Memo in Support: Zero Percent Tax Rate for Pass-Through Manufacturers
Date: March 15, 2023
Bill: S.4064 (Mannion)/A.4168 (Stirpe)
Issue: Zero Percent Tax Rate for Pass-Through Manufacturers
MEMORANDUM IN SUPPORT
S.4064 (Mannion)/A.4168 (Stirpe) An act to amend the tax law, in relation to pass-through manufacturers zero percent tax rate
MACNY, The Manufacturers Association, and The Manufacturers Alliance of New York State support S.4064 (Mannion)/A.4168 (Stirpe) which would extend the zero percent tax rate and provide tax parity for all manufacturers.
In 2014, a zero percent corporate franchise tax rate was enacted for manufacturers organized as C-corps. This change in the tax law accounted for only 25 percent of State’s manufacturing companies. While this provided significant help to those manufacturers, 75 percent of manufactures continued to be taxed at the higher rate and at a competitive disadvantage with manufacturers in other states with no similar tax.
Most manufacturers in NYS are small-to-medium sized companies organized as S-corps, proprietorships, LLCs and partnerships (pass-through entities). These manufacturers do not benefit from the zero percent rate. Rather, they pay the second highest income tax rate in the nation, which unlike competitors in other states or C-corps in NYS, they must pay before they can invest in employees, R&D, and business capital expenditures. They continue to be enticed by other states with friendlier tax climates to relocate operations. These manufacturers are looking to their home state of New York to demonstrate that they should continue to invest and grow here.
This legislation would extend the zero percent corporate franchise tax rate to all manufacturers in NYS regardless of how they are organized. The proposed changes would lower the income tax rate to zero for pass-through manufacturers by creating a “NY modification” that subtracts the income or adds back a loss (if any). It also would disallow the Investment Tax Credit for those manufacturers who benefit from the zero percent tax rate.
According to a 2021 study conducted by The Beacon Hill Institute, “the elimination of the PIT for pass-through manufacturers would increase private sector jobs by 5,187 in the first full‐year and 6,549 in 2026.” The report also found that it would cause investment to rise by $131 million in 2022 and $164 million in 2026. The increase in employment and investment would boost real (inflation‐adjusted) disposable income by $380 million in 2022 and $559 million in 2026. The increase in economic activity generated by extending the zero percent tax rate to income from pass-through manufacturers would mitigate the loss of revenue to NYS (approximately $135 million) and boost local tax collections.
Furthermore, it would allow existing manufacturers to invest in their operations and workforce and attract manufacturers from across the globe to move to NYS.
For these reasons, MACNY, The Manufacturers Association, and The Manufacturers Alliance of New York State supports S.4064 (Mannion)/A.4168 (Stirpe).