Unincorporated Business Tax (UBT) in NYC

[Benny]

My whole family is filing taxes now, and this is the first time I've heard of the Unincorporated Business Tax, or UBT, which seems to be a unique double local NYC tax on income. My accountant says there's a carveout for real estate agents receiving a 1099 and operating as a sole proprietor, but the brokerage business gets hit.

Can anyone explain to me how this UBT tax is legal? It's a tax on unincorporated businesses, or pass through businesses, such as LLC and partnerships and S Corps. But the whole point of those legal structures is to avoid taxation at the business level, that's why they're called pass throughs. So how the heck does NYC get away with taxing these businesses at the business level (UBT is paid directly by the business)?

[ekno]

This is the NYC government website on the UBT in case it is any use http://www1.nyc.gov/site/finance/tax...s-tax-ubt.page

I agree it is pretty unbelievable. I have a side business that is structured as a LLC partnership. My business partner who takes care of the accounting just filed and paid the UBT direct from the business to the NYC Dept of Finance. So apparently pass throughs do not apply in NYC. They tax the pass through directly. Wow.

I thought the whole point of doing a LLC was to only get taxed once at the personal income level? And doesn't NYC already have a city and state income tax?

[aslan]

I had a client just ask me whether New York having a 4% corporate business tax is real. I suppose he's referring to this UBT (Unincorporated Business Tax). My accountant says it's quite real unfortunately, though there are certain exceptions like real estate salespeople operating as sole proprietorships, LLCs trading in stocks or bonds for their own accounts and I believe LLCs which only contain real estate.

I also think there's a limit, something like $90,000, under which your business would owe no UBT. That limit sees to apply for each business. Meaning if you have multiple pass through businesses, only the ones that have more than $90k in revenue would get hit by UBT. Regardless, that means a wide swath of small businesses in New York must get absolutely torched by this tax.

Keep in mind this is a 4% tax on pass through income, typically paid directly by the business. This is on top of the NYC personal income tax, and don't forget the NY State income tax either. Horrendous!

Note: The reason this isn't fair is because pass through entities (i.e. LLCs, S-Corps etc.) are called pass throughs because all earnings flow through to owners and are taxed at individual income tax rates, which are higher than corporate tax rates. They're called pass throughs because they're not supposed to be taxed at the business level! Unbelievable New York!