New York City Enacts Economic Nexus Statute; Accelerates Effective Date for Passthrough Entity Tax to Tax Year 2022

On August 31, New York Governor Kathy Hochul signed legislation adopting an economic nexus threshold for purposes of the New York City (“NYC”) business corporation tax, for tax years starting on, or after, January 1, 2022. The legislation also made the recently-enacted elective NYC pass-through entity tax (“PTET”) effective retroactive to tax years beginning on, or after, January 1, 2022.

Economic Nexus

For tax years beginning on, or after, January 1, 2022, the new tax law provides that C corporations that derive receipts within NYC meeting a $1 million economic nexus threshold are now subject to the business corporation tax.

Receipts within NYC are those receipts includible in the receipts factor numerator based upon the applicable apportionment rules.

Partnerships that meet these economic nexus thresholds will establish nexus for any corporate partners. Accordingly, corporations may have nexus within NYC based on the receipts of partnerships in which they have a partnership interest.

The economic nexus provisions do not apply for purposes of the NYC unincorporated business tax or for S corporations subject to the NYC general corporation tax. 

New York City PTET

The New York 2023 budget legislation had previously created a NYC elective PTET effective for tax years beginning on, or after, January 1, 2023. See our prior Alert for more details

The new tax law accelerates the effective date to tax years beginning on, or after, January 1, 2022.

In order to make the NYC PTET election for 2022, taxpayers first must have opted into the New York State PTET by the September 15, 2022 deadline.

The election to participate in the NYC PTET for tax year 2022 will be required by March 15, 2023, in a manner prescribed by the commissioner.

Mazars’ insight

The adoption of the NYC economic nexus provision now mirrors those that had been enacted by New York State as part of its 2015 tax reform.  Taxpayers should evaluate whether they are impacted by these new standards, taking into account the protections of P.L. 86-272.

New York’s revisions to the effective date of the City PTET create additional 2022 SALT-workaround opportunities for qualifying taxpayers.

Taxpayers should consider their specific tax structures to determine if they could benefit from participating in the New York State or NYC PTET workarounds.

Please contact your Mazars professional for additional information.

The information provided here is for general guidance only, and does not constitute the provision of tax advice, accounting services, investment advice, legal advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers.