Tax Committee Update
February 7, 2011
Staff Contact: Ken Pokalsky
We have scheduled a meeting of our Tax Committee for Tuesday, February 22, from 2:00 p.m. to 4:00 p.m. Guest speaker will be Thomas Mattox, nominated by Governor Cuomo as Commissioner of the Department of Taxation and Finance. In addition to Commissioner Mattox's remarks, the agenda will also include a presentation on, and discussion of, Executive Budget proposals; real property tax issues; and others. The meeting will be at The Business Council's Insurance Trust Offices at 12 Corporate Woods Boulevard, Albany, NY. Directions are available here.
Our detailed overview of Governor Cuomo's Executive Budget proposal is available here. Significant tax and revenue proposals are summarized below. I welcome your comments on these proposals. Note that all budget bills are available on line here and here. They are also available, with bill memos, in draft form on the Division of Budget web site here. The following summaries include the relevant bill number and page number for each provision. We urge members to provide feedback on these proposals. Please contact me with any questions or comments at your earliest convenience.
The plan includes $455 million in new revenue measures – a relatively modest increase compared to the past two budgets which saw a combined $10 billion in tax hikes. The largest component, $200 million, is expected from improved tax administration and increased compliance and enforcement, rather than an increase in rates or extension in taxes. It also includes $150 million in new state lottery-related revenues.
The budget plan is based in part on increased tax revenues generated by a recovering economy. It includes projections of 4.8 percent growth in state personal income, 1.3 percent growth in private sector employment, and a slight drop in the unemployment rate.
As a result of increased economic activity, the budget is projecting total state tax revenues to increase by $4 billion or 6.6 percent in the new budget year.
The budget projects personal income tax revenues to increase by $2.7 billion or 8.4 percent during the new budget year, and total state tax revenues to increase by $4.0 billion or 6.6 percent. Business tax receipts overall are projected to grow by $705 million or 9.2 percent, with the greatest growth coming from corporate franchise and bank taxpayers.
G-L-B Transition/Bank Tax – Extends both state and New York City transitional provisions regarding federal Gramm-Leach-Bliley Act until 12/31/2012; and makes permanent the 1985 restructuring of, and subsequent amendments to, the Article 32 Bank Tax (S.2811/A.4011, Part J).
Tax Shelters – Makes permanent the state's 2005 tax shelter disclosure and enforcement provisions (adopted in Chapter 61, Laws of 2005, Part N), and is expected to preserve $5 million in state revenues this year. (S.2811/A.4011, Part B).
Cooperate Insurance Corporations – Eliminates the tax exemption for cooperative insurance companies in existence prior to 1937 to address their “unfair tax advantage” over other commercial carriers, which would raise $22 million in the new fiscal year (S.2811/A.4011, Part H).
Excess Line Insurance Tax - Conforms excess line premium tax and tax on independently procured insurance with federal “Dodd-Frank” legislation; allows New York to participate in national compact to collect excess lines insurance tax. These changes are not projected to raise addition revenues in FY 2012. (S.2811/A.4011, Part I).
Diesel Fuel – Updates provisions of the state's motor fuel, petroleum business and sales taxes to reflect federal “dyeing” rules, and to restore intended tax treatment of on-road and non-road diesel fuel (S.2811/A.4011, Part K).
Excelsior - Modifies the Excelsior Jobs program (S.2811/A.4011, Part G) by:
- Increasing the cap on total credits available to $250 milli0n for years 2016 through 2019, and extending the program through 2024 (with the cap reduced to $200 million for 2021 and falling by $50 million increments the next 3 years).
- Extending the eligibility for all Excelsior tax credits from 5 to 10 years.
- Basing the real property tax credit on the post-improvement value of property; increasing the credit for years 2 through 5 (to 45, 40, 35 and 30%, respectively), and extending the credit for an additional five years (at 25, 20, 15, 10 and 5%, respectively).
- Changing the calculation of the jobs tax credit to the product of the gross wages of new employees and 6.85% (rather than the current sliding scale of 1.33 to 5%); and eliminating the $5,000 per job cap on credits.
- Allowing taxpayers to claim both the standard Article 9-A and Article 32 investment tax credit and Excelsior ITC for R&D investments.
- Increasing the research and development credit to 50% of a taxpayer's federal R&D credit (up from the current 10%), with a cap of 3% of total R&D expenditures. Provides for alternative calculation based on in state R&D expenditures, including wages for R&D related jobs.
- Disqualifying a taxpayer from receiving Empire Zone benefits at any location admitted into Excelsior program. Current law requires taxpayer to forego Empire Zone benefits at all in-state locations as condition of acceptance into Excelsior.
- Allowing taxpayers to use tax credits upon achievement of interim job, investment and/or R&D targets.
- Authorizing the Public Service Commission to allow gas and electric utilities to offer reduced energy rates to Excelsior participants.
Empire Zones – Clarifies that taxpayers remain eligible for Empire Zone tax credits past the program's 6/30/10 expiration date unless they are decertified by ESDC. (S.2811/A.4011, Part C). 7,500 businesses remain eligible for Empire Zone tax credits.
Investment Tax Credit - Extends the investment tax credit for certain financial services activities (without changes) under the corporate franchise, bank, insurance and personal income tax until October 1, 2015. (S.2811/A.4011, Part E).
Alternative Fuels – Extends motor fuel, petroleum business, fuel use and state and local sales tax exemptions for E85, compressed natural gas, hydrogen and biodiesel (B20) until 9/1/12 (S.2811/A.4011, Part L).
Tax Compliance and Enforcement
IRS “LIFE” - While not a legislative change, the Executive Budget briefing book state that “The Department of Taxation and Finance will embark on an auditing program to more efficiently engage taxpayers by adopting techniques based on those used in the IRS Limited Issue Focused Examination program.”
Tax Modernization - Includes a number of amendments to implement the “Tax Modernization Project,” (projected to generate $200 million per year in increased state revenues (S.2810/A.4010, Part Z), including:
- Authority for electronic filing of documents and electronic RPT tax payments; requires localities to maintain electronic assessment inventories and assessment roles; and creates a central DT&F database of all local assessment records and web-based software for assessment management to be made available to all local assessing units.
- Allows DT&F to enter into agreements with taxpayers to use electronic communications for any documents now required to be mailed.
- Extends e-filing mandate to all personal income tax payers using software to prepare returns; increases related penalties; extends the date for filing fee returns for LLS to the 60th day after then end of the tax year.
- Provides that debt cards issued for personal income tax returns are subject to a one year dormancy period under the Abandoned Property Law.
- Expands DT&F authority to require “persons required to collect [sales] tax” to use DT&F certified systems to record transaction data; provides that venders using certified systems are not liable for errors made by the system; allows DT&F to mandate monthly filings of venders currently required to file quarterly reports.
Tax Shelter Reporting – Makes permanent tax shelter disclosure and penalty provisions adopted in 2005 (currently scheduled to expire 7/1/11) (S.2811/A.4011, Part B).