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NYC Unincorporated Business Tax – Impact of Telecommuting on Allocation of Income from Taxable Services

Richard Goldstein, J.D.

7.30.20 | Client Alert – COVID-19 Update

Due to the COVID-19 pandemic, the allocation of income from taxable services, and the associated NYC Unincorporated Business Tax (UBT) may have changed for a variety of services businesses. Specifically, service businesses who are subject to the NYC Unincorporated Business Tax that have employees and agents telecommuting from outside of New York City.  For example, law firms, accounting firms, consulting firms, hedge fund managers, advertising agencies, and self-employed service providers.

The New York City Unincorporated Business Tax (UBT) is imposed on most unincorporated entities that conduct a trade or business inside of New York City.

COVID-19 Impact on UBT

The UBT is imposed at the rate of 4% of net income allocated to New York City. Taxpayers that engage in business both within and without New York City apportion income based on a single factor business allocation percentage. The business allocation percentage is computed by dividing gross sales in New York City by gross sales everywhere. Receipts earned from the performance of services are included in the numerator of the business allocation percentage if the services were performed in New York City. Service businesses subject to the UBT may see a significant reduction in their 2020 UBT liability due to employees and agents working from home outside of New York City. Some jurisdictions have issued guidelines to negate the tax reducing impact of COVID-19 related telecommuting on income tax apportionment.

For example, with respect to Philadelphia’s Business Income & Receipts Tax and the Net Profits Tax, the City of Philadelphia Department of Revenue issued the following notice on April 22, 2020:

Where Philadelphia non-resident employees – who have been performing services in their assigned business locations within Philadelphia and have not previously been required to work from home – are now temporarily working from home solely as a result of the COVID-19 pandemic, the Department of Revenue deems that such services are performed within Philadelphia for the purposes of sourcing receipts for BIRT and NPT.

The New York City Department of Finance has yet to issue any guidance. Berdon will continue to monitor for developments.

Questions?  Contact Richard Goldstein at 212.331.7557 | rgoldstein@berdonllp.com or reach out to your Berdon Advisor.

Berdon LLP New York Accountants