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Tax Committee Update
March 14, 2012

Budget Update

I wanted to give you a status report on tax provisions in the Executive Budget. Both the Senate and Assembly put out their one house budgets earlier this week, and intensive negotiations on the budget are ongoing, with the possibility of agreement on basic parameters today or tomorrow, and budget bills being printed as early as Monday.

Highlights include the following:

Our overall summary of the one house budget resolutions is available here.

We will provide updates as negotiations progress. Please feel free to contact me regarding these or other issues in the budget.

Legislative Action on Executive Budget Proposals

Tax Provisions

Extends the MTA surcharges on the corporation, corporate franchise, bank and insurance tax, currently scheduled to sunset December 31, 2013, by five years through December 31, 2018.  (S.2609-B/A.3009-B, Part A).

Senate: Accepts Executive Budget proposal.

Assembly: Accepts Executive Budget proposal.

Eliminates the exclusion of royalty income received by a taxpayer if a related entity that made the payment was required to add back the payment to its income; creates new exclusions from this provisions in instances where the related member paid significant tax on the income in another jurisdiction, if the payment was for a valid business purpose, or where the related member is incorporated in foreign countries. This change is expected to produce a net $28 million increase in state revenue in Fiscal 2015. (S.2609-B/A.3009-B, Part E).

Senate: Rejects Executive Budget proposal.

Assembly: Accepts Executive Budget proposal.

Extends the “Temporary State Energy and Utility Service Conservation Assessment,” a temporary 2 percent assessment on electric, gas, steam and water utilities, for 5 years, until March 31, 2019. Originally enacted in 2009, the assessment currently provides over $500 million in revenues annually to the General Fund. (S.2608-B/A.3008-B, Part N).

Senate: Rejects Executive Budget proposal.

Assembly: Accepts Executive Budget proposal.

Makes permanent the current state authorization for counties with sales taxes above 3 percent to continue their current rates, provided that these higher rates would be subject to biennial approval by the county's legislative body. (S.2609-B/A.3009-B, Part R).

Senate: Accepts Executive Budget proposal.

Assembly: Rejects Executive Budget proposal.

Modifies the state's False Claims Act by providing that a person who “knowingly and improperly avoids or decreases an  obligation  to  pay  or transmit  money or property to the state or a local government” could be subject to state or qui tam enforcement under the Act; requires (rather than allows) courts to impose court costs on defendants, and eliminates the requirement that the state or qui tam civil action plaintiff prevail in court in order to be eligible to collect costs.

Senate: Accepts changes to standard, but modifies the cost recovery provisions to allow recovery only by prevailing parties, and to allow payments to prevailing defendants.

Assembly: Accepts Executive Budget proposal.

Tax Credits

Five year extension of the film production tax credit, at $420 million per year, for five additional years (through 2019), and increase the share available for post-production credit costs from $7 million per year to $25 million per year. (S.2609-B/A.3009-B, Part B).

Senate: Two year extender only (through 2016); increases the basic credit to 35% in nine downstate counties outside of New York City and to 40% elsewhere in New York State; requires a comprehensive, third-party economic impact study of the program.

Assembly: Accepts Executive Budget proposal.

Tax reduction for businesses operating in “innovation hot spots” (see Economic Development section above for details). For Article 9-A taxpayers, limits tax liability to the fixed dollar minimum for a five year period; for Article 9-A taxpayers that are “partners” in a “hot spot” entity, provides a deduction for income attributed to such entities. For Article 22 taxpayers, provides a deduction for income attributed to such entities. Provides a credit or refund for state and local sales tax liability for retail sales of tangible personal property for such entities. Any taxpayer using these benefits would be ineligible for any other state tax exemption or deduction; the election to take “hot spot” tax benefits is irrevocable. (S.2609-B/A.3009-B, Part C).

Senate: Rejects Executive Budget proposal.

Assembly: Rejects Executive Budget proposal.

Limits state sales tax exemptions for IDA-financed projects to instances where: the project is certified by the state as eligible for participation in the Excelsior Jobs program; ESDC determines that such benefits are consistent with regional economic development strategies. Further provides that any state sales tax benefits would be awarded as a credit or refund, not an up-front exemption, and that if any share of the value of state sales tax exemption is included in a PILOT agreement, the IDA must remit those payments to the state. (S.2609-B/A.3009-B, Part J).

Senate: Rejects Executive Budget proposal.

Assembly: Rejects Executive Budget proposal.

Extends the enhanced tax credit available for rehabilitation of historic properties through tax years beginning before January 1, 2020, and to make necessary technical corrections to the method of determining eligible census tracts. (S.2609-B/A.3009-B, Part F).

Senate: Accepts Executive Budget proposal.

Assembly: Accepts Executive Budget proposal.

Creates a new, non refundable tax credit under the corporation, corporate franchise and personal income tax for the purchase of electric vehicle recharging property, equal to the lesser of $5,000 or fifty percent of the cost of such property. (S.2609-B/A.3009-B, Part G).

Senate: Accepts Executive Budget proposal.

Assembly: Accepts Executive Budget proposal.

Makes permanent several tax “modernization” provisions adopted in 2011 and currently set to expire at the end of 2013, including the requirement for e-filing of tax returns by professional preparers and individuals that use pre-packaged software to prepare their taxes; and authority for the Department of Taxation and Finance to require segregated bank accounts for sales that vendors that have failed to collect, account for, or pay to the state required sales tax collections. (S.2609-B/A.3009-B, Part H).

Senate: Rejects Executive Budget proposal.

Assembly: Accepts Executive Budget proposal.

Creates a sales and use tax exemption for natural gas that is purchased and converted into compressed natural gas (CNG) for use or consumption in the engine of a motor vehicle.  (S.2609-B/A.3009-B, Part K).

Senate: Accepts Executive Budget proposal.

Assembly: Accepts Executive Budget proposal.

Extends high income charitable contribution deduction limitation for three years (to 25 percent of federal allowable deductions for taxpayers with New York adjusted gross income over $10 million). (S.2609-B/A.3009-B, Part D).

Senate: Rejects Executive Budget proposal.

Assembly: Accepts Executive Budget proposal.

Makes grounds for revoking a sales tax certificate of authority consistent with the grounds denying a COA application. This bill would also allow the Department to refuse to issue a COA for any unpaid tax finally determined to be due from a responsible person, not just for that person's unpaid sales and use taxes as under current law. (S.2609-B/A.3009-B, Part M).

Senate: Rejects Executive Budget proposal.

Assembly: Rejects Executive Budget proposal.

With regard to cigarette taxes, the proposal would: a) allow the Tax Department to refuse to register retail dealers if they have any unpaid state tax liabilities or have been convicted of a tax crime within one year, and b) increase the penalty for possessing or controlling unstamped or unlawfully stamped cigarettes from a maximum of $150 to $600. (S.2609-B/A.3009-B, Parts N and O, respectively).

Senate: Accepts Executive Budget proposal.

Assembly: Rejects Executive Budget proposed Part N, accepts proposed Part O.

Additional Proposals from One-House Budget Resolutions

New Senate Provisions

While not in the budget bills, the Senate budget resolution calls for elimination of corporate taxes on small business and for all manufacturers over a four year period.

Reforms the Excelsior job tax credit program, including: reduction in job creation threshold for program eligibility (including reduction from 25 to 10 new jobs for manufacturers); increase in the refundable Excelsior investment tax credit from 2 to 5 percent; real property tax credit made available in economically distressed areas (rather than old Empire Zone “investment zones); pro-rating of tax credits in any tax year that applicant achieves 75%  or more of job projections; and increases in annual tax credit cap for tax years 2013 through 2024. (S.2609-C, Part DD).

Reinstates the “qualified emerging technology credit” program, effective 1/1/13. (S.2609-C, Part QQ).

Creates a new, refundable asbestos remediation credit, equal to 20 percent of qualified asbestos cleanup costs, up to $1 million per property over a three year period. (S.2609-C, Part SS).

Reinstates the sales tax exemption for purchase of general aviation aircraft. (S.2609-C, Part TT).

A non-refundable tax credit for the construction or repowering of a qualified electric generating facility, and/or fuel source access investments, of 12.5 percent for the first $100 million in investment, rising to 20 percent for investments over $200 million, applicable to Article 9, 9A and 22 tax liability. (S.2609-C, Part VV).

A non-refundable corporate franchise tax credit for the rehabilitation of commercial properties located within municipally designated distressed areas; credit of 30 percent of qualified rehabilitation expenses, up to $100,000 per site; available during calendar years 2013 through 2018, inclusive. (S.2609-C, Part GG).

A 20 percent refundable credit for solar generation/storage R&D or manufacturing property, and a 10 percent refundable credit for related R&D and manufacturing expenses, up to $25 million per taxpayer over a four year period. (S.2609-C, Part WW).

New non-refundable tax credit for hiring qualified veterans, equal to 10 percent of wages paid prior to 1/1/15 (or 15% for wages paid prior to 5/1/15 if a qualified disabled veteran; credit available under Corporate Franchise, Personal Income, Bank and Insurance tax. (S.2609-C, Part CC).

Expands purposes of the Excelsior linked deposit program to include biotechnology, information/communications technology, advanced materials and processing, electronic/photonic devices, energy efficiency and similar produces, and small scale systems integration and packaging. (S.2609-C, Part HH).

New incubator grants program, for operating funds (up to $150,000), planning (up to $15,000), and other purposes, for designated New York State incubators. (S.2609-C, Part FF).

Provides PIT exemption for foreign partnerships and their non-resident partners, where New York nexus would be based on use of an in-state fulfillment service. (S.2609-C, Part XX).

Provides an alternative definition of “manufacturer” for Article 9-A corporate franchise tax purposes, to include a taxpayer or combined group with at least 2,500 manufacturing employees in New York State, and $100 million of manufacturing capital in the state.  (S.2609-C, Part AAA).

Several tobacco tax related provisions, including modifying the calculation of sales agent costs under Tax Law Section 483 (S.2609-C, Part BBB); establishes a separate tax rate on cigars of 75% of the wholesale price or $.50/cigar, whichever is less. (S.2609-C, Part OO).

Additional Assembly Proposals

Extends application period for the at risk youth employment tax credit through November 30, 2014, modifies eligibility to persons residing in cities with populations over 55,000 (rather than 62,000). (A.3009-C, Part Z).

Creates a sixth “certified capital” (CAPCO) program of up to $150 million; requires at least 10 percent of its funds to be invested in a “qualified seed fund;” requires a 90 percent match of certified capital; application process for new CAPCOs to commence July 1, 2013. (A.3009-C, Part AA).