New York City’s Unincorporated Business Tax: Opportunity in the Time of COVID

Hedge funds, law firms and other unincorporated businesses with New York City offices may reap one benefit from having a large number of employees telecommuting during the pandemic. They may see a drop in the amount of the Unincorporated Business Tax (UBT) paid to New York City.

The UBT is imposed at a rate of 4% on individuals or unincorporated entities that carry on a trade, business, profession or occupation wholly or partly within New York City. Prior to the pandemic lockdown, tax collections from investment firms made up 30-35% of all annual UBT tax collections.

This year, as employees work from home, many of the services subject to the UBT tax are now being performed outside of New York City. As a result, those subject to this tax have an unprecedented opportunity to potentially reduce their UBT liability, but documentation will be critical.

To take advantage of a potential sourcing windfall, firms that would otherwise be subject to the UBT tax must be able to prove that their partners and professionals performed their duties outside New York City during the pandemic. 

Firms with a large number of people working remotely due to the pandemic should initiate a process now to document the locations that professionals have worked since lockdowns began.   

The burden of proof to show where a person is performing services is on the taxpayer and New York City has historically been very aggressive when performing residency audits. 

Weaver can assist you in preparing a documentation plan to ensure the UBT savings can be upheld under audit. Contact us for assistance.

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