PRIORITY ISSUE: Single Sales Factor

The Business Council supports "single sales factor" legislation that would make our tax code more competitive for the manufacturing, financial services and media sectors. This reform will benefit those businesses that have a significant share of their jobs and facilities in New York, and provide a valuable incentive for continued capital investment, and for maintaining and increasing employment, within the state.

Current NYS Law - The state's corporate franchise tax (Article 9-A) contains an apportionment formula to determine what percentage of a taxpayer's worldwide net income is subject to tax by New York. Under current law, a taxpayer determines the percentage of worldwide sales that have a New York destination and the percentage of worldwide payroll and property that is located in New York. Taxpayers add twice the sales percentage and the jobs and property percentages once each, then divides the sum by four - an approach known as double sales weighting.

Changing Formulas - Each of the forty-six states with a corporate income tax employs a version of this apportionment formula. Prior to 1976, most states used an equal weighted three factor approach. In 1976, New York was the first state to switch to its current double weighted sales allocation, which lessened the tax burden on corporations whose percentage of in-state jobs and facilities was greater than their percentage of in-state sales. In doing so, New York moved ahead of competing states in terms of a pro-growth corporate tax policy. By 2000, 35 states had adopted a double weighted sale, including most of New York's chief competitor states.

More important, a number of states are now exceeding New York's benchmark for a more competitive corporate tax policy. Eleven states, including key competitive states such as Illinois, Massachusetts, Connecticut, and Texas, have already adopted single sales factor formula apportionment. A number of other states are considering legislation to go to a single sale factor apportionment. 

Need for Reform - Adopting a single sales factor approach in New York will promote the creation of tens of thousands of new jobs in New York, adding to both personal income levels and state and local tax revenues.   Our analysis of the economic benefits of this reform measure is available on line at: www.ppinys.org/reports/2001/sglsales/sglsales.htm. This reform will benefit manufacturing, financial service and media businesses that locate a significant share of their facilities and employees in New York, regardless of their size. In fact, smaller New York firms with out-of-state sales will see an even larger percentage benefit. On the other hand, there will be no change in tax liability for firms with all their employees, property, and sales within New York.

Importantly, this allocation change can also benefit those small businesses that pay under subchapter S of the state's Personal Income Tax law. Typically, subchapter S taxation is based on the location of the shareholder receiving the income. However, under New York tax law, a business that files federally as a sub-S corporation can elect to file their state taxes on either a sub-S or Article 9-A basis, allowing them to benefit from our conversion to single sales factor allocation.