United States: New York Releases Guidance On Lower Corporation Franchise Tax Rates For Eligible Qualified Manufacturers

The New York State Department of Taxation and Finance has issued guidance providing the requirements that a taxpayer must meet to be classified as an "eligible qualified New York manufacturer" that is allowed to use lower corporation franchise tax rates.1 In late 2011, New York enacted legislation that provides a 50 percent tax rate reduction for these manufacturers for taxable years beginning on or after January 1, 2012 and before January 1, 2015.2 The legislation directs the Tax Commissioner to establish guidelines and criteria for classifying a taxpayer as an eligible qualified New York manufacturer.3

Reduced Tax Rates

For eligible qualified New York manufacturers, the rate on the entire net income base is reduced from 6.5 percent to 3.25 percent. Also, the tax rate on the minimum taxable income base is reduced from 1.5 percent to 0.75 percent. Finally, the amount of the fixed dollar minimum tax is reduced by 50 percent.

Eligibility Requirements

A taxpayer must meet the following to qualify for the reduced tax rates for a tax year:

  • Satisfy the property and receipts tests;
  • Have a Metropolitan Commuter Transportation District (MCTD)4 allocation of less than 15 percent for the year, calculated by using equally-weighted property, payroll and sales factors;5 and
  • Have an average of 100 or fewer full-time equivalent employees in the state during the tax year.

Property Test

A taxpayer must have tangible property in the state that is principally used in the production of goods by manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture or commercial fishing. Also, the taxpayer must meet one of the following requirements: (i) the adjusted basis of the property is at least $1 million for federal income tax purposes at the end of the tax year or (ii) all of the taxpayer's real and personal property is located in the state.

Receipts Test

A taxpayer must be principally engaged in one of the activities listed in the previous paragraph. For purposes of this test, a taxpayer is principally engaged in manufacturing activities if more than 50 percent of its gross receipts are derived from the sale of goods produced by these activities. Notably, the generation and distribution of electricity, the distribution of natural gas and the production of steam associated with the generation of electricity are not qualified activities.

Employment Threshold

A taxpayer computes its average number of full-time employees by adding its number of full-time employees in the state at the end of each calendar quarter and dividing this total by 4.6 Note that general executive officers are excluded from this computation. An "employee" includes every individual, except a general executive officer, whose relationship with the taxpayer is that of employee and employer.7 A "full-time employee" means an employee in a job consisting of at least 35 hours per week, or two or more employees who are in jobs that together constitute a job of at least 35 hours per week.8

Combined Filers

A combined group qualifies as an eligible qualified New York manufacturer if it meets the eligibility requirements. Intercorporate receipts are eliminated when computing a combined group's receipts.


The lower tax rate for manufacturers is designed to retain small manufacturing businesses primarily based in "upstate" New York (the expansive region north and west of New York City and its outlying suburbs), as well as entice new manufacturers to locate their businesses in that part of the state. This administrative guidance, which provides necessary information for manufacturers in determining whether they qualify for the dramatically lower tax rate, substantially limits the potential benefit to a select number of taxpayers. Due to the significant reduction in the tax rate, however, small manufacturers should consider whether they may be eligible. Note that some out-of-state manufacturers with just one sizable plant located in New York may qualify for the lower tax rate if they satisfy all of the above requirements. Eligible manufacturers should take the lower tax rates into account this quarter for ASC 740 purposes.


1 TSB-M-13(1)C, New York State Department of Taxation and Finance, Jan. 8, 2013.

2 N.Y. TAX LAW § 210.1(a)(vi).

3 Pursuant to the enacted legislation, the total annual cost of the lower rates should not exceed $25 million.

4 The MCTD includes the counties of New York (Manhattan), Bronx, Kings (Brooklyn), Queens, Richmond (Staten Island), Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess and Westchester. Metropolitan Commuter Transportation Mobility Tax, New York State Department of Taxation and Finance.

5 Note that a taxpayer that has no property, payroll and sales in the MCTD meets this requirement.

6 Employees within the state include all employees regularly connected with or working out of the taxpayer's office or place of business within the state.

7 This relationship exists if the taxpayer has the right to control and direct the individual not only as to the result to be accomplished, but also as to the means by which the result is to be accomplished.

8 A seasonal employee that meets these requirements is a full-time employee if the job is continuous for at least three months.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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