NYC - Cost of Perf. S Corps

NYC uses cost of performance for S corps (C corps now use market based sourcing). I cannot determine which method of cost of performance NYC uses: 1) all or nothing approach or 2) pro-rata approach. I would be so very grateful to anyone that can assist me with these questions and how to apply. Following is background information:

- Client is a service provider
- One SH in CA and one SH in NYC. SH in NYC created filing obligation starting in 2018
- Total revenue of $1M of which $250k is from clients located in NYC
- Client utilizes many contractors across US and internationally
- 25% of total employee & contractor pay can be attributed to people located in NYC

I've read the instructions to NYC-3L and I've read the relevant statutes and I'm drawing a blank here.

Option 1: Go with all or nothing approach - more work was performed in CA (market source state) than NYC therefore, no revenue sourced to NYC (seems aggressive and dangerous considering that you have to disclose on the return where your employees and contractors are located)

Option 2: Go with pro-rata approach - 25% of total revenue of $1M allocated to NYC.

Option 3: Take 25% of the NYC client revenue of $250,000 as being generated in NYC based on cost of performance over total revenue.

I would appreciate any help and or opinions!

Side bar question: Say this client had no revenue from NYC clients but had a SH there which triggered filing obligation. Would they still be required to apportion income to NYC based on COP methodology? I think the answer is yes?...

21 Views and no thoughts. Hoping someone has some feedback, any feedback on this.

I'm in NYC and have been racking my brain on this for years now. Everything I've read just goes in circles.

I think it's ok to allocate based on where the work is being done using the 25%. I wouldn't do it based on where the clients are because that's not the rule. If it was I would save a ton of money in NYC S-Corp taxes with all of my out of state clients

Why would you allocate NYC income in a manner different from NYS? Bear in mind that a portion of CA shareholder's wages are NY source income.

Why would you allocate NYC income in a manner different from NYS? Bear in mind that a portion of CA shareholder's wages are NY source income.

Dennis, because they use different income sourcing methods - NYS is now market based sourcing and NYC remains cost of performance for federal S corporations. Totally different outcomes.

I'm in NYC and have been racking my brain on this for years now. Everything I've read just goes in circles.

I think it's ok to allocate based on where the work is being done using the 25%. I wouldn't do it based on where the clients are because that's not the rule. If it was I would save a ton of money in NYC S-Corp taxes with all of my out of state clients

Thanks Countless! If you're in NYC and you've been racking your brain that makes me feel better I went with total NYC compensation over total compensation times total revenue to get to NYC revenue.

check out article by Mark Klein, Esq and Noonan's notes....there law firm is heavy into NY and NYC taxation

check out article by Mark Klein, Esq and Noonan's notes....there law firm is heavy into NY and NYC taxation

I read through those some time ago. I feel like I've read every possible article on NY and NYC taxation...

check out article by Mark Klein, Esq and Noonan's notes....there law firm is heavy into NY and NYC taxation

I read through those some time ago. I feel like I've read every possible article on NY and NYC taxation...

Same - and it still didn't really answer my questions.