Impending Changes to NYC Business Corporation Tax Regulations
The landscape of business corporation tax regulations in New York City is poised for change as the Department of Finance has signaled upcoming deviations from the recently promulgated New York State corporate tax reform regulations. These alterations are part of the City’s efforts to tailor its tax code following the City corporate tax reform legislation passed in 2015.
One significant shift is the application of unincorporated business tax (UBT) sourcing rules for corporate partners. This move marks a departure from the State’s “aggregate method,” which is currently under litigation. The City’s approach, which has been applied on audit, will see corporate partners’ distributive shares of partnership income apportioned using UBT sourcing, while non-partnership business income will be subjected to customer-based sourcing rules.
Moreover, the Department is contemplating a more flexible “individual facts and circumstances” standard over the State’s “clear and convincing evidence” requirement for taxpayers seeking to deviate from statutory apportionment methods. This aims to alleviate the evidentiary burden for both the City and taxpayers.
In scenarios where the location of passive investment customers is unknown, the City plans to implement an 8 percent fixed allocation rather than following the State’s contract management-based sourcing. Additionally, the threshold for taxpayers to qualify for the customer billing address “safe harbor” will be raised, narrowing its applicability to those with at least 1,000 business customers.
Finally, in contrast to State regulations, the City intends to include excess inclusion income from holders of residual interests in real estate mortgage investment conduits (REMICs) as part of entire net income (ENI), citing a lack of statutory authority for its exclusion.
These anticipated changes reflect the City’s ongoing efforts to refine its tax regulations to better suit its unique fiscal environment. With formal proposals expected in early 2025, businesses operating within New York City should prepare for a new era of corporate taxation that aligns more closely with local legislative intent and administrative practices.
