Introduction
In mid-December 2013, the second taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. commission convened by New York Governor Andrew Cuomo released its recommendations for reforming the New York tax system with the goal of reducing property and business taxes substantially in the coming years.[1] According to the New York State Tax Relief Commission’s final report,
The Governor charged this Commission with devising a series of targeted tax relief proposals—valued at $2 billion within three years—that would be focused on alleviating the crushing burdens on individuals, families, and businesses of New York’s most onerous taxes with an emphasis on local and school property taxes.[2]
These recommendations follow those made by the New York State Tax Reform and Fairness Commission, which released recommendations in November of 2013.[3]
Commission Findings
The Commission finds:
- In light of New York’s comparatively high property taxes, more direct property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. relief is needed for homeowners and business taxpayers in addition to the 2 percent real property tax cap enacted in 2011.
- In order to address the driver of increasing property tax burdens, local governments should consolidate and share services to “streamline operations” and increase efficiency, thus reducing local spending.
- New York’s corporate franchise tax is unnecessarily complex. It has multiple bases, requires additional taxes to be paid on subsidiary capital within New York, includes a surcharge for businesses located in the Metro Transit Authority district, and taxes banks and financial institutions under a separate tax system. These components create negative incentive effects and simplification measures are warranted.
- Further business tax relief is needed for the state’s manufacturing sector (in particular, upstate manufacturers).
- Many of the recommendations made by Governor Cuomo’s first tax commission would increase the competiveness of New York’s business tax system and should be implemented.
Commission Recommendations
The Commission made recommendations for the state individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. , property taxes, various business taxes, and the state estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. . These recommendations are summarized in Tables 1 through 4 below, in addition to any revenue impact estimates provided by the Commission for the 2016-2017 fiscal year.[4]
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Table 1: Individual Income Tax Recommendations |
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Item |
Revenue Impact, FY 2016-17 |
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Allow top rate to fall to 6.85 percent in 2018 as scheduled.[5] |
None |
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Repeal Minimum Tax under Individual Income Tax code.[6] |
Not specified |
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Table 2: Property Tax Recommendations |
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Item |
Revenue Impact, FY 2016-17 |
|
Implement real property tax relief for homeowners based on ability to pay (benefit increases as income decreases).[7] |
-$1 billion[8] |
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Freeze local property tax levels for two years in localities that abide by the 2 percent real property tax cap enacted in 2011 by reimbursing residential homeowners for the difference between the 2014 property tax liability and the increase in 2015 and 2016 liability. All abiding localities would be eligible for reimbursement in 2015, but in 2016, only taxpayers in jurisdictions that make efforts to consolidate services and increase efficiency would be eligible for the reimbursement.[9] |
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Table 3: Business Tax Recommendations |
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Item |
Revenue Impact, FY 2016-17 |
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Create manufacturing business tax credit (implemented under corporate franchise and income taxes) equal to 20 percent of real property taxes paid.[10] |
-$136 million |
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Lower corporate franchise tax rate from current level of 7.1 percent to 6.5 percent.[11] |
-$346 million |
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Merge Bank Tax with Corporate Franchise Tax |
|
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Further lower to 2.5 percent the corporate franchise tax rate for manufacturers located in upstate New York.[12] |
-$24 million |
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Immediately eliminate 18-A Utility Surcharge.[13] |
-$200 million |
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Eliminate “nuisance taxes.”[14] |
Not specified |
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Table 4: Estate Tax Recommendations |
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Item |
Revenue Impact |
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Increase exemption from current level of $1 million to match federal level of $5 million.[15] |
-$381 million[16] |
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Index exemption amounts for inflation.[17] |
|
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Lower maximum rate from 16 percent to 10 percent.[18] |
[1] New York State Tax Relief Commission, Final Report (Dec. 2013), http://www.governor.ny.gov/assets/documents/commission_report.pdf [hereinafter Commission Final Report].
[2] Id. at 3.
[3] See New York State Tax Reform and Fairness Commission, Final Report (Nov. 2013), http://www.governor.ny.gov/assets/documents/greenislandandreportandappendicies.pdf.
[4] For the Commission’s revenue impact estimates, see Commission Final Report, supra note 1, at 6 (unless otherwise noted).
[5] The report also notes that, “Some Commission members favor setting aside any future surplus to help ensure the 6.85 rate is restored in 2018.” See Commission Final Report, supra note 1, at 3.
[6] Commission Final Report, supra note 1, at 13.
[7] Commission Final Report, supra note 1, at 3. These types of programs are typically referred to as circuit breaker programs and are often structured as a rebate or credit paid if property taxes exceed a certain predetermined proportion of income.
[8] The tax credit program would cost an approximate $976 million. See Commission Final Report, supra note 1, at 8. The remainder of the $1 billion in property tax relief would fund the two-year property tax freeze (approximately $24 million).
[9] Commission Final Report, supra note 1, at 3 & 7-8. These benefits would only available to homeowners outside of New York City since the city is not subject to the property tax cap. The program would benefit approximately 2.8 million homeowners by $354 each, on average.
[10] Commission Final Report, supra note 1, at 4. For more information on property tax paid by businesses and recommended credit, see Commission Final Report, supra note 1, at 10-11. The Commission also recommends increasing the percentage for manufacturers located in upstate New York.
[11] Commission Final Report, supra note 1, at 4.
[12] Commission Final Report, supra note 1, at 5. For more information on recommended lower rate for manufacturers, see Commission Final Report, supra note 1, at 11-12.
[13] Commission Final Report, supra note 1, at 5. For more information on the 18A Utility Surcharge, see Commission Final Report, supra note 1, at 10.
[14] Commission Final Report, supra note 1, at 5 & 13. Nuisance taxes, as specified by the New York State Tax Reform and Fairness Commission, are the “Add On” Minimum Tax, Stock Transfer Tax, the Agricultural Cooperatives Tax, the Organization Tax on in-state corporations, the License Fee on out-of-state corporations, and the Boxing and Wrestling Tax. See New York State Tax Reform and Fairness Commission, Final Report (Nov. 2013), at 31-32, http://www.governor.ny.gov/assets/documents/greenislandandreportandappendicies.pdf.
[15] Commission Final Report, supra note 1, at 5.
[16] Estimated revenue impact for FY 2017-2018 is $627 million. Estimated revenue impact for FY 2018-2019 is $772 million.
[17] This would make the current year’s exemption fall at $5.25 million. See Commission Final Report, supra note 1, at 12.
[18] Commission Final Report, supra note 1, at 5.