Brooklyn's Progress
April/May 2007

BY JILL SHEEHY

After numerous failed attempts, New York State is finally edging towards legislation that will ease the tax burden for small business owners who reside and do business in New York City. Discussions are ongoing between City Council members and the state legislature, with hopes to seal the deal by June, when the State lawmakers break for the summer.

Currently, S-Corporations and unincorporated business owners face a double hit, as after they pay New York City’s business income taxes, the earnings are then taxed as personal income.

Backed by City Council speaker Christine Quinn and worked into Mayor Michael Bloomberg’s budget for 2008, the proposed legislation would allow resident shareholders in S-Corporations to take a nonrefundable credit against their businesses’ tax liability towards their personal income tax.

Speaker Quinn led a delegation from the Brooklyn Chamber of Commerce and other chambers from around the city and business leaders to Albany last month to meet with Assembly Speaker Sheldon Silver, Senate Majority Leader Joseph Bruno and other lawmakers about passing the legislation.

If passed, the credit could have far-reaching implications on Brooklyn’s small businesses.

“It’s something that has always been on the table but now looks like it’s going to happen,” said Leticia Theodore, vice president of communicationa and government affairs at the Brooklyn Chamber. “The trip Upstate was very productive and reflected our work on the behalf of our many small business Members.”

According to the New York City Council, the legislation would cut small business taxes by $28 million and the personal income taxes of resident shareholders in S-Corporations by $70 million.

Speaker Quinn was “pleased with the reception she and the chambers received in Albany,” according to Council spokesman Andrew Doba, and has said she is “optimistic” about the bill’s chances in Albany.

The measure has reached state legislature before, and in 2002 had the backing of the City Council and the Mayor, only to fail in Albany.

State Assemblyman Joseph R. Lentol, whose 50th district covers the Fort Greene, Williamsburg and Greenpoint neighborhoods, was among the legislators who met with the New York City contingent.

"Small businesses are the foundation of our local economies,” he said. “The Brooklyn Chamber of Commerce has done a great job of bringing S-Corp tax issues to the forefront of this year's budget negotiations. I am happy we were able to work with them to ensure that this year's budget does everything it can to protect New York's small businesses."
S-Corporations have a tax status that allows owners limited liability protection of corporate shareholders but offers the favorable tax structure of a partnership. To be eligible for the status, a corporation must have fewer than 75 shareholders and be owned by individuals who live in the United States. There are an estimated 118,000 S-Corporations in New York City, most of which are small businesses.
Currently, resident partners and sole proprietors of unincorporated businesses are allowed a partial credit against their personal income taxes for a proportion of their business taxes.

Under the new legislation, resident S-Corporation shareholders would be able to credit their New York City personal income tax equal to a portion of their share of the business’s corporate tax liability. A percent of business tax liability could be claimed as a personal income tax credit, decreasing as the taxpayer’s personal income rises.

The new credit will be calculated on a sliding scale, which ranges from 65 percent liability for business owners with a taxable income of less than $42,000 to a 15 percent liability for businesses with a taxable income of $142,000 or more.