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4 Things For Your Small Business to Know About Proposed Tax Changes in NYC

By Jeff Mays | January 14, 2015 8:18pm
 A sweeping proposal by Mayor Bill de Blasio would modernize the city's tax code by aligining the city's corporate tax system with that of New York state's while benefiting small businesses.   
A sweeping proposal by Mayor Bill de Blasio would modernize the city's tax code by aligining the city's corporate tax system with that of New York state's while benefiting small businesses.  
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NEW YORK CITY — A sweeping proposal by Mayor Bill de Blasio would modernize the city's tax code by aligning the system with that of New York state — saving small businesses thousands of dollars in some cases and making it harder for large businesses to dodge their share.

Part of the plan, which must be approved by the state, makes it more difficult for large corporations to avoid taxes because of changes in the way income is calculated. 

The new measure, which addresses parts of the tax structure that have not been changed since the 1940s, will benefit small business owners by lowering their tax rates, according to proponents of the plan.

"If you are a small business owner paying corporate taxes, then you should be optimistic," said James Parrott, deputy director and chief economist at the Fiscal Policy Institute.

Here are four things small business owners should know about the changes to the city's tax code:

1. The plan will increase tax collection from larger corporations.

Net income will now be calculated based on where a company's market is located instead of where it is physically based. City officials believe this will encourage companies who do large-volume business in the city to build staff and facilities here since they won't face a tax increase.

Corporations will also lose the ability to shift income because economically-related businesses owned by the same entity will be required to file together.

"It helps to make sure all large companies pay a certain amount in taxes and can't reduce their tax burdens. That's positive for small businesses because this is not about cutting taxes for big corporations," Parrott said.

Certain special deductions and exemptions for large corporations will also be eliminated.

2. Businesses will no longer have to keep two sets of books for city and state taxes.

"Small businesses should be excited they only have to keep one set of books for 2015. That should help with administrative costs," a de Blasio spokeswoman said.

The change would make joint city and state audits easier and make the tax environment more appealing for businesses.

"It's easier for businesses to not have to worry about two codes," the spokeswoman added.

3.The tax rate for small non-manufacturing businesses with less than $1 million in net income will be reduced from 8.85 percent to 6.5 percent.

The change is expected to save affected businesses $800 per year, the city said. "Lower tax rates are good for small businesses," Parrott said.

The first $10,000 of the "alternative tax base on capital" will also be eliminated for 90 percent of current payers. Affected small businesses could see savings of $2,000, according to city estimates.

4. The tax rate for small manufacturing companies with less than $10 million in net income will be reduced from 8.85 percent to 4.425 percent.

A smaller tax rate reduction will be provided for manufacturing companies with $10 to $20 million in income. Affected businesses could see savings of $5,300.

"The small business adjustments are cuts that will not cost much to the city and will be beneficial for those who will take advantage of them," said Carol Kellermann, president of the good-government group Citizens Budget Commission.

A spokeswoman from the mayor's office said the tax cut could also keep good-paying jobs in the city.

"We certainly think it will keep jobs here because savings are always a good thing for businesses," the spokeswoman said.

In Closing

The plan has received support from the Partnership for New York City, New York Bankers Association and the Securities Industry and Financial Markets Association.

Kellermann said her main concern about the proposal is whether it would truly be revenue-neutral.

A change that would merge the bank and corporate tax will cost the city more than $300 million in revenue, which they expect to be offset by other changes in the tax code that make it harder for larger corporations to reduce their tax liability.

"I don't have enough information to see how the $300 million is going to be made up," said Kellermann who added that she still endorsed the changes because they were good for the city.

"For New York City there are lots of ways to come up with $300 million. This is good tax policy regardless of whether it is revenue neutral," added Kellermann.

A spokeswoman for the mayor's office said they are more than "confident" that the plan will be revenue neutral.

Parrott said the city officials he spoke with about the plan were sure about their projections but that the situation was worthy of monitoring.

"There's always some risk in the forecast," Parrott said.