New York City Mayor Announces Plans to Change City's Corporate Income Tax Code

January 15, 2015
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Last year, New York State made some exciting changes to its corporate income tax code (we outline them all here). Among them were the elimination of two tax bases, a rate reduction from 7.1 percent to 6.5 percent, merging of the duplicative bank tax into the general corporate tax, and restructuring of Net Operating Loss rules. These changes will be phased in over a number of years and will make the state code a lot simpler.

We wrote in October of last year that despite these positive reforms for the state, New York City still had a lot of work to do to make sure the state's tax simplification measures can be enjoyed by businesses in New York City. We were hopeful that this would happen since New York City's Finance Commissioner asserted before the City Council last June that future action could "make New York City more business friendly." He also noted,

The State has reformed its business tax laws by merging the State's general and banking corporate taxes. We must do the same. The lack of conformity between the City and the State will create compliance issues for businesses, as well as a burdensome administrative process for taxpayers.

That day seems to have finally come (at least partially). Early this week, New York City Mayor Bill de Blasio announced that several changes will be made to the city tax code. The full announcement can be found here, but there is no bill text yet. Big changes include:

  • Conforming certain NYC corporate income tax code to the state's (according to Tax Analysts [subscription required], this would include provisions that "…enact single-sales-factor apportionment and market-based sourcing, [and] adopt an economic nexus standard…");
  • Creating special carve-outs for small businesses and manufacturers, including an exclusion under one tax base, a tax rate reduction from 8.85 percent to 6.5 percent for "small non-manufacturers" with allocated net income of less than $1 million and a tax rate reduction from 8.85 percent to 4.425 percent for "small manufacturers" with allocated net income of less than $1 million);
  • Merging of the bank tax into the general corporate income tax;
  • Changing the way in which net income is calculated;
  • Adopting combined reporting; and
  • Repealing certain special tax carve-outs (there are unknown at this time).


Unfortunately, the City will not phase out one of the corporate tax bases that is being phased out by the state—the capital base. Prior the 2013 state reforms, four tax bases existed in New York state, and a business would pay the highest of them. These were

  1. 7.1 percent of net income;
  2. 0.15 percent on "business and investment capital base" (more info on this here);
  3. an alternative minimum tax of 1.5 percent; or
  4. a fixed dollar amount tax.

The 2013 state reforms eliminated the capital base (2) and the alternative minimum tax (3). The city will retain the capital base, however.

Conforming to the city code and merging the bank tax into the general corporate tax are both good moves because they greatly simplify tax calculation for New York City businesses. But retaining the capital base means that one key part of the city's tax code will be at odds with the state's. Firms operating in the city will still have to keep two sets of booksone for the state, where they don't have to calculate the capital base, and one for the city, where they are still required to calculate the capital base. The "burdensome administrative process" cited by the Finance Commissioner will still exist. 

Creating additional carve-outs for small businesses and manufacturers also further complicates the tax code. It's also not neutral and shrinks the tax base. All firms, regardless of size or industry, should be treated the same under the tax code.

The Mayor's office said these changes would be revenue neutral. We'll keep you updated as more information is available.

Follow Liz on Twitter @elizabeth_malm. More on New York here

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