Despite New York State’s promising business tax reform efforts this year, New York City still has a lot of work to do. Two key provisions of the state’s taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. changes still need to be adopted by the city: (1) the merging of the general corporation tax and the bank tax, and (2) the elimination of two of the four corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. bases. Both were smart reforms for the state because they greatly reduce administration and compliance costs.
New York City’s current corporate tax climate looks a lot like pre-reform New York State. It has a banking corporation tax that is separate from the general corporate tax, and that general corporate tax also has four bases.
As it stands now, once the state reforms go into effect, city corporations would have to keep two sets of books—one for filing at the state level and one for filing at the city level. This creates higher administration costs for the state and higher compliance costs for businesses—neither of which we like.
Despite the fact that New York City Mayor Bill de Blasio and Governor Andrew Cuomo disagreed earlier this year when the Mayor attempted to raise taxes on wealthy city residents to pay for universal pre-K education, his administration seems open to the idea of conforming the city’s corporate tax changes to those made by the state.
In the words of NYC’s Finance Commissioner, who testified before a City Council hearing on the Executive Budget in early June (read the whole testimony here and Capital New York coverage here), there is talk of “mak[ing] New York City more business friendly.” The Commissioner asserted that the city’s business income tax laws “remain outdated,” and that,
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.
I couldn’t have said it better myself.
Fast-forward to three months later in September, when a Capital New York article discussed a meeting between the Mayor and city business leaders in which there “were no real points of disagreement." According to the piece, "executives [in the meeting]…spoke about their desire for corporate tax reform, which de Blasio vowed to work on."
Few details are known yet, however Capital New York reported based on comments by city officials and in-the-known business leaders that:
- Single sales factor apportionmentApportionment is the determination of the percentage of a business’ profits subject to a given jurisdiction’s corporate income or other business taxes. U.S. states apportion business profits based on some combination of the percentage of company property, payroll, and sales located within their borders. would be on the table;
- The overall package of changes will likely be revenue neutral for the city;
- One objective was to “promote horizontal equity…for similar firms;” however
- It wasn’t clear if this would increase or decrease individual businesses’ tax liabilities.
One thing is for sure: New York State’s business tax reforms this year were a welcomed step in the right direction. Let’s hope New York City follows suit.
[Note that the Finance Commissioner’s testimony also alluded to property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. and utility tax changes, as well.]
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