A recent discussion on small business reform in New York City has drawn attention to misconceptions about the state’s business tax structure, particularly regarding the impact on small businesses. While it has been widely reported that New York businesses face relatively high tax rates, experts clarify that these rates primarily apply to corporations, which make up fewer than 20% of all businesses in the United States.
Most small businesses in New York operate as partnerships or sole proprietorships, entities that pay taxes on personal income rather than business income. Therefore, they are generally not subject to corporate tax rates. In New York State, a significant portion of corporate tax revenue is concentrated among a small number of very large public companies. For example, just 799 corporations contribute over 75% of the state’s corporate tax receipts.
New York City’s corporate tax system includes a layer on top of the state tax, but corporate tax obligations are calculated based solely on sales generated within the state, not on the location of employment or company offices. This means that corporate tax rates do not directly influence decisions related to where companies choose to locate their workforce or operations. To reduce their corporate tax liability, companies would need to reduce sales within New York itself, an economically counterintuitive approach.
Mayor Zohran Mamdani has been actively pursuing initiatives to reduce regulatory burdens and facilitate the establishment and operation of small businesses in the city. While these efforts have been positively received, introducing incorrect information about business taxation has the potential to complicate the policy discourse unnecessarily.
This clarification underscores the distinction between the tax obligations of corporations versus smaller business entities and highlights the importance of accurate understanding in ongoing discussions about economic competitiveness and regulatory reform in New York.