It comes as no surprise to New Yorkers that year after year, numerous tax studies conclude that they face some of the highest tax burdens in the United States. Multiple reports released in 2016 found that on a regular basis almost 13% of a New York City resident’s income is paid toward city and state taxes, one of the highest marginal rates in the nation. Property and sales taxes are also among the top in the U.S., ranking sixth and twentieth, respectively. But it does not stop there. New Yorkers, particularly city residents and businesses, are subject to many other taxes, fostering New York’s dubious distinction as a national leader of state and city taxes. Below is a list of the various taxes that New Yorkers are subjected to, enabling state and city legislatures to fill their seemingly insatiable appetite for taxpayer money.
- Corporation Franchise Tax
New York corporate income tax is imposed on all corporations, domestic and foreign, for the privilege of doing business, employing capital, or owning, leasing or maintaining an office in the state. The tax rate had been 7.1%, but under New York’s recent corporate tax reform the rate was reduced to 6.5%.
2. New York City General Corporation Tax
Similar to the New York State tax, the city imposes an 8.85% corporate tax on all corporations for the privilege of doing business, employing capital, or owning, leasing or maintaining an office within the city.
3. Personal Income Tax
New York subjects each resident, estate and trust to a personal income tax imposed upon all income wherever earned. Nonresidents are also subject to the tax on any income that is earned or sourced to the state. Currently, the maximum personal income tax rate is 8.82%.
4. New York City Personal Income Tax
Residents of New York City with earned income are subject to an additional personal income tax up to 3.876%. However, this tax is only levied upon city residents. Non-city residents that work in New York City are mercifully exempt from this additional tax.
5. New York City Unincorporated Business Tax
The 4% unincorporated business tax is levied on the business income of proprietorships and partnerships operating in New York City. This tax is in addition to the city’s personal income tax. Unincorporated businesses include trades, professions or occupations conducted by individuals or unincorporated entities, such as partnerships, estates, trusts and limited liability companies. City residents are permitted to claim a credit for a portion of their unincorporated business tax payments, though the amount of credit depends on the level of the resident’s taxable income.
6. Sales and Use Tax
New York sales and use tax is applied to the sale and use of tangible personal property and certain specifically enumerated services. In addition, sales of gas, electricity, steam, refrigeration and intrastate telephone services are taxable, as well as food and beverages sold by restaurants, admission charges to places of amusement and club dues. The state tax rate is 4%, but most localities impose supplementary sales and use taxes. The combined sales and use tax rate in New York City is 8.875%.
7. Real Property Tax
In New York, property tax is a locally enforced tax based on the value of the underlying real estate. New York City adjusts property tax rates annually and issues its assessments by categorizing properties into four different classifications – residential, cooperatives and condominiums, utility, and most other property, such as office buildings, factories, stores and hotels.
8. New York City Commercial Rent Tax
The commercial rent tax is applied to the rental of space in Manhattan, south of 96th Street, for commercial purposes, and is levied only on tenants with annual rents of $250,000 or more. The effective tax rate is 3.9%.
9. Real Estate Transfer Tax
The New York State real estate transfer tax is imposed on real property conveyances at a rate of $2 per $500 of consideration. The tax also applies to certain long-term leaseholds, as well as to transfers of a 50% or more controlling interest in an entity holding real property.
10. Mansion Tax
New York levies an additional 1% transfer tax, called a mansion tax, on most transfers of residential properties of $1,000,000 or more.
11. New York City Real Property Transfer Tax
New York City’s real property transfer tax is charged on transfers of real property or interests in real property when consideration exceeds $25,000. The tax is assessed at a graduated rate ranging from 1% to 2.625%, depending on the classification of the property conveyed and the total consideration exchanged.
12. Mortgage Recording Tax
When a taxpayer obtains a mortgage, New York enforces a mortgage recording tax to document the loan transaction. Generally, the tax is $0.75 cents per $100 of mortgage debt. However, when the underlying real estate is located in New York City, an additional $0.30 cents tax per $100 is assessed by the State.
13. New York City Mortgage Recording Tax
New York City imposes a similar recording tax on loan documents of city properties. The current tax rate ranges from 1% for mortgages of up to $500,000 to 1.75% for commercial mortgages securing a debt of $500,000 or more.
14. New York City Utility Tax
Utilities and vendors of utility services that do business in New York City are subject to a utility tax. The tax rates range from 3.52% of gross receipts from railroads to 1.17% of gross receipts from omnibuses.
15. Miscellaneous Excise Taxes
Both New York State and New York City impose numerous other taxes on specific businesses and activities. Such taxes include a hotel occupancy tax (5.875%), alcoholic beverage tax ($1.96 per liter), motor fuel excise tax ($0.17 per gallon), telecommunication tax and surcharge (3.095%), business commercial motor vehicle tax ($400), cigarette and tobacco products tax ($5.85 per package), horse race admission tax (3%), in addition to many others.
It is clear that the tax burdens levied by New York State and New York City are copious and extensive. Recent efforts, including a property-tax cap and a reduction in corporate taxes, have alleviated some of the heavy tax impact, though the burdens continue to remain extremely high on a comparative scale with that of other states. Consulting an experienced state tax professional can ensure that you are not over-exposed to New York’s onerous tax obligations. If you have any questions regarding any New York taxes, please contact Alan Goldenberg, Senior Manager of State and Local Taxation and Tax Controversy, at firstname.lastname@example.org or 212-897-6421, or your Friedman LLP tax professional.