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.