What's happening
This bill reduces business income tax rates and increases income tax deductions for small businesses and farms in New York.
Why it matters
Substantially reduces tax rates for small businesses. The bill lowers the business income tax rate for small businesses with incomes under $400,000 to 2.5% by 2022 (down from previous rates as high as 6.5%), freeing up more cash for reinvestment, hiring, or coping with rising costs.
Greatly expands and increases deductions. The allowable state income tax deduction for small business owners rises from 5% to 15% of qualifying business income, and for farm businesses, deductions increase to 20%—potentially delivering significant tax savings for sole proprietors, LLCs, partnerships, S-corporations, and farms.
Broadens eligibility for tax relief. The definition of a “small business” is expanded, raising the qualifying income cap from $250,000 to $500,000 for individuals, and up to $1.5 million in gross receipts for some business entities, meaning more businesses can now benefit from these reduced rates and expanded deductions.
Targets support to both rural and urban sectors. By creating a special, higher deduction for farm income and including parallel changes in the New York City tax code, the bill aims to provide meaningful relief to both upstate agricultural producers and urban small businesses—potentially supporting job growth and economic stability across a wide spectrum of New York’s economy.
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Cut Taxes for Small Businesses
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History
- Referred to investigations and government operations
- Referred to investigations and government operations
Full text
4 pagesUnderlined is new[Struck] is removedOfficial text on nysenate.gov ↗
STATE OF NEW YORK
943
2019-2020 Regular Sessions
IN SENATE
January 9, 2019
Introduced by Sens. O'MARA, BOYLE, GALLIVAN, YOUNG -- read twice and ordered printed, and when printed to be committed to the Committee on Investigations and Government Operations
AN ACT to amend the tax law and the administrative code of the city of New York, in relation to business income base and certain small business taxpayers
The People of the State of New York, represented in Senate and Assembly, do enact as follows:
Section 1. Subparagraph (iv) of paragraph (a) of subdivision 1 of section 210 of the tax law, as amended by section 12 of part A of chapter 59 of the laws of 2014, is amended to read as follows:
(iv) (A) for taxable years beginning before January first, two thousand sixteen, if the business income base is not more than two hundred ninety thousand dollars the amount shall be six and one-half percent of the business income base; if the business income base is more than two hundred ninety thousand dollars but not over three hundred ninety thousand dollars the amount shall be the sum of (1) eighteen thousand eight hundred fifty dollars, (2) seven and one-tenth percent of the excess of the business income base over two hundred ninety thousand dollars but not over three hundred ninety thousand dollars and (3) four and thirtyfive hundredths percent of the excess of the business income base over three hundred fifty thousand dollars but not over three hundred ninety thousand dollars;
(B) for taxable years beginning on or after January first, two thousand twenty-one, if the business income base is not more than four hundred thousand dollars the amount shall be four percent of the business income base; if the business income base is more than four hundred thousand dollars but not over five hundred thousand dollars the amount shall be the sum of (1) sixteen thousand dollars, (2) six and one-half percent of the excess of the business income base over four hundred thousand dollars but not over five hundred thousand dollars and (3)
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD05703-01-9
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twenty percent of the excess of the business income base over four hundred fifty thousand dollars but not over five hundred thousand dollars;
(C) for taxable years beginning on or after January first, two thousand twenty-two, if the business income base is not more than four hundred thousand dollars the amount shall be two and one-half percent of the business income base; if the business income base is more than four hundred thousand dollars but not over five hundred thousand dollars the amount shall be the sum of (1) ten thousand dollars, (2) six and onehalf percent of the excess of the business income base over four hundred thousand dollars but not over five hundred thousand dollars and (3) thirty-two percent of the excess of the business income base over four hundred fifty thousand dollars but not over five hundred thousand dollars.
§ 2. Paragraph 39 of subsection (c) of section 612 of the tax law, as added by section 1 of part Y of chapter 59 of the laws of 2013, is amended to read as follows:
(39) (A) In the case of a taxpayer who is a small business or a taxpayer who is a member, partner, or shareholder of a limited liability company, partnership, or New York S corporation, respectively, that is a small business, who or which has business income [and/or farm income] as defined in the laws of the United States, an amount equal to [three] five percent of the net items of income, gain, loss and deduction attributable to such business [or farm] entering into federal adjusted gross income, but not less than zero, for taxable years beginning after two thousand [thirteen] twenty, an amount equal to [three and threequarters] ten percent of the net items of income, gain, loss and deduction attributable to such business [or farm] entering into federal adjusted gross income, but not less than zero, for taxable years beginning after two thousand [fourteen] twenty-one, and an amount equal to [five] fifteen percent of the net items of income, gain, loss and deduction attributable to such business [or farm] entering into federal adjusted gross income, but not less than zero[, for taxable years beginning after two thousand fifteen].
(B) In the case of a taxpayer who is a farm business or a taxpayer who is a member, partner, or shareholder of a limited liability company, partnership, or New York S corporation, respectively, that is a farm business, who or which has farm income as defined by the laws of the United States, an amount equal to twenty percent of the net items of income, gain, loss and deduction attributable to such farm. The term farm business shall mean a farm business that has net farm income of less than five hundred thousand dollars.
(C) (i) For the purposes of this paragraph, the term small business shall mean: (I) a sole proprietor [or a farm business who employs one or more persons during the taxable year and] who has net business income [or net farm income] of less than [two hundred fifty] five hundred thousand dollars; or (II) a limited liability company, partnership or New York S corporation that during the taxable year has New York gross business income attributable to a non-farm business that is greater than zero but less than one million five hundred thousand dollars or net farm income attributable to a farm business that is greater than zero but less than five hundred thousand dollars. (ii) For purposes of this paragraph, the term New York gross business income shall mean: (I) in the case of a limited liability company or a partnership, New York source gross income as defined in subparagraph (B) of paragraph three of subsection (c) of section six hundred fifty-eight of this article, and,
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(II) in the case of a New York S corporation, New York receipts included in the numerator of the apportionment factor determined under section two hundred ten-A of this chapter for the taxable year.
(D) To qualify for this modification in relation to a non-farm small business that is a limited liability company, partnership or New York S corporation, the taxpayer's income attributable to the net business income from its ownership interests in non-farm limited liability companies, partnerships or New York S corporations must be less than five hundred thousand dollars.
§ 3. Paragraph 35 of subdivision (c) of section 11-1712 of the administrative code of the city of New York, as added by section 2 of part Y of chapter 59 of the laws of 2013, is amended to read as follows:
(35) (A) In the case of a taxpayer who is a small business or a taxpayer who is a member, partner, or shareholder of a limited liability company, partnership, or New York S corporation, respectively, that is a small business, who or which has business income [and/or farm income] as defined in the laws of the United States, an amount equal to [three] fifteen percent of the net items of income, gain, loss and deduction attributable to such business [or farm] entering into federal adjusted gross income, but not less than zero[, for taxable years beginning after two thousand thirteen, an amount equal to three and three-quarters percent of the net items of income, gain, loss and deduction attributable to such business or farm entering into federal adjusted gross income, but not less than zero, for taxable years beginning after two thousand fourteen, and an amount equal to five percent of the net items of income, gain, loss and deduction attributable to such business or farm entering into federal adjusted gross income, but not less than zero, for taxable years beginning after two thousand fifteen].
(B) In the case of a taxpayer who is a farm business or a taxpayer who is a member, partner, or shareholder of a limited liability company, partnership, or New York S corporation, respectively, that is a farm business, who or which has farm income as defined by the laws of the United States, an amount equal to twenty percent of the net items of income, gain, loss and deduction attributable to such farm. The term farm business shall mean a farm business that has net farm income of less than five hundred thousand dollars.
(C) (i) For the purposes of this paragraph, the term small business shall mean: (I) a sole proprietor [or a farm business who employs one or more persons during the taxable year and] who has net business income [or net farm income] of less than [two hundred fifty] five hundred thousand dollars; or (II) a limited liability company, partnership or New York S corporation that during the taxable year has New York gross business income attributable to a non-farm business that is greater than zero but less than one million five hundred thousand dollars or net farm income attributable to a farm business that is greater than zero but less than five hundred thousand dollars. (ii) For purposes of this paragraph, the term New York gross business income shall mean: (I) in the case of a limited liability company or a partnership, New York source gross income as defined in subparagraph (B) of paragraph three of subsection (c) of section six hundred fifty-eight of the tax law, and, (II) in the case of a New York S corporation, New York receipts included in the numerator of the apportionment factor determined under section two hundred ten-A of the tax law for the taxable year.
(D) To qualify for this modification in relation to a non-farm small business that is a limited liability company, partnership or New York S corporation, the taxpayer's income attributable to the net business
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income from its ownership interests in non-farm limited liability companies, partnerships or New York S corporations must be less than five hundred thousand dollars.
§ 4. This act shall take effect immediately and shall apply to taxable years beginning on or after January 1, 2021.
Reflowed for reading: line numbers and page breaks removed. Cite the official text.
Sponsor's memo
Title of bill
An act to amend the tax law and the administrative code of the city of New York, in relation to business income base and certain small business taxpayers
Purpose or general idea of bill
Reduces the amount small businesses and farms must pay in taxes by increasing the corporate tax threshold from $390,000 to $500,000 and lowering the rate to 2.5%. Expands the small business exemption to all PIT businesses regardless of whether they have employees, increases the threshold to $500,000, increases the exemption to 15%, and increases the exemption to 20% for farmers.
Summary of specific provisions
Section 1 amends article 9-A of the tax law to increase the threshold for which corporations are considered small corporations from $290,000 to $400,000 while reducing the tax rate for small corporations from 6.5% to 2.5%-. The transition threshold from the small business rate to the full corporate rate will increase from $390,000 to $500,000. The phase down of rates will occur over two years: to 4% in 2019 and to 2% in 2020 and beyond.
Section 2 amends article 22 of the tax law to expand the business tax exemption to partnerships, LLCs, and S-corporations. The requirement that the business have at least one employee is eliminated. The exemption is increased from 5% to 10% for tax year 2021 and to 15% for tax years beginning on or after 2021. The exemption for farm businesses is increased from 5% to 20% for tax. years beginning on or after January 1, 2020. The threshold for eligibility is increased from $250,000 to $500,000.
Section 3 makes corresponding changes to the New York City personal income tax code.
Justification
The FY 2014 Enacted Budget included a Senate sponsored Personal Income Tax exemption for small businesses and small farms. The exemption is equal to five percent of net income in 2018 and beyond. To qualify, the business must be a sole proprietor or farm (regardless of how the busi- ness is structured, sole proprietor, LLC, etc.), have less than $250,000 in net business income and employ at least one employee. This bill increases the exemption, expands on the taxpayers eligible for the exemption, provides a rate cut for small businesses filing under the Corporate Franchise Tax and will help New York's small businesses and family farms remain an integral part of the State's economy for gener- ations to come.
Prior legislative history
New bill.
Fiscal implications
SFY 2021: $302 million. When fully effective, the annual tax savings to small businesses will be $464 million.
Effective date
This act shall take effect immediately and apply to tax years beginning on or after January 1, 2021.
Summaries, headlines and scores are AI-generated from the official bill text. How we score bills. Source: NYS Open Legislation.