New York City Business Tax Reform
Changes bring New York City corporate tax into greater conformity with New York State’s business tax reform.
On April 13, 2015, Governor Cuomo signed into law significant reforms to New York City’s corporate tax structure that are retroactive to tax years beginning on or after Jan. 1, 2015.  These changes are designed to bring the City corporate tax into greater conformity with New York State’s business tax reform that was enacted in 2014 and went into effect for tax years beginning on or after Jan. 1, 2015.
Consistent with the significant franchise tax changes made by the State, New York City’s reform includes the following significant changes:
(i) Requires combined reporting for unitary corporations. A group of corporations with common controlling ownership (i.e., more than 50 percent threshold) must file a combined City tax return if they conduct a unitary business. The new rules no longer require proof of “distortion” or “substantial intercorporate transactions.” Taxpayers may elect to include all commonly controlled group members, regardless of whether or not a unitary relationship between the members exists.
(ii) Adopts market-based apportionment for the receipts factor. New York previously sourced revenues from services based on the location where the services were performed. Now, in conformance with State changes, the City sources services (and other business receipts) to the location where the customer is deemed located, using a hierarchy of methods beginning with where the benefit of the service is received. 
(iii) Reduces income tax rates for small businesses and manufacturers. Corporations with less than $1.5 million of City business income or $3 million of total business income are now subject to a graduated tax rate of 6.5 percent to 8.85 percent. In addition, certain corporations with manufacturing operations in the state and less than $20 million of City business income or $40 million of total business income have a graduated tax rate of 4.425 percent to 8.85 percent.
In contrast with the State’s move to phase-out the alternate measures of tax based on capital and receipts, New York City will continue to assess an alternative tax on a corporation’s capital employed within the City when that tax exceeds the tax based on allocated business income. The tax on capital is capped at $10 million. Further, New York City will not follow the State’s new receipts-factor economic presence nexus rule, which subjects corporations with more than $1 million in New York receipts to the franchise tax regardless of its actual physical presence in the State. Finally, the City is still phasing in a single receipts factor apportionment formula for tax years beginning on or after Jan. 1, 2018, while the State reform incorporated a single receipts factor apportionment formula for tax years beginning on or after Jan. 1, 2015.
Notably, there are no changes to New York City’s taxation of unincorporated pass-through entities at this time. Proprietorships, partnerships and limited liability companies would still be required to pay the City’s Unincorporated Business Tax at the entity-level. Further, the City continues not to conform to the corporate subchapter S election, so S-corporations remain subject to the regular corporate tax structure and pay income tax at the entity-level.
Contact Jeff Glickman, partner-in-charge of HA&W’s State and Local Tax practice, at firstname.lastname@example.org for more information.
 See NY Senate Bill 4610 (for further information about the bill, including its text, click here.)
 The new law enumerates specific apportionment sourcing methodologies for a variety of services/receipts. This rule covers any other services/receipts for which there is not a specific method.
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