A proposal by the Mayor of New York City to change the
City's corporate tax structure would, for the first time,
tax certain businesses that have no physical presence
in New York City but that do business in the City or with City
residents. If adopted, the changes would take
effect retroactively as of January 1, 2015.
Under the proposal, some companies with $1 million in receipts from
sales to New York City customers will be deemed to have an
"economic nexus" with New York City and will be subject
to New York City business income taxes for the first
time. This economic nexus approach will allow the City to
subject a business to tax even if it has no physical
presence. Similar taxing power was adopted by New York State
last year, but there remain questions as to whether such taxation
is permissible under the U.S. Constitution.
Additionally, the proposal will make some New York City corporate
tax provisions conform with changes enacted last year to the New
York State corporate tax code, which may ease the compliance burden
on businesses. Significantly, the proposal adopts the New
York State approach requiring combined reporting for certain
related entities, which may eliminate tax planning strategies
resulting from some intercompany transactions. The proposal
also includes a number of special rate reductions for certain small
businesses (with less than $1 million in income) and small
manufacturers (with less than $20 million in income).
The proposal must be approved by the state legislature and signed
by the Governor.
Businesses of all sizes should be aware of these potential
retroactive changes, and should consult with tax professionals
regarding potential benefits of the plan and to reconsider any tax
planning strategies that may be undermined by the proposal.
This article is designed to give general information on the developments covered, not to serve as legal advice related to specific situations or as a legal opinion. Counsel should be consulted for legal advice.