If you’re a small business owner in New York City, managing your company’s taxes is essential. There are two main types of taxes you’ll be liable for: income and sales tax.
You’ll also have to pay use tax if you purchase materials that would be subject to sales tax in New York but are consumed outside of the state.
Income Tax
When you operate a business in New York, you must pay state income taxes for the company and its employees. These taxes help the state cover a portion of its costs and boost its economy. At tax time, you must make sure that your company files its taxes accurately and on time to avoid penalties and fines. This blog post will discuss the main types of state taxes that you’ll need to pay as a small business owner in New York.
New York has a corporate franchise tax and a general business tax (GBT). The corporation franchise tax is based on the highest of three tax bases: the business income base, the business capital base and the fixed dollar minimum. You must run the numbers and determine which one is higher, then pay the tax corresponding to that number.
The GBT is a tax on the gross receipts of corporations doing business in the state. The term “doing business” is broad and includes every activity that occupies the time or labor of individuals for the purpose of profit. This includes, but is not limited to, selling or trading goods or services, renting a commercial property or operating a restaurant or store. The GBT applies to both resident and nonresident corporations. The tax is assessed if the corporation has an office, owns or leases property in New York or derives receipts in New York. The tax also applies to 501Cs, colleges and universities, charitable trusts and government entities.
Pass-through entity taxpayers — such as LLCs, S corporations and some regular partnerships — must pay an annual filing fee, known as the fixed dollar minimum tax (FDM). The FDM is a flat amount based on New York receipts and is not tied to any tax rate. The only exception is if the entity elects C-corp status, in which case it must pay a corporation franchise tax.
As you can see, New York has a very complex tax system that can be difficult to navigate. For this reason, it’s best to consult a professional, such as 212 Tax, when determining the correct tax structure for your business. Our NYC business tax professionals can guide you through the process of forming an S-Corp or an LLC, and we can prepare your company’s taxes throughout the year to help minimize your liability.
Sales Tax
New York is a destination-based sales tax state. This means that your business must charge the sales tax rate of the city and county in which your product is delivered. Local rates can vary widely, but our tax calculator makes it easy to find out exactly how much you need to charge.
To be obligated to collect sales tax in New York, you must have what’s called “nexus.” Nexus is established by either physical presence or commercial activity. If your business has a store, office, warehouse or distribution center in the state, you have physical nexus. If you have sales or transactions in the state that meet a threshold amount (currently $300,000 per year in gross revenue or 100 separate sales into the state) you have economic nexus and must register and collect. Read more about New York’s economic nexus rules here.
You must also pay use tax on taxable property or services that are acquired from out-of-state vendors. Examples of this are things like cars, trucks and motorcycles. But it can also include items like software accessed online, such as SaaS (Software-as-a-Service) products.
New York’s use tax laws are complex. If you have questions about whether or not your business is liable, consult with a knowledgeable attorney. For further guidance, check out Nolo’s 50-State Guide to Business Taxes and Tax Savvy for Small Businesses by Frederick Daily (Nolo).
If you are a retailer that sells tangible goods in New York, you must register for a sales tax permit. You can do so by visiting the Department of Taxation and Finance’s website here.
If you have nexus in New York and are not registered for sales tax, you may be liable for a monetary penalty. New York’s sales tax permit application requires you to provide details about your company, including its name and address. In addition to a registration, most sellers must file returns and remit payments monthly or quarterly. If you don’t file your returns on time, you may be subject to a fine. The filing deadline for sales tax is the 20th of each month or the next business day, if that’s not a weekend or legal holiday.
Property Tax
When it comes to paying property taxes, the good news is that NYC’s real estate tax rates are very reasonable. The bad news is that real estate tax values can be complex to understand. Fortunately, every homeowner’s property tax bill is a matter of public record which means it can be easily searched for on the city government’s website. This is accomplished by entering the property address or BBL (Borough-Block-Lot) number into a search box on the Department of Finance’s Borough-Block-Lot lookup page.
The resulting search will provide you with the property’s total taxable chargeable assessed value, which is the base on which the real estate tax is calculated. You can also use the tool to see how property tax rates vary between different neighborhoods and between the boroughs.
You can also use the tool to check a property’s current tax abatement status and the expiration date of any tax relief programs. These can have a significant impact on the property’s market value and its overall cost of ownership.
One of the most important aspects of understanding a property’s tax liability is its effective tax rate, or ETR. This is a measure that compares the property’s market value to its tax levy, and it is more accurate than nominal or statutory tax rates which are not comparable across property types due to differences in assessment and tax rules.
In New York, business owners are taxed at a higher rate than homeowners and may have additional tax burdens depending on what kind of company they are running. For example, corporations are charged both a franchise tax and a filing fee that depends on the type of corporation they are operating. Additionally, corporations that derive $1 million or more in New York City revenue are subject to the city’s business corporation tax.
Pass-through entities are also taxed on their NYC sales and property tax based on the income they generate from these sources. To help offset these high rates, the City offers many tax exemptions and relief programs. These range from the STAR Program for homeowners to a special property tax reduction for co-ops.
Excise Tax
New York City requires businesses to pay a local excise tax if they sell certain tangible goods or services. The tax is imposed at the point of sale and can be as low as 4%. The tax is not deductible and is paid separately from the sales and property taxes.
To calculate the tax due, you need to know your total business capital base. This is the fair market value of all the assets and investments your business owns in New York State. To determine this figure, use your balance sheet and consult the step-by-step instructions in Part 4 of Form CT-3. You will then need to multiply your capital base by one of the rates in the tax rate schedule located on page 9 of the instructions for CT-3.
In addition to the aforementioned taxes, New York has a number of other state and local taxes that small businesses must pay. These include a corporation franchise tax for traditional C-type corporations, and S and LLCs; a municipal franchise tax for most New York cities; a local income tax for all municipalities in the state; and a filing fee that applies to some LLCs and some other types of business entities.
For information on New York’s corporate franchise tax and filing fee, see this page of the Department of Taxation and Finance website. The site also includes links to additional resources, such as Nolo’s 50-State Guide to Business Taxes and a guide to federal income taxation for small businesses (Nolo).
Another useful resource is the New York State Department of Taxation and Finance’s online Tax Rates Search Tool. This tool lets you enter the name of a city or town, county, district, or zip code to find the sales and excise tax rates that apply in that area. It is also possible to compare sales and excise tax rates across multiple counties and districts in the same state. If you have questions about local business taxation in New York, a licensed tax professional can help.
