Brooklyn's Progress
April/May 2006

BY LETICIA THEODORE

If New York City Council Speaker Christine Quinn has her way the small business community and manufacturers will get some support through tax breaks. In her budget response to Mayor Bloomberg’s Fiscal Year 2007 preliminary budget the Speaker laid out a plan for business tax reform.

The new Council Speaker is looking to address a problem that has long plagued New York City’s 118,000 S-Corporations, which are certain unincorporated businesses owned by sole proprietors or partnerships. The problem long known to small business owners is double taxation. S-Corps, as they are commonly known, are exempt from state and federal corporate income tax. Income and deductions are subject only to personal income tax. But, New York City businesses pay unincorporated business taxes or general corporation taxes on net earnings, and then those same earnings are often taxed a second time under the city’s personal income tax rules.

In 1997 the city began providing partial credit against New York City’s personal income tax (PIT) for unincorporated business tax (UBT) filers. The Speaker’s proposal would increase the tax credits for UBT filers as well as S-Corps. and resident share-holders of S-Corps. as described below:

• UBT CREDIT: Currently, resident partners and sole proprietors of unincorporated businesses are allowed a nonrefundable credit against their New York City PIT for a portion of their distributive share of unincorporated business tax liability. The credit is based on a sliding scale and ranges from 65% of UBT liability for taxpayers with New York State taxable income of $42,000 or less and gradually goes down to 15% of liability for taxpayer’s with taxable income of $142,000 or more. The Council proposes increasing the value of the credit to 80% of UBT liability for taxpayers with NYS taxable income of $42,000 or less, decreasing on a sliding scale to 20%of liability for taxpayers with taxable income of $142,000 or more.
  
• RESIDENT SHAREHOLDERS OF S-CORPS.: Under this proposal, resident shareholders of S-Corporations would be able to take a nonrefundable credit against their personal income tax liability equal to a portion of their share of the businesses corporate tax liability. This credit would be structured in the same as the existing PIT credit for taxes paid under the unincorporated business tax. The credit is based on a sliding scale and ranges from 65% of general corporation tax (GCT) liability for taxpayers with New York State taxable income of $42,000 or less and decreases to up to 15% of liability for taxpayers with taxable income of $142,000 or more.

For manufacturers Council Speaker Quinn is proposing an investment tax credit and an increase in the Relocation Employment Assistance Program (REAP) and the Industrial Business Zone (IBZ) Relocation Credit.

The proposal would create a tiered business investment tax credit for manufacturers who purchase equipment. A basic credit of 10% would be made available to all manufacturers purchasing equipment regardless of location. An additional 10% credit would be offered to firms expanding or relocating to an IBZ and yet another 10% credit would be extended to manufacturers who purchase more environmentally friendly equipment.

Currently, REAP provides a $3,000 per employee credit to manufacturing firms relocating from  below 96th Street in Manhattan or from outside New York City to the outer boroughs. Speaker Quinn is proposing expanding REAP by to include relocations from areas rezoned for residential use since 2001. This means manufacturers in areas like Greenpoint/ Williamsburg and DUMBO would become eligible for the credit if, for example, they relocated within the borough. Further, the Council is proposing an increase in the IBZ credit to the same level as the REAP credit: $3,000 per employee with a cap of $20,000 per company.