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 (ENI) based tax rate for small business under the corporate franchise tax from 6.5 percent to 4 percent, effective for the 2021 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 $390,000.
- Expand the business income exclusion under the personal income tax from 5 percent to 15 percent; 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 sole proprietor taxpayers with net business or farm income under $250,000, and other small businesses with gross income under $1.5 million. 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 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.
While we welcomed the FY 2021 Executive Budget’s inclusion of small business tax reform, its proposal was of limited scope, especially for non-incorporated businesses whose owners pay tax on their business income under the personal income tax, where relief would have been limited to sole proprietors.
The current legislation, S.5954-A / A.6309-A, is broader in scope than the Executive Budget, and is similar to a proposal included in the FY 2017 Executive Budget. That year, the Senate and Assembly both endorsed small business tax packages that were similar but not identical to the Governor’s proposal in their respective one-house budget resolutions. Unfortunately, a compromise measure was not included in the final budget agreement.
Given its past bipartisan support, this small business tax reform legislation should be achievable as part of the FY 2021 state budget.
This legislation provides small businesses across the state with valuable state income tax relief.
For these reasons, we support adoption of S.5954-A / A.6309-A.