York City’s 2007 Business Tax Package
- In the waning days of the 2007 legislative session, the New York
State Legislature passed New York City’s business tax package
(A8275B/S6009B), and it was signed into law by Governor Spitzer
on August 1, 2007. This legislation makes some long-awaited changes
to the New York City unincorporated business tax (UBT) and the general
corporation tax (GCT).
a separate action, the New York City Council unanimously passed
legislation increasing the UBT credit available to New York City
resident taxpayers. Mayor Bloomberg signed it into law on July
the UBT was first imposed in 1966, the New York City Administrative
Code allowed a deduction for only the proprietor’s or each
active partner’s services of $5,000 [section 11-509(a)].
Even in 1966, some considered the amount insufficient.
retroactively for tax years beginning on or after January 1, 2007,
the legislation amends New York City Administrative Code section
11-509 to increase the deduction for the proprietor’s or
each partner’s services to $10,000. While this increase
may appear to be insufficient in bringing the value of the original
deduction in line with inflation, it is a step in the right direction.
This increase in the deduction for the proprietor’s or each
partner’s services is somewhat mitigated since the 20% limitation
on this deduction remains unchanged. For example, consider the
for eight partners
|| $ 40,000
($200,000 x 20%)
|| $ 40,000
|| $ 40,000
In a case
like the one above, because the 20% limitation has not increased,
the increased deduction for the proprietor/partner’s services
may have no effect.
Alternative Tax Base
corporations from lowering their taxable income by disguising
dividends as salaries, New York City’s GCT uses an entire
net income (ENI)-plus-compensation alternative tax base. The alternative
tax calculation takes allocated net income and adds back compensation
paid to any shareholders who own more than 5% of the corporation’s
outstanding stock. The resulting adjusted net income is reduced
by $40,000 and the balance is taxed at 2.655% (30% of the 8.85%
corporate income tax rate).
for tax years beginning on or after January 1, 2007, this legislation
amends the New York City Administrative Code by adding a new section,
11-604(1)(H)(c), which provides for a 50% phase-out of this tax
rate over the next four years as follows:
Portion of Adjusted ENI
in the income-plus-compensation alternative tax represents real
tax savings for corporations that have been paying their GCT computed
on this tax base.
Business Tax Simplification
GCT was first imposed in 1966, all corporations had to compute
it under rules that were similar to, but differed in detail to,
those used in computing the New York State Article 9-A Franchise
Tax. This new legislation adds a new section 11-604(1)(I) that
simplifies the filing requirements for certain small businesses.
For the purposes
of this legislation, a small business is defined as a corporation
- has less
than $250,000 in gross income;
100% of its income to New York City;
- has no
investment capital or income; and
- has no
subsidiary capital or income.
for tax years beginning on or after January 1, 2007, corporations
that meet the above criteria may elect to compute their GCT based
on their New York State ENI plus any New York City GCT deducted
when computing the New York State ENI. It should be noted that
the amended code does not provide for a modification for any GCT
refund or overpayment included in gross income.
Paid Credit for GCT Taxpayers
for tax years beginning on or after January 1, 2007, section 11-604(18)(b)(2)
of the New York City Administrative Code is amended to revise
the UBT paid credit available to GCT taxpayers subject to the
tax on the ENI-plus-compensation base to reflect the decrease
in the effective rate of the ENI-plus-compensation base tax.
effective for tax years beginning on or after January 1, 2007,
a corporation that is not a New York State S corporation and meets
the above criteria may elect to pay its tax based on New York
State’s ENI rather than separately calculating the tax on
New York City’s ENI-plus compensation.
and prior years, New York City allowed the owners of unincorporated
businesses (proprietors, partnerships, and limited liability companies)
to take a partial credit against their resident personal income
tax for their share of UBT payments. The current credit is 65%
of the taxpayer’s share of UBT paid for taxpayers whose
New York taxable income is $42,000 or less; the credit phases
out until the UBT credit reaches 15% for taxpayers whose New York
taxable income is $142,000 or more.
for taxable years beginning on or after January 1, 2007, section
11-1706(c) of the New York City Administrative Code is amended
to increase the credit available to New York City residents for
their share of UBT paid, and is increased from the current percentages
to 100% of UBT paid for taxpayers whose New York taxable income
is $42,000 or less; this phases out until the UBT credit reaches
23% for taxpayers whose New York taxable income is $142,000 or
H. Levin, CPA, is manager, state and local taxes, at H.J.
Behrman & Company, LLP, New York, N.Y. He is a member and past
chair of the NYSSCPA’s New York, Multistate and Local Taxation
Committee, and a member of The CPA Journal Editorial Board.