Empire State of mind: 7 tax tips for New York business owners
They say if you can make it in NYC, you can make it anywhere — but you’re still on the line for business taxes. And in the world’s economic epicenter, that can get costly and complicated. Confused about your business tax obligations in NYC? Don’t worry, we’ve got you covered. Get started with our business tax tips and keep your New York City dreams alive.
New York may be the City of Dreams, but it’s also home to one of the nation’s most costly and complex tax codes — making some small business owners feel like they’re a small fish floundering in a big pond. Whether you’re a native New Yorker running a small business or an out-of-state resident who’s landed in NYC to take your business to new heights, learning how to navigate the business tax landscape is key to succeeding in the concrete jungle.
After all, they say if you can make it in New York, you can make it anywhere.
Confused about your business tax obligations in NYC? Don’t worry, we’ve got you covered. Get started with our top business tax tips for New York small business owners and keep your big city dreams alive.
Alexa, cue “Empire State of Mind” by Alicia Keys and Jay-Z …
#1 - Map out your New York business tax responsibilities
Ever tried to make sense out of New York’s subway system map? It’s a lot like trying to wrap your mind around New York’s vast and intricate tax system. To avoid costly tax penalties from missing filing deadlines, you’ll want to map out which taxes you owe and when you owe them. Creating a calendar that keeps track of due dates for your business taxes, licenses, and permits can alleviate the burden of trying to remember all of those pesky due dates.
If you’re unsure of your business tax obligations, you can visit New York State’s Department of Taxation and Finance website for more resources. From there you can look up your filing and payment deadlines based on your business entity type, get access to tax resources, and learn more about popular business tax topics, such as the state’s unique income tax, corporation tax, sales tax, withholding tax, and other tax reporting requirements.
For example, as of June 2022, the maximum New York state income tax rate is 8.82%. While the state of New York has taxes you need to keep up with, the Big Apple doles out its own bundle of taxes; some New York City residents might pay as much as an additional 3.876% for the privilege of operating in the five boroughs: Manhattan, Brooklyn, Queens, The Bronx, and Staten Island.
#2 - Get to know NYC’s super fun tax acronyms
To make things even more confusing, New York uses a ton of acronyms to identify their taxes, which is why you should become familiar with what they mean. While there’s no shortage of alphabet soup, three highly used acronyms we want to point to include MTA, MCTD, and MCTMT.
MTA: Metropolitan Transportation Authority, this is the authority authorized to tax commuters within the MCTD.
MCTD: Metropolitan Commuter Transportation District. The MCTD includes New York City (the counties of New York (Manhattan), Bronx, Kings (Brooklyn), Queens, Richmond (Staten Island)), and the counties of Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester.
MCTMT: Metropolitan Commuter Transportation Mobility Tax
The MTA Surcharge Tax applies to corporations located within the MCTD. This tax is different from the MTA/MCTMT tax that is derived from payroll. The MCTMT tax applies to businesses operating within the MCTD district and also meets payroll thresholds, while the MTA Surcharge Tax is based on corporations filing the General Business Corporation Franchise Tax and other qualifiers.
#3 - Zero returns are an actual thing
Remember that even if you don’t “owe” taxes, you still must file a return. This is called a zero return. A zero return is a return that does not show any income, but you still are required to file the form in order to stay compliant.
For instance, calling attention to the MCTMT tax, if you owe for the first quarter, but not the second quarter, you’ll still need to file a zero return for the second quarter or if you typically file sales tax but do not have any sales tax in another quarter, you are still required to file a return that shows you had $0 sales. Or if you typically file sales tax but do not have any sales tax in another quarter, you are still required to file a return that shows you had $0 sales.
#4 - Stay on top of business renewals
You launched your business, obtained the appropriate business licenses, and are whipped up in the day-to-day motions of running your business. Before you know it, a period of one year has passed and you’re back in line for a business renewal. Additionally, if your business has pivoted services or changed course throughout this time, you will need to apply for a new license that is aligned with your business dealings.
For example, if you owned an online clothing brand in 2021, but you’re now hosting pop-up shops around NYC to generate more visibility (and sales), you’ll need to apply for a vendor permit. If you don’t properly secure a business, your shop could be shut down for good and you may be on the hook for violations, i.e. big fines.
You can learn more about different licenses you may need for your business here.
#5 - Residency is a very BIG deal
As a global economic epicenter, New York City has a high propensity to audit. The state ranks numero seven on a list of the worst states for audits. The reasons are simple, there’s just more money here in the city that never sleeps.
In New York, the state takes its residency status very seriously. A resident of New York is someone who lives in the state or permanently maintains a home in New York and spends at least 184 days in the state. Residency audits occur when you have a business (or even you, an individual) and that business moves to a different state — it may trigger an audit. In fact, New York’s tax department collects roughly $200 million a year from residency audits alone. So, if you plan to move, be prepared to get audited.
#6 - Foreign corporations may owe taxes to the state and NYC
If you’re a business owner coming from Ohio to NYC, you may be surprised to learn that your business will be considered a foreign corporation. New York law defines a foreign corporation as an “...out-of-state corporation doing business in New York.” You do not have to live in or physically operate your business in New York state or NYC to owe tax. If you have income that comes from the state or in the city, you may owe taxes. This is because New York operates on a source income system. A source income system looks at where you received the income. If you received the income from within the state's borders, you have sourced income. Where you actually received the income from is key. If you received income from within the borders of the source, in this case, the state of New York, you will owe taxes to New York.
#7 - It’s all about location
If your business is located in the borough of Manhattan, south of the centerline of 96th Street, and your annual gross rent paid is at least $250,000 you may be subject to commercial rent tax.
Instead, try to operate in a more tax-friendly area called a New York Empowerment Zone. A business located in or expanding to the South Bronx or Upper Manhattan can qualify for a variety of federal, state, and city incentives, including direct loans and grants and other tax incentives. You’ll be qualifying and possibly receiving money for being in a location instead of paying tax on your rent paid.
If you’re launching a small business in New York, or your venture is already underway, ComplYant can help you navigate the complex tax landscape. Whether you’re operating in the Big Apple or in Boise, Idaho, our business tax tools can help you calculate your estimated tax payments, track your filing deadlines, and learn more about business taxes — designed to help your business thrive.