Key Takeaways
- C-Corps face multi-layered taxation: C-Corporations in New York are subject to federal, state, and city taxes, resulting in complex obligations.
- LLCs enjoy pass-through tax benefits but face UBT: While LLCs typically avoid corporate franchise tax and benefit from pass-through taxation, they may still owe NYC’s 4% Unincorporated Business Tax (UBT) and a state-level annual fee.
- Tax elections impact compliance: LLCs can elect to be taxed as C-Corps or S-Corps, offering flexibility but adding complexity.
- Apportionment rules differ by entity type: C-Corps use a single-sales-factor formula and market-based sourcing. But LLCs are taxed based on net income allocated to the city or state.
- Compliance goes beyond tax filing: In addition to taxes, newly formed LLCs must meet New York’s publication requirement. All entities must monitor thresholds and deadlines for estimated payments and local surcharges.
New York has always been attractive for businesses. It offers access to great financial infrastructure, venture capital, skilled professionals, and state credits. But these attractive features come at a price: complex taxes, at both state and city level. These include multi-level corporate income taxes, sales and use tax obligations, payroll and commuter tax, property taxes, and entity-specific local taxes.
To save you time and alleviate stress, this blog breaks down the key tax compliance differences for C-Corporations and LLCs doing business in New York City and elsewhere in the state.
Entity Overview: C-Corps vs. LLCs
Below is a quick overview of how C-Corp income tax and LLC fees are applied at the state and city level.
Category | C‑Corporations | LLCs |
| State-Level Tax | C-Corporations are subject to the Corporate Franchise Tax (7.25% on net income over $5 million). A capital base tax of 0.1875% also applies, which has been extended through 2027. | LLCs are not subject to the Corporate Franchise Tax. Instead, they must pay an annual LLC fee ranging from $25 to $4,500, depending on New York-sourced gross income. |
| City-Level Tax | C-Corporations must pay the Business Corporation Tax (BCT). This is imposed at a rate of 8.85% on income, once your business exceeds $1 million in receipts. They’re also subject to the MTA surcharge, of approximately 30% of state corporate tax liability. | LLCs that are treated as partnerships or disregarded entities may be subject to the Unincorporated Business Tax (UBT) on their net business income. LLCs can also elect the NYC Pass-Through Entity Tax (PTET), letting owners receive a personal income tax credit. |
| Federal Taxation | C-Corporations are taxed at a flat federal rate of 21% under the TCJA. Earnings distributed to shareholders are taxed again at the individual level, resulting in double taxation. | LLCs are treated as pass-through entities by default. A single-member LLC is a disregarded entity, and income flows through to the owner’s personal tax return. A multi-member LLC is taxed as a partnership and files Form 1065. |
| Federal Tax Election Options | C-Corps have no alternative federal tax treatment; they’re taxed as corporations. | LLCs can elect to be taxed as a C-Corps or S-Corps. LLCs taxed as C-Corps face double taxation. Also, those electing S-Corp status still owe State franchise taxes. |
| Pass-Through Considerations | C-Corps aren’t pass-through entities and don’t provide flow-through tax treatment. | LLCs default to pass-through taxation. This allows income to be taxed only once at the owner level. Electing PTET at the NYC level allows owners to offset personal taxes with business payments. |
New York State Business Tax Overview
If your business operates in the state, here’s what you need to know, depending on whether you have a corporation or LLC.
Corporations
New York imposes a flat 6.5% tax on business income for most corporations. The state also uses a single sales factor formula for apportioning taxable income, in which only sales within the state are considered. This is beneficial for in-state production and helps simplify calculations for businesses in the state. However, the state also applies a capped capital base tax. This is a tax on a C-Corporation’s net worth (assets minus liabilities) allocated to New York, to ensure that companies still contribute tax based on their economic presence in the state.
LLCs
By default, LLCs are pass‑through entities, so they don’t pay state corporate tax. Instead, owners report their business income on their personal tax returns. But if your LLC is taxed as a partnership, you need to file and pay a fee based on your gross income sourced from the state. These fees range from between $25 and $4 500, depending on your income.
Also note that according to state law, newly formed LLCs must publish their Articles of Organization in two local newspapers for six weeks and file a Certificate of Publication. This applies statewide, including in NYC, unless you use another business structure.
New York City Business Tax Overview
Below are the tax considerations your company needs to be aware of when operating in New York City.
Corporations
NYC imposes a General Corporation Tax (GCT), at a rate of 8.85% on net taxable income. However, how the city apportions taxable income differs, depending on your sales to clients. C‑Corps use single-sales-factor and market-based sourcing for services. Note that the GCT calculation includes your income, a capital base tax (at 0.15%), as well as a fixed-dollar minimum tax based on your NYC receipts.
LLCs
LLCs in the city are subject to Unincorporated Business Tax (UBT), at a rate of 4% on your net income from unincorporated business activity. This applies to LLCs even if you do not have a physical office in the city. Although there are exemptions. If your LLC generates income from investment-type activities (like passive holding or rentals), or you’re a Single-member LLC taxed via personal returns, you might be partially or fully exempt.
Also remember that if you’re a NYC resident, you can claim a personal tax credit for paid UBT, but this is capped based on your income.
We can help!
Does your business need assistance navigating the complexities of New York State and City taxes? Our tax team has years of experience helping businesses like yours ensure compliance, and get the most out of their taxes. So for a tax strategy that can minimize your stress and maximize your benefits, schedule a Discovery Call with our team today!
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This blog does not provide legal, accounting, tax, or other professional advice. We base articles on current or proposed tax rules at the time of writing and do not update older posts for tax rule changes. We expressly disclaim all liability regarding actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.