APRIL 1998Legislature approves historic new cuts in business taxes; rate to drop by 16.7%
Corporate tax rate will be lowest since 1970; employers to save some $500 million a year
New York's tax rate for both regular corporate taxpayers and Subchapter S corporations - the main state tax paid by most New York companies - will drop from 9.0 to 8.5 percent for taxable years starting on or after July 1, 1999, under the major tax-cut bill approved by the Legislature.
Under the bill, business tax rates will ultimately decline to 7.5 percent, falling to 8 percent in 2000 and 7.5 percent in 2001.
The 16.7 percent reduction in the corporate tax rate is the centerpiece of a major package of new 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 nearly $500 million.
The new tax cuts are the latest in a series of major cuts for employers - most recently, a $420 million savings in unemployment insurance taxes that The Business Council engineered.
"The UI savings is a one-time boon in 1998," said Business Council President Daniel B. Walsh. "This is even better-business will save half a billion dollars year in and year out."
"This is another giant step in the drive to make New York competitive," he added. "We will gain thousands of jobs as a direct result of this historic plan."
The rate reduction was begun by Senate Majority Leader Joseph L. Bruno and is one of The Business Council's top priorities for 1998. It will bring New York's corporate income tax rate from eighth highest among the 50 states to 25th highest.
Competitors such as New Jersey, Ohio and Indiana will have business tax rates higher than New York's when the changes are fully effective.
The 7.5 percent rate will bring New York's corporate tax rate to its lowest level since 1970. Companies whose fiscal years start January 1 will first see that rate in 2002.
Besides cutting taxes, the new budget expands the JOBS NOW fund, which provides incentives for major new business facilities. Building on a proposal by Governor Pataki, Senator Bruno pushed through a $45 million increase in the fund.
The plan also includes $10 million for a new Strategic Training Alliance. Other changes include:
- 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 cut by 25 percent in January 1999, saving trucking companies and shippers - such as manufacturers and retailers - $35 million a year.
- Computer system hardware used mainly in developing computer software will be exempt from sales tax, effective June 1998, saving $8 million a year.
- Emerging technology firms will get two new tax credits, effective next January, one for new employees in certain new ventures and one to spur capital investment.
- The gross receipts tax on hospitals and nursing homes will be eliminated earlier than scheduled - for hospitals, as of December 1998.
The budget also enhances cuts to sales taxes on clothing, scheduling tax-free weeks next September and January. And the STAR property-tax exemption for senior citizens will be fully implemented starting this fiscal year.
Governor Pataki repeated his promise to veto any spending above the level set in his original budget.
- Walsh's letter to the Governor asking his approval of the tax-cut legislation.
April 16, 1998