New York State and New York City Corporate Tax Reform

By Duffany, Patrick; Rosenthal, Corey et al. | The CPA Journal, July 2015 | Go to article overview

New York State and New York City Corporate Tax Reform


Duffany, Patrick, Rosenthal, Corey, Rabinowitz, Peter, Kaur, Arvinder, The CPA Journal


On March 31, 2014, Governor Andrew M. Cuomo signed the largest corporate tax reform bill in New' York State history, outlining major changes to the state's corporate franchise tax. Subsequently, as part of the 2015/16 budget bill, the legislature added a number of technical corrections to the original bill and also enacted New' York City corporate tax reforms similar to New' York State's corporate reforms, adopting some, but not all, of the state's changes.

State and City Changes

A majority of the New' York State and City changes were effective as of January 1, 2015 (exceptions are noted below). With respect to the New' York City changes, the corporate reforms only apply to federal C corporations-the city does not recognize S corporations and treats them as C corporations for income tax purposes. Accordingly, New' York City's corporate reforms will not apply to S corporations, which will continue to be subject to the New' York City income tax based on the old general corporation tax rules. In addition, New' York City's corporate tax changes will not apply to insurance corporations (which are not subject to the city's corporate income tax), publicly supervised utilities, or entities subject to the unincorporated business tax.

Both the New York State and New' York City corporate reforms contain significant changes that affect many taxpayers. It is important for every' corporation subject to state and city taxation to review' its filing position and identify whether any of die recently enacted provisions will result in increased tax liabilities or provide tax planning opportunities. The most significant changes are detailed in the following paragraphs.

Corporate Income Tax Rate

New York State. The corporate tax reform resulted in a tax rate decrease, effective as of January' 1, 2014, for "qualified New' York manufacturers," as specifically defined under the legislation, from 5.9% to 0%. This rate change does not translate to a zero tax. Qualified New York manufacturers are still subject to tax on the higher of either the capital tax base or minimum tax base. In addition, the alternative minimum tax base has been repealed. For all other industries, beginning January' 1, 2016, the corporate income tax rate w'ill be reduced from 7.1% to 6.5%.

New York City. Under the city's tax reform, there is no similar rate reduction, and the city's definition of a qualified manufacturer is slightly different from the state's definition. Depending upon the manufacturer's income, the city tax rate will range betw'een 4.425% and 8.85%. Unlike New York State, New' York City did not reduce this rate to 0%. The tax rate for small businesses will range between 6.5% and 8.85%, based upon the business income allocated to New York City. Major financial corporations having more than $100 billion in assets w'ill be taxed at 9%; all other businesses will still be subject to the 8.85% tax rate.

Combination and Unitary Filing Rules

New York State. Mandator}' water's-edge unitary filing rules have been adopted by the state. A combined return w'ill be required if a corporation has 50% or more common direct or indirect ownership of another corporation and the entities are unitaiy. New York State will also allow an irrevocable and binding seven-year election that w'ill treat all corporations that meet the 50% ownership test as part of a single combined group. Any newly formed or acquired corporations that meet the 50% ownership test w'ill automatically be included in the combined group as long as the seven-year election is effective. The election w'ill be automatically renewed for an additional seven years unless revoked by the taxpayer.

New York City. New York City is conforming to New' York State's new changes for combined reporting.

Economic Nexus Standard

New York State. The New York Tax Law provides that a corporation is subject to corporation tax if it derives receipts from New York activities. …

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