Newly Passed Tax Changes Impacting New York City for 2022

New York has just passed new legislation which aligns certain provisions of the New York City (“NYC”) tax code to that of New York State (“NYS”) for tax year 2022. The new bill includes:

• Institution of a $1 million economic nexus threshold for corporations with city-sourced income for purposes of the business corporation tax.
  • Under the state’s 2015 corporate tax reform, corporations with at least $1 million of receipts from customers based in NYS became subject to the franchise tax. However, the city’s business corporation tax did not have such a rule.
  • Observation: Corporations that are currently paying state franchise tax due to economic nexus will now need to evaluate their NYC-sourced receipts to determine if they have business corporation tax exposure.
  • Notes: This economic nexus rule does not apply for purposes of partnership unincorporated business tax or S corporation general corporation tax. However, partnerships meeting the $1 million threshold will establish nexus for any corporate partner of the partnership.
• A moved-up start date of the NYC Pass-Through Entity Tax (“PTET”) from tax years beginning on or after January 1, 2023 to January 1, 2022.
  • Action Required: Opting into the NYS PTET is required to be eligible for the city PTET election. The NYS election can made online for the 2022 tax year until September 15th.
  • Stay Tuned: The NYS Department of Taxation and Finance has indicated that it will notify those who have elected into the state’s PTET when the city’s PTET election will be available.
  • Reminder: The NYC PTET is only available for partnerships and limited liability companies (“LLC”) with NYC resident partners or members, and S corporations if all shareholders are NYC residents.
• The exclusion, retroactively for tax years beginning on or after January 1, 2021, from city tax any monies received under the state’s COVID-19 Pandemic Small Business Recovery Grant Program and the city’s Small Business Resilience Grant Program.
• Clarification of a required disclosure of LLC members that hold residential properties with up to four units.
  • Note: No disclosure is required for members of an LLC that is a publicly traded entity, a Real Estate Investment Trust (“REIT”), an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) or a mutual fund.

For more information on these new law changes and what affect they may have on you and your business, please contact Alan Goldenberg, Principal and Leader of the State and Local Taxation and Tax Controversy groups, or your Anchin Relationship Partner.