New York offers a wide array of benefits to prospective small business owners. The state is home to New York City, which is considered to be the epicenter of the world’s economy. New York also has many elite colleges and universities that turn out new graduates every spring and send them into the business world, where they provide immense value. Let’s take a look at taxes in New York specifically for small businesses.
Key Takeaways
- Businesses in New York have several advantages, but the biggest disadvantage might be the business tax code that is costly and complicated.
- Taxes in New York can be calculated various ways, but the state requires the method that results in the highest tax bill be used.
- The top end for personal state taxes in New York was recently raised from 8.82% to 10.9%.
Corporation Franchise Tax
Most small businesses are not traditional C corporations, but many make the transition after their growth reaches a certain level. Understanding how corporations are taxed at the state level can help a business owner decide the best place to locate.
In New York, corporations must pay a corporation franchise tax. While this is standard across many states, New York makes it more complex for a business to determine how much tax is due. Moreover, the state attempts to close as many financial reporting loopholes as possible that businesses use to minimize taxes. For this reason, New York imposes various ways to calculate tax due, each based on a different metric, and the state requires the business to pay the highest amount of the methods.
The fixed tax rate on business income of more than $5 million is 7.25%. Note that there is also a .1875% tax rate on the capital base. As of 2024, these two rates have been extended through tax years beginning prior to January 1, 2027.
S Corporations
An S corporation is a traditional corporation with a special designation, known as S status, which allows income to pass through the company to its owners. Since the business owners then pay personal income tax on this money, many states do not tax S corporations.
New York, however, is not one of these states; it requires S corporations to pay the corporation franchise tax. However, S corporations may use the gross receipt method to calculate taxes, and they are taxed at slightly lower rates than traditional corporations.
Any New York business seeking S status must file an additional form with the state in addition to filing the federal designation form. Failure to do so results in the business being taxed as a traditional corporation, which means a much higher tax bill, in all likelihood.
The net income from the S corporation passes through to the business owners, and New York also taxes this income. State tax rates on personal income range from 4% to 10.9%.
Important
For the state fiscal year spanning 2023 and 2024, New York collected $106.4 billion in tax revenue, more than $2 billion higher than what was forecasted to be collected by the Division of the Budget.
Limited Liability Companies
Like S corporations, limited liability companies (LLCs) pass-through income to their owners, who then pay personal income tax on it. LLCs are unique because they can be classified in one of several ways: as a partnership, as a corporation, or as the default classification, a disregarded entity. New York LLCs classified as corporations pay the corporation franchise tax under the same rules as traditional corporations.
LLCs of any other classification are not subject to this tax, but they must pay state filing fees. These fees are calculated based on gross income, and range from a minimum of $25, which applies to LLCs with gross incomes of less than $100,000, to a maximum of $4,500, which applies to LLCs with gross incomes of greater than $25 million.
Partnerships
Partnerships are another business designation that pass income through to the individuals who own them. As such, they do not pay federal income tax or state tax in most places, including New York. Like LLCs, however, they are subject to the state filing fee, which is calculated using the same formula based on gross income.
New York partnerships get even more of a break than S corporations, as they are only subject to the filing fee if their gross income exceeds $1 million. The business owners must pay state income tax as individuals on their share of income that passes through from the partnership.
Sole Proprietorships
Sole proprietorships in New York do not pay any corporation franchise taxes or filing fees. The sole proprietor who owns the business pays personal income tax, which ranges from 4 to 10.9% in New York, on their taxable income from the business.
MTA Surcharge
Under current regulations, the MTA surcharge rate is set annually by the Commissioner of Taxation and Finance to ensure that projected surcharge receipts align with state fiscal year budgetary needs, as outlined in the enacted budget starting each April 1. For tax years beginning between January 1, 2023, and January 1, 2024, the MTA surcharge rate for Article 9-A taxpayers remains fixed at 30%. This rate will persist in subsequent tax years unless revised by the Commissioner.
In addition to the surcharge rate, the thresholds determining when a corporation is considered to derive receipts from activities within New York State and the Metropolitan Commuter Transportation District (MCTD) for franchise tax and MTA surcharge purposes remain unchanged at $1,138,000. These thresholds were last adjusted on December 28, 2021 and will persist until the Commissioner reviews any CPI changes necessitating adjustments. This stability ensures continuity in tax assessments for affected corporations until further regulatory updates are mandated.
What Are the Filing Requirements for New York State Business Taxes?
Businesses in New York State must file their corporate taxes using Form CT-3 (for C corporations) or Form CT-3-A (for S corporations). The filing deadline is generally March 15 for calendar year filers, with extensions available upon request.
How Do I Calculate and Pay Sales Tax in New York?
Businesses in New York calculate sales tax based on the location of the sale and the type of goods or services sold. Sales tax rates vary by county and municipality. Businesses must register for a Certificate of Authority with the New York State Department of Taxation and Finance to collect and remit sales tax.
Are There Deductions or Credits Available for Businesses in New York?
Yes, New York State offers deductions and credits to businesses. These could include things like the Investment Tax Credit, the Empire State Jobs Retention Program Credit, or the Excelsior Jobs Program Credit. Like most types of tax credits, these are designed to reduce tax liability and encourage economic development.
What Is the Minimum Income Threshold for Filing Corporate Taxes in New York?
Corporations must file New York State corporate taxes if their gross income exceeds $1 million or if they are part of a combined group with a combined New York gross income exceeding $1 million.
The Bottom Line
New York imposes a corporation franchise tax, while S corporations and LLCs in New York face specific tax obligations as well. S corporations are subject to the franchise tax despite pass-through income features, and LLCs classified as corporations are also subject to similar tax requirements. Plus, New York’s tax policies, including the MTA surcharge and thresholds for franchise tax, highlight the state’s proactive approach to funding public infrastructure and services.
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