New York State Franchise Tax Bright-Line Nexus Changes

Think you’re exempt from New York franchise tax because you don’t have a physical presence in New York?  Starting in 2015, think again!  Part of the sweeping corporate franchise tax changes New York Governor Andrew Cuomo signed recently impacted New York state and MTA district nexus provisions.  

Current Nexus Standards
Current nexus standards generally relate to physical presence rather than bright-line statutory nexus.  The one exception is a provision for nexus enacted in 2008 regarding banking corporations that issue credit cards to New York residents or have merchant customer contracts with New York merchants without having a physical presence in New York.  
The MTA district tax (Metropolitan Commuter Transportation District) encompassing New York City and seven neighboring counties has also used a physical presence standard to determine if a taxpayer were subject to the tax.

Nexus Changes
Effective for taxable years beginning on or after January 1, 2015, New York applies a bright-line statutory nexus threshold to determine taxability.  The metaphor of a bright line is meant to imply one that is clearly obvious:  If you have crossed over the line, you have nexus; if you haven’t, you don’t have nexus. 

The bright-line standard is this:
•    Any corporation who derives $1 million or more of its receipts from within New York is subject to Article 9-A taxation.  It is important to note that New York receipts will be determined under a revised receipt factor provision using marketplace location sourcing rules.
•    Like today’s standard, any corporation that has issued credit cards to 1,000 or more customers who have New York mailing addresses as of the last day of the taxable year, or who has merchant customer contracts totaling 1,000 or more for which the credit card issuer has remitted payments for transactions during the taxable year has nexus.  Nexus also occurs when the sum of the number of New York cardholders and New York merchant contracts is 1,000 or more.
•    A member of a combined New York return group that individually has at least $10,000 of New York receipts is a New York taxpayer if the sum of the group’s receipts is at least $1 million of New York receipts. 
•    A credit card issuer that is a member of a New York combined return group that individually has at least 10 cardholders and New York merchant contracts has nexus if the sum of the aggregate New York cardholders and New York merchant contracts is at least 1,000.
•    The MTA Surcharge applies statutory nexus thresholds consistent with those enacted for corporate franchise tax purposes (substitute the phrase “MTA district” in place of “New York”).
 

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