Brings certain New York city tax laws into closer conformity with New York state tax laws; repealers

Section 5 similarly amends section 11-642 of the Administrative Code to provide for a single sales factor for the Banking Corporation Tax insofar as it relates to banking corporations that substantially provide management administrative or distributive services to investment companies.

Sections 6 through 9 amend sections 11-601, 11-603 and 11-605 of the Administrative Code relating to the filing of combined General Corporation Tax returns by affiliated corporations. The amendments are designed, in part, to make the filing of a combined return mandatory where there are substantial intercorporate transactions among the related corporations, regardless of the transfer prices charged in those intercorporate transactions. The amendments also require a "captive" regulated investment company or a "captive" real estate investment trust to be included in a combined return with a related New York City taxpayer where a greater-than 50 percent ownership test is met.

Sections 10 through 15 amend sections 11-640, 11-641 and 11-646 of the Administrative Code to require a "captive" regulated investment company or a "captive" real estate investment trust to be included in a combined Banking Corporation Tax return with a related New York City taxpayer where the greater-than-5O percent ownership test is satisfied.

Section 16 amends section 11-604 of the Administrative Code to increase the maximum amount that can be owed under the alternative general corporation tax measured by business and investment capital from $350,000 to $1 million.

Section 17 amends section 11-604 of the Administrative Code to change the fixed dollar minimum for tax years beginning after 2008 from a single amount of $300 applicable to all corporate taxpayers to a sliding scale ranging from $25 to $5000 based on the taxpayer's annual receipts allocated to New York City.

Section 18 amends section 11-643.5(b) of the Administrative Code for tax years beginning after 2010 so that one of the alternative taxes under the Bank Tax's alternative minimum tax will be based on taxable assets allocated to the city even if the bank is organized under the laws of a country other than the United States. Under this amendment, most banks will be subject to a tax of one-tenth of a mill, or one one-hundredth of a cent, for every dollar of taxable assets allocated to New York City, as banks organized in the United States are currently. However, certain banks with a net worth ratio of under five percent will be taxed on their allocated assets a t a lower rate, and a bank will not be subject to the allocated asset tax for any part of a period in which that bank has outstanding net worth certificates issued under a certain provision of the Federal National Housing Act.

Sections 19 and 20 amend section 11-641 of the Administrative Code to allow banks to have a net operating loss (NOL) deduction for losses incurred in tax years after 2008. The deduction will only be allowed for NOLs carried forward to future tax years. No NOLs may be carried back to past years.

Sections 21 through 23 amend section 11-639, 11-642 and 11-646 of the Administrative Code related to the Bank Tax to tax credit card companies with customers having a mailing address in New York City regardless of whether the credit card company has a physical location in the city. This change will apply to taxable years beginning on or after January 1, 2011.

Sections 24 through 32 amend section 11-640 of the Administrative Code to conform to the New York State Tax Law's treatment of when corporations are subject to the General Corporation Tax (GCT) and when they are treated as banks subject to the Bank Tax. Under these amendments, if a corporation meets certain conditions set forth in new subdivision (rn), it will be subject to the Bank Tax even if it had previously elected to be subject to the GCT, or had been grandfathered as subject to GCT, under the Gramm Leach Bliley transitional provisions.

Sections 33 and 34 amend section 11-604 of the Administrative Code to change the sourcing of certain General Corporation Tax receipts from the services of registered brokers and dealers of securities and commodities to require sourcing by means of the customer's mailing address.

Section 35 amends section 11-1108 of the Administrative Code to provide for a statue of limitations on Utility Tax refund claims of three years from the time the return is filed or two years from the time the tax is paid. This is the same limitations period for refunds as that for refunds of GCT, UBT and Bank Tax.

Section 36 adds a new section 11-130 to the Administrative Code to enact as a tax compliance and enforcement initiative, a new financial institution data matching program similar to the program applicable to State taxes, which was enacted by chapter 57 of the Laws of 2008. This program will provide a system for identifying and seizing the non-exempt assets of tax debtors in financial institutions.

Section 37 adds a new Section 11-131 to the Administrative Code to establish a comprehensive voluntary disclosure and compliance program.

Section 38 of the bill adds a new section 11-132 to the Administrative Code to authorize the New York City Commissioner of Finance to require by rule that with respect to taxes administered by the Commissioner of Finance, any tax preparer who filed more than one hundred returns or other tax documents in a single calendar year and again files more than one hundred returns or other tax documents in a succeeding year using tax software, must file electronically for the subsequent year and any succeeding year thereafter. This section will also require that a taxpayer who does not use a preparer but itself uses tax software to prepare returns or other tax documents that the Commissioner of Finance has authorized to be filed electronically, then, for that calendar year and for each subsequent calendar year thereafter, all tax documents prepared by the taxpayer using tax software must be filed electronically. The Commissioner of Finance will be authorized to impose monetary penalties for the failure to file or pay electronically when such filing or payment is required by rule. Sections 39 through 72 of this bill amend each chapter of the Administrative Code pertaining to an income or excise tax administered by the City of New York that includes a provision authorizing the Commissioner of Finance to set by publication of notice the interest rates on underpayments, and in some chapters, on overpayments, of these City taxes. These sections amend these Code provisions to increase the rate of interest imposed by the City on underpayments of income and excise taxes from the federal short-term rate plus five percent to the federal short term rate plus seven percent. In addition, these sections increase the default rate for underpayments, should the Commissioner of Finance not set the rate by publication of notice, from six percent to seven and one-half percent.

Sections 73 and 75 of the bill amend §§ 1004 of the Business Corporation Law ("BCL") and the Not-for-Profit Corporation Law ("NPCL"), respectively, to provide that the Department of State shall not file a certificate of dissolution for a corporation that has done business in the City of New York and incurred tax liability to the City under chapters six, seven, eight, ten, eleven, twelve, thirteen, fourteen, fifteen, twenty-one, twenty-four, twenty-five or twenty-seven of title 11 of the Administrative Code without attaching a consent from the New York City Commissioner of Finance (the "Commissioner").

Sections 74 and 76 of the bill amend §§ 1007 of the BCL and NPCL, respectively, to add tax claims and other claims of the New York City Department of Finance to those of the State and federal government, which are not required to be filed by a date specified in a notice published and mailed by a dissolving corporation in order to be preserved. These sections further provide that, as with claims of the State and federal governments, the City's claims are not barred if not so filed and that distribution of the assets of a dissolving corporation, or any part thereof, may be deferred until determination of outstanding claims of the City's Department of Finance.

Section 77 adds a new § 11-133 to the Administrative Code to provide that the Commissioner shall issue a consent to dissolution of a corporation under the BCL or NPCL only if the Commissioner has determined that all fees, taxes, penalties and interest imposed on the corporation under chapters six, seven, eight, ten, eleven, twelve, thirteen, fourteen, fifteen, twenty-one, twenty-four, twenty-five and twenty-seven of title 11 of the Administrative Code have been paid in full or paid pursuant to an offer of compromise under §1504 of the City's Charter. Notwithstanding this requirement, the Commissioner may issue a consent to dissolution of a corporation if the corporation executes a written agreement with the Commissioner to pay all such fees, taxes, penalties and interest.

Sections 78 to 86 amend certain UBT, GCT, Bank Tax and Utility Tax penalty provisions to conform to newly revised state corporate Franchise Tax penalty provisions. Specifically, the section will conform section 11-525 (applicable to the UBT), 11-676 (applicable to the GCT and Bank Tax), and 11-1114 of the Administrative Code (applicable to the Utility Tax) to the newly revised section 1085 of the Tax Law, which increases the penalty for deficiencies due to fraud and adds a new false and fraudulent penalty.

Sections 87 through 93 amend sections 11-2503 and 11-2515 of the Administrative Code to conform the Hotel Tax to certain recently enacted Sales Tax amendments in sections 1135 and 1145 of the Tax Law including records access requirements and additional penalty provisions. The State sales tax has provisions that are the New York State counterpart to the Hotel Tax.

Sections 94 through 107 revise various city criminal tax provisions in Chapter 40 of the Administrative Code to conform to recently revised criminal provisions set forth in article 37 of the Tax Law. Specifically, these sections revise sections 11-4001 through 11-4009 as well as sections 11-4012 and 11-4016 of the Administrative Code to generally conform to the recently revised and reenacted sections 1800 through 1807 and 1814, 1817 and 1832 of the Tax Law. These changes will remove a number of crimes applicable to specific taxes such as the GCT and UBT and replace them with a set of new provisions that will define and punish crimes applicable to all city taxes, but will retain certain tax-specific crimes for taxes such as the Cigarette Tax and the Hotel Tax.

Section 108 amends section 11-508 of the Administrative Code change the sourcing of certain unincorporated Business Tax receipts from the services of registered brokers and dealers of securities and commodities to require sourcing by means of the customer's mailing address.

Reasons for support

This business tax reform package is championed by the City and the Partnership for New York City for the benefit of both the private and public sector by modernizing our tax system to make it easier to file and administer taxes, as well as to end the incentive to locate property and employees outside of New York City.

Currently, corporations in New York City are taxed based on a formula that takes property, payroll, and sales receipts into account. The disadvantage of this approach is that small businesses and other companies can drastically reduce their tax liability by either starting operations or moving operations outside of the City. New York State, as well as many other cities and states, have realized this provision represents a competitive disadvantage and have moved to a single factor method that looks only at sales receipts. Since New York City has not conformed to this approach, we have continued to lose businesses to neighboring cities and states. This is illustrated by the fact that a third of New York City's hedge fund industry is currently located in Greenwich, Connecticut.

The 2005-06 State Budget provided for the conversion from a four-factor apportionment formula to a single sales factor apportionment formula, phased in over a three-year period, with the full implementation for taxable years beginning on or after January 1, 2008. The enactment of a single sales factor by New York State was designed to encourage corporations to open offices and create employment in the State. The use of a single sales factor reduces the tax burden of certain corporations because neither assets nor payroll are considered in apportioning entire net income. The 2007-08 State Budget accelerated the implementation of single factor apportionment so that it became fully effective for taxable years beginning on or after January 1, 2007. Since that time, the City has been working with the business community in an effort to bring the City into conformity with the single sales factor in an effort to retain and create new employment opportunities for city residents.

Given the economic downturn for the past year, the City and the business community reached an agreement on a package of conformity items that included single sales factor along with several "loophole closers" that were also adopted by the State in 2007. The net fiscal impact on New York City's budget of adopting a single sales factor and conforming with the "loop hole closers" is an additional $167 million in City Fiscal Year (CFY) 2010. The positive fiscal impacts phase out over the next six CFYs and become revenue negative in CFY 2016, year seven of the implementation of the single sales factor. Among the items that conform to the 2007 State tax law changes are:

* Requiring combined filing by economically related affiliates if there are substantial intercorporate transactions, and for captive real estate investment trusts (REITs) and regulated investment companies

* (RICs). This addresses an issue that vexes all tax administrators the shifting of income to jurisdictions with more favorable tax rates and expenses to those with higher rates. These are rules that are currently in place at the State level, but not at the City level. Including for the first time a Net Operating Loss (NOL) carry-over provision for Banks that will give them an immediate benefit of freeing up capital by claiming deferred tax assets to offset major losses in these rough, economic times. The NOL provision allows banks to use current losses to offset future profits for tax purposes.

* Requiring companies that go out of business in New York City to pay all of their obligations before they are allowed to dissolve.

* Mandating electronic data matching by financial institutions to help uncover funds in the accounts held by tax debtors; and

* Enhancing tax enforcement by, among other things, increasing underpayment interest rates, increasing the penalty for deficiencies due to fraud and adding a new false and fraudulent penalty and adopting a set of new criminal penalty provisions applicable to City taxes.

The benefits of the proposed legislation also include reduction in overhead and administrative costs associated with tax filings, all owing additional joint State-City tax audits and coordination between the State and City on future business tax changes.

Accordingly, the Mayor urges the earliest possible favorable consideration of this proposal by the Legislature.