In a significant victory for New York’s business community, state legislators today have agreed to adopt the single-sales factor tax reform, a long-time priority of The Business Council.

The state’s corporate taxes are now based on three factors: in-state sales, payroll, and property. Because state taxes now increase as in-state jobs and sites increase, companies are effectively encouraged to put jobs and plants elsewhere. The single-sales factor reform would base taxes on just one factor, in-state sales, removing this disincentive to investment in New York.

The reform agreed to today would affect most corporate taxpayers other than insurers and utilities. It would be phased in over three years. The change would be 60 percent effective in 2006, 80 percent effective in 2007, and fully effective in 2008.

When fully implemented, the change is expected to reduce in-state businesses’ tax liability by $240 million and reduce state revenues by a net of about $140 million.

A 2001 study by The Public Policy Institute, The Business Council’s research affiliate, concluded that fully enacted single-sales factor reform would ultimately lead to 133,000 new jobs and thus increase state revenues.

"Enacting this reform will significantly improve New York's tax climate and business climate," said Business Council President Daniel B. Walsh. "The tax code at present effectively discourages investments in new facilities and jobs in New York State. This reform would remove that disincentive."

The Business Council has estimated that more than 11,000 New York State companies in many different sectors would benefit from this change, especially in manufacturing, finance, broadcasting, real estate, professional services, and trade. The Council's analysis also shows that no sector of the private-sector economy would be affected adversely by the change.

The state legislature has also:

• Agreed to cap the counties’ share of Medicaid spending. How the cap would work remains to be negotiated, but it seems likely that the final deal will be for a cap of spending at the 2005 local level plus increases of 3 or 3.5 percent a year. The Council has long sought reductions in New York's highest-in-the-national Medicaid spending, and considers a cap on counties' share a valuable first step in that process, Walsh said.
  
  
• Continued negotiations on extending and expanding the state’s key economic-development incentive program, the Empire Zone program. Legislators have agreed to establish 12 new zones over a four-year period and expand the benefit criterion for manufacturing and high-tech industry to recognize the value of capital investments.
  
  
• Continued negotiations, without reaching agreement, on extending the state’s successful Power for Jobs programs, an economic-development program that offers employers reduced-rate power in exchange for a promise to use that power to create or retain jobs.
  
  
• Declined to extend surcharges it enacted in 2003 to the state’s personal income tax and sales and use tax, which are due to expire in 2006. However, the Legislature has also rejected the Governor’s proposal to accelerate phase-out of the personal income tax surcharge.

All of the provisions being negotiated by the legislature are contingent on a final, overall budget agreement with Governor Pataki.