New York City’s tax code was amended on August 31, 2022, to harmonize a number of the City’s provisions with New York State.
Governor Kathy Hochul signed legislation (S9454/A10506) adopting a factor presence economic nexus standard, while also retroactively accelerating New York City’s pass-through entity tax election to take effect for tax years beginning on or after January 1, 2022.
New York City Corporate Economic Nexus
The enacted legislation aligns New York City with New York State’s economic nexus provisions, now applying a factor-based standard, for tax years beginning on or after January 1, 2022. Under the factor-based nexus standard, a C corporation has nexus with New York City if it derives $1 million or more in receipts from activity in the City.
Corporations that file as part of a combined group and have more than $10,000 of NYC receipts are deemed to satisfy the receipts threshold if the in-City receipts of all members of the group that separately exceed $10,000 meet the $1 million threshold in aggregation.
This legislation does not apply to New York City Unincorporated Business Tax or General Corporation Tax. However, it is possible New York City still asserts broad economic nexus provisions to either of these tax types.
New York City Pass-Through Entity Tax
The FY 2023 Budget Bill that was passed in April 2022, created a State and Local Tax (SALT) workaround similar to the state-level workaround, effective for tax years beginning on or after January 1, 2023. The enacted legislation retroactively accelerates the effective date to tax years beginning on or after January 1, 2022.
The Pass-Through Entity Tax (PTET) allows some pass-through entities to elect to pay tax on their New York City income at the entity level, with owners receiving a tax credit against the city’s personal income. Only partnerships in which at least one member is a city resident and S corporations that comprise of only individual shareholders who live in the city are eligible. The tax base for all electing entity types includes all income of a New York City resident owner.
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Businesses that may have only been filing tax returns in New York State, should now reexamine if they have any New York City tax implications. For businesses that determine they may have already been subject to New York City tax, the City offers a Voluntary Disclosure Program (VDA) for eligible businesses that may limit the amount of historical exposures, while potentially waiving penalties.
With respect to the acceleration of the NYC PTET election, the tax authorities are expected to release additional election and filing guidance, but businesses are cautioned they may need to act promptly.
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If you like to discuss how this may impact you, contact Withum’s State and Local Tax Services Team for a deeper discussion.
