As practitioners are well aware, since 2015 New York City has had a new corporate tax regime that applies to corporations, other than federal S Corporations, that do business in New York City: the Business Corporation Tax (the “BCT”). Codified in Subchapter 3-A of Chapter 6 of Title 11 of the New York City Administrative Code, the BCT is largely modeled on New York State’s corporate reform package that also became effective on January 1, 2015. However, despite the BCT being in place for over 10 years, it was only recently, on October 16, 2025, that the New York City Department of Finance (the “Department”) published the first set of proposed regulations for the BCT. These proposed BCT regulations are largely based on the State’s regulations, but there are some significant differences concerning corporate limited partners which we will highlight below.
But before we get to that, it’s important to note that when looking at the overall picture, it is going to take some time before we have final, comprehensive regulations for the entire BCT. The Department is going to be publishing the proposed BCT regulations in waves, and the first wave was released just a few months ago. In fact, it was only on November 20, 2025, that the Department held a public comment session where tax practitioners could give the City feedback on the proposed regulations. Following that session, we do not know if this first wave of proposed regulations will ultimately be published in their current form, or if there will be additional changes before the final regulations are published. Now, with those caveats out of the way, let’s dive into the first batch of proposed BCT regulations.
This first set of proposed regulations focuses on definitions and nexus standards. Although the City is largely following the State, there are some significant differences concerning corporate limited partners since the City has maintained the Unincorporated Business Tax (the “UBT”), while the State abandoned their UBT years ago.
Under proposed regulation 11A-04(b), a corporate limited partner will be deemed to be doing business in the City, and thus subject to the BCT, if the limited partnership is:
- doing business in the City; or
- employing capital in the City; or
- owning or leasing property in the City; or
- maintaining an office in the City; or
- for tax years beginning on or after January 1, 2022, deriving receipts from activity in the City
(these activities will be collectively referred to as the “Taxable Activities” for the rest of this post).
This is different from the State, and it represents a more aggressive stance than the State takes. For State purposes, for a foreign corporate limited partner to be subject to tax, the State has the additional requirement that the corporate limited partner must also be “engaged, directly or indirectly, in the participation in or the domination or control of all or any portion of the business activities or affairs of the partnership.” The City has no such additional requirement, and so clearly the City is going to be more aggressive in asserting that corporate limited partners are subject to the BCT.
Relatedly, for the State, there is an exception for portfolio limited partnerships: if the foreign corporate limited partner is a limited partner in a portfolio limited partnership, then that alone is not enough to subject that corporate limited partner to tax. Conversely, for the City, a corporate limited partner in a portfolio limited partnership will be subject to the BCT if any one of the following four tests are met:
- The corporate limited partner is actively engaged in the conduct of such partnership’s business;
- The corporate limited partner effectively controls the partnership;
- The corporate limited partner effectively controls any general partner in such partnership; or
- The corporate limited partner entered into the limited partnership arrangement not for a valid business or economic purpose, but for the principal purpose of avoiding or evading the payment of tax.
Finally, and still focused on portfolio limited partnerships, there is a difference between the City and State as to what will constitute “deriving receipts from activities in the City”. For State purposes, if the only activity that a corporate limited partner engages in is being a limited partner in a portfolio limited partnership, then that alone will not be enough to subject that corporate limited partner to State tax. Conversely, for the City, so long as the corporate limited partner has receipts, if any, that when combined with the partnership’s total receipts equals $1 million or more, then that corporate limited partner is deriving receipts from activities in the City and is subject to the BCT.
Again, this is a more aggressive stance than the State takes, and any corporate limited partners in the City should carefully review their activities to determine if they are subject to the BCT in the City as a result of their status as a corporate limited partner.
Beyond these differences, there are some new provisions in the proposed regulations that are meant to align with the State. For example, as just referenced, one of the Taxable Activities is deriving receipts from activities in the City. Now, under the new proposed regulations, for tax years beginning on or after January 1, 2022, a corporation will be considered to be deriving receipts from activities in the City if the corporation has New York City receipts that equals or exceeds $1 million.
When looking at unitary groups, a corporation will be deemed to be deriving receipts from activities in the City if:
- Such corporation is part of a unitary group;
- Such corporation has New York City receipts of at least $10,000; and
- The total New York City receipts of all members of such unitary group is at least $1 million, and each member of the unitary group has at least $10,000 of New York City receipts.
That’s all for this first batch of proposed regulations from the City. It should be noted that this article is not meant to capture every detail from the proposed regulations. Instead, this post is meant to provide an overall analysis while highlighting particular differences between the City and State. With that, we wait to see when the first batch of proposed regulations will be made final, and when the next set of proposed regulations will be published. Watch this space for future updates!
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