New York Advisory Opinion TSB-A-83 (4)I: What Unincorporated Business Income Tax rate applies to a business's fiscal tax year that begins in 1980 (when the rate was 4%) and ends in 1981 (when the rate dropped to 0%)?

Plain-English summary

A.M. Forms & Composition asked what rate of Unincorporated Business Income Tax applies to a taxable year that begins in 1980 and ends in 1981 - straddling the two different rates New York had set for those years as it phased the tax out entirely.

The Department explained that Chapter 69 of the Laws of 1978 added a provision (now Tax Law § 701(a)(6)) phasing out the Unincorporated Business Income Tax on a set schedule: 4% for taxable years beginning in 1980, and 0% (effectively eliminated) for taxable years beginning in 1981. The statute, however, doesn't include any mechanism for prorating the rate between two different calendar years when a single taxable year happens to begin in one year and end in the next.

Because the rate schedule is keyed to when the taxable year begins - not month-by-month during the year - a fiscal year beginning in 1980 is taxed at the full 4% rate for its entire duration, even for the months that fall within 1981 (when a year beginning that year would owe 0%). The Department found no legal basis to split the difference or prorate down the rate for the 1981 portion of the year.

What this means for you

Businesses with a fiscal (non-calendar) tax year during a phase-out or rate-change period

Check whether the applicable statute keys its rate to the year in which your taxable year begins, rather than prorating by month or by calendar year - as this opinion shows, a straddle year can end up taxed entirely at the rate in effect when the year started, even if most of the phase-out has already occurred by the time your year ends.

Businesses winding down Unincorporated Business Tax obligations around 1980-1981

If your relevant taxable year began in 1980, expect to owe the full 4% rate for that entire year, regardless of when in 1981 it happened to end - there's no partial-year relief written into the statute.

Accountants advising clients with fiscal years spanning a statutory rate change

Don't assume a straddle year automatically gets a blended or prorated rate; absent an explicit proration provision in the statute (as was the case here), the rate in effect when the taxable year begins can govern the whole year.

Common questions

Q: My business's fiscal year began in 1980 and ended in 1981 - what Unincorporated Business Tax rate applies?
A: The full 4% rate applies to the entire year. The statute sets the rate based on when the taxable year begins, and provides no proration for a year that straddles the 1980-to-1981 rate change.

Q: Is there any way to get a reduced rate for the part of my fiscal year that falls in 1981?
A: No. The Department found no statutory proration mechanism - Chapter 69 of the Laws of 1978 simply assigns a flat rate based on the taxable year's start date.

Q: Does this only apply to the Unincorporated Business Tax, or would a similar straddle-year issue arise for other phased-out taxes?
A: This opinion addresses only the Unincorporated Business Tax phase-out under section 701(a)(6). Other taxes could have different statutory language, including express proration rules - each phase-out schedule needs to be checked on its own terms.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1983.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a83_4i.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-83 (4) I
Income Tax
September 30, 1983

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I830811A

On August 11, 1983 a Petition for Advisory Opinion was received from A.M. Forms &
Composition, 24 West 39th Street, New York, New York 10018.
The issue raised is the rate of tax to be applied under the Unincorporated Business Income
Tax with respect to a taxable year beginning in 1980 and ending in 1981.
Chapter 69 of the Laws of 1978 added Section 701(a)(6) to Article 23 of the Tax Law to
provide for the phase-out of the Unincorporated Business Income Tax. It is there provided that for
taxable years beginning in 1980, the rate of tax is 4%, while for taxable years beginning in 1981, the
rate of tax is 0%. There is no provision in the Tax Law for a proration of tax where a taxable year
begins in 1980 and ends in 1981.
Accordingly, the rate of tax applicable to a taxable year beginning in 1980 and ending in
1981 is 4%, with no reduction with respect to that portion of such taxable year falling within 1981.

DATED: September 12, 1983

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

s/FRANK J. PUCCIA
Director
Technical Services Bureau

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR