Legislature sets tax-cut
schedule; recesses until Tuesday
Corporate tax rate to drop from 9.0 to 7.5%, starting in 1999
New York State's corporate franchise tax rate the main business tax, paid by more than 200,000 companies will drop from 9.0 to 8.5 percent for taxable years starting on or after July 1, 1999, under a schedule announced by legislative leaders Thursday.
As Senate Majority Leader Joseph L. Bruno and Speaker Sheldon Silver had announced a week earlier, the corporate tax rate will decline to 7.5 percent under legislation that will be enacted as part of this year's state budget. The rate will fall to 8.0 in 2000 and 7.5 percent in 2001, under the schedule made public Thursday.
The 16.7 percent reduction in the corporate tax rate is the centerpiece of a major package of business tax cuts included in the new budget, to be phased in over several years. The entire package will reduce taxes by $743 million, including overall business-tax reductions of more than $450 million.
The rate reduction, one of The Business Council's top priorities for 1998, will bring New York's corporate income tax rate from eighth highest among the 50 states to 25th highest, tied with North Carolina. Competitor states such as New Jersey, Ohio and Indiana will have business tax rates higher than New York's when the changes are fully effective.
Timetables for other major business-tax reductions to which the Senate and Assembly had previously agreed were also announced Thursday:
- The alternative minimum tax will drop from 3.5 to 3.25 percent on July 1, 1998, and to 3.0 percent a year later. Manufacturers and other companies that use the investment tax credit to reduce their effective tax rate will benefit from this reform.
- The investment tax credit, now limited to manufacturers and certain other industries, will extend to the securities and banking industries for investments in computer and telecommunications technology used in the trading of securities, as of October 1998. Savings will total $50 million a year.
- The truck mileage tax will be reduced by 25 percent as of January 1999, saving trucking companies and shippers such as manufacturers and retailers $35 million a year.
- The Subchapter S differential will be reduced over three years, beginning with taxable years starting on or after July 1, 1999, for savings of $31 million a year. More than 200,000 small and closely held companies will benefit.
- Computer system hardware used mainly in developing computer software will be exempt from sales tax, effective June 1998, for savings of $8 million a year.
- Two new tax credits will be available for emerging technology companies, effective January 1999. One provides a credit of $1,000 per new employee for certain new businesses, while the second credit will encourage capital investment in such companies.
In addition to business-tax reductions, the budget includes enhancements to the state's reduction in sales tax on clothing.
At the initiative of Senator Bruno and Governor Pataki, the budget also includes a $45 million increase in the Jobs Now fund, which provides incentives for major new business facilities opening in the state; and a new, $10 million Strategic Training Alliance created at the urging of Speaker Silver and Assemblyman Robin Schimminger. The latter fund will be used for skills-training programs overseen by alliances of employers.
The Senate and Assembly recessed for the weekend, with plans to resume their session next Tuesday, April 14.
Building on the results of a conference-committee process in which substantial portions of the budget were debated in the open, the two houses have reached agreement on the main elements of a new state budgetincluding the tax cut package, which will save business and citizens some $743 million when fully effective.
The two houses have already passed relatively less complicated, less controversial portions of the budgetsuch as the health and public-protection portions of the budget, and debt-service legislation. Earlier this week, they had indicated they hoped to complete passage of all the budget bills by Thursday or Friday.
But late Thursday afternoon, the leaders said more time would be needed. There were indications that the technical process of assembling bill language was taking longer than anticipated. And there were reports that there were still some significant disagreements between legislators and Governor George Patakiwho has threatened to veto spending increases above the budget he submitted.
April 9, 1998