NFIB in NY Comments on a Proposal to Institute a Unincorporated Business Tax

Date: July 19, 2018

State effort continues to circumvent federal tax reform

Below are comments submitted NFIB’s State Director in New York, Greg Biryla, opposing a mandated Unincorporated Business Tax and making recommendations for improvements.


July 12, 2018

Nonie Manion

Executive Deputy Commissioner

New York State Dept. Of Tax and Finance

W A Harriman Campus Building 9

Albany, NY 12227

Dear Executive Deputy Commissioner Manion,

The following comments are submitted for the record to the New York State Department of Tax and Finance (The Department) on behalf of the National Federation of Independent Business (NFIB) on both the general concept of a statewide Unincorporated Business Tax (UBT) and the specific design and implementation details of such a tax.

NFIB/NY is the state’s largest small business advocacy association representing more than 10,000 small and independent business owners across New York State. The mission of the organization is to promote and protect the rights of its members to own, operate and grow their businesses.

The Department’s and the administration’s deliberative approach in formulating New York’s response to the Federal Tax Cuts and Jobs Act and the opportunity to express our concerns regarding the implementation of a UBT are appreciated. We acknowledge that changes in deductibility for state and local taxes (SALT) has brought about some challenges for certain sub-sets of taxpayers in New York, but we do not believe that creating a new mandatory vehicle of taxation for New York’s unincorporated businesses is the proper or even desirable way to address those challenges.

Rhetoric aside, on balance the Federal Tax Cuts and Jobs Act will likely benefit a large majority of New York’s taxpayers[1], its middle class and employers, including small businesses. Any negative impacts of lost SALT deductibility are concentrated on the highest income earning New Yorkers employed in a narrow selection of professions, clustered in a relatively few number of communities where property taxes are exorbitant, even by New York’s standards.

It appears the Department and the Administration fears that the loss of SALT deductibility and a potentially higher tax liability could motivate these high-income taxpayers, the firms that employ them and the tax revenue they provide New York to relocate.

I would be remised if I did not take this opportunity to point out that the reason the changes in SALT deductibility impact high-wealth New Yorkers to a greater degree than other states is our state’s high tax burden. In 2018, New York State was again ranked 49th in the nation for its “business tax climate” by The Tax Foundation. New York also ranked 49th for individual income tax and 47th for property tax.[2]

Further reducing New York’s income taxes, allowing the so-called “millionaires tax” to expire, making the property tax cap permanent and implementing comprehensive unfunded mandate relief for local governments will provide the most immediate relief for all New York taxpayers, including those impacted by the loss of SALT deductibility.  

NFIB is opposed to the creation of new vehicles of taxation in New York. Even a narrowly tailored UBT intended to assist and perhaps benefit certain LLPs could just as easily lead to additional taxes for others. The UBT could also be expanded to other types of small businesses by future administrations or legislatures.

Further complicating an already very complicated UBT proposal are recent statements from the United States Department of Treasury and the Internal Revenue Service that call into question the legality and implementation of individual state efforts to circumvent new federal tax laws. This type of uncertainty and instability can lead to reduced hiring and investment from the small business sector.

During this past budget process New York enacted a new payroll tax, the Employer Compensation Expense Tax (ECET), designed to protect deductibility for certain types of employers, much the same way the draft UBT applies to unincorporated businesses.  Our stated opposition to new taxing vehicles withstanding, the Department’s UBT proposal lacks the one element that made the ECET remotely palatable. The ECET is optional for employers and elective for their employees. Optionality offers the greatest chance to limit economic harm from new taxes. Employers who believe they and their employees could benefit from the ECET can utilize it. Employers who believe their business would be negatively impacted by the ECET can ignore it.

Any discussion about implementing a UBT in New York must include choice and flexibility for employers to opt-in as participants. 

Far too often state government treats all employers, industries, business models and workforces the same. One-size-fits-all mandates are bad economic policy, particularly for small businesses who often lack the in-house resources and personnel to comply with and implement a complex and foreign tax structure. 

As requested, NFIB also has some specific recommendations regarding The Department of Tax and Finance discussion draft’s design and implementation.

  • Any UBT must be structured as “opt-in” providing opportunity for businesses that believe it benefits their bottom line and protection for businesses that don’t.
  • The UBT as presently drafted only applies to partnerships. A one-size-fits-all UBT should not be universally mandated for any business entity structure including business structures not yet considered by the discussion draft. Small businesses fall into one of five legal structure categories: sole proprietorship, partnership, LLC, S corporation, and C corporation. The S corporation is the most common legal form of business for small business owners. 46 percent of small businesses in New York are structured as an S corporation. 15 percent as sole proprietorship, and 20 percent as a C corporation. 11 percent of small businesses are structured as a partnership. [3]

Universally applying this complex, uncertain new tax structure to such a broad spectrum of small business could be disastrous for the small business economy in New York and the four million jobs it supports.

  • Maintenance of state revenues should not be the only or the central consideration in determining the property tax credit discount factor. Mitigating the negative impact and increased tax burden to employers should be the primary consideration.

We appreciate the opportunity to comment on this draft proposal. Please feel free to contact me at 518-434-1262 with any additional opportunities as this discussion moves forward.


Greg Biryla

State Director – NIFB/NY




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