2005 Budget Summary (March 31, 2005)
The State legislature completed action on a series of budget bills in the afternoon of March 31st, achieving the state's first on-time budget since 1984. Below is a quick summary of the status of some of the most significant issues for Business Council members
Single Sales Factor
Single sales factor apportionment will be phased-in for all Article 9-A (corporate franchise tax) taxpayers currently subject to double-sales weighting (this excludes transportation industries); weighting of in-state sales will go from 50% to 60% for 2006; to 80% for 2007; and to 100% in 2008. For the Bank Tax (Article 32), single sales factor apportionment will apply to all receipts of a banking corporation that is substantially engaged in providing investment advisory-related services. This reform will result in a $250 million reduction in tax liability for beneficiaries, and a net reduction in state revenues of $135 million, once fully implemented in 2008.
The legislature approved a cap on the local share of medicaid costs beginning in 2006. Under this plan, the state would be responsible for any growth in the plan exceeding 3.5% in 2006; 3.25% in 2007 and 3% in the following years. A "Preferred Drug Program" for medicaid was adopted along with a statewide disease state management program.
The legislature extended the Health Care Reform Act to June 30, 2007 and put HCRA revenues and expenditures on-budget. The legislature made minor modifications to the bad debt and charity care assessment by increasing it from 8.85% to 8.95%. They also concurred with the Governor's budget proposal to increase the amount raised for graduate medical education by $50 million. A $1 billion health-care capital grant program was created to provide funding for information technology purchases.
Health Facilities Commission
The legislature and the Governor agreed-to a new "Commission on Health Care Facilities in the Twenty-First Century" to "undertake a rational, independent review of health care capacity and resources in the state and to ensure that the regional and local supply of general hospital and nursing home facilities is best configured to appropriately respond to community needs for quality, affordable and accessible care, with meaningful efficiencies in delivery and financing that promote infrastructure stability." There will be a series of boards: 1) a commission of eighteen statewide members appointed by the Governor and legislative leaders; 2) six regional members of the commission for six regions of the state, appointed by the Governor and legislative leaders; and 3) regional advisory committees for the six regions, the number of members to be decided by the Commission. "On or before December 1, 2006, the Commission shall transmit to the Governor and legislature a report containing its recommendations."
The Empire Zone program was extended through 2015, and zones will be extended to eleven counties currently without zones, and to the Chinatown section of Manhattan. Generally, businesses certified as QEZEs prior to 4/1/05 will retain their current benefits. Businesses certified after that date will be subject to new designation criteria, and new criteria for calculating the real property tax benefit, and their benefits will extend for 10, rather than 15 years. All existing Empire Zones are required to be reconfigured, resulting in a limited number of contiguous areas. The law contains new and expanded accountability/reporting requirements for local zone boards and QEZEs. New categories of zone benefits were established for agricultural cooperatives and "regionally significant projects."
Power for Jobs
The legislature adopted a one year extender of the Power for Jobs program, through 12/31/06. Post-budget negotiations are possible on several issues related to the PfJ program, including longer-term program extension; source of financial support; potential amendment to benefit criteria for current PfJ program participants; opportunities for additional zone participants; and others.
The legislature rejected the Governor's proposal to disallow the 60 percent exclusion of dividends received from a Real Estate Investment Trust subsidiary. This would have increased Article 32 (Bank) Taxes by $50,000,000 in FY2006.
Rejecting pressure from public-employee unions and others, the legislature is allowing the 2003 increases in statewide income and sales taxes to phase down and expire on schedule this year and in 2006. They did approve a 1/8 of 1 percent (.125%) sales-tax increase to support the Metropolitan Transportation Authority will apply within the metropolitan commuter district, including Long Island, New York City, and Westchester, Dutchess, Orange, Rockland and Putnam counties.
Budget provides for a $17.9 billion, five year transportation capital plan for highway and bridge improvements and a $17.9 billion, five year MTA capital plan. Part of this funding would be conditioned upon passage of a $2.9 billion general obligation bond act to be presented to the voters in November 2005. The legislature accepted several of the Governor's revenue proposals, including increased DMV fees, to support transportation spending.
The Legislature passed (as Part E of S.3671) a reduction in the Article 9-A tax rate on the first $290,000 of New York taxable income from the current 6.85% to 6.5% effective for taxable years commencing after December 31, 2004.
Health Care Quality Demonstration Programs
There are two demonstration programs that were created as part of S.3668, the Medicaid and HCRA bill. Both demonstration programs are supported by The Business Council. The first is a Pay for Performance demonstration to promote patient safety and better quality of care. The specific language can be found at page 76. The second demonstration program is a Health Information Technology Program to promote the development of electronic health information exchange technologies. Please note that this is separate from the $1 billion hospital capital grant program. The language for the Health Information Technology Program can be found on page 78 of S. 3668.
Governor's Strategic Partnership for Update Renewal (SPUR)
The legislature rejected the Governor's proposed SPUR program.
Workers' Comp Board
The legislature rejected the Governor's proposal to merge the Workers' Comp Board with the Department of Labor.
The legislature rejected the Governor's proposal to repeal the Wicks Law.
10-Month Extension of Suspension of Sales and Use Tax $110 Clothing
Part J of S.3671 extended the temporary suspension of the State's Sales and Use Tax exemption on clothing priced under $110 for an additional ten months until April 1, 2006 and created two sales tax-free weeks - one ending Labor Day 2005 and one in late January 2006.
Cigarette and Motor Fuel Taxes on Sales to Non-Native Americans
Part K of S.3671 directed the Governor to implement, via court-approved regulations, the collection from off-reservation wholesalers who sell cigarettes and motor fuel to Native Americans for resale to non-Native Americans.
Reimposition of Higher Filing Fees on Limited Liability Companies
Part L of S.3671 reimposed higher filing fees on limited liability companies that had originally been enacted by the Legislature for two years ending December 31, 2004.
Higher Cap on Article 9-A Business Capital Alternative Tax
Part M of S.3671 raises the cap on Article 9-A' s alternative business capital based tax from $350,000 to $1,000,000 on non-manufacturing taxpayers.
Anti-Tax Shelter Provisions
Part N of S.3671 imposes new provisions and standards for taxpayer advisors who participate in illegal tax shelter practices.
Qualified Emerging Technology Company Facilities, Operations, and
Part U of S. 3671 creates new incentives for research intensive New York companies operating on the cutting edge of commercial applications for high technology and life science products. The credits will aid high technology firms looking to grow out of a New York academic incubator who hope to remain in the State, or new or existing companies that are looking to relocate to or further expand in New York. Unlike the existing Investment Tax Credit (that is based on tangible property expenditures), this new program provides a credit for costs more closely associated with emerging technology companies (tuition, salaries); it is estimated that new high tech companies will save $10 million when the program is fully implemented.
Motor Vehicle Fees
Part V of S.3671 greatly increased motor vehicle fees (for example, motor vehicle title fee will be $50).
Additional Mortgage Recording Tax Increase
Part X of S.3671 increased the Additional Mortgage Recording Tax by five cents (to 30 cents/$100) within the twelve-county Metropolitan Commuter Transportation District.