Brooklyn's Progress
June/July 2009

BY JILL D’AMICO
The Unincorporated Business Tax (UBT) is the bane of many independent contractors and sole proprietors in New York City, which encompasses large swathe of Brooklyn’s economic engine.

A city tax aimed at LLCs and other partnerships, the UBT ends up taxing freelancers and sole props twice. Once they earn more than $55,000 a year in net income, the UBT is phased in, with those earning over $90,000 bearing the full tax brunt, up to 4% of their taxable income.

The Brooklyn Chamber of Commerce, along with the Freelancers Union and other trade groups are attempting to banish this tax on independent workers. Mayor Michael Bloomberg’s administration apparently agrees, and called for an end to this tax on independent workers in the Mayor’s 2009 State of the City Address. The city estimates abolishing the tax will help 17,000 small businesses.

The fight now moves to Albany, where there are only a few weeks left in session.

Brooklyn Chamber of Commerce President & CEO Carl Hum testified before the Small Business Committee of the New York City Council on April 28, regarding the effect of the unincorporated business tax on small businesses and sole proprietors.

The following is his testimony:

Good Afternoon Chairman Yassky and members of the Committee on Small Business. My name is Carl Hum and I am the President and CEO of the Brooklyn Chamber of Commerce, a membership organization that supports and advocates for its Member businesses, and promotes a healthy and robust business environment.

Thank you for inviting me to testify at this afternoon's hearing on the effect of the unincorporated business tax on small businesses and sale proprietors. On behalf of our membership, I am pleased to report that we fully support efforts by the City Council and the Bloomberg Administration to re-examine the unincorporated business tax (UBT) for possible elimination or reduction.

While additional business tax relief is always welcomed – especially during these times – the UBT deserves special consideration because it still constitutes a form of double taxation for many businesses. The taxable income that is subject to the UBT is also subject to the personal income tax. Taxation of S-corporations on a local level needs to be similarly re-examined for this very same reason.

The UBT also creates an additional relative burden to the cost of doing business in New York City as it is unique to the City. Certainly, the UBT contributes to New York City's image as a costly place to do business. Time and time again, the Chamber membership cites the high cost of doing business as a top challenge. The existence of the UBT does nothing to improve this image.

The UBT merely confirms recent findings by the Citizen's Budget Commission that New York City's local taxes make our area a particularly high-tax liability locality in comparison with other metropolitan regions. This heavy liability cuts into our small business community's competitive abilities.

Based on 2005 data from the Department of Finance, proprietorships accounted for 23,000 or over two-thirds of all UBT taxpayers. Additionally, in terms of the number of filers, small businesses and proprietorships are more likely to be subject to the tax. In fact, almost two-thirds of all proprietorships are smaller businesses with UBT tax liability of less than $5,000.

Finally, in preparation for today's hearing, I spoke with many of our small business and sole proprietor Members. They all wanted to share their sincere appreciation for these bold initiatives. Moreover, they all expressed that savings realized from UBT tax relief would most likely go back into their business in the form of either capital or human investment.

If history is any indication of the future, it has been the small business community that has the led the country out of prior recessions. And if history is to repeat itself, we must make sure that the elements for small business growth are there including low entry costs and sensible tax policies. That is why the Chamber supports the re-examination of the UBT for either elimination or reduction.