The Business Council strongly opposes the Governor's proposal to defer 50 percent of business tax credits “that otherwise would be used or refunded” for tax years 2010, 2011 and 2012. This would affect tax credits earned for new investments in these years, as well as credit earned for prior investments.
This proposal would erode key economic development incentives, such as the investment tax credit which is widely used to support new capital investments in New York State's manufacturing sector. Importantly, this proposal impacts tax incentives already earned by businesses for investments they have already made in New York State– like Empire Zone real property tax credits and ITCs that have been carried forward.
It also reduces economic development incentives available to support new investments and new jobs in New York State, and will further erode the business community's confidence in state-offered incentives.
At a time when the state is focusing on retaining and creating new jobs for New Yorkers, this proposal would make the state's economy and businesss climate less competitive.
Other specific concerns regarding this proposal include:
- The Business Council continues to oppose new or increased business taxes that would further damage our economy. No matter how it is packaged, this is a business tax increase — individual businesses will pay more in taxes than they would under current law. As we begin to emerge from the national recession, New York State needs to make itself more attractive to new business investment, not less. Increased business taxes make the state less competitive.
- Businesses have made capital investments; cleaned up and redeveloped brownfields; hired workers and increased payrolls; invested in research activities and alternative energy; and made other investments in exchange for tax credits and other incentives that helped make these projects affordable in New York State. It is terrible public policy to again reduce tax credits after business investments and expenditures have already been made – as New York did last year in creating new criteria that eliminated tax credits for already-certified Empire Zone companies. This approach makes New York a less attractive state for new investments and new jobs.
- While New York has a revenue shortfall due to the recession, it has a permanent spending problem. Unsustainable increases in spending over the past decade are driving this year's and future years' structural budget gaps. New York needs to bring spending under control, not raise taxes during a recession, in closing these structural gaps. Unfortunately, there is still no legislative agreement to implement even the modest spending controls in the Executive Budget. Dramatic reductions in economic development programs and a proposed 50 percent reduction in business tax credits are totally out of proportion to the modest proposed cuts, or reductions in the rate of growth, for most major state spending programs.
- This proposal is actually a double hit on business – an “out of pocket” cost resulting from increased tax payments over the next three years, and an adverse balance sheet impact caused by reduced values of deferred tax assets. Many businesses cannot take full advantage of business tax credits in the year they are earned because of the state's alternative minimum tax. These unused tax credits are carried forward to future tax years. This additional deferral of already earned credit further reduces their value, and makes it even less likely that the business will be able to fully claim the investment credits they have earned.
- Finally, deferring tax credits is similar to borrowing in that their cost eventually comes due. If the state cannot reign in spending, it is unclear whether the state budget will be in any better condition in 2013 than it is today. Earlier this year, the Division of Budget projected deficits of $20 billion in both FY 2013 and 2014 in the absence of significant spending reform. If the legislature votes to defer these credits now, we question its willingness to more than $1 billion in deferred credits to actually be taken in future fiscal years.
For these reasons, The Business Council strongly opposes this proposal, and urges its rejection by the Senate and Assembly.