Corporation tax: Tax expenditure estimates

Corporation tax: Tax expenditure estimates

This section of the report provides descriptions of 40 separate tax expenditure provisions of the Article 9 tax. It contains estimates of the tax expenditures for tax years 2017 through 2021 (2021 is the latest year for which Article 9 tax return data is available). The list of tax expenditures is based on the tax law as of January 1, 2025. The estimates are also extrapolated to the 2025 tax year. The tax year refers to both the 2025 calendar year and fiscal years beginning in 2025. Table 4 summarizes the tax expenditure estimates. It also includes total tax liability of Article 9 to provide perspective.

Description of tax

Tax Law Article 9 imposes capital stock-based franchise and gross receipts-based taxes on a variety of specialized businesses.

§ 183 imposes a franchise tax on transportation and transmission companies and associations (excluding aviation companies which are taxable under Article 9-A) on the basis of allocated capital stock. Generally, a corporation’s stock is allocated to New York in the ratio that the corporation’s gross assets employed in the State bear to gross assets everywhere. U.S. obligations and cash in hand are excluded from the calculation. The tax equals the highest of the three amounts computed by the following methods: (1) allocated value of issued capital stock multiplied by 1.5 mills; (2) allocated value of issued capital stock on which dividends are paid 6 percent or more, multiplied by 0.375 mills for each one percent of dividends paid; or (3) a fixed minimum tax of $75. Effective January 1998, trucking and railroad companies previously taxable under § 183 became taxable under Article 9-A, unless an election had been made to remain taxable under Article 9. Effective January 1, 2000, gas pipelines became taxable under Article 9-A.

§ 184 imposes an additional franchise tax on transportation and transmission corporations and associations based on their gross earnings within the state. The tax is 3/8 percent of gross earnings received from business conducted in New York. Beginning in 1995, § 184 no longer applies to inter-exchange carriers, but applies only to those telecommunications corporations or associations principally engaged in a local telephone business. Companies principally engaged in long distance services are excluded from the tax. In addition, the law provided two exclusions to equalize the tax treatment of telecommunications services provided by local carriers, which remain subject to the § 184 tax, and inter-exchange carriers. One hundred percent of receipts from sales for ultimate consumption from interLATA, interstate, or international services and 30 percent of intraLATA toll services, including interregion regional calling plan services are excluded in the computation of tax under § 184. In January 1998, trucking and railroad companies formerly taxable under § 184 became taxable under Article 9-A, unless they elected to remain taxable under Article 9. In January 2000, gas pipelines became taxable under Article 9-A.

§ 185 imposes a franchise tax on farmers, fruit growers, and other like agricultural corporations organized and operated on a cooperative basis. The tax is the highest amount computed under the following calculations: (1) allocated value of issued capital stock multiplied by one mill; (2) allocated value of issued capital stock on which dividends paid are six percent or more, multiplied by ¼ mill for each one percent of dividends paid; or (3) a fixed dollar minimum tax of $10. § 185 is repealed for tax years beginning on or after January 1, 2018.

§ 186, which was repealed effective January 1, 2000, provided for a franchise tax on waterworks companies, gas companies, electric or steam heating, lighting, and power companies. The tax was imposed at a rate of 0.75 percent on New York gross earnings and 4.5 percent on the amount of dividends paid which exceeded 4 percent of the amount of the taxpayer’s paid-in capital employed in New York State. The minimum tax alternative of $125 applied, but only in case and to the extent that the tax computed under the primary method was less than $125. An additional excess dividends tax may have also applied. Energy and water companies formerly taxable under this section are now taxable under Article 9-A. However, a company may elect to remain a continuing § 186 taxpayer and be subject to the tax as it existed in 1999, if certain conditions apply.

§ 186-a provides for a gross receipts tax on the furnishing of utility services. A utility is defined as any seller of gas, electricity, steam, water, or refrigeration. Utilities that provide telephone or telegraph services which are subject to the supervision of the Public Service Commission pay the tax on their gross receipts not derived from the sale of telecommunications services at a rate of 2.5 percent. Telecommunications service receipts are taxable under § 186-e. The tax rate imposed on receipts from transportation, transmission, distribution, or delivery of energy for residential customers is 2.0 percent.

The following table shows the history of the § 186-a rate structure as it pertains to receipts from the sale of an energy commodity and charges for the transportation, transmission, distribution, or delivery of energy.

§ 186-e provides for an excise tax on telecommunications services at rate of 2.5 percent on the gross receipts of providers of nonmobile telecommunications services. The tax applies to gross receipts from all intrastate services and interstate and international services that either originate or terminate in New York and are billed to a service address in the State.

A separate excise tax is imposed on the sale of mobile telecommunication services by a telecommunication services provider at the rate of 2.9 percent. This rate applies to gross receipts from any mobile telecommunication service provided on or after May 1, 2015, by a home service provider where the mobile telecommunications customer’s place of primary use is within New York State.

Most of the revenue from the Article 9 tax resulted from the gross receipts-based taxes Tax Law §§ 184, 186, 186-a, and 186-e.

§ 186-f imposes public safety communications surcharges on certain wireless communications services. A $1.20 per month surcharge is imposed for each postpaid wireless communications device in service for every customer whose place of primary use is in New York State. A $0.90 surcharge applies to each retail sale of a prepaid wireless communication service. This section took effect on September 1, 2009. The surcharge on prepaid wireless communications service was effective on December 1, 2017.

Data sources

The major source of data used to compute the tax expenditure estimates under Article 9 is the 2021 Corporation Tax Study File. This file, compiled by the Department of Taxation and Finance, includes all corporations filing under Article 9. It includes selected data items from the tax returns of each corporation. Simulations of the file generate the base case tax expenditures.

Methodology

The projections of the tax expenditures from 2021 to 2025 use a variety of economic forecast variables.

Tax expenditures whose values are less than $0.1 million are considered minimal and are designated by an asterisk.

New York modifications to gross income

New York State Tax Law Article 9 provides for select modifications when computing New York gross income.

1. Exclusion of interstate and foreign income

Citation: Tax Law § 184(1)

Effective date: June 15, 1896

Description: Corporations, joint stock corporations, or associations formed for or principally engaged in canal, steamboat, ferry, navigation, or corporations formed for or principally engaged in the operation of vessels may exclude earnings derived from business of an interstate or foreign character.

2. Exclusion of receipts from interLATA, interstate, and international telephone services

Citation: Tax Law § 184(1)

Effective date: January 1, 1995

Description: Telephone companies subject to the tax may exclude 100 percent of receipts (other than those from the provision of carrier access services) from sales for ultimate consumption of interLATA, interstate, and international services.

3. Exclusion of thirty percent of receipts from intraLATA toll telephone services

Citation: Tax Law § 184(1)

Effective date: Effective for tax years beginning on or after January 1, 1996

Description: Telephone companies subject to the tax may exclude 30 percent of receipts (other than those from the provision of carrier access services) from sales for ultimate consumption of intraLATA toll services, including inter-region regional calling plan services.

4. Exclusion of cable television service

Citation: Tax Law § 186-e(2)(b)(2)

Effective date: January 1, 1995

Description: Cable television service is specifically excluded from the definition of telecommunications services and receipts from the sale of such service are not subject to tax.

5. Exclusion of receipts from certain telecommunications services for air safety and navigation purposes

Citation: Tax Law § 186-e(2)(b)(3)

Effective date: January 1, 1995

Description: Receipts from the sale of telecommunications to air carriers solely for the purposes of air safety and navigation are excluded from the tax. Providers must be at least 90 percent owned (directly or indirectly) by air carriers and have the principal function of fulfilling requirements of the Federal Aviation Administration or International Civil Aviation Organization relating to the existence of a communication system between aircraft and dispatcher, aircraft and air traffic control or ground station and ground station (or any combination of these entities).

Corporate Exemptions

6. Ferry companies

Citation: Tax Law §§ 183(1)(b),  184(1)

Effective date: April 14, 1914

Description: Ferry companies operating between any of the boroughs of the City of New York under a lease granted by the City are exempt from tax under §§ 183 and 184.

7. Taxicabs and omnibuses

Citation: Tax Law § 183(1)(c)

Effective date: April 11, 1951 (taxicabs); January 1, 1960 (omnibuses)

Description: With certain exceptions, and so long as the State tax on motor fuel exceeds two cents per gallon, corporations classified as taxicabs and omnibuses are taxable under Article 9-A and therefore are exempt from the tax imposed by § 183.

8. Railroads and vessels engaged in interstate or foreign commerce

Citation: Tax Law § 183(7)

Effective date: November 11, 1981, for taxable periods beginning on or after January 1, 1981 (original exclusion for vessels only, June 15, 1896)

Description: A railroad, palace car, or sleeping car corporation, navigation, canal, ferry (except a ferry operating between any of the boroughs of New York under a lease granted by the City), steamboat, or any other corporation formed for or principally engaged in the operation of vessels in interstate or foreign commerce is not subject to the  § 183 tax, even though it maintains an office or otherwise employs capital in New York.

9. Corporations principally engaged in providing telecommunications for air safety and navigation purposes

Citation: Tax Law §§ 183(1)(b), 184(1)

Effective date: January 1, 1995

Description: Corporations principally engaged in selling of telecommunications to air carriers solely for the purposes of air safety and navigation are exempt from the tax under §§ 183 and 184. Providers must be at least 90 percent owned (directly or indirectly) by air carriers and have the principal function of fulfilling requirements of the Federal Aviation Administration or International Civil Aviation Organization relating to the existence of a communication system between aircraft and dispatcher, aircraft and air traffic control or ground station and ground station (or any combination of these entities).

10. Foreign commerce

Citation: Tax Law Article 1, § 3

Effective date: November 11, 1981 (original exclusion for vessels only, June 15, 1896)

Description: All corporations incorporated under the laws of the State of New York, exclusively engaged in the operation of vessels in foreign commerce, are exempted from tax on their capital stock, franchises, and earnings for State and local purposes.

11. Railroad leasing

Citation: Tax Law § 184(3)

Effective date: June 1, 1917

Description: In lieu of the tax on gross earnings, a railroad corporation involved in leasing railroad property to another railroad is subject to an excess income tax measured at the rate of 4 ½ percent on that portion of dividends paid in a calendar year in excess of 4 percent on the capital stock of the company.

12. Foreign taxicabs and omnibuses

Citation: Tax Law § 184(2)(b)(1)(iv)

Effective date: January 1, 1988, per trip fee enacted; taxable years beginning on or after January 1, 2021, complete exemption effective

Description: A foreign taxicab or omnibus company doing business in New York by making fewer than 12 trips into New York State on an annual basis, but not otherwise owning or leasing property, maintaining an office, or otherwise doing business in the State so as to become subject to tax, pays a tax equal to $15 per trip for tax years beginning before January 1, 2021. For tax years beginning on or after January 1, 2021, these entities are exempt from tax under § 184.

13. Exempt companies

Citation: Tax Law § 186-a(2)(a)

Effective date: January 1, 1960 (omnibuses)

Description: Persons engaged in operating omnibuses having a seating capacity of more than seven persons; or, street surface, rapid transit, subway, and elevated railroads are not subject to the § 186-a tax.

14. Exempt organizations

Citation: Tax Law § 186-a(2)(b)

Effective date: 1937

Description: The furnishing of utilities services by the State is exempt from tax. Utility services furnished by municipalities, political and civil subdivisions of the State or a municipality, public districts, and certain corporations and associations organized and operated exclusively for religious, charitable, or educational purposes are exempt from tax under certain circumstances.

15. Water pollution facilities

Citation: Tax Law § 186-a(2)(b)

Effective date: January 1, 1969

Description: § 186-a does not apply to a corporation organized and operated exclusively for the purpose of leasing from a city a water works system designed to alleviate water pollution within the city.

16. Commercial, industrial, and not-for-profit relief

Citation: Tax Law § 182-a(2)(c)(1)

Effective date: January 1, 2000

Description: In addition to the reduction and elimination of the tax on the commodity, the § 186-a tax on transmission and distribution for commercial, industrial and not-for-profit customers was eliminated through a phased in exclusion according to the following schedule:

17. Exempt organizations

Citation: Tax Law § 186-e(1)(c)

Effective date: January 1, 1995

Description: Telecommunications services provided by the State, municipalities, political and civil subdivisions of the State or municipality, public districts, and corporations and associations organized and operated exclusively for religious, charitable, or educational purposes are exempt from § 186-e tax.

18. § 186-f public safety communications surcharge

a. Lifeline consumers—§186-f

Citation: Tax Law § 186-f(4)

Effective date: December 1, 2017

Description: Consumers who receive a Lifeline discount on their wireless communications service are exempt from the public safety communications surcharges.

b. Exempt organizations—§ 186-f

Citation: Tax Law § 186-f(4)

Effective date: September 1, 2009

Description: The public safety communications surcharges do not apply to purchases by the State of New York and its agencies and instrumentalities; the United States of America and its agencies and instrumentalities; the United Nations; and a nonprofit property/casualty insurance company organized under Insurance Law § 6703.

c. Administrative fee—§186-f

Citation: Tax Law § 186-f(2)

Effective date: September 1, 2009

Description: Wireless communications service suppliers and prepaid wireless communications sellers may retain an administrative fee of 1.749 percent of surcharges collected for timely filed and fully paid returns. Prior to December 1, 2017, the administrative fee was 1.166 percent.

Credits

Credits include amounts, stipulated by the New York State Tax Law, which the taxpayer may subtract in calculating New York tax liability.

Corporation tax credits

The credits described below are specific to the corporation tax.

19. Credit for tax paid in another jurisdiction

Citation: Tax Law § 186-e(4)(a)(2)

Credit type: Nonrefundable/non-carryforward

Effective date: January 1, 1995

Description: To prevent actual multijurisdictional taxation of sales of telecommunications services, providers of interstate and international telecommunications services may claim a credit for a like tax paid to another state or country on a telecommunications service taxable under § 186-e. The amount of the credit is the amount of tax lawfully due and paid to the other country or jurisdiction not exceeding the tax due to New York.

20. Utility COVID-19 debt relief credit

Citation: Tax Law § 187-q

Credit type: Refundable

Effective date of credit: Effective for tax years beginning on or after January 1, 2021

Description: Taxpayers under Tax Law, Article 9, § 186-a are eligible for a refundable credit equal to the amount of debt waived from customers who received certain utility arrears assistance. The credit is administered by the Public Service Commission and is claimed in the taxable year in which the Public Service Commission certifies the amount of customer debt waived by the taxpayer that qualifies for the credit.

Cross-article credits

Descriptions of tax credits that are available under the corporation tax as well as other tax articles are contained in the Cross-article tax credits section of the report.