Hi all...
Join Dutchess Outreach Ex. Dir. Brian Riddell, Dutchess CSEA's Shaun Chesley, folks from the Hudson Valley Area Federation, and yours truly for a crucial pre-Valentine's Day "Have a Heart, Albany-- Save Dutchess" press conference/rally this Friday, Feb. 12th at 12:30 pm in front of our County Office Building at 22 Market St. in Poughkeepsie!...(HVALF will be sending email out on this to members tomorrow)...
[pls let us know asap if you can join us for this folks; numbers count to have impact on media/legisl.'s; we'll have huge Valentine's Day heart-- let me know if you have time to help me paint this this week!]
Instead of the Governor's proposal to cut revenue-sharing with local municipalities......instead of his proposal to make the biggest cut in state aid to schools in decades (which would end up driving up property taxes)........instead of proposing hundreds of millions of dollars in cuts to hospitals and nursing homes.......and instead of proposing to layoff 54 from our state's Department of Environmental Conservation and slash our state's Environmental Protection Fund by $69 million...
[...and instead of forcing co. leg.'s like me to make cruel choices between tax hikes or budget cuts...]
There's a better choice, folks!...See http://www.ABetterChoiceforNY.org re: Better Choice Budget...
[call Gov. Paterson and state legislators on this NOW (pass it on)-- at (877) 255-9417!]
The fact is that if we in grass roots across NYS don't lift our voices for revenue alternatives like re-implementing a portion of the stock transfer tax that existed on Wall Street until 1981 (and now costs us literally $16 billion a year because it's given right back to stock market speculators)-- it's not just state budget cuts that will be hurting us in Dutchess County-- but NY's shortfunding of counties like Dutchess (and local municipalities) could unfortunately mean that the County Exec once again might put many great programs in jeopardy (join 114 signed on to my http://www.PetitionOnline.com/SaveDuCo )...
[recall-- Working Families Party, Paul Krugman, Dean Baker in strong support of bringing back stock transfer tax as well; even NYS AFL-CIO commissioned 2003 poll that found people across NYS strongly favor (by 3-to-1 margin) bringing back stock transfer tax, even at one or two pennies per share!...
see http://dutchessdemocracy.blogspot.com/2010/01/stock-transfer-tax-has-3-to-1-support.html ]
And yep-- bringin' back a small stock transfer tax on Wall Street is part of the Better Choice Budget!...
[see http://www.abetterchoiceforny.org/testimony210.pdf -- great testimony last Mon. < Ron Deutsch]
Here's just a PARTIAL list of some of 100+ groups across NYS that are part of Better Choice coalition:
[see http://www.ABetterChoiceforNY.org ]
Dutchess Outreach
Sierra Club
Environmental Advocates
CSEA, PEF, and NYSUT
New York State AFL-CIO
Interfaith Alliance of NYS
Citizen Action of New York State
New York Children's Action Network (NYCAN)
New York Jobs with Justice
New York Library Association
New York State Alliance for Retired Americans
New York State Coalition Against Domestic Violence
New York State Community Action Association
New York State Episcopal Public Policy Network
New York State Labor Religion Coalition
New York State United Teachers
New York State Weatherization Directors Association
NYS Child Care Coordinating Council
New York Statewide Senior Action Council
New Yorkers for Fiscal Fairness
Public Employees Federation
Public Utility Law Project
AFSCME
Campaign for Kids
Center for Working Families
Citizens Committee for Children of New York
Citizens Environmental Coalition
Class Size Matters
Coalition for After-School Funding
Coalition for the Homeless
Empire Justice Center
Empire State Economic Security Campaign (ES2)
Faith and Hunger Network of NYS
Fiscal Policy Institute
Housing Works
Hunger Action Network of NYS
Interfaith Impact of NYS
Medicaid Matters
National Alliance on Mental Illness - NYS
Neighborhood Preservation Coalition of NYS
[we truly are up creek without paddle if we don't embrace revenue alternatives: http://www.AQENY.org ]
From last Weds.' paper...(email countylegislators@co.dutchess.ny.us for our transfer tax resolution!)...
[thx much to Jim Doxsey & Dan Kuffner for co-sponsoring; why GOP not allow this on agenda in Feb.?]
"Dutchess County Executive William Steinhaus' 2010 State of the County, released Tuesday, includes a grim warning that if the state - faced with a $7.4 billion deficit - delays reimbursement of funds in the coming months, the county could be forced to borrow to pay its bills. The county has 'not been in the position of short-term borrowing in over 20 years,' said Steinhaus, a Republican.
["Steinhaus: County Faces Economic Challenges" by John Davis
http://www.poughkeepsiejournal.com/article/20100203/NEWS01/2030325/Steinhaus--County-faces-economic-challenges ]
Again-- click on and read these six on this issue if you haven't yet, folks(!):
2010 People's State of State Rally at Capitol statement [Mark Dunlea/Hunger Action Network of NYS]
http://www.hungeractionnys.org/People%20State%20of%20the%20State%202010.pdf
"Taxing the Speculators" by Paul Krugman [NYTimes 11/27/09]
http://www.nytimes.com/2009/11/27/opinion/27krugman.html
"The Benefits of a Financial Transactions Tax" [Dean Baker/Center for Economic Policy and Research]
http://www.cepr.net/index.php/publications/reports/the-benefits-of-a-financial-transactions-tax/
"A Stock Transfer Tax: The Right Medicine for Wall Street" by Dean Baker [3/15/08]
http://tpmcafe.talkingpointsmemo.com/2008/03/15/a_stock_transfer_tax_the_right/
"Ferrer Proposes Return of Tax on Stock Trades to Aid Schools" [New York Times 4/19/05]
http://query.nytimes.com/gst/fullpage.html?res=9D02E0DA1F3EF93AA25757C0A9639C8B63
"Big Idea: Tax the Street" by J.W. Mason [City Limits Magazine 9-10/02]
http://www.citylimits.org/content/articles/viewarticle.cfm?article_id=2806
...and again if you can....
Join us for press conference on this Fri. 12:30 pm in front of COB-- 22 Market St. Poughkeepsie; and if you have a sec-- hold all 25 of us accountable on this at countylegislators@co.dutchess.ny.us!...
[pass it on]
Joel
242-3571/876-2488
joeltyner@earthlink.net
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
From http://www.abetterchoiceforny.org/testimony210.pdf ...(click on this link itself for better formatting!)...
Testimony to the Senate and Assembly Joint Fiscal Committees
2010-11 Executive Budget Proposal
February 1, 2010
Submitted by:
Ron Deutsch, Executive Director, New Yorkers for Fiscal Fairness
I would like to thank the distinguished members of the committee for the opportunity to speak here today. My name is Ron Deutsch and I am the Executive Director of New Yorkers for Fiscal Fairness. Our organization spearheads the Better Choice Budget Campaign, a coalition of over 100 Labor, faith-based, human service and grassroots organizations representing over 1 million New Yorkers. We urge you to explore other possible spending cuts and revenue raising options that would help mitigate the potential devastating impacts of the cuts to services proposed by the Governor. Taking $7.4 billion dollars out of our state's economy during a recession will only make the current economic situation worse, not better. There are better choices to be made.
Close the Stock Transfer Tax Loophole ($3.2 billion)
(Secs. 270-281-a State Tax Law): The stock transfer tax is basically a sales tax on
the transfer of individual stock. Any stock transaction involving the New York
Stock Exchange, American Stock Exchange or NASDAQ is subject to the tax. The
original issuance of stock is not subject to the tax. However, transfers of
treasury stock are taxable.
The tax has been in effect for decades but unfortunately the money is currently
tallied, assessed, collected and then handed right back to the brokers who paid it
in the form of a 100% rebate. The tax was collected until 1981. The state began
rebating the tax in 1979 (at 30%), 1980 (at 60%) and in 1981 (at 100%).
The way it works is simple. The broker fills out a return (form MT-650), submits
payment to the state and the state wires the money right back to the broker. In
the past the state had to momentarily take possession of the tax to fulfill the
arcane requirements of its bond agreement with the Municipal Assistance
Corporation (this is no longer the case).
In order to discourage speculation, supporters of the Stock Transfer Tax
Loophole Closure should also consider tying the tax to trading volume: the lower
the trading volume, the lower the tax. A side benefit of the plan would be
to lessen the frenzied volatility that caused many of the recent problems on Wall
Street.
NYS currently rebates 100% of the nearly $16 billion in Stock Transfer taxes back
to brokers right after it is paid. We suggest that 80% be rebated and the State
retain 20% which would result in $3.2 billion annually in state revenue.
The Tax rate and basis is as follows:
Selling Price (per share) Rate (per share)
Less than $5 1 1Ž4 cents
$5 or more but less than $10 2 1Ž2 cents
$10 or more but less than $20 3 3Ž4 cents
$20 or more 5 cents
Transactions other than sales 2 1Ž2 cents per share
Stock Transfer Tax
Collections Before
Rebates*
State Fiscal
Year Ending
In:
Amount:
1980 452,743,623
1981 580,660,890
1982 561,440,112
1983 793,351,417
1984 1,023,718,768
1985 973,710,060
1986 1,232,497,287
1987 1,527,383,132
1988 1,755,983,416
1989 1,375,278,554
1990 1,610,760,964
1991 1,706,615,076
1992 2,210,761,060
1993 2,365,933,800
1994 2,935,823,760
1995 3,003,612,181
1996 3,595,094,985
1997 4,104,580,775
1998 5,572,567,976
1999 6,782,443,468
2000 7,494,935,815
2001 7,631,765,383
2002 6,682,575,506
2003 9,288,841,525
2004 10,605,122,527
2005 11,549,250,124
2006 11,593,533,764
2007 13,419,216,071
2008 16,313,860,949
2009 15,991,810,068
*The tax is rebated at the following rates:
Beginning October 1, 1979: 30%
Beginning October 1, 1980: 60%
Beginning October 1, 1981: 100%
Source: Table 22, New York State
Department of Taxation and Finance, 2008-
2009 New York State Tax Collections:
Statistical Summaries and Historical Tables,
November 2009.
State Spending Cap: A Bad Choice for NYS
In his 2010-2011 Executive Budget Proposal the Governor is calling for the enactment of a state spending cap.
We believe this to be a bad choice for NYS. Colorado is the birthplace of the state spending cap. In 1992,
Colorado enacted a Taxpayers Bill of Rights (TABOR), a constitutional amendment that limits the annual
growth in state revenues and expenditures. In recent years, anti-government groups have pushed spending
cap proposals like Colorado's in numerous other states. These proposals have gone under a variety of names,
such as "Tax and Spending Control" (Nevada) or "Stop Over Spending" (Michigan) and now the "State
Spending Cap" in New York. Unfortunately these types of caps can have very negative consequences.
Spending Caps Negatively Impact Colorado
Colorado's state spending cap contributed to a significant decline in public services in Colorado. It resulted in:
o Colorado declining from 35th to 49th in the nation in K-12 spending;
o higher education funding dropping by 31 percent;
o Colorado falling to near the bottom of national rankings in providing children with full, on-time
vaccinations; and
o the share of low-income children in the state who lacked health insurance doubled, making Colorado
the worst in the nation by this measure.
In 2005, these problems led Colorado voters to approve a statewide measure to suspend TABOR for five years
in order to allow the state to rebuild its public services.
Spending Cap Proposals in Other States
In recent years, several national anti-government groups have led campaigns in numerous other states to
enact Spending Caps. Since 2004, serious efforts have occurred in 20 states: Arizona, Colorado, Florida,
Georgia, Kansas, Maine, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North
Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, and Wisconsin. Most of these proposals failed
to make the ballot. In the three states where proposals did make the ballot - Maine, Nebraska, and Oregon
- voters rejected them.
Unintended Consequences of a Spending cap:
Despite the Governor Paterson's assertions to the contrary, a state spending cap will inevitably drive up local
property taxes. As evidenced in Colorado, the state spending cap did not decrease the cost of healthcare or
education it simply resulted in less state spending on these critical needs. In New York we have seen that
when the state shirks its funding responsibilities, local property taxes rise to make up for the shortfall. This
will inevitably be the case if this spending cap is enacted.
STAR Restructuring and the Circuit Breaker Proposal
The Governor has rightly proposed making some changes to the STAR program. Limiting STAR exemption for
homes valued over $1.5 million make great sense. His proposal to also limit it to homes with incomes below
$250,000 also makes sense. We need to seriously reevaluate the current STAR program and its ability to
deliver tax relief to families most burdened by the property tax. We need to take it a step further and
completely restructure STAR into a circuit breaker type program to ensure that the people that are the most
heavily burdened by the property tax (paying 10-40% or more of their income in property taxes) would get the
most assistance. The Governor has also proposed a circuit breaker that would be funded with surplus funds
generated from the spending cap. I have some major reservations about the Governor's proposed circuit
breaker proposal.
Major concerns with the Governor's Circuit Breaker proposal include the following:
1) In contrast to virtually all effective circuit breaker programs nationwide, it would apply only to school
taxes, ignoring the burden faced by hundreds of thousands of residents of mostly poorer counties where
county and municipal taxes often exceed the school tax;
2) It allows the state to change annually the formula it will use to calculate the amount of the income tax
credit, effectively negating one of the key features of a circuit breaker, which is to provide some level of
confidence that one's maximum property tax obligation will be relatively predictable in future years;
3) Its implementation will only begin when the state runs a budget surplus, an unpredictable but definitely
not imminent timeframe which ignores the urgency of the problem;
4) It sets a $2000 maximum credit for any homeowner, significantly reducing the benefit for those being
forced to pay the highest percentages of their income in property tax and who are therefore at greatest risk of
losing their homes;
5) It would use future increases in available funding to include more people with lesser property tax
burdens (based on the percentage of income paid in property tax) rather than raising the maximum individual
credit or otherwise increasing the benefit for those who are most overburdened; (this undermines the
fundamental concept of the circuit breaker as "targeted" relief, thereby making it less meaningful to those
most overburdened and less cost-effective as a relief mechanism)
What do Colorado's Business Leaders Say about the Spending Cap:
"Coloradoans were told in 1992 . . . that TABOR guaranteed them a right to vote on any and all tax increases. . . . What
the public didn't realize was that it would contain the strictest tax and spending limitation of any state in the country, and
long-term would hobble us economically." - Tom Clark, Executive Vice President, Metro Denver Economic
Development Corporation
"The TABOR . . . has an insidious effect where it shrinks government every year, year after year after year after year; it's
never small enough. ...That is not the best way to form public policy." - Brad Young, former Colorado state
representative (R) and Chair of the Joint Budget Committee
"[Business leaders] have figured out that no business would survive if it were run like the Spending Cap faithful say
Colorado should be run -- with withering tax support for college and universities, underfunded public schools and a future
of crumbling roads and bridges." - Neil Westergaard, Editor of the Denver Business Journal
6) It includes a curious and cumbersome provision that would actually REDUCE the level of circuit breaker
relief for those whose local school tax levy increase exceeds inflation in a given year and INCREASE the level of
relief when the levy only rises at the inflation rate or less; (the reduction effectively penalizes the substantial
number of individuals who may well have voted in the minority against the higher levy increase.)
7) It does not include renters. Every effective circuit program acknowledges that renters pay a property tax
equivalent through their landlord and that lower and middle income renters can be just as overburdened by
that portion of their rent as their homeowner counterparts.
8) It has different income brackets for upstate and downstate. Since the circuit breaker is based on the
relationship BETWEEN one's income and tax bill, calculated as a percentage -- which has uniform validity
statewide -- there is no reason for a geographic differentiation, and such a differentiation is actually
inequitable.
9) It does not use graduated rate brackets in transitioning from one income range to another, thereby
creating inequitable "notch" effects or "cliff "effects.
10) Despite the Governor's focus on school property taxes, his proposal does not address the state policy
that most directly affects local school property taxes which is the adequacy and consistency of state aid.
Incredibly, the Governor's proposal omits any commitment to the funding of the state's share of school costs
under the landmark foundation formula legislation enacted in 2007 to settle the Campaign for Fiscal Equity
lawsuit. This omission is even more amazing since the Governor's proposal also includes a formula for
reducing the circuit breaker credit for homeowners depending on the school district that they live in and the
rate at which that school district increases its property tax levy.
I support the Omnibus Consortium's (a coalition of property tax reform groups from across NYS) circuit
breaker (S4239A and A8702) because it has none of the above problems. When fully phased in (fourth year), it
would have a $250,000 maximum income eligibility. It would provide income percentage "triggers" of 6% on
income of $100,000 or less, 7% on income between $100,001 and $150,000, and 8.5% on income between
$150,001 and $250,000. It has a 5 year prior residency requirement. The income tax credit for all those
meeting the income and residency guidelines would be 70% of property taxes paid in excess of the relevant
percentages. All ad valorem taxes paid on the home (i.e. those based on its value) are counted. Renters are
included beginning in the second year.
S4239A and A8702 will provide the relief so urgently needed to stop the forced exodus of New York residents
from their homes, and it will do so at a relatively modest cost ($1.1 Billion the first year). Detailed information
about the Omnibus Consortium and its circuit breaker can be found at www.omnibustaxsolution.org.
Better Choices for Budget Balancing and Closing the GAP
Use the Tax Stabilization Reserve Fund and State Rainy Day Fund ($1.5 billion):
The Tax Stabilization Reserve Fund (TSRF) is for unplanned end of year deficits and totals $1.039 billion. The
state rainy day fund has approximately $400 million reserved for economic downturns. These funds are an
important backstop or cushion for getting through the current fiscal year without making billions in cuts to
vital services as the Governor has proposed.
The relevance of the TSRF and rainy Day Fund to the current situation is that (1) NYS has a reserve fund of
approximately $1.5 billion that it can borrow from if disbursements made during the 2010-11 SFY end up
exceeding the receipts and money available for use during the SFY. The Governor and the Legislature should
not make more cuts than are necessary given this $1.5 billion cushion.
Reform Brownfield Clean Up Program (approximately $1 billion): On July 23, 2008, Governor David A.
Paterson signed into law legislation to reform certain aspects of the State's Brownfield programs. This
legislation amends Chapter 1 of the Laws of 2003, which established the Brownfield Cleanup Program (BCP).
The BCP, among other things, provides BCP tax credits in return for the cleanup and redevelopment of BCP
sites. The principal reforms enacted relate to restructuring the tax credits to provide balance between
remediation and redevelopment credits. Legislation was passed in 2008, but the cap for tax credits is still set
too high. In a report by the Comptroller in June 2008, current projects could cost the state $3 billion. New
York and Connecticut have redevelopment incentives as well as cleanup incentives, while MA, NJ, PA, and VT
only have cleanup incentives. Tax credits should be more aligned with the amount of remediation and level of
clean up that happens, rather than the cost of redevelopment.
The problem remains that many programs that were grandfathered in to the program prior to the changes will
still receive exorbitant redevelopment credits which could cost the state billions. This program needs to be
further reformed so we are not excessively subsidizing redevelopment.
Empire Zone Program ($600 million): Empire Zone program sunsets in 2010 and should be eliminated in its
current form. This would save the state approximately $600 million per year. This program has proven to be
ineffective and fraught with abuse. We have advocated its elimination for years. The governor is proposing a
new program to replace it that he states is more linked to job creation than the current program. We already
have IDAs at the local level (that also need to be reformed) but would serve the same function as a statewide
program.
Stop Hiring pricey Private Consultants (approximately $200 million per year): In SFY 2008-09, the state spent
$2.9 billion on consultants and paid them an average annual rate of $160,719. Consultants charge 62% more
than state employees who do the same work including the cost of state employee benefits. Consultant
spending for the first half of this year is at the same rate as last year. The state should reduce the use of these
high priced consultants before any state employee loses their job or pay. Replacing half of these consultants
with state employees will save the state over $656 million over the next three years.
Promote the Bulk Purchase of Pharmaceuticals (approximately $200-$500 million): Language inserted into
last year's budget allows the Department of Health to negotiate directly with drug companies for lower cost
drugs. According to recent studies, New Yorkers spend over $20 billion a year on prescription drugs.
Approximately $4 billion (or more) of this spending is in the Medicaid program. We should use our purchasing
power to force drug companies to provide us with lower cost drugs. We could save hundreds of millions or
more if we were able to get drugs for what the federal government currently pays. The Progressive States
Network has model legislation for states that are attempting to reign in prescription drug costs.
State Issues/Revenue Raisers:
Collect Taxes that are Due on Cigarettes (approximately $500 million): The impact of price on cigarette
consumption is well documented. The more expensive tobacco products are the more people will want to quit smoking.
The good news is the Empire State now has one of the highest cigarette taxes in the nation at $2.75 per pack. But there's
a problem. Hundreds of millions of dollars in cigarette taxes aren't being collected. New York has been unable or
unwilling to collect taxes on tobacco products sold at Native American retail outlets. This torrent of tax free cigarettes is
both a significant public health problem and economic burden to all New Yorkers. But a new law allows the state to
collect all cigarette taxes before the products reach the reservation and put an end to this public health embarrassment.
Native Americans would be provided coupons to purchase tax free cigarettes while sales to non-native Americans would
be subject to the tax. We also support the increase on cigarette taxes the Governor has proposed.
Soda Tax ($1 billion): A 1 cent per once tax on sugary soft drinks could result in an additional $1 billion in revenue.
The basic argument is that each New Yorker now drinks the equivalent of 11 cans of soda a week, up from five cans a
week in 1970. Three of the six additional sodas per capita are sweetened with sugar. Three cans per week adds up to "13
more pounds of straight sugar" a year according to Doctor Richard Daines (NYS Department of Health Commissioner).
That's about 21,000 calories worth of sugar. Daines also points out that 34% of NY children are overweight or obese.
This year, Gov. Paterson proposed adding a syrup/sugar tax on sugar-sweetened drinks (raising $400+ million this year a
billion next) as part of a package of spending cuts and tax hikes aimed at closing the state's yawning budget gap. Polls at
that time found New Yorkers opposed to the new tax by a margin of 60% to 37% but that should not deter the
legislature from supporting this tax this year.
Plastic Bag Tax ($340 million with a 5 cent tax): In an effort to reduce the use of plastic bags in our state we could
institute a per bag tax. The average person in NYS uses approximately 333 plastic bags per year. While a small
percentage of these bags get recycled most are simply thrown away. This tax is an excellent way to help the
environment and generate dollars for the state. Other countries/states/cities already have this type of tax (most notably
San Francisco - and Ireland charges .33 cents for each bag) and Mayor Bloomberg tried to get a .05 cent tax per bag
enacted in NYC. The Mayors efforts were in vain as the state would not approve such a tax at the time. It is estimated
that a tax of between .05 cents and .25 cents would generate between $340 million and $3 billion. New Yorkers
currently use approximately 6.3 billion plastic bags per year.
Severance/Extraction Tax on Marcellus Shale Natural Gas ($100 million conservatively):
[note re: this-- 800+ from our region signed on to my http://www.PetitionOnline.com/NoDrill , tho!]
Most states with significant mineral resources levy a tax on the extraction of those resources. State severance taxes
compensate state residents for the extraction of valuable mineral resources.
"If" drilling is allowed in the Southern Tier of NYS, a severance tax would have substantial benefits and few drawbacks.
As NYS is one of the few states in the nation with possible significant mineral wealth that does not have a severance tax
it will not make us uncompetitive. The creation of a severance tax could compensate state and local governments for
costs associated with natural gas production, provide funds to mitigate potential environmental hazards, and serve as a
valuable source of revenue. The tax would be paid by oil and gas developers, many of whom may be from out-of-state.
The Governor has proposed a 3 percent tax that would be imposed on natural-gas producers in the Marcellus and Utica
Shale formation in the Southern Tier and central New York using a horizontal well. The state doesn't expect any revenue
in the 2010-11 fiscal year, but estimates $1 million in the following fiscal year. These estimates are far too low and
should be subject to a much higher tax rate. We should work with the state of Pennsylvania to ensure that our taxes are
similar to theirs.
Make Permanent the Temporary PIT Increase (no fiscal impact till 2012): Passage of a tax increase on wealthy
NYers was included in last year's budget. Rates went from 6.85% to 7.85% for families making between $300,000-
$500,000 and to 8.97% for families with incomes over $500,000. This income tax increase was put in place for 3 years
and will sunset in 2011. It should be made permanent.
Close Corporate Tax Loopholes: Making Business Taxes More Equitable
One of the ways in which New York's tax structure has not kept pace with economic and other changes is in the area of
unincorporated businesses. Typically, people tend to think that the universe of unincorporated businesses is dominated
by small businesses, the self-employed, sole proprietorships, and fledgling partnerships. Numerically, that might be the
case. But in New York State there are a very large number of very large unincorporated businesses with substantial
receipts and business income. In New York City, which does tax the business income of unincorporated businesses,
Limited Liability Companies (LLCs) and Limited Liability Partnerships (LLPs) paid $800 million in taxes in 2005, nearly
three-fourths of the total unincorporated business tax liability, and an amount equal to 40 percent of the total collected
under the City's General Corporation Tax.i
Within the finance sector, the role played by private equity and hedge funds has increased dramatically in recent years.
These entities typically are organized as LLCs or LLPs, and to some extent, the strong growth in the City UBT liability in
recent years stemmed from LLCs and LLPs in the finance sector. Eleven of the world's largest private equity firms are
headquartered in the city. Thirteen of the world's top 50 performing hedge funds are based in New York City.ii
Large LLCs and other business partnerships benefit from state public services and from state laws that grant them
special legal advantages not available to other forms of businesses.iii The State should seek to tax appropriately these
large business entities. New York City's 7,600 LLCs and LLPs had combined taxable income in New York City in 2005 of
$20 billion, which works out to an average of $2.6 million in business income per entity. These are not small businesses.
Yet, the State has gone in the other direction in terms of appropriately taxing these large businesses. Obviously, since
New York City already imposes a four percent business income tax on unincorporated businesses, there are limits to
how much the State could tax such entities. But the current state fee structure is extremely nominal.
The State should consider action in three areas involving unincorporated businesses.
A. Increasing filing fees for large LLCs and other partnership entities ($50-$100 million)
In 2003, the maximum Limited Liability Company (LLC) filing fee was increased from $10,000 to $25,000. Initially
authorized for two years and then extended for two more, the higher maximum was in effect for tax years 2003-06. The
fee structure was still on the member basis at this point. Filing fee collections, which are paid as part of New York State's
Personal Income Tax, increased from $26.5 million in 2002 to an average of about $72 million for 2003-06. In 2008,
however, the member basis was replaced with a fixed fee structure and the maximum lowered to $4,500, even for
entities with New York source gross income of $25 million or more. (The same fee structure applies to the fixed dollar
minimum tax for S and C corporations.)
In 2009, filing fees were established for non-LLC general partnerships on the same fee structure as for LLCs. The revenue
projection for this change was estimated by the State Tax and Finance Department at $50 million. The State should
consider restoring the $25,000 maximum filing fee and have it apply to both LLCs and general partnerships over some
very high business receipts or income threshold. An alternative would be to add one or more additional brackets at the
top end of the graduated fee structure. Given the number and size of such entities in New York, such a change might
generate $50 million to $100 million in additional revenue.
B. Taxing Nonresident Hedge Fund Management Fees ($60 million)
In his 2010 Executive Budget proposal, the Governor proposed to "expand the nonresident personal income tax to
include income received from hedge fund management fees." The revenue impact was estimated at $60 million. This
was not included in the enacted budget but should be considered. As the Governor's proposal explained, "Currently,
only a small portion of such income is taxed as compensation, with the remainder deemed tax-free capital gains. This
proposal would result in equal treatment of this income for residents and nonresidents."iv
C. Eliminating the Carried Interest Exemption under New York City's Unincorporated
Business Tax ($50 million)
While not a state revenue item, it would be important in helping New York City to close its Fiscal Year 2010 budget for
the State Legislature to eliminate the carried interest exemption loophole in the City's Unincorporated Business Tax. This
would put the taxation of private equity and hedge funds on the same footing as that of thousands of smaller
businesses. The City taxes the fees received by managing partners in private equity and hedge funds but exempts
"carried interest" from taxation. Carried interest refers to the profit share received by managing partners, usually 20
percent of the profits generated by the pooled investment of the limited partners.v
In his Executive Budget for FY 2010, the Mayor has proposed generating over $900 million by increasing the city sales tax
rate by half a percent and by eliminating the sales tax exemption for clothing and footwear. This proposal is extremely
regressive, and would impose an effective tax burden on low- and moderate-income households that is twice that for
high-income households. Eliminating the carried interest exemption is needed on tax equity grounds but it would also
help the City avoid or at least lessen its reliance on extremely regressive taxes. While any estimate of the possible yield
of such a change is very rough, eliminating the carried interest exemption could generate upwards of $50 million
annually.
Other Business related taxes:
o Qualified Production Activities Income (QPAI) Decoupling ($25 million). This action would conform New
York to the practices of 18 other states that have decoupled from the federal deduction related to
qualified production activities and require taxpayers to add back this deduction for New York tax
purposes. The deduction was originally intended to provide a tax incentive to manufacturers by preserving
and promoting domestic manufacturing jobs and domestic production. However, the deduction is now
allowed on a vast array of activities which go beyond the familiar concept of manufacturing. It is possible
that a multi-state firm could use the deduction to reduce its New York taxes without having a single
production employee in the State.
o Bad Debt Deduction ($25 million). This deduction would conform New York to federal rules and the
practices of other states that allow certain banks to deduct only bad debts that have been actually
written-off rather than amounts placed in reserve. The amount placed in reserve to cover such debt is
based upon the historical bad debt experience of the taxpayer. Currently, a bank is allowed to take
deductions based on an estimate of debts that are expected to become worthless in the future - providing
a deduction for debts before they actually become "bad" or uncollectible. This approach generally inflates
the amount of the deduction and thereby reduces taxable income.
o Bank Subsidiary Capital ($35 million). This action would require the add back of expenses related to
subsidiary capital under the bank tax, and eliminate the 20 percent reduction in the wage factor portion of
the apportionment formula to ensure the bank tax appropriately reflects a bank's presence in New York.
Eliminating this discounting of the wage factor would ensure a bank's tax liability appropriately reflects
that bank's level of activity and presence in New York. Under current law, bank taxpayers are allowed to
deduct 17 percent of interest income from subsidiary capital, 60 percent of dividend income and net gains
from subsidiary capital, and 22.5 percent of income from government obligations from income subject to
tax. However, unlike corporate taxpayers that are allowed similar deductions, bank taxpayers are not
required to add back to income the expenses related to these deductions. In addition, banks use a three-
factor formula of wages, deposits and receipts to apportion income to New York. However, under current
law, the wage factor is discounted such that only 80 percent (rather than 100 percent) of the bank's total
New York wages are included in the apportionment formula.
o Cooperative Insurance Companies ($23 million) . This proposal would limit the exemption under the
insurance tax for cooperative insurance companies. This proposal would ensure that insurance companies
that provide the same types of services are treated equally under the Tax Law. It would also deny the
insurance tax exemption to companies that have expanded their activities beyond those intended for
eligibility for the tax exemption and remove the unfair advantage afforded to these companies under
current law.
o Tax Full Cost of Remote Booking of Hotel Occupancy ($15 million). The Budget would require travel
companies that rent hotel rooms online or by telephone to collect the sales tax on the markups and
service fees charged to customers. When the travel company books the room, it pays the hotel for all
applicable taxes based on this discounted price and the hotel remits the sales tax to the State. The travel
company then places additional service fees and markups on top of this discounted price and bills its
customers. No State or local tax is collected on these fees or markups.
o Extend sales tax to services not currently covered (will depend in items covered): Consider extending the
sales tax to some of the services that are currently exempt from sales taxation like Accounting and Attorneys
fees.
o Adopt a Throwback Rule: Pending resolution nationally of the creation of "nowhere income" by the
workings of PL 86-272, New York State should adopt a throwback rule. NYS should not continue the flawed
idea of Single Sales Factor; and/or Single Sales factor should be suspended until PL 86-272 is repealed (or
revised enough to ensure that SSF does not result in a huge increase in "nowhere income"); and/or the Tax
Department should be required to do detailed annual reporting on the revenue and distributional impacts of
SSF; and/or a temporary commission to evaluate the impact of SSF should be established.
o Broader Tax credit reform: There is currently a huge and growing bank of unused tax credits. This is a very
dangerous phenomenon. Tax Credit reforms should take into consideration: (1) the limit on the carry over
of unused credits should be changed back to the 5-year limit contained in New York State's 1987 corporate
tax reform legislation; (2) an employment ratchet must be added to the ITC; (3) a moratorium should be
placed on the creation of any new credits until a thorough review and reform is completed in regard to the
existing credits
o Adopt Corporate Tax Disclosure: Corporate tax disclosure should be adopted for publicly traded firms
subject to taxation under 9-A and 32 and any successor taxes.
footnotes:
i
The amount of UBT taxes paid by LLPs and LLCs exceeded the total bank tax collections for that year. See, City of New
York, Department of Finance, Office of Tax Policy, Statistical Profiles of New York City Business Income Taxes, Tax
Year 2005.
ii
Fiscal Policy Institute, Re-thinking the New York City Business Tax Treatment of Private Equity Fund and Hedge
Fund "Carried Interest," April 15, 2008.
iii
Michael Mazerov, Reforming the Tax Treatment of S-Corporations and Limited Liability Companies Can Help State
Finance Public Services, Center on Budget and Policy Priorities, April 8, 2009.
iv
Governor David Paterson, 2009-10 New York State Executive Budget, p. 127.
v
Fiscal Policy Institute, Re-thinking the New York City Business Tax Treatment of Private Equity Fund and Hedge
Fund "Carried Interest," April 15, 2008.
