Last year changed the working landscape for employees and their employers everywhere. As companies look towards the new realities of returning to offices, many employees are demanding flexibility in where they work. As hybrid work policies become more mainstream this new way of working creates major tax savings opportunities for companies subject to NYC’s Unincorporated Business Tax (UBT).
What is NYC’s UBT
UBT is a 4% tax rate imposed on the taxable gross receipts, or taxable income, of an unincorporated entity. It differs from other cities because it only targets limited liability companies, partnerships and sole proprietorships, meaning asset management firms, accounting, consulting, and legal firms are largely impacted by UBT. The game changer with UBT is that NYC’s Convenience Rule does not apply, therefore the tax can only be applied to sales and services physically performed in New York City.
How does Hybrid Work affect UBT
Consider the following scenario:
A Hedge Fund management company with $20 million management fees, and a taxable income of $10 million for UBT purposes. Pre-pandemic all employees worked full-time from the NYC office, at 4% the UBT owed would amount to $400,000.
Fast forward to present times, employees are spending more time working from home with a combined apportionment of 43% of services performed in NYC. When applied to the net income, with 43% of the $10 million now equates to $4.3 million, the 4% UBT allotment is now $172,000. Preventing $225,000 in UBT overpayment.
Take advantage of flexible workforces and save on UBT
With hybrid work becoming the norm, more and more people are working either fully remote or balancing 2-3 days between the office and working from home. There’s a clear financial gain for companies who can prove how much time their employees are performing services outside of New York City. But companies need to be prepared for an audit. NYC is getting more aggressive in the UBT space, and the burden of proof is on the taxpayer to illustrate and prove the methodology and math applied to UBT calculations. Upon filing a tax return, you must have the data to back it up. Topia Compass is helping NYC based Asset Managers reduce their tax burden anywhere between $250k – $4m+ a year by actively monitoring employee footprint on a city or jurisdiction-level to ensure employee privacy while still enabling tax optimization and audit defense.
To explore the topic of UBT savings view our recent webinar discussions with Hodgson Russ LLP. Enjoy the preview below: