Senate Bill S8115

                                BILL NUMBER:S8115

TITLE OF BILL:
An act
to amend the administrative code of the city of New York, in relation to
the general corporation tax

SUMMARY OF PROVISIONS:
Section 1 of the bill adds a new subdivision 22 to section 11-604
of the administrative code of the city of New York to provide a credit
against the general corporation tax of eligible taxpayers.

This subdivision provides that for tax years beginning on or after
January 1, 2010, eligible taxpayers who engage in retail activity will
be eligible for a non-refundable credit, termed the "Small
Retailer S-Corp Credit", against such eligible taxpayer's general
corporation tax liability.

The amount of this credit will be computed as follows:

1) If the general corporation tax liability of an eligible taxpayer is
$3,400 or less, a tax credit is allowed for the entire amount of the
tax.

2) If the tax liability is over $3,400, but less than $5,400, the
amount of the credit will be gradually phased out using the following
              

formula: the multiplication of the eligible taxpayer's general
corporation tax liability by a fraction, the numerator of which will
be $5,400 minus the amount of the liability, and the denominator of
which will be $2,000.

3) If the tax is $5,400 or more, no credit is allowed.

Eligible taxpayers are defined as taxpayers that are subject to New
York City's general corporation tax and have elected to be classified
as an S-corporation pursuant to section 606 of the New York State
tax law.

Retail activity is defined as activity that consists predominantly
of the sale of" 1) eligible personal property to any person for any
purpose unrelated to the trade or business of such person; or 2)
food and food products offered to a consumer in an establishment or
section of an establishment that are intended for off-premise
consumption; or 3) physical care of the personal property of any
person unrelated to the trade or business of such person.  Retail
activity excludes the sale of the above products or services through
the mail, telephone, wireless communication, or by the internet.

Under the bill, separate corporations subject to the general corporation
tax that have substantially the same shareholders, each such shareholder
has substantially the same interest in such corporations, and such

corporations are engaged in substantially the same business or related
business, will be treated as one corporation for purposes of the
Retailer Credit.

Section 2 of the bill provides that the Commissioner of the Department
of Finance shall promulgate any rules necessary to implement the
provisions of the bill no later than June 15, 2010.

Section 3 of the bill provides that the act shall take effect
immediately.

STATEMENT IN SUPPORT:
Small retailers are the lifeblood of our neighborhood shopping
streets and the anchors to many of our communities.  Their health
is important not only to the City's economy, but to the fabric of
our neighborhoods that make New York City a unique and diverse city.

In New York, a "S-Corporation" is a corporation with 75 or fewer
shareholders, that has elected and qualified for a special tax status
with the Internal Revenue Service (IRS).

Generally, the principal advantages of electing S-Corporation status
is that it avoids the double taxation that occurs with a regular
C-Corporation.  In a C-Corporation, the corporation pays corporate
income tax on its profits and, if those profits are distributed to
shareholders, the shareholders
must also pay personal income tax on the distribution of those
profits, in effect double taxation. In an S-Corporation, income
passes through the corporation to the shareholders, who recognize the
income or loss on their personal tax returns, therefore avoiding a
perceived double taxation of a C-Corporation. New York
City, however, does not recognize S election status for purposes
of its general corporation tax.  Accordingly, a federal S Corporation
that makes the S election for New York State purposes would be taxed
as a C-corporation for NYC tax purposes and required to pay NYC's
general corporation tax.  The firm's income would then be distributed
to its owners, if they are New York City residents, would then be taxed
again, paying the City personal income tax.  Besides most small
retailers in NYC are S-Corporations, the City is effectively taxing
these neighborhood businesses in the same manner as much larger
Fortune 500 companies, which are established as C-corporations.  This
is bad both for New York City's economy and for its neighborhoods.

Under this bill, small retailers, who are organized as S-Corporations
and whose general corporation tax liabilities are less than $3,400
would receive a tax credit equal to their tax liability, effectively
zeroing-out the tax. Those whose liabilities are a bit higher, up to
$5,400 would receive a tax credit that would partially offset their
tax liabilities.

The New York City Council believes taxing small businesses in the
same way as Fortune 500 companies is not wise.  Last year, the Council,

working with the Mayor and the State Legislature,
created a credit, similar to this bill's Small Retailer S-Corp
credit, which effectively exempted freelancers and other small
businesses from City business taxes.  The New York City Council
sees the Small Retailer S-Corp credit as the next step in a
continuing process of reforming the way small businesses are
taxed in the City.

The New York City Council urges timely enactment of this legislation
by the State Legislature.

FISCAL IMPLICATION:
By New York City Council Finance Division estimates about 19,000
firms would be eligible for the credit.  The average benefit for
firms, whose owners are making a living from their business and
with a maximum benefit of $3,400.  The program would cost the City
$6.1 million in Fiscal 2011.

EFFECTIVE DATE:
Immediately, with provisions.