Tax–Related Issues in TBC Budget Testimony

February 29, 2016
Ken Pokalsky

The following provides the tax-related provisions included in The Business Council’s February 2 testimony to the joint Senate Finance/Assembly Ways and Means Committee hearing on the Executive Budget. Importantly, it provides our comments on tax law changes proposed in the Executive Budget, and includes several additional tax reform proposals that have been raised by Business Council members. Our full budget testimony, and other budget related information, is available on our web site.

As always, we appreciate this opportunity to address members of the Senate Finance and Assembly

Taxation and Tax Credits

The Executive Budget contains several important tax reform proposals, and we are recommending a number of additional reform proposals and technical amendments that will address unintended consequences in the state’s tax code and – in general – will have minimum impact on projected state revenues.

Small business tax rate reduction

We support the Executive Budget proposal (S.6409/A.9009, Part R) for small business tax relief under both the corporate franchise tax and the personal income tax. This proposal would:

Combined these two components would provide about $300 million in annual tax relief to small business.

We support this approach, and agree with its basic structure.  However, we would recommend increasing the income cap under both proposals, to at least $500,000. This proposal is a necessary next step in business tax reform. The 2014 CFR reforms, and the 2015 New York City conformance legislation mostly addressed tax issues affecting public traded corporations. Most small business are set up as pass-through entities that pay the bulk of their business income tax under the personal income tax.

CFR Technical Amendments

The Business Council was a strong supporter of the corporate franchise tax reform and restructuring legislation adopted in 2014. That legislation, when fully implemented in the 2016 tax year, will streamline compliance obligations for business, and lower business taxes by an estimated $600 million per year.

As taxpayers gain experience in filing under the new regime, the need for several technical amendments has been identified. Importantly, for most of these, there is no additional revenue loss for the state, because the provisions of concern are having unintended consequences that were never envisioned to generate revenues for the state.

We support the Executive Budget provision (S.6409/A.9009, Part Y) to amend the definition of “qualified financial instrument,” which excludes stock that generates “other exempt income” and is not market to market. When 2015 Article 9A amendments modified the definition of QFI to include certain stock not marked to market, the amendments excluded stock that qualifies as investment capital but did not include stock that generates other exempt income. This could include stock of a subsidiary that could not be included in a combined report that generates dividend and/or subpart F income. This proposed amendment would assure that such income is treated as exempt investment income rather than taxable business income.

We also urge that several other technical amendments be adopted as part of the final budget.

Urban Youth Jobs Tax Credit Program

We support the proposal (S.6406/A.9006, Part L) to increase the credit amount for “urban youth jobs program tax credit”) with an additional $30 million in tax credit authority for both 2016 and 2017, along with authorization that in each year up to $10 million in credits can be applied anywhere in the state. This program has provided valuable support to employer’s efforts to provide job opportunities for at-risk youth. Not only does this proposal increase to total state resources available for the program, but it also makes funding available to areas of the state previously excluded from eligibility.

Estate Tax

We support the Executive Budget proposal (S.6409/A.9009, Part Y) that would prohibit the consideration of contributions to New York State charitable organizations in determining domicile under the Estate Tax. A similar prohibition was adopted under the state’s personal income tax law more than twenty years ago. These proposals are intended to eliminate a potential disincentive against continued financial support of New York charities and organizations by New Yorkers’ that have relocated out of state. We have heard from tax practitioner that this issue has come up in estate tax cases, even though consideration of charitable contributions is contrary to Tax Department policy. This statutory amendment would eliminate any ambiguity, and would avoid the chance of unintended disincentives against the support of New York State charities.

Other Tax Reform Proposals

We have several other tax reform recommendations for consideration in the development of the FY 2017 state budget.

In addition, we are also opposing the addition energy assessment proposed in S.6408/A.9008, Part J. This would authorize the Public Service Commission to establish an assessment up to $19.7 million on gas and electric customers. The funds collected would be transferred to the New York State Energy Research Development Authority (NYSERDA) for research, development and demonstration, policy, planning and the NY Fuel Program; Department of Environmental Conservation (DEC) climate change program; and the University of Rochester laboratory for laser energetics. This special assessment is in addition to the Section 18-a assessment and others.