NYC-WTC_000195490

NYC 9/11 Public Portal Document

The alternative tax on allocated capital accounted for approximately three percent of all corporate tax liability. This base is designed to tax firms which have low net income, either because of temporary financial difficulties or because of extensive use of tax preferences, such as deductions and net operating loss carryforwards. To determine the tax obligation under this base, a firm must compute the value of its business and investment assets, deduct liabilities against those assets and, if eligible, allocate a portion of the business i capital and investment capital to the City using the same allocation formulas described previously. The 0.15 percent rate isjthen applied. J

The additional tax on subsidiary capital (defined as a corporation of which over 50 percent of the I ! outstanding voting stock is owned by the taxpayer) is imposed because entire net Income excludes income derived from subsidiary operations. Subsidiary capital is allocated according to the amount of capital employed in New York City and taxed at a rate of 0.075 percent. All taxpayers are eligible to allocate subsidiary capital. ■’ ' \ ' /

ff Legislative History: Prior to 1977, the tax rate on net Corporate earnings was 10.05 percent. In 1977, the rate was reduced to 9.5 percent and, in 1978, the rate was again lowered to,9.0 percent where it remained until the K 1987, when it was reduced to 8.85 percent. ■ ■ ' i ' \ ' \

b tax In response to business tax reform initiatives at the Federal and State levels. New York City has altered IB O’" the general corporation tax. The Federal Economic Recovery Tax Act of 1981 and the Tax Equity and Fiscal Responsibility Act of 1982 substantially altered Federal business taxes by instituting the Accelerated Cost Recovery System (ACRS) and more liberal leaseback provisions. Under the provisions of ACRS, property tve could be rapidly depreciated in the first few years of service. Since the general corporation tax uses the h) Federal definition of net taxable income as the starting point in determining tax liability, firms depreciating h) property under ACRS would have been able to drastically lower their New York City tax obligation. To avoid tto a substantial loss of revenue, the City uncoupled from the Federal ACRS in 1982 and required firms to depreciate assets under the Asset Depreciation Range. In 1985, however, the City joined with New York State le in allowing New York State assets to be depreciated under ACRS. In 1994, ACRS was extended to property placed in service outside New York State, \

The Federal Tax Reform Act of 1986 substantially broadened the State and City corporate base by limiting or eliminating various deductions (such as entertainment expenses and natural resource depletion ISS allowances!) and accelerating taxable income by requiring corporations to recognize income earlier than under Iis previous law. In order to return the business tax “windfall” which was expected to result from this change. New York’ State passed the Business Tax Reform and Rate Reduction Act (BTRRRA) in 1987. The City also took steps IP return the windfall by lowering its corporate tax rate by 0.15 percentage points, to 8.85 percent, I effective for tax year 1987. In July of 1988, the State Legislature passed a bill to conform the City tax law to changes made as part of BTRRRA. As part of this legislation, which became effective in tax year 1988, the City: (1) exempted residential mortgage insurance corporations (REMICs) from the tax; (2) established a ceiling on the alternative capital base of $350,000; (3) amended the definitions of subsidiary, investment and business capital to allow for the deduction of long-term debt; (4) required leased personal property to be included in the formula for calculating the business allocation percentage; (5) eliminated the deduction for franchise, income or similar taxes paid to other states and localities; and (6) repealed the interest add-back rule which required that 90 percent of the interest paid to a shareholder owning more than five percent of issued capital stock be added back to income when computing entire net income.

In June of 1989, the City’s tax law was amended again. This time it was to conform to changes which were made to the Article 9-A tax as part of the State’s fiscal year 1989-90 tax program. As part of this legislation, which generally became effective in tax year 1989, the City: (1) increased the flat fee minimum tax from $125 to $300; (2) eliminated net operating loss carrybacks; (3) limited tax benefits for merger and acquisition activity; (4) repealed the transportation tax, movirigj these taxpayers to the general corporation tax; ' ( ■ I

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NYC-WTC_000195554