Tax Justice Digest stories about New York

New York is no different than most states in at least one respect – it too must confront a major budget deficit, estimated at $4.7 billion for the fiscal year starting April 1.  It may, however, follow a much more responsible path than Georgia and other states attempting to cut taxes in the midst of dire financial straits.  The state Assembly has approved a plan that would levy a temporary income tax surcharge on people with incomes over $1 million and that would yield roughly $1.5 billion per year.  The plan is opposed by the Senate, but new Governor David Paterson has yet to rule it out.

Maryland faces a situation similar to New York and is also considering an increase in personal income taxes for some of its wealthiest residents. But rather than devote that additional revenue to current appropriations, lawmakers want to use it to repeal a change in tax policy that isn’t scheduled to take effect until this summer.  Recent tax projections in the Free State are now $333 million lower than previously expected and, just this past week, the Maryland House adopted a FY 2009 budget that reduces spending $250 million below Governor Martin O’Malley’s initial request. 

Yet, one topic that continues to dominate conversations in Annapolis is the extension of the state’s sales tax to computer services.  Enacted as part of a larger tax package during last fall’s special session, the tax change isn’t slated to take effect until July 1, but is the target of a major lobbying campaign by the computer industry.  The Governor recently threw his weight behind a Senate plan to repeal the computer tax and replace the lost revenue with an increase in the personal income tax:  specifically, the creation of two new tax brackets with rates of 6.0 percent and 6.5 percent for taxable income above $750,000 and $1 million respectively.  Such a move would improve the progressivity of Maryland’s tax system, but could be a step back for sustainability. Maryland – like most states – needs to expand its sales tax base to include more services or be left with a tax system that is poorly matched to today’s economy.

Just Hand Over the Shovel, Governor

|
In a speech before the Citizens Budget Commission last week, the Director of New York State's Division of the Budget, Paul Francis, indicated that the Empire State will likely face a budget deficit of at least $3.6 billion for the 2008-2009 fiscal year.  One of the main factors contributing to that deficit is an expected slowdown in revenue associated with the financial services and real estate industries. In fact, according to Francis, during some periods, "Wall Street accounts for up to 20 percent of [state] revenues," leaving New York particularly vulnerable to fluctuations in those sectors of the economy.  Despite this sobering news, Governor Eliot Spitzer continues to express his desire to cut taxes - and Republicans in the Senate seem bent on doing the same.  While property taxes are clearly a hot-button topic in New York, one's first move to get out of a budget hole shouldn't be to dig deeper into it.
First, the good news.  According to the New York Times, officials in the Empire State this week issued warnings to about a third of the roughly 10,000 businesses that participate in the state's enterprise zone program for failing to make good on job creation or investment commitments.  The enterprise zone program offers a wide range of tax breaks - including sales tax refunds, property tax credits, and investment tax credits - to businesses in hopes that they will boost employment and investment in the state. 
 
As the Times points out, the program has been around for twenty years - and has cost New York taxpayers $3 billion since 2000 - yet these warnings mark the first real effort to enforce the commitments businesses make to receive those tax breaks.  For example, Wal-Mart and Lowes, two of the largest companies cited, pledged to invest $45 million and $9 million respectively, but together have put up only about $4 million.  New York has the power to recoup tax breaks from businesses that fail to meet their commitments, but won't attempt to do so until program participants have filed their 2006 reports.  Still, given the prevalence of these types of programs around the country - programs that are likely yielding similarly poor results - New York's action will hopefully spur other states or municipalities to do the same. 

Now, the Bad News 
 
Unfortunately, New York lawmakers haven't exactly been paying attention to the poor track record of the state's enterprise zones and how little the public got in return for the investment of tax dollars in this fashion.  Otherwise, when the Yankees came to them looking for help in building a new stadium, they probably wouldn't have given them over $660 million in subsidies.  (Just call it "The House that Giuliani Built.") The latest report from Good Jobs New York - entitled Insider Baseball - has all the details.
Other than both bordering on Pennsylvania, West Virginia and New York aren't generally seen as having too much in common — until this past week.  In agreeing to a budget for fiscal year 2008, policymakers in New York followed the lead of their counterparts in the Mountain State and incorporated combined reporting into their corporate income tax.

Combined reporting, as ITEP's February policy brief explains, is the "most effective approach to combating corporate tax avoidance" available to state lawmakers.  West Virginia enacted legislation to institute combined reporting last month and, with New York's more recent step forward, the number of states using this essential approach to corporate taxation climbs to twenty.  It could climb higher still by year's end, as North Carolina Governor Mike Easley, like the Governors of Massachusetts, Iowa, Michigan, and Pennsylvania, also now supports combined reporting. See this ITEP table to find out where your state stands on this important tax reform. 

As expected, Massachusetts Governor Deval Patrick this week joined the ranks of chief executives calling for the use of combined reporting of state corporate income taxes to combat tax avoidance by large and profitable companies. Like the Governors of New York, Pennsylvania, and Iowa, Governor Patrick, in his FY2008 budget plan, recommended adopting this approach to corporate taxation, which would require corporations operating in multiple states to report all of their income — including that attributable to subsidiaries. This would negate any tax benefit derived from accounting schemes designed to shift profits out-of-state. A fact sheet from the Massachusetts Budget and Policy Center explains how combined reporting works and why it's needed in the Bay State. While Martin O'Malley has not yet added his name to this growing gubernatorial roster, Maryland legislators this week considered a bill to institute combined reporting in their state. ITEP Executive Director Matt Gardner was among those who testified on the measure.

State corporate income tax reform is gathering momentum in 2007, as more and more states are considering adopting an important corporate tax reform: combined reporting. Governors in New York, Iowa and Pennsylvania have already proposed this important loophole-closing reform, and newly elected Massachusetts Governor Deval Patrick is sending signals that he may follow in their footsteps. Meanwhile, a new paper by the Center on Budget and Policy Priorities' Michael Mazerov gives the lowdown on an equally important corporate tax reform that could productively be adopted by every state with a corporate tax: company-specific disclosure of taxes paid (or not paid). Mazerov's paper includes model legislation for use in any state seeking to shed more light on corporate tax avoidance.

Over the past few years, a number of states have taken incremental steps to reform their corporate income taxes to curtail tax avoidance by large and profitable companies. One such reform, combined reporting, prevents corporations from using a range of accounting schemes to shift profits from one state to another in order to artificially reduce the taxes they owe. The seventeen states that now use combined reporting may eventually get some company, as two Governors - Eliot Spitzer (D-NY) and Chet Culver (D-IA) - have included provisions in their budget proposals for the coming fiscal year to institute combined reporting.  To learn more about combined reporting and how it works, see the Institute on Taxation and Economic Policy's updated policy brief.

Several tax avoidance techniques are available to corporations operating in states that don't have combined reporting. For example, a recent Wall Street Journal article (subscription required) notes that Wal-Mart may have been able to avoid as much as $350 million in state corporate income taxes between 1998 and 2001 due to a loophole that could be countered with combined reporting.

Counties in New York, as in many states, often provide tax-breaks to businesses through Industrial Development Agencies (IDAs). The IDAs were originally created to stop companies from relocating to states with lower wages and benefits. However, a recent study by the New York Comptroller’s office has found that companies receiving tax incentives rarely create the promised number of jobs. In fact, two-thirds of all companies show either stagnant or declining employment numbers. The Comptroller’s report has received wide media attention and it seems likely that some reforms will be forthcoming.

ITEP Report: Achievng Adequacy - Tax Options for New York in the Wake of the CFE Case

This report offers citizens, activists and policymakers a detailed primer on New York's tax system. The report assesses the state's personal and corporate income taxes, property taxes, and sales and excise taxes, with an eye toward evaluating options for revenue-raising tax reform that may help lawmakers comply with the New York Court of Appeals' June 2003 decision requiring the state to raise additional revenues for education.

About this Archive

This page is a archive of recent entries in the New York category.

New Mexico is the previous category.

North Carolina is the next category.

Find recent content on the main index or look in the archives to find all content.