| New
York City Makes Major Changes to the Unincorporated Business
Tax
By
Mark H. Levin
APRIL 2006 -Governor
Pataki recently signed legislation that enacted long-awaited
changes to the New York City unincorporated business tax (UBT).
These changes go a long way toward conforming the UBT rules
to those of the general corporation tax (GCT).
Statutory
Method for Allocating Income
Since
the inception of the UBT, the statutorily preferred method
for allocating income within and without New York City was
by using the taxpayer’s books and records. The law,
however, provided that if the information in a taxpayer’s
books and records was not sufficient to enable it to allocate
its income, the taxpayer could utilize another method that
would fairly reflect its income within and out of New York
City, usually the three-factor formula utilizing property,
receipts, and wages.
For
taxable years beginning on or after January 1, 2005, UBT
taxpayers are generally required to use the three-factor
formula to allocate income to New York City. Those UBT taxpayers
that were properly using the books-and-records method, may,
in most cases, elect to continue using the books-and-records
method for tax years beginning before 2012.
For
taxable years beginning on or after January 1, 2005, UBT
taxpayers may include rented tangible personal property
in the property factor, valued at eight times the annual
rent.
Sourcing
of Income from Services
For
many years, the UBT rules governing the sourcing of income
from services stated that income from services was sourced
to the location from which the service was controlled. This
rule was especially burdensome to those whose work requires
them to perform services at various locations. For example,
an accountant whose office is located in New York City may
also have to work at a client’s office outside of
New York City. Under the old rule, all of the income from
that client was considered to be sourced in New York City,
because the work was controlled from the New York City office.
Starting
in tax years beginning on or after July 1, 2005, receipts
from services will be sourced to the location at which the
service is performed. This change will be phased in over
a three-year period based upon the taxpayer’s gross
receipts as follows:
-
For tax years beginning on or after July 1, 2005, and
UBT taxpayers having gross receipts of less than $100,000,
charges for services shall be allocated to New York City
to the extent that the services were performed within
the city.
-
For tax years beginning on or after July 1, 2006, and
UBT taxpayers having gross receipts of less than $300,000,
charges for services shall be allocated to New York City
to the extent that the services were performed within
the city.
-
For tax years beginning on or after July 1, 2007, all
charges for services shall be allocated to New York City
to the extent that the services were performed within
the city.
The
above changes go a long way in conforming the UBT and GCT
rules and simplifying the New York City business income
tax structure.
Tax
Extensions
The
New York City GCT, originally scheduled to expire after
2005, has been extended through 2008. The New York City
sales and use tax imposed on credit and reporting services,
originally scheduled to expire after December 31, 2005,
has been extended through December 31, 2008.
The
New York City minimum personal income tax (IT-220) imposed
at the rate of 2.85%, which was originally scheduled to
expire after taxable years beginning after December 31,
2005, has been extended through taxable years beginning
after December 31, 2008, after which the rate will drop
to 2.5%.
The
New York City additional personal income tax surcharge imposed
at the rate of 14%, which was originally scheduled to expire
after taxable years beginning after December 31, 2005, has
been extended through taxable years beginning after December
31, 2008, after which the rate will drop to 2.5%.
Mark
H. Levin, CPA, is manager, state and local taxes,
at H.J. Behrman & Company, LLP, New York, N.Y. |