NYC-WTC_000195490

NYC 9/11 Public Portal Document

:hort- BANKING CORPORATION TAX BANKING CORPORATION TAX 1992-2002 lently lange The banking corporation tax is 600 projected to account for 1.6 percent of tax FIRE 500 revenue in 2002, or $359 million. ideral ieved Tax Base and Rate; The banking 400 Issive/ a996 corporation tax is imposed on banking corporations for the privilege of doing Iis 300 The business in New York City. Corporations 200 I with subject to the tax include commercial

r /This banks, savings banks, savings and loan 100 associations, bank holding companies and foreign banks. Investment banks, 0 securities brokers and other non-bank 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 financial institutions subject to the / Fiscal Year lion, ,490 general corporation tax are exempt.

L Banks make three calculations of tax liability, compare the results to,'a fixed minimum tax of $125 and ^to pay whichever amount is greatest. The three alternative calculations are: (1) nine percent of entire net income sr of allocated to the City (Federal taxable income with certain New York modifications); (2) three percent of ely. al(ematiye entire net income allocated to the City (entire net income adjusted to elirninate the effect of certain ion tax benefits allowed in the calculation of entire net income); and (3) one-tenth of a mill of each dollar of taxable assets located in the City. Alling thrifts are exempt from the last alternative, and foreign banks must calculate this base as 0.26 percent of the face value of issued capital stock allocated to the City.

:ar Legislative History: The banking corporation tax has been imposed since 1966. The current law was

Kts Mor s enacted in 1985 and closely resembles the New York State bank tax law.

In July 1985, State legislation was enacted whicl^ restructured the banking corporation tax effective January 1, 1985. Recognizing that the line between bank and non-bank financial institutions had become bluned, the amendments were designed to make the tax more analogous to the general corporation tax. The law lowered! the nominal tax rate on allocated entire net income from 13.823 percent (12.134 percent for Is savings banks) to nine percent for all banking corporations. This rate reduction was coupled with a number of base-broadeiiing provisions. In addition, the separate accounting method of allocating entire net income was replaced by formula allocation, based on payroll, receipts and deposits. The factors included in the formula, ( with the exception of deposits, are similar to those used by non-banking corporations. The adoption of the three-factor'allocation formula also provided consistency in the jurisdictional apportionment of income since ■t these same allocation factors are commonly used in other states.

In addition, the 1985 bank tax law established two new alternative bases: alternative entire net income and taxable assets. Alternative entire net income adds back certain deductions allowed in the calculation of entire net income. These deductions are: (1) 17 percent of interest from subsidiary capital; (2) 60 percent of dividend income and gains and losses from subsidiary capital; and (3) 22.5 percent of the interest income earned on holdings of obligations of the United States, New York State and localities within the State. Taxable assets are the average value of assets reflected on a bank’s balance sheet.

The 1985 changes maintained the 1978 provisions authorizing an exemption for net income generated by the operation of an international banking facility (IBF). Deposits in an IBF are not subject to reserve requirements or interest rate ceilings and the IBF is not required to pay FDIC premiums. State law exempts income generated by an IBF from both State and City taxation. These exemptions were designed to enhance the ability of banks to conduct international business in New York City.

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NYC-WTC_000195558