The new state budget reduces New York's primary business-tax rate and provides especially significant tax cuts for thousands of manufacturing companies, while substantially reducing new tax costs that had been proposed for banks.

The Article 9-A corporate tax rate imposed on more than 50,000 businesses drops from 7.5 percent to 7.1 percent, effective this year. The primary tax rates on banks and insurance companies are also reduced from 7.5 to 7.1 percent. The general tax rate on an estimated 3,400 manufacturing corporations drops further, from 7.5 to 6.5 percent, effective for taxable years starting on or after January 31, 2007.

Hundreds of manufacturing, securities and other firms that pay corporate tax under the state's alternative minimum tax will see that rate drop by 40 percent, from 2.5 percent of taxable income to 1.5 percent.

Many manufacturing and other companies with disproportionate levels of payroll and capital investment in New York, relative to their sales in the state, will also benefit from more rapid implementation of the state's change to single-sales factor apportionment. That change, enacted in 2005, was to phase in over several years with full implementation in 2008. Under the new budget, the move to single-sales factor apportionment takes full effect this year.

The Legislature accepted Governor Spitzer's proposal to require out-of-state companies that are related to New York corporations to file combined tax returns if the related companies have substantial intercorporate transactions. The Business Council had urged rejection of that provision, saying it would increase taxes on major employers and diminish New York's competitive position as a headquarters state.

The new budget also raises taxes on larger banks with real-estate investment trusts by phasing out, over four years, a deduction for dividends from "captive" REITS. The enacted provision is scaled back from the Executive Budget proposal, which would have eliminated the REIT deduction immediately. Community banks with assets of less than $8 billion will maintain the deduction. The Legislature also approved Governor Spitzer's proposal to add $75 million to the "covered lives assessment" tax on health-insurance plans.

The enacted legislation also rejects several other tax increases that were proposed in the Executive Budget and opposed by The Business Council. One such proposal would have decoupled New York from a federal tax incentive for production-related capital investment by manufacturers and certain other businesses. Another would have raised taxes on banks, and discouraged banking employment in the state, by eliminating preferential treatment under the Bank Tax for payroll expenses.

Overall, the business-tax increases included in the budget will raise state revenues by an estimated $450 million, according to the state Budget Division. The Budget Division estimates the value of enacted tax reductions at $150 million.