New York Passes Several Law Changes – NYC PTET – New NYC Definitions of Doing Business for Corporations
The NY Governor signed into law Senate Bill S9554 on August 31, 2022. Among the more significant tax provisions are these:
2022 New York City PTET election
As originally enacted, the ability to elect NYC Pass-Through Entity Tax (“PTET”) treatment for a NYC partnership or resident S Corporation was to go in affect January 1, 2023. Now a NYC partnership or resident S corporation that wants to elect the NYC PTET for 2022, must first make an election to opt into the New York State PTET by the extended election deadline of September 15, 2022 (originally March 15,2022).
The NYC PTET election for 2022 must be made by March 15, 2023. In addition, no estimates are required to be paid for electing NYC PTET entities for 2022. However, individual partners or shareholders of electing NYC PTET’s must pay their estimates for 2022 without considering their proportionate share of the PTET credit for 2022.
What Does SobelCo Think?
The September 15th, 2022, deadline gives taxpayers little time to consider if the NYC PTET election is beneficial for them. However, making a NY PTE election by September 15, 2022, does not lock a taxpayer into making a NYC PTE election for 2022. The taxpayers simply cannot make a NYC PTET election for 2022, if they do not make the NY PTET election by September 15, 2022. In addition, it appears l that, when first enacted, the NJ PTE election partners and shareholders will need to make estimates without considering their share of the NYC PTE credit. In essence, this will require taxpayers to overpay their NYC tax, because they can’t consider their NYC PTET credits when paying their NYC estimates for 2022. Even though NYC PTET estimates are not required for 2022, most taxpayers will want to pay their NYC PTET tax before the end of December 31, 2022. This will enable them to secure the federal tax benefit of NYC PTET tax deduction by paying the NYC PTET tax in 2022.
New York State Economic Nexus for Corporations
New York city now adopts the New York state economic nexus standard for C corporations for tax years beginning in 2022. New York state imposes a receipts threshold for determining nexus if a C Corporation derives New York state receipts of $ 1 million or more in a taxable year. A Corporation is deemed to be deriving receipts in an activity in NYC if it has NYC receipts of $1 million or more in a taxable year.
This means that a C Corporation that is part of a unitary group with less than $1 million of receipts, is deriving receipts from an activity within NYC, to the extent that the members of the unitary group have at least $10,000 of NYC receipts, and in the aggregate meet the $1 million threshold in a tax year meets the threshold.
Expansion of Definition of Doing Business for Credit Card Companies
Prior to the law change, C Corporation Credit Companies were deemed to be doing business in NYC if:
- (1) It had issued credit cards to $1,000 or more customers who have a mailing address within NYC on the last day of its taxable year
- (2) It had merchant customer contracts with merchants – and the total number of merchants and the total number of locations covered by those contracts – equaled $1,000 or had more locations within NYC to whom the corporation remitted payments for credit card transactions during the taxable year, or
- (3) The sum of the number of customers described in the first bullet above plus the number of locations covered by its contracts in the second bullet above equals $1,000 or more. Credit cards includes bank, credit, travel, and entertainment cards
NYC has now expanded the definition to state that if the C Corporation credit card company does not meet the thresholds above, they are still considered to be doing business if the C Corporation credit card company has at least 10 customers, or 10 locations, or 10 customers and locations within NYC and is a member of a unitary group that meets these thresholds.
C Corporations that are partners in partnerships doing business in NYC or deriving receipts from an activity in NYC are subject to tax.
The commissioner will review the Consumer Price Index (“CPI”) annually for changes in receipts thresholds. If the CPI index changes by 10% or more after January 1, 2022, or since the date the thresholds were last adjusted, then the receipts thresholds will be adjusted accordingly.
What Does SobelCo Think?
Taxpayers will need to carefully determine how these new NYC “doing business” definitions will apply to them and consider their impact on their overall NYC footprint. They will also need to determine if they need to register for doing business in NYC if they think they are now considered to be doing business under any of the new NYC nexus standards.
