While many cities collect income taxes that are separate from and in addition to state and federal taxes, New York City taxes are notoriously complicated and burdensome -- not only re-taxing corporate business profits, but also collecting taxes from otherwise untaxed entities like LLCs, partnerships, and sole proprietorships.
Unincorporated Business Tax (New York City and Washington, D.C.)
New York City:
New York City collects an Unincorporated Business Tax on the business income of every unincorporated business (sole proprietorships, partnerships, and LLCs) carried on - wholly or partly - in New York City. If the business can demonstrate that a portion of its business was done outside New York City, that portion will not be subject to this tax. The rate is 4% of taxable income. You must file for and pay this tax if
- You have total gross income of more than $25,000 for a partnership or LLC with more than one member, or more than $75,000 for a sole proprietorship or single-member LLC, prior to any deduction for the cost of goods sold or services performed; or
- You have an unincorporated business taxable income of more than $15,000 for a partnership or LLC with more than one member, or more than $35,000 for a sole proprietorship or single-member LLC.
If your tax is $1,800 or less, a credit is issued for the entire amount of the tax and no tax will be due. If the tax is between $1,800 and $3,200, a credit is allowed in the amount of the tax multiplied by (3200 minus the tax), then divided by 1400.
The website of the New York City Finance Commissioner has tax forms and other information about the Unincorporated Business Tax.
District of Columbia:
The District of Columbia collects an Unincorporated Business Franchise Tax on the business income of every unincorporated business (sole proprietorships, partnerships, and LLCs) carried on - wholly or partly - in the district. Individuals who earn income from a sole proprietorship, or have earnings from an entity such as a partnership or LLC that does not pay taxes at the entity level, must pay this tax. However, individuals do not need to pay separate individual income tax on income subject to the unincorporated business franchise tax.
The income tax rate is 9.975% on income derived from business in the District of Columbia. The minimum tax is $250 if the business' gross receipts in the District are $1 million or less, and $1,000 if the District gross receipts are greater than $1 million. Gross receipts for purposes of calcluating the minimum tax include any income that is derived from any activity such as sales, rents, services, commissions, etc., from any source within the District. Gross receipts are determined without deduction of any expenses. There is an annual exemption up to $5,000 allowed.
The law exempts:
- Businesses with $12,000 or less of gross receipts;
- Businesses that generate more than 80% of gross income from personal services rendered by the owners of the entity and in which capital is not a material income-producing factor; and
- Certain trades, businesses, or professional organizations that either cannot be incorporated by law, custom, or ethics, or that can only be incorporated as professional corporations.
Unincorporated businesses with over $12,000 of of gross receipts that are not exempted are required to file an unincorporated business franchise tax return each year. Quarterly estimated tax payments are required if the estimated franchise tax for the year is more than $1,000.
Tax forms and further information are available on the District of Columbia Office of Tax and Revenue website.
General Corporation Tax (New York City)
If your corporation does business, employs capital, owns or leases property for business purposes, or maintains an office in New York City, it is subject to the General Corporation Tax. This tax only applies to incorporated businesses (unincorporated businesses are subject to New York City's Unincorporated Business Tax). If the corporation can demonstrate that a portion of its business was done outside New York City, that portion will not be subject to this tax. New York City's General Corporation Tax is imposed at the highest of the following four rates:
- 8.85% of net income from New York City sources;
- .15% of total capital allocated to New York City;
- 8.85% of 30% of net income, plus the amount of salaries or other compensation paid to any person, including officers, who at any time during the year owned more than 5% of stock; or
- Minimum tax base of $300.
S corporations are not recognized by New York City and are subject to full corporate income tax.
The website of the New York City Finance Commissioner has tax forms and other information about the General Corporation Tax.
Note: The information contained on this page is meant for general, information purposes only, and CMLP makes no claim as to comprehensiveness or accuracy of the information. Because of the complexity of tax issues associated with starting any business, you are encouraged to consult with a tax attorney and/or accountant to ensure compliance with federal, state, and local tax requirements. The CMLP is not a substitute for individualized legal advice, especially not individualized tax advice.