PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

STATE SPOTLIGHT: On Taxes, New York State is Very Bad and New York City is Even Worse

By at 2 August, 2019, 9:17 am

by Raymond J. Keating-

Small Business Policy Index 2019: New York ranked 47th – or the fourth worst – among the 50 states.

SBE Council’s “Small Business Policy Index 2019” ranks the 50 states according to 62 different policy measures, including a wide array of tax, regulatory and government spending and performance measurements.

Small Business Tax Index 2019: New York ranked 44th – or seventh worst – among the 50 states.

SBE Council’s “Small Business Tax Index 2019” is included in the Policy Index report, ranking the states according to a wide array of tax measures, including income, capital gains, property, death, unemployment, and various consumption-based taxes like state gas and diesel levies.

When it comes to governmental costs imposed on individuals and entrepreneurs, few states are as aggressively anti-growth and anti-small business as New York. And as bad as the state is – and New York state is very bad – the burdens imposed by New York City government push costs even higher, to staggering levels.

According to SBE Council’s “Small Business Policy Index 2019: Ranking the States on Policy Measures and Costs Impacting Entrepreneurship and Small Business Growth,” which ranks the 50 states according to 62 different policy measures, including assorted tax, regulatory and government spending measures, New York ranked 47th among the 50 states. And the state earned the 44th spot on the “Small Business Tax Index 2019,” which is a subset of the larger Policy Index, whereby the states are ranked just on tax measures.

As made clear in the Index, New York suffers from a wide array of ills, including high personal income, individual capital gains, corporate income, corporate capital gains, property, gas, diesel, and wireless taxes; a death tax; fairly high consumption-based taxes; the highest energy regulatory burden among the states; the highest workers’ compensation costs; high levels of state and local government employment and spending; the highest level of state and local government debt; a very high minimum wage mandate; poor private property protections; and costly highways.

Yikes!

New York City Doubles Down

Yet, consider what New York City adds on to the state burden when it comes to income taxes, for example.

First, the state imposes individual income and capital gains tax rates ranging from 4 percent to 8.82 percent. As noted in the Index, that 8.82 percent rate was the sixth state highest personal income tax rate, and fifth highest state capital gains tax rate.

But then New York City comes along and adds on its own personal income tax. The city’s rates range from 3.078 percent to 3.876 percent. That’s a combined state and city top personal income and individual capital gains tax rate of 12.696 percent.

Second, the city also imposes an unincorporated business tax. That’s an additional 4 percent income tax on non-incorporated businesses, such as sole proprietorships, partnerships and LLCs. That brings the top income tax rate on these entrepreneurs in the city to an astounding 16.696 percent.

Third, the state imposes a corporate income tax of 6.5 percent. That state rate was reduced under a corporate tax “reform” measure passed in 2014. The rate dropped from 7.1 percent in 2015 to 6.5 percent in 2016. Good news, right? Well, hold on. The state also imposed a business tax surcharge to support mass transit in the lower portion of the state, where the bulk of individuals and businesses reside. That surcharge had been imposed at 17 percent – creating a corporate rate of 8.307 percent before the “reform” – and was temporary. Under New York’s version of reform, the surcharge was made permanent, increased to 25.6 percent in 2015, and after 2015, changes in the surcharge have been determined not by state lawmakers, but by the state’s tax commissioner, that is, by a government bureaucrat. The surcharge now stands at 28.9 percent, creating a top state corporate income tax rate of 8.379 percent. So, the state’s corporate income tax rate now is higher than before New York did its version of “tax reform.”

But, of course, New York City jumps in with its own corporate income tax with a rate of 8.85 percent. So, the combined state and city corporate income tax rate registers 17.229 percent.

In addition, the city’s corporate income tax applies to S-Corps. That means that S-Corp entrepreneurs face a top state and city tax rate of 21.5 percent.

There are many appealing aspects of New York State and New York City. Taxes, however, are most certainly not included on the list of New York positives. Instead, taxes serves as a striking negative, playing a major part in chasing away individuals, families, entrepreneurs, businesses and investors.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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