Tax Committee Update
February 16, 2018
Staff Contact: Ken Pokalsky
As you know, the Executive Budget has been issued, legislative hearings held (The Business Council’s testimony is available here), and 30-day amendments released. With 17 scheduled legislative session days before the start of Fiscal 2019 on April 1, the Senate and Assembly have issued their “agreed to” timetable for finalizing the new state budget. Key dates include:
- March 1 – Adoption of consensus revenue estimates for FY 2019.
- March 14 – Action on Senate & Assembly One House Budget bills and start of legislative conference committees
- March 22 – End of conference committee process
- March 27-29 – Legislative action on budget bills.
Our current focus is to get Business Council tax priorities reflected in the legislative one-house budget proposals. These include our response to Executive Budget revenue proposals, and additional Council initiatives, including tax conformity issues discussed below.
PAYROLL TAX PROPOSAL
Governor Cuomo has introduced his proposal for mitigating the impact of the federal SALT deductibility cap, as part of his Executive Budget 30 day amendments released today. The bill text is available here. The Division of Budget director issued a press release on Monday outlining the proposal. Key provisions include the following:
- Employers would have an annual election to opt-into an “employer compensation expense tax” (ECET) mechanism that would:
- be effective starting the 2019 tax year (employer election would have to be made by October 1, 2018);
- apply to “covered employees,” defined as those earning $40,000 or more;
- apply a flat ECET rate to payroll expenses in excess of $40,000 per covered employee;
- the rate will be 1.5% in 2019, 3% in 2020 and 5% in 2021 and thereafter;
- provide a PIT tax credit to employees based on the payroll tax paid on their wages;
- clarifies that the ECET cannot be deducted from employee paychecks;
- requires employers to remit the payroll tax to the state in a similar manner as for PIT withholdings; and
- Imposes joint and several liability for remittance of the payroll tax to the state, applicable to “responsible” business officers, managers and employees.
What is your initial take on this proposal? Please click here to take a BRIEF poll on this payroll tax proposal.
ARTICLE 9A ISSUES
While the Department of Tax and Finance’s “Preliminary Report on the Federal Tax Cut and Jobs Act” discusses several Article 9-A conformity issues, the Executive Budget includes no related amendments to the corporate franchise tax, and its “30 day amendments” included changes limited to “exempt CFC income” (see note below). With input from Tax Committee members, The Business Council has drafted a memo outlining our issues of concern and recommended amendments. Given the legislature’s budget adoption schedule outlined above, we need to finalize our conformance and amendment proposals within the next several days. We welcome any input you have on these or other issues arising from the recent federal tax reform. Please contact me at 518-694-44609 or submit questions or comments to Ken Pokalsky.
30 DAY AMENDMENTS
In addition to the payroll tax provisions mentioned above, the Governor proposed several other significant tax-related 30 day amendments to the Executive Budget, available on line here (scroll down to “Revenue (REV) Bill”).
- REV Part DD (PDF, 138KB) – modifications to the Executive Budget proposal for “windfall profit” tax on health plans, which extends the tax surcharge to income from state Medicaid managed care programs, and gives most administrative functions to the Tax Commissioner rather than DFS superintendent;
- REV New Part JJ (PDF, 132KB) – includes PIT decoupling and related provisions, addressing the federal cap on SALT deductions, ability to itemize at the state level, and application of the state standard deduction for single filers;
- REV New Part KK (PDF, 128KB) – Article 9A changes regarding exempt CFC income, and elimination of “double deductions”; and
- REV New Part LL (PDF, 146KB) -- New “charitable trust” mechanisms at the state and municipality levels.
TAX CREDIT DEFERRALS
We are asking for input from members that would be affected by the Executive Budget proposal to defer business tax credits. Similar to the deferral adopted in 2010, this would apply to most business-related credits under Articles 9A, 9, 22 and 33, and defer the value of such credits over $2 million per taxpayer during their 2018, 2019 and 2020 tax years. The proposal contains separate schedule for realizing deferred refundable and non-refundable credits, respectively.
The proposal exempts two of the state’s largest business credit programs from deferral, the state’s film and commercial production credit program and the Excelsior Jobs credit program.
However, most of the other major business credits would be subject to deferral. The largest credit programs, measured by the projected aggregate value of credits (NOT the projected deferral value) is presented below.
|CREDIT PROGRAM||ESTIMATED CREDITS ALLOWED ($ MILLIONS)|
|QEZE and Empire Zones||153|
|Brownfield Cleanup, Redevelopment and Insurance||130|
|Investment Tax Credit||125|
|RPT Credit for Manufacturers||100|
|Minimum Wage Reimbursement||45|
|Historic Property Rehabilitation||37|
|Low Income Housing||36|
Also proposed for deferral are tax credits for targeted hiring, alternative energy, and others. The full text of the legislative proposal can be found here.
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