New York City’s Department of Finance (DOF) has issued the first tranche of proposed regulations under new Chapter 11A of Title 19 of the Rules of the City of New York (Proposed Rules) to implement its 2015 corporate tax reform—moving straight into formal rulemaking, in contrast with State’s multi-stage drafting process that culminated in December 2023.
As background, in 2015, the New York State Legislature enacted sweeping reform of the City’s corporate tax regime, adding the new BCT, which is modeled after New York State’s Corporation Franchise Tax (CFT). Corporations previously subject to the City’s General Corporation Tax (GCT) and Banking Corporation Tax (BTX) became subject to the BCT for taxable years beginning on or after January 1, 2015. Corporations that have made a federal S corporation election remain subject to the GCT or BTX, and the BCT would function in parallel with those taxes.
Primary takeaways from the Proposed Rules include:
- Definitions: Although most definitions in the Proposed Rules align with the State’s CFT regulations, the City deviates by permitting certain entities to elect Unincorporated Business Tax (UBT) treatment, a City-specific tax on certain unincorporated entities.
- Corporate Partner Nexus: A corporate limited partner in a limited partnership doing business in the City may trigger a BCT filing obligation if it actively participates in the partnership’s business or exercises control over the partnership or its general partner. These standards align with the City’s current GCT regulations but diverge from the State’s more fact-intensive approach, which evaluates whether the corporate limited partner is “engaged, directly or indirectly, in the participation in or the domination or control of all or any portion of the business activities or affairs of the partnership” based on the consideration of several objective factors (e.g., the corporate partner’s ownership percentage, basis in the partnership, and whether an employee or officer of the corporate partner serves as a general partner). Accordingly, the framework under the Proposed Rules’ may increase the likelihood that passive partnership interests create City tax filing obligations as compared to the State’s requirements.
- Economic Nexus: For taxable years on or after January 1, 2022, a corporation that derives receipts equal to or more than $1 million from any activity in New York City is subject to the BCT. For purposes of determining whether a corporation derives receipts from New York City activity, receipts from activities described in Public Law 86-272, and as further described in the Proposed Rules, are included.
- Public Law 86-272: The Proposed Rules adopt New York State’s controversial interpretation of Public Law 86-272, classifying various internet-based activities—such as hosting interactive job applications or using cookies to collect customer data for business planning—as unprotected activities that may create nexus for BCT purposes. The Proposed Rules also impose a “statewide” approach, providing that the applicability of Public Law 86-272 is determined based on a corporation’s activities throughout the entire state rather than solely within the City. These provisions raise questions about whether the City may permissibly impose BCT on corporations based on activities occurring outside the taxing jurisdiction.
- Monitor Forthcoming Allocation Rules: The DOF has previously issued guidance indicating that its forthcoming rules on allocation may depart from the State’s CFT regulations in several areas, including burdens of proof, passive investment receipts, and the billing-address safe harbor for digital products. Taxpayers should closely monitor the release of the City’s allocation regulations and evaluate the extent to which they diverge from the State’s framework.
- Exempt Entities: The Proposed Rules discuss entities that are exempt from BCT, including certain (i) corporations subject to the City’s utility tax, and (ii) corporations conducting an insurance business. However, the Proposed Rules clarify that these entities remain subject to the City’s tax on capital under Administrative Code section 11-654(1)(e)(1)(ii)(C). Notably, the Proposed rules classify health maintenance organizations (HMOs) as not engaged in the business of insurance, contrary to New York State’s decision to define HMOs as insurance corporations.
- Key Dates: The Proposed Rules confirm that economic nexus applies only to tax years beginning on or after January 1, 2022. Further, the Proposed Rules indicate that Chapter 11A will become effective only after all subchapters complete the rulemaking process.
Following the release of the Proposed Rules, taxpayers should assess their potential New York City BCT exposure—particularly with respect to passive partnership interests and City-wide digital footprints—and consider submitting comments in advance of the November 20, 2025, hearing.