May 5, 2000
Legislature completes action on new budget; includes long-sought repeal of energy GRT for business, other business tax relief
The Legislature completed work on the 2000-01 state budget on Friday morning, May 5, enacting a long-sought repeal of the gross receipts tax on employers' energy utility bills.
The final package also features a key last-minute addition, repeal of the state sales tax on transmission and distribution of gas and electricity for commercial customers. That will save businesses nearly $150 million when fully implementedon top of the $330 million businesses and residential ratepayers will save on the GRT.
Governor Pataki, who proposed GRT repeal and agreed to the negotiated budget, is expected to sign it into law shortly.
The gross receipts tax on industrial customers is effectively repealed retroactive to January 1, 2000; manufacturers will continue to pay the GRT on their utility bills, but will be able to subtract that cost as a credit against their New York State corporate income tax.
For businesses other than manufacturers, the 3.25 percent tax will be reduced in steps before disappearing in January 2005. Residential ratepayers will benefit from a 40 percent reduction in the GRT, also taking effect over several years.
The Assembly finished action on the various budget bills early Friday morning, and the Senate completed its action several hours later.
Repeal of the GRT was The Business Council's top tax priority this year. The Council's electronic advocacy campaignletters produced through a link on The Council's websitegenerated nearly 25,000 letters to Governor Pataki and legislators asking for the repeal.
The newly announced elimination of sales tax on transmission and distribution of gas and electricity will be phased in over four years, starting September 1 of this year and taking full effect in September 2004.
The tax is a relatively recent one based on revised interpretation of longstanding law, initially announced in January 1999. That administrative ruling by the Department of Taxation and Finance reversed a decision made by the agency two years earlier, when the state Public Service Commission (PSC) was planning the deregulation of energy utilities to foster competition in New York's energy markets.
The Business Council and others protested the new ruling, and the department delayed its implementation until April 1, 2000. When the tax took effect last month, there were strong protests in many parts of the state, especially from commercial businesses. The 1999 ruling did not affect the costs of electricity used in manufacturing processes, which is exempt from the sales tax.
To equalize tax treatment of energy purchases made inside and outside New York, the new tax package creates a use tax on gas and electricity purchased out-of-state for use within the state. The use tax will cost energy users an estimated $160 million a year, with receipts divided between the state and counties.
Another major, energy-related provision of the new state budget expands the Power for Jobs program, providing 300 new megawatts of low-cost power. Businesses are eligible to apply for the low-cost power to help create or retain jobs in the state.
Governor Pataki, Senate Majority Leader Bruno and Assembly Speaker Silver had all advanced proposals to repeal or reduce the GRT, as did Assembly Minority Leader Faso and Senate Minority Leader Connor.
"We congratulate all of the leaders on the next big step in reducing New York's high energy costs and tax burden," said Daniel B. Walsh, president of The Business Council. "Each of the leaders put forth sound and needed measures which are included in the final package."
The Business Council successfully pushed for a number of other tax reductions included in the new budget. They include:
- The ton-mileage tax will be reduced by roughly 7 percent, building on larger reductions enacted over the past three years. Manufacturers, other shippers and the trucking industry will save $10 million a year as a result.
- Securities firms will allocate receipts from sales based on the address of the customer, rather than that of the firm. This reform, providing estimated savings of $50 million, will encourage securities firms to locate offices and jobs in New York, rather than in other states.
- Insurance companies will be allowed to use the investment tax credit for equipment used in the trading of securities, as of January 2002, for savings of $10 million.
- Sales tax exemptions will be expanded for equipment used in telecommunications and television broadcasting.
- S-corporations will pay a reduced "differential" tax as of the end of 2003, for estimated savings of $15 million.
- Small businesses will see their corporate franchise tax rate reduced from 7.5 to 6.85 percent, the same as the state's personal income tax rate, by the end of 2003. Estimated savings: $5 million.
- Web-hosting facilities, also known as Internet data centers, will be exempt from sales tax on most materials, equipment and related services as of September 1 of this year, saving $9 million a year.
- Newly created Empire Zones will sharply reduce taxes in current Economic Development Zones in the upstate region, for a total savings of $40 million.
The budget also implements major business tax cuts enacted in previous years. The corporate franchise tax ratethe tax paid by tens of thousands of businesses across the statedrops from 9 to 8.5 percent for most of those businesses this year. It is scheduled to fall to 7.5 percent in 2002.
In addition, the alternative minimum tax, paid by many manufacturers, will drop from 3 to 2.5 percent for taxable years starting after June 30. That reduction increases the value of the state's investment tax credit.
Along with the budget legislation, the Assembly and the Senate approved a new statutory limit on state debt. New debt outstanding will be limited to 4 percent of New Yorkers' personal incomea significant decline from the current level of 6 percent of personal income. New costs for annual debt service will be limited to 5 percent of total state receipts.
The debt reform law will restrict the use of debt to financing capital purposes. That change is intended to avoid gimmicks such as the state's early-1990s sales of a prison and sections of highways to public authorities, to raise cash for operational spending. The maximum term of new state debt issuances will be cut from 40 to 30 years. The changes will phase in over a number of years.
The budget also includes a major expansion of the state's Debt Reduction Reserve fund, from $250 million to $750 million. The fund will be used to reduce existing debt this year and in 2001-02, Governor Pataki said.
The Governor and the Legislature also agreed to ask voters to approve a $3.8 billion transportation bond act on Election Day this November. The borrowing would provide $1.9 billion for the state's roads, bridges and canal system; $1.6 billion for the Metropolitan Transportation Authority; and $300 million for railroads, airports and port facilities.
Overall state spending will increase by an estimated 5.6 percent. Major spending increases will go to education ($1.2 billion, for an increase of 8.7 percent); pharmaceutical assistance for senior citizens ($180 million); and financial assistance for municipalities ($110 million added by the Legislature).