New York City Conforms Business Taxes with New York State

By Levin, Mark H. | The CPA Journal, December 2009 | Go to article overview

New York City Conforms Business Taxes with New York State


Levin, Mark H., The CPA Journal


On July 10, 2009, after five weeks of inactivity in the New York State Senate, the New York State legislature enacted two bills bringing the New York City general corporation tax (GCT) into closer conformity with the New York State franchise tax and making several substantial changes to the New York City unincorporated business tax (UBT). Governor David Paterson signed these bills into law on July 1 1. 2009.

New Fixed-Dollar Minimum Tax

Effective for taxable years beginning after 2008, Chapter 201 of the Laws of 2009 (New York City 2009 Business Tax Act) repeals the old $300 minimum tax and replaces it with a new graduated fixed-dollar minimum tax. The new minimum tax will be based on New York City receipts that would be used in constituting the numerator of the fraction used in computing the business allocation factor. The new fixed-dollar minimum tax is computed as follows:

While the new fixed-dollar minimum tax will increase taxes for some corporate taxpayers, many others will see their taxes reduced.

Tax on Capital

Effective for taxable years beginning after 2008, the 2009 Business Tax Act increases the maximum tax on capital from $350,000 to $1,000,000. This provision means that many highly capitalized corporations that were previously taxed based on their entire net income (ENI) will now be taxed based on their capital, resulting in a tax increase (NYC Administrative Code section ll-604[l]|f|).

Allocation Among Taxing Jurisdictions

Effective for taxable years beginning after 2008. the 2009 Business Tax Act phases out the old three-factor allocation formula and replaces it with a single sales factor. This single sales factor will be phased in over a 10-year period, starting with taxable years beginning in 2009:

This shift to a single sales factor formula will benefit New York City-based corporations whose receipts come from the sale of property to customers outside of New York City but whose property and payroll are located in New York City. Other corporations may see a tax increase (NYC Administrative Code section 11604[3][a][10]).

Single sales factor and broker/dealers. The 2009 Business Tax Act changes the sourcing rules for corporate taxpayers who are registered securities or commodities broker/dealers. This change brings the sourcing rules for broker/dealers into conformity with those used for the New York State franchise tax.

Effective for taxable years beginning after 2008, the following receipts are deemed to be sourced at the mailing address in the records of the taxpayer or the customer:

* Brokerage commissions derived from the execution of purchase or sale of securities or commodities;

* Margin interest earned on behalf of brokerage accounts of customers:

* Fees earned by the taxpayer for advisory services to a customer in connection with the underwriting of securities;

* Fees earned by the taxpayer for managing an underwriting:

* Interest earned by the taxpayer on loans and advances made by the taxpayer to a corporation alfil iated witíi the taxpayer but with which the taxpayer is not permitted or required to file a combined report:

* Account maintenance fees;

* Certain fees earned by the taxpayer for management or advisory services, including fees for advisory services in relation to merger or acquisition activities. (See NYC Administrative Code sections 11604[31[a|[10][A][i]-[vii].)

All other receipts are deemed to arise from services performed within New York City. The above rules also apply to unincorporated broker/dealers subject to the unincorporated business tax (NYC Administrative Code section 11508[e-3]).

These new sourcing rules will benefit broker/dealers with offices in New York City that service clients located outside of New York City.

Combined Filing

Effective for taxable years beginning on or after January I1 2009, the 2009 Business Tax Act changes the requirements for combined filing.

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