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Legislative Memo

Ken Pokalsky
T 518.465.7511
www.bcnys.org

BILL:

S.7509 (Budget)/A.9509 (Budget) Part S

Support

SUBJECT:

Deferral of Business Tax Credits

 

DATE:

January 26, 2018

 

The Business Council opposes this proposal to defer all of a business’ tax credits over $2 million that would be used or refunded in tax years 2018, 2019 and 2020.   This proposal would apply to already-earned, but not yet realized, tax credits as well as any new tax credits earned during these three years.

This proposal would apply to most tax credits earned by business under the corporate franchise law (Article 9A), the personal income tax (Article 22, applicable to many small businesses organized as partnerships or LLCs), the corporation tax (Article 9), and the Insurance Tax (Article 33).  The major exceptions are the Excelsior jobs credit and the film production credit.

This proposal is projected to cost businesses a total of $750 million in deferred tax credits over a four year period.
If adopted, this bill would actually impose a double hit on business – an “out of pocket” cost resulting from increased tax payments over the next several years, and an adverse balance sheet impact caused by the reduced values of deferred tax assets.  The value of non-refundable tax credits is already limited, as unused credits are carried forward to future tax years.  This additional deferral of already-earned credit further reduces their value, and makes it even less likely that the business will be able to fully claim the investment credits they have earned.

Businesses have made capital investments; cleaned up and redeveloped brownfields; hired workers and increased payrolls; invested in research activities and alternative energy; and made other investments in exchange for tax credits and other incentives that helped make these projects affordable in New York State.  It is terrible public policy to again reduce tax credits after business investments and expenditures have already been made – as New York did in 2009 when it imposed new criteria that eliminated tax credits for already-certified Empire Zone companies, and in 2010 when it imposed a similar three year credit deferral program.   At a time when many parts of New York are struggling economically, this approach makes New York a less attractive state for new investments and new jobs.

Finally, deferring tax credits is similar to borrowing, in that their cost to the state eventually comes due.   This proposal has the same effect of borrowing to pay for ongoing state operations.  If the legislature votes to defer these credits now, we question its willingness to allow $750 million in deferred credits to actually be taken in future fiscal years.

For these reasons, The Business Council strongly opposes this proposal, and urges its rejection by the Senate and Assembly.