New York City: Factor Presence Nexus Adopted; PTET Election Available for 2022 with Imminent Implications

Governor Kathy Hochul on Aug. 31, 2022, signed into law a bill (S.B. 9454) that, among other things, accomplishes two important tax changes for New York City (NYC): (1) adopting an economic nexus threshold of $1 million and (2) retroactively allowing the NYC pass-through entity tax (PTET) election to be made for tax years beginning on or after Jan. 1, 2022, as long as the New York State (NYS) PTET election is first properly made on or before Sept. 15, 2022.
 
S.B. 9454 also excludes, retroactively to 2021, income received from the NYS’s COVID-19 Pandemic Small Business Recovery Grant Program and NYC’s Small Business Resilience Grant Program from calculation of an entity's unincorporated business tax, general corporation tax and banking corporation tax.

 

Factor presence nexus adopted

Effective for tax year 2022, this bill aligns the NYS and NYC tax codes so their customer-based nexus thresholds for corporations match.  Corporations that do not have a physical nexus with NYC may now be subject to tax under the newly enacted factor-presence nexus provisions.
 
NYC will have a factor-presence nexus threshold of $1 million of NYC receipts for purposes of the Business Corporation Tax (BCT) for tax years beginning on or after Jan. 1, 2022. Specifically, the legislation states that corporations “deriving receipts from activity within the city” are subject to the tax.  As such, corporations with $1 million or more of receipts from NYC customers are now subject to the BCT.
 
Additionally, a corporation that derives at least $10,000 in receipts from NYC will be subject to the BCT if it is part of a unitary group that collectively meets the $1 million economic nexus threshold (total for corporations with at least $10,000 in NYC receipts).
 
This new factor-presence nexus standard is only applicable to corporations subject to the BCT filing, but it does not extend to partnerships subject to the NYC Unincorporated Business Tax (UBT) or S corporations subject to the NYC General Corporation Tax (GCT).

 

PTET election available retroactive to Jan. 1, 2022

The NYC PTET was enacted earlier this year and was to be effective Jan. 1, 2023. However, this bill allows eligible PTEs to make the NYC PTET election retroactive to Jan. 1, 2022.  For the 2022 tax year only, the bill allows the NYC PTET election to be made by March 15, 2023, “in a manner prescribed by the commissioner.”
 
At present, there is no guidance as to the mechanics of making the NYC PTET election. The only guidance released thus far is a reference on NYS's Department of Taxation and Finance website stating that “any entity that wants to opt in to the New York City pass-through entity tax must first opt in to the New York State pass-through entity tax by Sept. 15, 2022.” It goes on to state that “additional guidance on the New York City pass-through entity tax election process will be available soon.”

   

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