Corporate income and franchise taxes in New York





Corporate taxpayers in New York State pay tax equal to the highest amount calculated under three alternative tax bases:
  • business income;
  • capital base; or
  • fixed dollar amount.
The starting point for the New York State business income is the federal income tax base. Certain additions are required, including:
  • income from non-New York bonds;
  • depreciation adjustments; and
  • royalty payments to related parties.
Subtractions include depreciation adjustments and interest income on U.S. bonds.
Business income is apportioned to New York based on the receipts sourced to New York.
New York City has a similar approach to New York State, apportioning the income based on receipts from New York City.


A separate election must be filed with New York State in order for a corporation to be treated as an S corporation. However, if no New York election is made for a federal S corporation and the corporation’s investment income is more than 50% of its federal gross income for that year, it will automatically be considered an S corporation for New York State purposes. New York State S corporations pay the fixed dollar minimum amount.

New York City does not recognize federal S corporation election, and S corporations are subject to general corporation tax.

In addition to corporate tax, New York City imposes unincorporated business income tax (U.B.T.) on unincorporated entities (e.g., partnerships, limited liability companies, fiduciaries, associations, estates, trusts, and individuals engaged in trades and professions) doing business in New York City. The starting point for the U.B.T. is the taxpayer’s federal taxable income, subject to certain modifications, including an addback of compensation paid to any owners of the entity. Certain income—including trading for one’s own account, and rental of property—is exempt.


How is in-state income apportioned for multi-state businesses? Does your state regulate transfer pricing?
New York State’s apportionment rules generally apportion all business income and capital using a single receipts factor that primarily sources receipts based on customer location (market-based sourcing).
Before 2015 market-based sourcing was limited, and most receipts were sourced based on the place of performance.
New York City also uses a single receipts factor—primarily, market-based sourcing. Historically, for New York City the income was apportioned using a three-factor formula for sales, property, and payroll, with differing weight assigned to each in a specific year. The single-factor formula is effective for years beginning on or after January 1 2018 (with an election for certain small taxpayers and manufacturers to continue using a three-factor formula).
The U.B.T. continues to use the three-factor formula, currently weighing receipts at 80% and property and payroll at 10% each, although it is also moving towards a single receipts factor (to be fully phased in by 2019).



How is nexus determined for corporate income tax purposes?
Businesses that exercise a corporate franchise, do business, employ capital, own or lease property, maintain an office, or derive receipts (of $1 million or more in a tax year) from activity conducted in New York will be deemed to have nexus for state purposes. A corporate partner in a partnership that is doing business in New York will also be considered to be doing business in New York.
A foreign corporation will be deemed to have a New York corporate income tax nexus if it:
  • has issued cards (including bank, credit, travel, and entertainment cards) to at least 1,000 customers with a New York mailing address;
  • has 1,000 or more New York locations covered by merchant contracts to which the corporation has remitted payments for credit card transactions; or
  • has a combined total of 1,000 or more New York customers and merchant locations.
Affiliates engaged in a unitary business* meeting a common ownership test (generally, 50% or more common ownership) may be required to file combined returns in New York State and New York City. Also, a corporation that meets no other nexus standards, but is engaged in a unitary business and meets a common ownership test will have nexus if:
  • it has at least $10,000 of receipts sourced to New York;
  • its affiliates have at least $10,000 of receipts sourced to New York; and
  • the members of the unitary group meet the $1 million threshold.
Similarly, a corporation that meets no other nexus standards and is engaged in a unitary activity and meets a common ownership test will have nexus if:
  • it has at least 10 customers or locations (or a combination thereof); and
  • the members of the unitary group that have such 10 customers or locations meet the nexus standards.
New York City has similar physical nexus standards, but has not adopted an economic nexus standard.
Nexus standards are a fact-intensive inquiry and the standards may be applied differently by New York State and New York City.



Is affiliate nexus recognized in your state? If so, to what extent? Has there been any notable case law in this area?
There is generally no statutory affiliate nexus in New York. However, affiliates engaged in a unitary business meeting a common ownership test (generally, 50% or more common ownership) may be required to file combined returns in New York State and New York City. A corporation that meets no other nexus standards, but is engaged in a unitary business and meets a common ownership test will have nexus if:
  • it has at least $10,000 of receipts sourced to New York;
  • its affiliates have at least $10,000 of receipts sourced to New York; and
  • the members of the unitary group meet the $1 million threshold.
Similarly, a corporation that meets no other nexus standards and is engaged in a unitary activity and meets a common ownership test will have nexus if:
  • it has at least 10 customers or locations (or a combination thereof); and
  • the members of the unitary group that have such 10 customers or locations meet the nexus standards.




What are the applicable corporate income tax rates?
Corporate franchise tax is charged at the highest of:
  • the business income base—4.875% of income apportioned to New York for years beginning in 2018;
  • the capital base—0.04% of the capital base, not exceeding $5 million; or
  • a fixed dollar amount based on the amount of New York receipts (ranging from $19 to $3,375 for 2018 onwards).
New York State also imposes a metropolitan transportation business tax surcharge, currently at the rate of 28.6% for 2018, on the portion of New York State franchise tax (before the deduction of credits) allocated to the metropolitan commuter transportation district.
New York City imposes general corporation tax at the highest of:
  • the business income (entire net income minus investment income)—8.85% of business income allocated to New York City in 2018;
  • the capital base—0.15% of business and investment capital allocated to New York City, not exceeding $1 million; or
  • a fixed dollar amount based on the amount of New York City gross receipts (ranging from $25 to $200,000 for 2018).
Unincorporated business tax is imposed at the rate of 4% on taxable income allocated to New York City. Credit is provided to owners of the unincorporated business, although the calculation and use of the credit may be complex.




What exemptions, deductions, and credits are available?
A variety of credits are available for New York State and New York City, including for:
  • commercial production;
  • employee training incentives;
  • low-income housing; and
  • veteran employees.
Reduced tax rates are available for:
  • manufacturers;
  • specified technology businesses; and
  • small businesses.
Exemptions are available for publicly supervised utilities, and foreign corporations engaged in investing or trading securities for their own account.
Rental income or loss from real property located outside New York City, and gain or loss on the disposition of real property located outside New York City are not considered for the purposes of computing unincorporated business tax.




What filing requirements and procedures apply? Are there special filing requirements for groups of company?
For New York State general corporation tax returns, the filing requirement is annually (on or before April 15 for calendar-year taxpayers, or 3.5 months after the end of the year for fiscal-year taxpayers). If the taxpayer expects to owe more than $1,000 in corporate franchise tax after credits, it must file quarterly and pay estimated tax. If a company satisfies the combined group test (generally, a 50% ownership or control test), it must file as part of a combined return.
For New York State S corporations, the filing requirement is annually (on or before March 15 for calendar-year taxpayers, or 2.5 months after the end of the year for fiscal-year taxpayers).



Does your state impose a corporate franchise tax? If so, is it imposed in lieu of or in addition to corporate income tax?
New York State imposes general corporation franchise tax, which incorporates corporate income tax. There is no separate franchise tax for New York City.


*Unitary business refers to business activities or operations, which are of mutual benefit, dependent upon, or contributory to one another, individually or as a group. It is characterized by unity of ownership, functional integration, centralization of management and economies of scale. The term can be applied within a single legal entity or between multiple entities and without regard to whether each entity is a corporation, a partnership or a trust.  In Amoco Corp. v. Comm'r of Revenue, 658 N.W.2d 859, 865 (Minn. 2003), the court held that a business is unitary when the operation of the business within the state is dependent upon or contributory to the operation of the business outside the state.

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