million but not over $100 million $10,000
    More than $100 million but not over $250 million $20,000
    More than $250 million but not over $500 million
    $50,000
    More than $500 million but not over $1 billion
    $100,000
    More than $1 billion
    $200,000

     

    • A single receipts factor apportionment methodology is being phased-in on the same schedule as the current General Corporation Tax and will be fully effective for tax years beginning on or after January 1, 2018
    • Customer sourcing rules determine whether receipts are derived from activity within the City for purposes of the receipts factor
    • Small to mid-sized taxpayers will have a one-time election to continue using property and payroll to apportion income in tax years beginning on or after January 1, 2018
    • Receipts from services are generally sourced to the City if the customer receives the benefit of the service in the City
    • Current sourcing rules generally continue for:
      • Rentals of real and tangible personal property
      • Broker/dealer activities, except as described above
      • Credit card interest, fees, penalties, service charges, merchant discounts, and credit card fees;
      • Services provided to a Regulated Investment Company
      • Advertising

     

     

    • Domestic corporations and alien corporations, to the extent of their U.S. effectively connected income, may be permitted or required to file a combined report if they conduct a unitary business and have common ownership or control (more than 50% of voting stock)
    • Combination across tax types remains prohibited
    • The combined group is treated as if it were a single tax entity
    • Commonly owned groups may also elect to a file a combined return, without regard to whether they conduct a unitary business, and the election is effective for 7 years

     

     

    • Investment income and other exempt income are not taxable, thus deductions for interest expenses attributable to such income are disallowed
      • Any actual interest expense attribution that exceeds income must be added back to income
      • For more information see here
    • In lieu of computing actual interest expenses disallowed, taxpayers generally may make a revocable election to reduce investment income and other exempt income by 40%

     

     

    • Net operating losses (NOLs) that were incurred before 2015 are converted into a Prior Net Operating Loss Conversion (PNOLC) subtraction to stabilize their value for financial accounting purposes.
    • A taxpayer’s NOL deduction (NOLD) is the sum of allocated business losses incurred in tax years beginning on or after January 1, 2015, less any portion of losses that were deducted as a NOLD in a prior tax year.
    • The NOLD is no longer limited by the federal NOLD source year or amount
    • The NOLD is a deduction against allocated business income and is applied after the PNOLC subtraction.
    • NOLD is not allowed for an NOL sustained during any year in which the corporation generating the loss was not subject to tax under Subchapter 3-A.
    • NOLs can be carried back 3 years, except that no NOL earned in 2015 or later can be carried back to a tax year beginning before January 1, 2015, and must be carried back to the earliest year first

     


    Frequently Asked Questions (FAQs)

     

    • Business income is entire net income minus investment income and other exempt income
      • Entire net income is the total net income from all sources subject to certain statutory modifications
      • Business income includes the following:
        • Interest income and gains and losses from debt instruments or other obligations, unless the income cannot be included in allocable business income under the U.S. Constitution
        • Gains and losses from stock of a corporation conducting a unitary business with the taxpayer
        • Dividends and gains and losses from stock that does not qualify as investment capital
        • Dividends and gains from stock that do not qualify as investment income because gross investment income exceeds 8% of ENI
        • Income from cash
      • Investment income is generally income from stocks of non-unitary corporations that, in addition to certain other statutory criteria, are properly identified as investment capital and are capital assets for federal income tax purposes. For more information, see here and here.  If a corporation owns or controls less than 20% of voting power of the stock of a corporation, the corporation is presumed to not be conducting a unitary business with the corporation. Gross investment income cannot exceed 8% of the taxpayer’s ENI, and any excess is characterized as business income.
      • Other exempt income is the sum of exempt CFC income and exempt unitary corporation dividends
        • Exempt CFC income is income received from a controlled foreign corporation that is conducting a unitary business with the taxpayer but is not included in the combined group. This includes Subpart F income and I.R.C. §956 dividends.
        • Exempt unitary dividends are dividends from unitary corporations not in the combined group because they are: (1) taxable under another tax chapter, (2) alien corporations that are not deemed domestic and have no ECI, (3) insurance corporations that are not taxable under Subchapter 3-A, or (4) less than 50% directly or indirectly owned or controlled by the taxpayer.

     


    For tax years beginning before January 1, 2016:

    • Annual returns and tax payments must be postmarked by March 15 of the following year, if the corporation chooses an accounting period that is based on the calendar year
    • A corporation that uses an accounting period other than the calendar year (e.g., a fiscal year) must file a return on the 15th day of the third month after the close of its fiscal year
    For tax years beginning on or after January 1, 2016:
    • Annual returns and tax payments must be postmarked by April 15 of the following year, if the corporation chooses an accounting period that is based on the calendar year
    • A corporation that uses an accounting period other than the calendar year (e.g., a fiscal year) must file a return on the 15th day of the fourth month after the close of its fiscal year
    Automatic Extension
    Businesses that are subject to the Business Corporation Tax may get an automatic six-month extension by filing Form NYC-EXT.  This extension is given only if the extension form is filed on or before the original due date for the return and the tax was estimated correctly and paid. The application will be denied if the estimated amount of tax is not correct or if it is not paid on or before the original due date.

    Additional Extensions
    A business with a valid six-month extension may request up to two additional three month extensions by filing Form NYC-EXT.1. A separate form must be filed for each three month extension requested.

    Paying Estimated Tax
    For tax years beginning before January 1, 2016, if the preceding year’s tax was more than $1,000, the taxpayer or combined group, as applicable, must pay an amount equal to 25% of this tax at the time the preceding year’s tax return is filed or at the time a request for an extension is filed, as the first installment of estimated tax for the current year.

    For tax years beginning on or after January 1, 2016, if the second preceding year’s tax was more than $1,000, the taxpayer, or combined group, as applicable must pay an amount equal to 25% of this tax on or before March 15, as the first installment of estimated tax for the current year.  Filers that use an accounting period other than the calendar year must pay this amount at the time the preceding year’s tax return is filed or at the time a request for an extension is filed.

    If the requirement for filing a Declaration of Estimated Tax is first met…  
    The Due Date for Filing is
    Before June 1    June 15
    June 1, up to August 31
    September 15
    September 1, up to November 30 December 15
    Instead of the December 15 Declaration, a completed tax report, with payment of balance due, if any, may be filed by February 15 of the following year.

    For filers that use an accounting period other than the calendar year, the corresponding months of the accounting period should be substituted for the months specified above. If a due date falls on a weekend or a legal holiday, the filing must be made by the next business day.

     


    Forms
    Business Corporation Tax Forms


    Dissolution Requirement
    Under Section 1004 of the Business Corporation Law, as of October 1, 2009, Tax Clearance must be obtained from Department of Finance when dissolving corporations that have done business in and incurred tax liability to the City of New York.  You must complete the Request for Dissolution and mail it to Department of Finance.  Department of Finance will send a Dissolution Consent to the address provided on the Request. The Dissolution Consent must be attached to Certificates of Dissolution that are filed with the New York State Secretary of State.

    If you are not an officer of the corporation, and are filing a Request for Dissolution on behalf of a corporation, you will need to obtain and submit a signed and dated Power of Attorney with your request.


    Publications on the Business Corporation Tax Reform

    Corporate Tax Reform Outline

    Transitional Filing Provisions
    Investment Capital Identification Requirements
    Read the legislation that passed on April 1, 2015
    Summary of Tax Provisions
    New York State Corporate Tax Reform
    Finance Memoranda #16-2   Direct and Indirect Attribution of Interest Deduction under the Business Corporation Tax (Corporate Tax of 2015)
    Finance Memoranda #16-3   Additional Investment Capital Identification Periods for Certain Non-Dealers under the Business Corporation Tax (Corporate Tax of 2015)
    Finance Memoranda #16-4  Transitional Filing Relief for Taxpayers Affected by New York City’s Corporate Tax Reform Legislation
    Finance Memoranda #17-2 -Tax on Capital:  Calculating Liabilities Attributable to Categories of Business Capital

    Legal Authority
    New York City Administrative Code, Title 11, Chapter 6 (Subchapter 3-A)

    If you have any questions about Corporate Tax Reform, please email us. We will review your question and any response will be published in the Frequently Asked Questions (FAQs) above.