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Legislative Memo

Ken Pokalsky
Vice President of Government Affairs
T 518.465.7511
www.bcnys.org

BILL:

A.7173 (Galef)

Support

SUBJECT:

School District PIT Surcharges

 

DATE:

April 24, 2012

 

The Business Council opposes this legislation that would allow most school districts in the state, except those in cities with populations of greater than 125,000, to impose a surcharge of up to 25% on the NYS personal income tax liabilities of district residents, with surcharge income used to fund the school district’s budget. At the same time, districts would reduce its real property tax levies by the amount of new personal income tax income, but only for in-district residential property.

The Business Council opposes this legislation for several reasons.

First and foremost, it makes a current bad situation worse by increasing the burden of school taxes on business, further deteriorating the state’s economic climate. By shifting the incidence of school taxes from residential real property to personal income, this bill will shift school tax liability to businesses, especially small business, including sole proprietors as well as the partners and shareholders of Sub-S corporations, partnerships and LLCs. The bulk of income taxes paid by these classes of business are paid at the individual level through the PIT. Business already pays more than 40 percent of all property taxes outside of New York City, which largely go to support school budgets. This legislation would further shift the state’s tax burden to private sector employers.

Second, by simply shifting from one tax revenue source to another, this legislation does nothing to reform state policies that drive up the cost of local governments, including school districts. In fact, by shifting school tax liability from residents to business, it may lessen the pressure for reform. The state needs to reform state mandates that restrict school districts from negotiating effectively on labor contracts, and that impose higher costs on the construction and maintenance of school buildings, rather than simply shift the cost of school finances from one set of taxpayers to another.

Finally, the bill will add additional complexity and risk to the school tax system, and since there is more volatility in personal income than property value, the bill would increase volatility in taxpayer’s year to year real property tax assessments (since the amount of PIT surcharge offset will vary year to year). Income and income tax liability will rise and fall with economic conditions, and district-specific surcharge income will also be adversely affected by any significant loss of local business or jobs. The bill says that residential property tax levies will be reduced by the amount of surcharge income in the “calendar year immediately preceding the year of commencement of the school finance year.” As example, property tax levies in the 2015-16 school year will be reduced by the amount of surcharge income in calendar 2014. However, a significant economic downturn during a given school year would leave the district with an income deficit, since property tax levy reductions were based on economic conditions and personal income levels set almost two years earlier. It is unclear how school districts are to handle these shifting income tax levies under this legislation.

New York already has one of the highest marginal personal income tax rates of any states, and about the most progressive personal income tax system of any state. We see no particular benefit to this shift of tax liability from the property tax to the income tax, and we see significant downsides to this shift.

For these reasons, The Business Council respectfully opposes approval of A.7173.