On January 12, 2015, New York City Mayor Bill de Blasio proposed a major reform to the corporate tax structure. The Mayor is hoping that Governor Andrew Cuomo will include these changes in his budget and make them retroactive to January 1.
Under this proposed new structure, the New York City tax code will now conform to that of New York State, ensuring that business owners will no longer need to maintain separate records for state and city tax purposes. This will also create the consistency in computation of taxes that is critical to facilitating joint audits and preventing major administrative burdens for both taxpayers and the city.
Another key component of this proposed reform is the adoption of new unitary combined reporting rules so that economically related business entities that are commonly owned will file as one taxpayer. While this is designed to make it more difficult to shift income from high to low tax states, this could provide opportunities for companies to use losses or apportionment factors from outside New York City to reduce their New York City tax.
The apportionment factor is also up for change. The new apportionment rules for the city would now mirror that of the state with a single sales factor and a move to market-based sourcing. The goal is to provide an incentive for companies to either move to or keep their businesses in New York City because increasing staff or property in the city will not increase taxes.
The other main components are tax relief for small businesses and local manufacturers in the form of reduced tax rates (from 8.85% to 6.5% for small non-manufacturers with less than $1 million in allocated income and to 4.425% for small manufacturers with less than $10 million in allocated net income) and an exclusion of $10,000 from the capital tax base.
This is all in addition to separate tax on financial institutions being merged into general corporate franchise tax in 2014 (effective for tax years beginning on or after January 1, 2015).
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