Budget Changes Impacting New York City Taxes

Pursuant to the recently enacted New York State budget amendments, New York is imposing tax increases and new taxes to help it raise revenue to close its projected 2009-2010 budget gap. The state budget bill also contained a number of items that impact upon taxpayers subject to New York City tax.

The budget bill increased the New York City sales tax to 4.5% from 4%, effective August 1, 2009, raising the combined State and City sales tax rate in the five Boroughs to 8.875%.  Under this new law, the existing food and footwear exemption from New York City sales tax has been limited to only exclude items costing less than $110 (conforming to the state exemption), effective September 1, 2009.

In addition to the budget bill, Governor Patterson signed into law an accompanying bill which works to bring New York City and New York State tax law into closer conformity. That bill includes many items impacting City taxation, including the following:

•             A single sales factor- Over a 10-year period, the new law will phase in a single sales factor apportionment formula for the New York City General Corporation Tax and the Unincorporated Business Tax.  Beginning in 2009 the property, payroll, and sales factors will be weighted 30%, 30%, and 40% respectively becoming 27%, 27%, and 46% in 2010, and will be adjusted annually until fully phased in for taxable years after 2017.
•             Alternative Tax on Business & Investment Capital- The new law increases the cap on the General Corporation Alternative Tax on business and investment capital from $350,000 to $1,000,000.
•             Minimum Tax- The new law conforms the City to existing New York State provisions for “fixed dollar” minimum tax.  The City minimum tax will be based on New York City source gross receipts, with the amount of tax ranging from a low of $25 up to $5,000 for taxpayers with NYC source gross receipts exceeding $25,000,000.
•             Voluntary Disclosure Program- Effective immediately, the new law authorizes the New York City Department of Finance to create its own Voluntary Disclosure Program similar to that of the state.  Under the State program, businesses and individuals that elect to voluntarily participate may avoid certain penalties and filing returns or paying back taxes for certain older periods.
•             Mandatory electronic filing- Effective immediately, the new law authorizes NYS to require electronic filing of business returns, similar to the State requirements.

If you want further information or wish to discuss any of the above, please contact the AVZ professional that services your account, or feel free to contact Jim O’Connor, Tax Principal, at 631-434-9500 (or at via email at joconnor@avz.com).