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How to Run a Business in New York

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diego_cervo / Getty Images
  • New York businesses contend with high taxes and a complex regulatory landscape.
  • The proximity to New York City provides excellent access to capital and skilled labor.

There are more than 2 million small businesses in New York state, which employ 4 million people. These small businesses make up 99.8% of all businesses within the state and employ more than half the state's workforce. In 2018, New York's unemployment rate was about 4.7%, slightly higher than the national average, but still healthy. The share of workers employed by small businesses underscores their importance to the state's economy: small businesses created 113,528 net jobs throughout the state.

In 2018, New York's statewide GDP was $1.676 trillion, which ranked third in the nation. In 2018, the state's GDP grew by 2.1%, slightly slower than national growth, which stood at 2.9%. The top five industries in New York are finance, insurance, real estate, rental and leasing; professional and business services; government and government enterprise; educational services, healthcare and social assistance; and information.

How does this economic landscape translate to the fortunes of small businesses throughout the state? And what unique challenges do New York's small business owners face? Business News Daily got in touch with some of the state's entrepreneurs to find out.

New York state has a wide range of regulations that tend to be progressive and designed to support employees. While not inherently negative, more regulations mean more preparation is required on the part of businesses, which often comes with additional legal costs.

"[New York regulations are] very challenging and require great legal counsel," said Greg Peters, CEO and co-founder of BetterPT. "We invested in resources very early on to ensure that our vision is achievable and scalable. We are constantly evaluating the regulatory landscape in this ever-changing environment."

Some business owners have found that working with state agencies can illuminate the path to compliance, reducing the regulatory burden. Establishing a strong relationship with the relevant regulatory bodies that impact your business is a must when operating in New York.

"Overall, the regulatory landscape is both visible and reasonable to follow. For example, we've worked with the Department of Transportation over the years and never felt that our line of communication was too intrusive or delayed," said Sharone Ben-Harosh, founder and CEO of FlatRate Moving.

One key challenge several entrepreneurs we spoke to cited was New York state's relatively high taxes. While taxes are a necessary cost of doing business anywhere, New York state maintains a tax code that often defers to the highest relevant calculation to businesses. It also includes several metrics by which a business must calculate its tax bill, sometimes making the process confusing. 

"The business tax code in New York is burdensome, which makes it difficult to do business as an entrepreneur," said Warren H. Cohn, CEO of HeraldPR and Emerald Digital. "Taxes for small and medium businesses are extremely high, which often pushes small businesses out of the cityscape."

As a result, Cohn said, he is looking to expand in southern locations like New Orleans or Miami, where he said it is easier and cheaper for businesses to operate.

New York maintains both a corporation franchise tax, which applies to C-Corps and S-Corps, as well as an LLC filing fee. LLCs are known as "pass-through entities," meaning any income derived from an LLC "passes through" to the owner and would be included on their personal income tax return.

The business income base tax for the state of New York is 6.5%, though certain businesses might qualify for a reduced 5.5% rate. In addition, businesses could be subject to a capital base tax or fixed dollar minimum tax. State law typically requires corporations to pay whichever is highest.

"New York is known for a business tax code that is fairly complicated and costly," said Peters. "This largely relates to the estimation of corporate taxes, which generally trend toward the most expensive alternative."

New York is a populous state on the east coast, well known for its cities and economic activity. As a result, there are plenty of businesses hungry for talented employees. The unemployment rate isn't extremely low, but it remains below 5%, contributing to a competitive atmosphere for the best job candidates. To meet this challenge, small businesses are developing more attractive compensation packages and other benefits for employees in a bid to better attract, recruit and retain top talent. 

"As a result [of the competitive labor market], we're investing more resources into recruitment and benefits to ensure that we have enough employees year-round," said Ben-Harosh. "Unlike most moving companies that only hire during the warmer summer months, we keep our drivers throughout the entire year to ensure that we retain our talent."

Luckily, New York is also home to many top colleges and a diverse population of skilled workers, meaning that while skilled labor is in high demand, there is a large pool of potential employees from which to recruit.

"Even aside from students, there are a ton of individuals who migrate here from other countries who are talented," said Matt LeBris, CEO of 1B Branding. "Both while in corporate America and as an entrepreneur, I have never had an issue with finding talent."

A major benefit of doing business in New York state is the proximity to New York City, especially for businesses located in the southern part of the state. The economic activity generated by the world's business capital generally spills over into neighboring areas, creating an opportunity for businesses to find more customers and offer services that support city-based enterprises.

"Location-wise, there's a big opportunity in the Westchester area as a result of more people moving away from New York City," said Ben-Harosh. "This is especially true for higher-earning individuals who also demand a high-quality moving service."

The cost of living is generally high throughout New York state, meaning employees require higher compensation in order to live. It also means the cost of doing business will be higher, as goods and services are significantly steeper than elsewhere. Nowhere is the cost of living higher than in New York City, however, statewide, New York is more expensive than the national average in terms of groceries, housing, transportation and healthcare.

As of December 31, 2018, New York state's minimum wage increased to $11.10 per hour. That rate is scheduled to rise again on December 31, 2019, to $11.80. By the end of 2020, the state minimum wage will rise again to $12.50 per hour. And, of course, in some towns and cities, the minimum wage is even higher. New York City, for example, recently raised its minimum wage to $13.50 per hour for businesses with 10 or less employees and $15 per hour for businesses with 11 or more employees. On December 31, 2019, all businesses in New York City will be required to pay employees a $15 per hour minimum wage.

These frequently asked questions are commonly raised when starting a business in New York. These answers will help you to file the necessary documents, pay the appropriate fees and understand the basics of starting a business in New York.

Despite the challenges related to taxation and regulatory compliance, New York state offers access to a strong consumer base with significant disposable income. Further, there are numerous lenders and investors who can help entrepreneurs start and grow their businesses.

To form a corporation in New York, you must first select a corporate name that includes the terms "incorporation," "incorporated," or "limited." A name must be reserved for 60 days by filing an application, the cost of which is $20.

From there, you will need to file a Certificate of Incorporation with the New York Secretary of State. This certificate can be filed online or sent in by mail. The cost of filing the Certificate of Incorporation is $125, plus a tax on shares if applicable.

There are more than 2 million small businesses throughout New York state, which employ 4 million people. Small businesses comprise nearly 99% of all businesses in the state. In New York City alone, there are 200,000 businesses.

Many companies require a business license or permit in order to operate in New York state. To determine which licenses or permits you need, visit the NYS Business Wizard. You can typically apply for many licenses online for a small fee.

Depending on the type of business you are operating, the cost of your business license can vary greatly. Some permits are as low as $25, while certain licensure fees are several hundred dollars. Learn more about the licenses and permits your business is required to have (and their costs) at NYS Business Wizard.

New York sales and use tax returns are by March 1 for annual filers. Some businesses, though, are required to file quarterly returns, including those that have taxable receipts, purchases subject to use tax, and rents and amusement charges that amount to less than $300,000 in the previous quarter. Quarterly returns must be filed in four periods: March 1 through May 31, June 1 through August 31, September 1 through November 30, and December 1 through February 28 or 29.

Sales and use tax returns are essentially summaries of business activity. These returns must include information regarding gross sales, nontaxable and exempt sales, taxable sales, purchases or uses subject to tax, credits you claim on your return, sales tax, use tax, any special taxes and current information regarding your business.

For annual sales tax filers, you must fill out state Form ST-101, the New York State and Local Annual Sales and Use Tax Return. To learn more about your sales tax obligations, visit the New York State Department of Taxation and Finance website.

In New York, any small business with employees is required to carry workers' compensation insurance and disability benefits insurance. If your company owns a vehicle that it uses for business operations, you must also carry auto insurance.

Beyond these legal requirements, certain types of insurance might be needed to sustain operations. For example, landlords might require liability coverage or renters' insurance. Lenders might require you to obtain life insurance, business interruption insurance or some other kinds of protections.

Business expenses, including insurance, can be deducted from taxes if they are considered both "ordinary" and "necessary." Businesses that are required to carry insurance because of state laws and regulations would likely be able to deduct the cost of the required insurance from their tax bill. To be certain about what insurance qualifies for a tax deduction, consult with a certified public accountant.

The Small Business Health Care Tax Credit is a tax break extended to small businesses that provide their employees with healthcare coverage. Eligible businesses are those with fewer than 25 full-time employees and average wages that are less than $50,000 per year.

The healthcare tax credit, which is part of the federal Patient Protection and Affordable Care Act, provides a maximum credit of 50% of the healthcare premiums paid by an eligible small business, or 35% for tax-exempt organizations.

If you're a small business owner in New York looking for resources to help you move forward, here are a few organizations you might want to learn more about.

New York SCORE

SCORE's volunteer business professionals and expert "mentors" give counsel and guidance to entrepreneurs looking to start or expand their businesses. The services are entirely free and volunteer-driven. Follow the link to locate one of the more than two dozen SCORE centers near you.

New York State SCORE

Empire State Development's Small Business Division

The state government's resource center for entrepreneurs offers a number of resources, from technical assistance in starting or expanding a business to financial assistance programs for qualified businesses. The office exists to connect small business owners with programs and information they might not be aware they can take advantage of.

Empire State Development

U.S. Small Business Administration (SBA) District Offices

The U.S. SBA offers financing and grants, as well as consultations and counseling services. There are also opportunities to apply for federal government contracts through the SBA and avenues for obtaining assistance in the wake of natural disasters.

U.S. SBA District Office for New York

New York Small Business Development Centers

New York hosts two dozen development centers for small business. Each is dedicated to supporting the development and retention of small business, helping entrepreneurs do everything from craft business plans to navigate the state's tax code. You can find your region's small business development center at the link below.

New York SBDC Network

Adam C. Uzialko

Adam C. Uzialko, a New Jersey native, graduated from Rutgers University in 2014 with a degree in political science and journalism and media studies. He reviews healthcare information technology, call centers, document management software and employee monitoring software. In addition to his full-time position at Business News Daily and Business.com, Adam freelances for several outlets. An indispensable ally of the feline race, Adam is owned by four lovely cats.

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