BILL NUMBER:S4898

TITLE OF BILL:

An act to amend the administrative code of the city of New York, in
relation to the general corporation tax

SUMMARY OF PROVISIONS:

This bill would extend the S-Corporation credit on the City's personal
income tax from July 1, 2015 through December 31, 2018. The credit is
received by resident shareholders of S-Corporations that pay the New
York City general corporation tax (GCT) The credit is equal to 100
percent of GCT liability for taxpayers with New York State taxable
income of $35,000 or less. The credit percentage decreases at higher
incomes, and phases out to zero at a taxable income of $100,000.

STATEMENT IN SUPPORT:

This bill will enable New York City to continue providing relief to
resident shareholders of S-Corporations that pay New York City's general
corporation tax.

Small businesses are the core of economic life in New York City. More
than three quarters of the firms in the City have less than 10 employ-
ees. These firms are found in all sectors of the City's economy-from law
              

and finance to retailing and health care. Most firms of this size are
either unincorporated or organized as S-Corporations. To be eligible for
S-Corporation status, a corporation must have fewer than 100 stockhold-
ers, be owned by individuals rather than other corporations, and all
owners must live in the United States.

1 The Federal government has long offered these businesses an important
tax break-- it has exempted them from the Federal corporate income tax.
Instead, all income and deductions are passed on to the owners, where it
is subject to their personal income tax, thus avoiding double taxation
on these earnings. Currently most states, including New York, New Jersey
and Connecticut, recognize S-Corporations, and partially or fully exempt
them from their state corporate income taxes.

It is different in New York City. New York City residents that are
stockholders in S-Corporations that do business in the City face double
taxation. First, their businesses pay the general corporation tax (GCT)
on the net earnings of the firm. These same earnings are passed on to
the stockholders and taxed again under the City's personal income tax
(PIT)

The Legislature and the New York City Council recognized this problem
for unincorporated businesses and, starting in 1997, provided a partial
credit against the City's PIT for unincorporated business tax filers.

In 2013, the Legislature, at the request of the City Council, extended
similar relief from double taxation to S-Corporations, by enacting the
current credit, applying it from January 1, 2014 through June 30, 2015.

This bill would help relieve the double taxation of owners of S-Corpora-
tions in New York City.

Resident shareholders of S-Corporations would be able to take a nonre-
fundable credit against their New York City personal income tax liabil-
ity equal to a portion of their share of the business's corporate tax
liability. There are some similarities between this credit and the PIT
credit for unincorporated business taxes. One difference, however, is
that the S-Corporation credit is not available for shareholders with
taxable incomes of over $100,000, which targets the credit to middle
income households. There are 142,000 taxpayers that are S-Corporations
in New York City, roughly half of all GCT taxpayers.{2} Most S-Corpora-
tions are small businesses.

FISCAL IMPACT:

This credit would reduce the personal income tax of New York City resi-
dents who are shareholders in S-Corporations by $30 million in City
fiscal year 2016. Extension of the credit is assumed in the City's
fiscal year 2016 Preliminary Budget Plan. There would be no fiscal
impact on New York State.

EFFECTIVE DATE:

This act shall take effect immediately 2 New York City Department of
Finance, tax year 2010.

{2} New York City Department of Finance, tax year 2010.