SFY 2009-10 Executive Budget Revenue Measures
Staff Contact: Ken Pokalsky
December 16, 2008
New York Governor David Paterson issued his proposed Executive Budget for Fiscal 2010 today. It includes $4.2 billion in revenue actions for the new fiscal year, as part of a plan to close a projected $14 billion all funds shortfall.
Please feel free to contact me at your convenience to provide us with your initial reactions to these proposals, and to discussion next steps.
Business Taxes-The Executive Budget does not proposal any increases in broad based state taxes. It does contain a number of business tax proposals within its more than $1.5 billion in tax law changes. These include:
- increasing the mandatory first estimated tax installment payment under Article 9-A to 40 percent ($333 million);
- restructuring of the Insurance Tax to a flat 2% tax on premium ($62 million);
- precluding utilities from using the manufacturers' cap on Article 9-A capital base tax ($17 million);
- requiring certain "overcapitalized" captive insurance companies to file combined returns with their affiliates ($31 million).
Fees and Assessments - The Executive Budget includes more than $2.5 billion in new and increased fees and assessments. Major changes include:
- increasing and expanding the regulatory oversight fee on public utilities ($600 million);
- increasing and re-imposing a series of health facility and health insurance related fees ($810 million);
- imposing fees on insurance carriers to offset expenses incurred by small business in complying with the state's mental health parity mandate ($180 million);
- imposition of a new "obesity" tax on non-diet soft drinks ($400 million); and
- establishing a new fee on non-LLC partnerships with income over $1 million.
Sales Taxes-It also includes several sales tax proposals:
- elimination of the clothing sales tax exemption ($462 million);
- sales tax on cable and satellite TV ($180 million);
- limits the sales and use tax exemption for "capital improvements" ($160 million);
- repeal the sales tax cap on motor fuels ($90 million);
- imposes sales tax on transportation and entertainment services ($45 million and $50 million, respectively);
- extends the sales/use tax to digital downloads ($15 million);
- limiting the sales and use tax exemptions for commercial aircraft and other vehicles; and
- further expanding "affiliate nexus" for sales taxation of internet sales ($9 million).
Tax Credits - The Executive Budget proposes several changes to economic incentive tax credits.
- Most significant, it proposes to require all currently certified QEZEs to recertify. In order to remain eligible for Empire Zone benefits, the business must show a 20:1 ratio of in-zone wages, benefits and investments versus zone credits claimed over a three year. It is expected that one half of current QEZEs would be decertified under this proposal. It also restricts new QEZE certifications to manufacturers, financial services, and "extraordinary projects." ($272 million)
- It would repeal the "qualified emerging technology company" (QETC) capital tax credit.
- It proposes a new 10% research expenditure credit based on section 41 of the IRC, with the credit based on increased in-state R&D expenditures.
- It expands eligibility for the QETC employment credit to employers of more than 100 in certain instances.
Tax Compliance - It also proposes "a comprehensive program to encourage compliance with the Tax Law" ($321 million in new and preserved tax receipts.) Its provisions include:
- requiring banks to report annually on accounts of registered sales tax vendors;
- authorizing the Tax Commissioner to use generally accepted statistical sampling techniques to perform audits for sales tax purposes;
- new penalties on persons that fail to keep required sales tax records;
- increasing penalties for failure to collect or pay over sales tax;
- increasing penalties failure to pay tax due to fraud, and on tax preparers for knowingly and purposefully assisting in the filing of clearly fraudulent tax returns;
- an expedited hearing process in cases involving the cancellation, revocation, or suspension of a license, permit, registration, or other credential issued by Tax Department.
Other Revenue Measures — The proposed budget contains a variety of other revenue measures, including:
- expansion of the bottle bill and recapture of unclaimed deposits ($118 million);
- limiting itemized deductions for PIT taxpayers with incomes over $1 million ($140 million); and
- allowing for sale of wine in grocery stores ($105 million).