NYC changes: PTE tax election in 2022; receipts thresholds adopted

TAX ALERT | August 31, 2022

On Aug. 31, 2022, New York Gov. Kathy Hochul approved Senate Bill 9454/Assembly Bill 10506, making important changes to effective dates and election procedures for New York City’s pass-through entity tax (NYC PTET) and enacting a bright-line nexus threshold for city corporate income tax purposes. Eligible taxpayers that intend to opt-in to the NYC PTET for 2022 and have not yet elected into the state program will need to take immediate action to ensure they are eligible to participate in the city program for 2022.

Changes to New York City PTET

In April of 2022, New York enacted legislation creating an elective pass-through entity tax for New York City purposes, effective for tax years beginning on or after Jan. 1, 2023. Senate Bill 9454/Assembly Bill 10506 modifies the effective date for the NYC PTET to tax years beginning on or after Jan. 1, 2022. Importantly, the legislation provides that eligibility for 2022 will be limited to those taxpayers who opt into the New York State PTET (NYS PTET) for the 2022 tax year on or before the Sept. 15, 2022 election deadline. Therefore, taxpayers who may want to participate in the NYC PTET regime for 2022, and have not elected into the NYS PTET, will need to move quickly to evaluate and model the impact of the state election (and make such election) in order to preserve the option to participate in the NYC PTET for 2022. As described in the legislation, an election to participate in the NYC PTET regime for 2022 will also be required by March 15, 2023, in a manner prescribed by the commissioner. Taxpayers that have already elected into the state program should anticipate additional information on the city election in the coming months

For additional information on the NYC PTET in general, please read our alert: New York adopts PTE tax for New York City; makes state PTE changes.

For additional information on the New York State PTET program and the Sept. 15, 2022 election deadline, please read our alert: New York allows more time for 2022 PTE tax elections.

New York City bright-line nexus threshold

As part of New York corporate tax reform applicable to tax years beginning in 2015, the state adopted a bright-line threshold which established nexus for corporations with over $1M dollars of receipts within the state. Senate Bill 9454/Assembly Bill 10506 includes provisions to establish a similar threshold for New York City income tax purposes. Under the bill, any corporation with over $1M dollars of receipts derived from New York City sources will be considered to have nexus with the city. The legislation further provides that combined group taxpayers should aggregate city sales for all group members with over $10K of city-sourced receipts or 10 city-based customers in order to determine whether the combined group meets the $1M threshold. These provisions will be applicable to tax years beginning on or after Jan. 1, 2022. Similar to the bright-line threshold previously enacted for state purposes, the proposed city-level threshold appears to only apply to corporations and not to entities treated as partnerships for tax purposes. Both the $1 million and $10,000 thresholds are eligible for an annual adjustment based on the cumulative percentage change in the consumer price index.

Takeaways

Taxpayers considering the NYC PTET in 2022 may need to act before Sept. 15, 2022 to ensure that they preserve their option to do so, while taxpayers that have already elected into the state regime should expect additional messaging on the city election. It is important to note that the analysis around pass-through entity level tax elections and their potential impacts is extremely complex; taxpayers considering the NYC PTET for 2022 will need to carefully consider the ramifications of making the election to pay tax at the pass-through entity level for both state and city purposes. For more discussion on pass-through entity taxes and the various factors to consider when evaluating these elections, please see our article Pass-through entity elections are here to stay: What you need to know.

In addition, taxpayers potentially affected by the enactment of a New York City bright-line nexus threshold should consider impacts to their 2022 tax year and beyond. If you have questions about the proposed economic nexus threshold or the NYC PTET, please consult your New York state and local tax adviser.

This article was written by Robert Zonenshein, Patrick Doyle, Harlan Kwiatek , Mo Bell-Jacobs and originally appeared on 2022-08-31.
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