Tax Committee Update
November 10, 2009
- Revised DT&F Corporate Tax Reform Proposal
- Call for Regulatory Reform Proposals
- NYS Budget/Tax Receipt Update
The Department of Taxation and Finance has issued a revised and expanded outline of their proposal to integrate Articles 9A and 32 of the Tax Law. Their proposal is available on our web site.
Importantly, this proposal leaves us with two significant questions, on which your input would be greatly appreciated:
- What major concerns do Business Council members have with this revised/expanded outline?
- At what tax rate (if any) would this package result in a more competitive business tax structure, produce benefits for the majority of Business Council members, and deserve support by The Business Council?
The Department says that it is moving forward with the drafting of legislative language based on this outline, with the objective on including a proposal in the Executive Budget to be issued in January, adding that while additional changes may not be included in their initial draft legislation, they remain open to additional changes.
The Department also says that while they did not propose a tax rate for this new, integrated business tax structure, they believe that this outline provides sufficient detail for business to calculate their tax liabilities at “any given hypothetical rate.”
The Department has said that this revised draft is intended to reflect the most significant concerns raised by New York business taxpayers. Their new outline was intended to limit the expansion of the taxable income base, from that included in the Department's initial outline, changes that the Department has said will limit their ultimate proposal for a reduction in the current business tax rates.
In reviewing this proposal, I would especially appreciate input on these issues:
- the proposed alternative to the current exemption for income from subsidiary capital, including their proposed definition of investment income;
- the proposed treatment of net operating losses;
- the extension of single sales factor apportionment to former Article 32 taxpayers;
- the proposed sourcing rules for income from financial instruments;
- the proposed unitary test for combined reporting, and the newly proposed affiliate group election;
- the proposed alternative taxes, including the elimination of the current cap on tax liability for manufacturers under the capital base alternative;
- the proposed expiration of the Gramm-Leach-Bliley transition rules.
Feel free to contact me at your convenience to discuss and provide input. My contact information is provided at the end of this email.
Last August, Governor Paterson issued Executive Order 25, which creates a Governor's regulatory review committee, and a review process to evaluate existing state regulation in order to “reduce unnecessary burdens, costs and inefficiencies” and to help improve the state's economic climate. This effort will initially focus on six state agencies, including the Department of Taxation and Finance.
In response, the Department has issued a formal call for input requesting taxpayers to identify burdensome regulations, some quantification of their impact, and propose appropriate reforms (see www.tax.state.ny.us/pdf/rulemaking/eo25/public_notice_eo25.pdf).
The Department has requested input by January 4, 2010.
The Business Council is developing comments in response to Executive Order 25, and is seeking input from members on Departmental regulations of concern. I welcome your input.
Issues that have been raised to date by Business Council members include:
- the “convenience of employer” test established in Section 132.18(a) regarding the allocation of personal income to New York. Members have raised concern that this inappropriately increases New York State tax liability for employees that work both in and out of state; and
- the elimination of the “temporary stay” exemption in Section 105.20(e)(1). Members opposed this change, adopted in December 2008, because it subjects out of state workers who are in New York on temporary assignment to taxation as a state resident.
Note that the Department's key contact for this initiative is John Bartlett, the Department's Director of Regulation; and they have requested that proposals be submitted to firstname.lastname@example.org.
The NYS Division of Budget has just issued its mid year report on Fiscal 2010, available here www.budget.ny.gov/pubs/press/2009/press_release09_midYearUpdate.html
Despite a significant influx of federal stimulus funds into the state budget, the state is projecting that a significant decline in tax revenues will result in $3.1 billion all funds shortfall for the fiscal year ending March 31, 2010.
Among recent trends in state tax revenues, the Division of Budget reports that, compared to the first six months of Fiscal 2009,
- all funds tax receipts are down $3.6 billion or 16.7%;
- personal income tax receipts are down 21.6% ($4.4 billion), despite the significant increase in marginal PIT rates adopted with the FY 2010 budget;
- sales and use taxes are down 4.2%, or $310 million; within this category, the state sales tax alone is down $477 million or 8%, offsetting growth in other categories of use taxes (mostly related to vehicles & fuels, tobacco and alcohol);
- business taxes are up $79 million or 2.3%, largely due to new legislation subjecting HMOs to the state insurance tax; corporate franchise tax collections are off by $125 million;
- other taxes (primarily estate/gift and real property transfer) are down 40%, or $478 million;
- all funds non-tax receipts (federal grants and miscellaneous receipts) are up 22.7%, or $5.8 billion.
To date, neither the Governor, nor either house of the legislature, have proposed new taxes or fees as part of deficit reduction plan. The Governor has proposed a package including $1.3 billion in cuts to local assistance payments, about $545 million in additional agency spending reductions, and $426 million in inter-fund transfers.
The Governor has also proposed a tax amnesty program that would bring in an estimated $250 million per year. The text of this proposal is not yet available. It would authorize the waiver of interest and penalties related to final determinations of tax liability that were issued prior to December 31, 2006. We will forward additional details to Tax Committee members as soon as they are available.
If you have any questions or would like additional information, please contact Ken Pokalsky.