The Business Council supports this legislation that would provide small business tax relief under both the corporate franchise tax and the personal income tax. This proposal would:
- Reduce the entire net income based tax rate for small business under the corporate franchise tax from 6.5% to 4%, effective for the 2017 tax year. This rate reduction applies to incorporated small businesses with less than 100 employees and less than $1 million in capital, and with a business income base under $400,000. The rate reduction phases out for taxpayers with business income base under $500,000.
- Expand the business income exclusion under the personal income tax from 5% to 15%, make the exclusion available for members, partners, and shareholders of LLCs, partnerships and sub-S corps, respectively, in addition to sole proprietors as under current law. It is applicable for taxpayers with net business or farm income under $500,000 in cases where the income is derived from a business entity with gross business income under $1.5 million (or $500,000 for a farm business.)
Combined these two components would provide nearly $500 million in annual tax relief to small business when fully implemented.
This proposal is a necessary and appropriate next step in New York State business tax reform. The 2014 corporate franchise tax reforms, and the 2015 New York City conformance legislation, largely addressed tax issues affecting public traded corporations.
Most small businesses are set up as pass-through entities, and as such pay the majority share of their business income tax under the personal income tax.
This legislation provides those businesses with valuable state income tax relief.
For these reasons, we strongly support adoption of S.2120-A.