Taxing in New York
The Empire State has a complex taxing system, somehow corporate unfriendly if compared to Delaware or Nevada. Still Canadians find the New York State a desirable location for incorporation as taxing is however lower than in Canada both for a Canadian federal corporation and for a state corporation and due to NY’s proximity to the eastern Canadian states.
Like most American states, New York corporations must pay an annual franchise tax which is not a straight income tax. The purpose of this tax is the privilege of doing business in New York. Its calculation is rather complex, being based on 5 different components, one of which is income.
First you must determine which one of the following figure is the highest:
- 7.5% of allocated net income
- 1.78 mills on each dollar of allocated business and investment capital to a maximum of $350,000
- 2.5% of minimum taxable income base
- A fixed dollar amount based on gross payroll wherever located ranging from $100 for payroll of $250,000 or less to $10,000 for payroll of $25,000,000 or more
To the highest figure above you must add an extra 0.9 mill for each dollar of allocated subsidiary capital, this being the fifth component.
New York City will require an extra 17% surcharge applies to the above taxes if you are a taxpayer doing business in the Metropolitan Commuter Transportation District. This includes all of the boroughs within the City of New York (e.g., Bronx, Kings, Queens) and the counties of Richmond, Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester.
New York City itself also levies a tax which is similar to the above state tax in its calculation. The minimum tax there is $300 and the rate on the income component is 8.85%.
In short, if a corporation carries on business in New York City, one possible tax rate is 17.63% of income earned there. When combined with Federal taxes, the overall rate can be in excess of 45%. New York also has a series of other taxes to watch for, including sales and use taxes, property taxes and personal income taxes.
New York State Corporation Franchise Tax is imposed on domestic and foreign corporations. Businesses incorporated in New York are subject to the tax even if the business does not actually carry on business within the state. Foreign corporations are subject to the tax if they do business in New York, employ capital, own or lease property or maintain an office within the state. This is true even if they did not formally qualify to do business in the state. Meeting the standard of taxability in New York is referred to as having "nexus" in the state. This term basically refers to the fact a relationship exists between the state and the income producing activity that allows the state to levy taxes.
The expression "doing business" is not clearly defined by the legislation, such that the nature and extent of the activities must constantly be assessed to determine if nexus exists. Businesses may be protected from the tax by federal Interstate Income Law if activities in the state are minimal. New York legislation also excludes certain specific activities from the application of the tax.
Further Recommended Readings: http://www.tax.state.ny.us/
