Tax preparers and some business owners say they were blindsided by a state fee that has increased more than tenfold for some companies this year.
But a representative of the state Department of Taxation and Finance said the new fee structure was well-publicized and is more fair to small business owners than the old formula.
CPA Gary Heidenstrom of the Robert Kristel Accounting Firm of Schenectady said the so-called “S Corp” fees have jumped from $100 to as much as $4,500 this year for some businesses because the calculation is now based on gross sales rather than payroll.
He said the formula is not based on profit but rather on total sales for the year.
For some businesses, especially gas stations and car dealerships, the result has been especially harsh this year, as sales and profit margins have been cut, he said.
Based on receipts
“In the past, the fee would be on net assets or payroll and would vary from $100 to $425,” Heidenstrom said. “Because it is now based on gross receipts, a company that paid $400 last year could be paying $4,500 this year.”
He said a car dealer that sells new model vehicles could show $25 million in sales, but the profit from those sales would be a small percentage of the gross.
Susan Burns, a spokeswoman for the state Department of Taxation and Finance, said the change in the S Corp fee structure this year was part of the budget passed last April.
She said that under the old formula, companies with payrolls of up to $250,000 paid $100 and a sliding fee scale, capped at $1,500, was in effect for companies with payrolls of more than $6.25 million.
“There are about 350,000 S corporation taxpayers in the state. About 230,000 were estimated to pay the new lowest amount of $25. These are small businesses, the vast majority of which were likely paying $100 under the old law,” Burns said.
William Brigham, director of the New York State Small Business Development Center, said the new fees will help startup businesses in this tough economy.
“The difference between a $100 fee and a $25 fee might not seem like much, but small businesses need every dollar they can keep,” Brigham said. “We’re seeing more and more startups because of layoffs, and those people need all the help they can get.”
He said many professionals are starting consulting firms or other private businesses after being laid off from a company.
“Skills transfer,” he said. “If you are working as a commercial electrician, you can use those skills as a residential electrician.”
The new formula allows businesses with an income of less than $100,000 to pay $25. Sales of $100,000 to $250,000 will result in a $50 fee, and the scale climbs to $4,500 for $25 million in sales and higher.
Some hit hard
Ralph Bombardiere, executive director of the New York State Association of Service Stations and Repair Shops, said his membership is being hit hard by the fee increase.
“Last year most of our members were paying $100, but this year they will probably have to pay $4,000 or more,” he said. “A gas station may charge $3 or $4 a gallon for gas, but they only make 10 cents [a gallon] profit.”
He said an average gas station would sell about 100,000 gallons of gas a week.
The new fees were a surprise to Bombardiere and his group’s members, he said. “We were not aware of these new fees. It’s so hard to find anything in the state budget; it’s as thick as the Encyclopedia Britannica,” he said.
Heidenstrom said that as a CPA, he attended 40 hours of required courses in the past year to stay current with tax laws, but new fees were never mentioned.
Tax Department spokeswoman Burns said the new fee schedule was developed in an open budget process.
“Last year, there were many months of vigorous public discussion and debate between lawmakers and professional associations, business owners and industry professionals, which resulted in the new fees passing in April,” Burns said. “The change was fully publicized and written about in association publications and tax publications as well as distributed via e-mail subscription service through the tax department.”
Charlie Morris is past chairman of the New York State Automobile Dealers Association and is the owner of two car dealerships in Burnt Hills.
He said he’s not happy about the fees.
“This affects any resaler of big-ticket items. We’re struggling to make 1 to 2 percent on a car sale,” he said. “We will likely pay $3,500 to $4,500 in fees this year compared to $350 or $400 last year. A tenfold increase means New York is once again taxing business to death — or should I say they’re fee-ing us to death?”