A BUDGET BILL submitted by the Governor in accordance with Article VII of the Constitution
AN ACT to amend chapter 405 of the laws of 1999 amending the real property tax law relating to improving the administration of the school tax relief (STAR) program and other laws, in relation to the authorization to operate the quick draw lottery game (Part A); to amend the tax law, in relation to eliminating various restrictions on the operation of Quick Draw (Part B); to amend the tax law, in relation to authorizing up to three instant games with a seventy-five percent prize payout (Part C); to authorize and direct the comptroller to make deposits to the dedicated highway and bridge trust fund (Part D); to amend the tax law, in relation to making technical corrections regarding the reduced rate of sales tax on the sale of transportation, transmission or distribution of gas or electricity (Part E); to amend the tax law, in relation to the residential fuel oil storage tank credit under the personal income tax; and to repeal certain provisions of the tax law relating thereto (Part F); to amend the state finance law and the tax law, in relation to dedicating revenues from the tax imposed under article 28-A of the tax law to the dedicated highway and bridge trust fund (Part G); to amend the tax law, in relation to calculating the amount of tax required to be prepaid for purposes of the prepayment of sales tax on cigarettes (Part H); to amend the alcoholic beverage control law, in relation to permitting the inspection of certain stores, premises and other locations licensed to sell beer, liquor or wine at retail for off-premises consumption and to amend chapter 508 of the laws of 1993, amending the tax law and the criminal procedure law relating to enhancing the enforcement of the taxes on alcoholic beverages with respect to liquors, in relation to the effectiveness thereof (Part I); to amend the alcoholic beverage control law, in relation to the adjustment of license and permit fees (Part J); to amend the public housing law, in relation to increasing the dollar amount of statewide limitation on the low-income housing tax credit (Part K); to amend the tax law and the administrative code of the city of New York, in relation to the credit and deduction for college tuition under the personal income tax (Part L); to amend the tax law, in relation to providing reports to the comptroller to aid in the administration and enforcement of the abandoned property law (Part M); to amend the tax law, in relation to the attribution of certain receipts of OTC derivatives dealers under article 9-A thereof (Part N); to amend the tax law, in relation to participation in the electronic funds transfer program prescribed by section 9 of such law (Part O); to amend the tax law, in relation to sales and use tax filing and payment procedures for certain taxpayers (Part P); to amend the tax law, in relation to amending the definition of a new business for purposes of the refundability of certain new business credits under articles 9-A, 22, 32 and 33 of such law, and to make conforming and clarifying amendments; to amend the general municipal law and the tax law, in relation to extending the empire zone program and making technical corrections to the empire zones program act; and to amend the tax law, in relation to the empire zone wage tax credit under articles 9-A and 22 of such law (Part Q); to amend the tax law, in relation to the ordering of credits under articles 9, 9-A, 32 and 33 of such law (Part R); and to amend the tax law and the administrative code of the city of New York, in relation to extending the tax rate reduction under the New York state real estate transfer tax and the New York city real property transfer tax for conveyances of real property to existing real estate investment trusts (Part S)
This bill contains provisions needed to implement the Revenue portion of the 2002-03 Executive Budget.
This bill makes permanent the Division of the Lottery’s authority to operate the Quick Draw game.
Section 1 of Part J of Chapter 405 of the Laws of 1999 is amended to delete the clause that repeals the sections of the Tax Law authorizing the Quick Draw game.
Current law includes a sunset provision, which automatically repeals the authorization to operate the Quick Draw game on March 31, 2002.
The Quick Draw game was reauthorized earlier this year and is set to expire again on March 31, 2002. In 1999, the game was shut down for a period of four months due to its automatic expiration.
Quick Draw has been operated by the Division of the Lottery, with an interruption of four months in 1999, since September 1995. By the end of September 2001, Quick Draw sales have exceeded $2.9 billion since inception, while generating over $900 million for education and $177 million to Lottery retailers in commissions. Ticket sales during 2000-01 were $507 million, which produced $157.9 million in revenues. So far this fiscal year, Quick Draw has produced over $286 million in sales and $89 million in revenue. With the increased need for revenues this fiscal year and the fact that Quick Draw is the only lottery game that is not permanent, we believe it should be made a permanent part of the State’s lottery program.
Current law authorizes that Quick Draw tickets can only be sold at premises licensed for the sale of alcoholic beverages for on-premises consumption, if at least 25 percent of the gross sales of the business are sales of food; and premises not licensed for the sale of alcoholic beverages for consumption on the premises if the premises are greater than 2,500 square feet in area. Current law also restricts the hours of Quick Draw daily operations to 13 hours, 8 of which may be consecutive.
The special restrictions imposed on Quick Draw by the initial 1995 authorizing legislation have proven to be cumbersome and unnecessary. It is impossible to enforce the restrictions without conducting regular, systematic audits of the financial records of each business; and the Division has never possessed the resources needed to carry out such an aggressive audit program. The limitation on hours has arbitrarily restrained Quick Draw sales; and eliminating the restrictive hours would strengthen the game’s ability to produce sales and earnings. The restrictions on the square feet of businesses’ premises is also an arbitrary restriction that is applied to no other lottery game.
These restrictions were intended to protect against the possibility that Quick Draw would be abused by players with a gambling addiction, but little evidence exists that problem gamblers are adversely impacted by Quick Draw. The restrictions are unnecessary; produce no perceptible benefits; are difficult and sometimes impossible to enforce; and cause poor relations with Quick Draw retail businesses. Eliminating these restrictions will not lead to undesirable results, while adding substantially to revenue for education.
This bill authorizes the Division of the Lottery to offer an Instant Game with a prize payout equivalent to 75 percent of sales, up to three times in any given fiscal year.
Current law does not permit an Instant Game prize payout to exceed 65 percent.
It is anticipated that this amendment will result in $17.5 million increase in revenue. When, in 1999, the prize payment for Instant Games was increased from 55 percent to 65 percent, the sales almost doubled to $33.5 million. In addition, on October 24, 2001, an experimental $10 Instant Game was authorized with a 75 percent payout and this game has resulted in a large increase in sales and has accounted for a 24 percent increase in daily Instant Game sales. The increased payout structure is similar to those utilized in lottery jurisdictions nationwide.
This bill provides for the deposit, beginning April 1, 2002, of moneys into the Dedicated Highway and Bridge Trust Fund that are now deposited into the General Fund pursuant to the Vehicle and Traffic Law. The authorized deposits ($171.6 million in SFY 2002-03 and $152.7 million in SFY 2003-04) represent motor vehicle fees not previously earmarked that are necessary to provide adequate coverage for the bonds that are sold and backed by the Dedicated Highway and Bridge Trust Fund.
A similar measure was proposed in 2001, encompassing State fiscal years 2001-02 through 2003-04. Only the portion pertaining to 2001-02 was enacted (Chapter 189, of the Laws of 2001).
This bill provides for the dedication of additional existing revenues into the Dedicated Highway and Bridge Trust Fund necessary to improve the debt service coverage ratio of the Dedicated Highway and Bridge Trust Fund Bond Program, thereby allowing the State to continue to issue Dedicated Fund Bonds to fund the transportation capital program in future years. A minimum revenue to debt ratio of 2:1 is required as a test for authorizing the issuance of additional Dedicated Highway and Bridge Trust Fund bonds.
The shift is revenue neutral since an equivalent amount of disbursements for the Department of Transportation’s snow and ice, arterial maintenance, and bus inspections programs will also be moved from the General Fund to the Dedicated Highway and Bridge Trust Fund.
This bill amends the utility tax reform bill to clarify that the reduced rate of sales tax on the transportation, transmission or distribution (T&D) of electricity or gas under Tax Law section 1105-C will apply to sales of T&D in those areas of the State where the Public Service Commission (PSC) has approved the “single retailer model” for the regulated utility operating within that area. To accomplish this, the bill adds a new subdivision (d) to section 1105-C of the Tax Law to make it clear that the reduced rate of tax on T&D will apply in those regions of the State where the competitive model approved by the PSC is the single retailer model. Under this model, a single retailer provides the customer with both the electricity and the T&D. Without this clarification, in light of the present structure, consumers in such an area would not be able to take advantage of the reduced rate when purchasing electricity or gas from unregulated vendors (who are referred to as energy service companies, “ESCOs”). One area of the State, the region served by Rochester Gas and Electric (RG&E), presently has the single retailer model.
The bill takes effect immediately and is deemed to be in effect on and after September 1, 2000, and applies to sales, services and uses on and after such date although made, rendered or occurring under a prior contract. This ensures that the described sales of T&D in the single retailer model areas were always subject to the reduced rate of tax.
In Part Y of Chapter 63 of the Laws of 2000, the Legislature enacted a comprehensive energy tax reform program. As part of that program, Tax Law section 1105-C was added to Article 28 of the Tax Law. Section 1105-C reduced the sales tax on T&D on those sales that involved sales of electricity by an unregulated vendor (an ESCO) and delivery (sale of T&D) by the regulated utility operating in that particular area. The sales tax on the sale of unbundled T&D in these circumstances was, through a series of reductions commencing September 1, 2000, reduced to a zero percent rate on and after September 1, 2003.
Consumers in those areas of the State where the single retailer model is operating should not be disadvantaged since they are unable to purchase T&D on an unbundled basis from the regulated utility operating in that area.
This bill makes amendments to Chapter 63 of the Laws of 2000 dealing with petroleum tank tax credit. Section 1 amends Tax Law section 606(p-1) concerning the personal income tax credit for residential fuel oil storage tanks enacted in Chapter 63 of the Laws of 2000. The amendments make the following changes to the statutory scheme:
(a) A taxpayer will be allowed a credit for the removal or permanent closure and the installation of a new residential fuel oil storage tank used to provide heating fuel for single- to four-family residences located in the State.
(b) The amount of the credit is equal to the costs of removal or permanent closure of an existing unprotected residential fuel oil tank and the purchase and installation costs of a new residential fuel oil storage tank. This new tank must be installed during the taxable year and be used in place of such formerly used unprotected tank which was removed or permanently closed during the taxable year or the immediately preceding taxable year. The credit may not exceed $500.
Section 2 provides that the amendments will take effect April 1, 2002, and apply to the taxable years beginning in 2002 and 2003 for existing residential fuel oil tanks removed or closed after March 31, 2002, only, and that subsection (p-1) shall expire and is deemed repealed January 1, 2004.
As enacted by Chapter 63 of the Laws of 2000, Tax Law section 606(p-1) provides a credit in Article 22 for the removal, permanent closure or installation of a below-ground or above-ground residential fuel oil storage tank used to provide heating fuel for single- to four-family residences located in New York. The amount of the credit is equal to the sum of: (a) the costs of removal of an existing unprotected below-ground or above-ground residential fuel oil tank, not to exceed $250; (b) the costs of permanently closing an existing unprotected below-ground or above-ground residential fuel oil tank, not to exceed $250; and (c) the purchase and installation costs of a new below-ground or above-ground residential fuel oil storage tank where such tank is used in place of a formerly used unprotected below-ground or above-ground residential fuel oil tank and provided that such unprotected tank was removed or permanently closed during the taxable year or the immediately preceding taxable year, not to exceed $250. The costs of (a), (b) and (c) may be used only once with respect to a particular residence in computing the credit. The credit may be carried over. The credit is effective for taxable years beginning in 2001 and 2002.
This amendment to the fuel oil storage tank credit is similar to the amendments included in the Governor’s SFY 2001-02 Article VII Bill (S.1149-A/A.2001-A).
The bill extends the residential fuel oil storage tank credit for an additional year, but it will ensure that it would only be available where the tank is removed or permanently closed and is replaced by the purchase and installation of a new below-ground or above-ground residential fuel oil storage tank to replace the unprotected below-ground or above-ground residential fuel oil storage tank formerly used.
Section 1 amends paragraph (a) of subdivision 3 of section 89-b of the State Finance Law to include in the special obligation reserve and payment account of the Dedicated Highway and Bridge Trust Fund moneys received pursuant to the provisions of Tax Law section 1167.
Section 2 amends section 1165 of the Tax Law to provide that the deposit and disposition of revenue provisions of section 1148 of the Tax Law, relating to the State sales and compensating use taxes imposed by Article 28 of the Tax Law, will not apply to Article 28-A of the Tax Law.
Section 3 adds a new Tax Law section 1167 to provide for the deposit and disposition of taxes, penalties and interest collected or received under Tax Law Article 28-A. New section 1167 subjects Article 28-A revenues to Tax Law section 171-a, except as otherwise provided in section 89-b of the State Finance Law. Under section 171-a, the Commissioner of Taxation and Finance would reserve an amount to pay any refunds and credits of such Article 28-A taxes. The balance of Article 28-A moneys would then be credited to the State Finance Law section 89-b Dedicated Highway and Bridge Trust Fund.
Section 4 provides that the bill will take effect immediately and apply to Article 28-A taxes, penalties and interest collected or received by the Commissioner of Taxation and Finance on or after April 1, 2002.
Tax Law section 1165 provides that the Article 28-A 5 percent Special Tax on Passenger Car Rentals be collected and disposed of in a like manner as, and jointly with, State sales and compensating use taxes imposed by sections 1105 and 1110 of Article 28 of the Tax Law. Tax Law section 1148 provides, with certain exceptions not relevant here, that such taxes, interest and penalties collected or received under Article 28 shall be deposited and disposed of pursuant to the provisions of Tax Law section 171-a. In turn, section 171-a provides that taxes, interest and penalties collected or received under Article 28-A, after reserving an amount which the Commissioner of Taxation and Finance deems necessary for refunds and credits of such taxes, shall be paid into the State treasury to the credit of the General Fund. Thus revenues collected or received under Article 28-A are currently paid into the State treasury to the credit of the General Fund, less the amount which the Tax Commissioner reserves for refund and credits.
This bill provides for the dedication of additional existing revenues into the Dedicated Highway and Bridge Trust Fund necessary to improve the debt service coverage ratio of the Dedicated Highway and Bridge Trust Fund Bond Program, thereby allowing the State to continue to issue Dedicated Fund bonds to fund the transportation capital program in future years. A minimum revenue to debt service ratio of 2:1 is required as a test for authorizing the issuance of additional Dedicated Highway and Bridge Trust Fund bonds.
Section 1 of this bill amends subdivision (j) of section 1111 of the Tax Law. Paragraph (1) of section 1111(j) is amended to require that the prepaid sales tax on cigarettes, computed by multiplying the base retail price by a tax rate of 7 percent, be rounded to the nearest whole cent per package.
Paragraph (2) of section 1111(j) of the Tax Law, which defines “base retail price” and provides an index to adjust the base retail price for inflation, is amended to establish a new index. The new index requires the base retail price to be adjusted effective on September 1 of each year, by multiplying the previous base retail price by a fraction, the numerator of which is the total of the sums of the “manufacturers’ list price” for a carton of standard brand cigarettes plus the amount of New York State cigarette tax on such a carton of cigarettes, in effect on the first day of each month for the 12 consecutive months ending with the month of June of the current year, and the denominator of which is the total of the sums of such list price and taxes in effect on the first day of each month for the 12?month period ending with June in the preceding year. The manufacturers’ list price on the first day of a month, for the purposes of this section, shall be determined by calculating a weighted average of the each of the major manufacturer’s list prices for a carton of standard brand cigarettes in effect on the first day of each month, taking into account the list prices of each of the major manufacturers and its most recently published annual national volume of sales of such cigarettes. The major manufacturers are R.J. Reynolds, Phillip Morris, Liggett, Lorillard, and Brown and Williamson, and their list prices are already reported to the Tax Department as a necessary element in its determination of presumptive legal minimum prices for sales of cigarettes under the Cigarette Marketing Standards Act contained in Article 20-A of the Tax Law.
Paragraph (2) is also amended to add a special provision for the adjustment to the base retail price to be made on September 1, 2002, providing that the denominator in the fraction by which the existing base retail price will be multiplied will be the total of the sums of the manufacturers’ list price plus the amount of cigarette tax in effect on the first day of each month for the 12 months ending with June 1997.
Paragraph (2) is further amended to delete obsolete language requiring a modification to the September 1, 1995, through August 31, 1996, base retail price if the Federal government raised its cigarette excise tax before July 1, 1995.
Section 2 of the bill provides that it will take effect immediately and apply to the adjustment and determination required by Tax Law section 1111(j) for periods beginning on and after September 1, 2002.
Section 1111(j)(2) of the Tax Law requires the base retail price, determined per package of cigarettes pursuant to that paragraph, be rounded to the nearest one-tenth of one cent. When that base retail price is multiplied by 7 percent, pursuant to paragraph (1) of subdivision (j), no rounding is provided for by statute. However, it has been the Tax Department’s policy to allow the tax required to be prepaid per pack of cigarettes, to be rounded to the nearest whole cent.
The current inflation indexing provided in Tax Law section 1111(j)(2) requires the base retail price to be adjusted on September 1 of each year by multiplying it by a fraction, the numerator of which is the sum of the monthly consumer price indices for all urban consumers for the northeast urban region (unadjusted) published by the Bureau of Labor Statistics of the U.S. Department of Labor for the category of commodities designated tobacco and smoking products for the 12 consecutive months ending with the preceding month of May, and the denominator of which is the sum of such indices for the 12 consecutive months ending with the month of May in the preceding year. These indices ceased being published after December 1997, and no adjustment has been made thereafter.
Similar proposals, having the same effect, were proposed by the Tax Department in 1998 (S.6564) and 2000 (S.7809) but neither bill passed.
Stating that the sales tax on cigarettes is to be rounded to the nearest whole cent per package of cigarettes will provide explicit statutory authority on the question of rounding. Rounding to the nearest cent makes it easier for cigarette retailers to figure the amount of sales tax reported and remitted on each pack of cigarettes sold, as well as easier to claim the credit since the prepaid sales tax for which they claim a credit pursuant to Tax Law section 1121 is in dollars and whole cents. It also simplifies the calculation of the amounts prepaid by cigarette agents and the amounts of sales tax included in the selling prices of those agents and any wholesalers.
The United States Department of Labor, Bureau of Statistics, ceased publishing the existing inflation index used to adjust the base retail price, as set forth in Tax Law section 1111(j)(2), after December 1997. In order to keep the amount of sales tax on cigarettes being prepaid approximately equal to the actual sales tax due on cigarettes, it would be necessary to provide for a new index.
This bill uses, in the adjustment fraction, the major manufacturers’ list prices
for a carton of standard brand cigarettes, which prices are reported to the
Tax Department as part of its administration of the Cigarette Marketing Standards
Act contained in Article 20-A of the Tax Law, plus the amount of State cigarette
tax on a carton of such cigarettes. This fraction will reflect changes to the
price of cigarettes being sold at retail more precisely than the Bureau of Labor
Statistics consumer price index because the manufacturers’ list price of cigarettes
(including Federal taxes thereon), which is a wholesale price for New York State,
and the amount of State cigarette tax, are actually included in the sales tax
base (Tax Law § 1111(h)). Also, the use of a New York State price, rather
than prices for the Northeastern region, will better reflect the New York marketplace.
Changes in the manufacturers’ list price of cigarettes or the amount of cigarette
tax affect the price of cigarettes sold to the retail dealer. This generally
affects the retailers’ price of cigarettes to the consumer, which is the price
on which the sales tax is calculated. The adjustment of the base retail price
in September of each year was based on price indices for a year ending in May.
This bill will change the year to a year ending with June. This will result
in the adjustment fraction being composed of more recent figures, which also
should reflect price changes more accurately.
The special provision for adjustment to the base retail price to be made on
September 1, 2002, to be added to Tax Law section 1111(j)(2), is meant to adjust
the base retail price so that it accurately reflects changes in the cost of
cigarettes during the period between June, 1997 and June, 2002, during which
no adjustments to the base retail price will have been made.
This bill also amends paragraph (2) of Tax Law section 1111(j) by deleting language requiring an adjustment to the September 1, 1995, through August 31, 1996, base retail price if the United States imposed a new or additional cigarette excise tax, or repealed or reduced such a tax, before July 1, 1995. Since there was no such Federal enactment, this language never was applicable; and, in any event, it is now obsolete.
Section 1 of this bill authorizes any peace officer acting pursuant to his/her special duties, or police officer or any duly authorized representatives of the State Liquor Authority to inspect premises licensed under section 54 of the Alcoholic Beverage Control (ABC) Law (where beer is sold at retail for consumption off the premises), premises licensed under section 54-a of the ABC Law (where beer and wine products are sold at retail for consumption off the premises), premises licensed under section 63 of the ABC Law ( where liquor is sold at retail for consumption off the premises), and premises licensed under section 79 of the ABC Law (licensed to sell wine at retail for consumption off the premises). The reference to “any peace officer acting pursuant to his special duties” includes employees of the Department of Taxation and Finance designated by the Commissioner of Taxation and Finance as peace officers and assigned by the Commissioner pursuant to section 2.10(4)(a)(ii) of the Criminal Procedure Law with special duties relating to the Alcoholic Beverage Tax imposed by Article 18 of the Tax Law.
Section 2 amends section 16 of Chapter 508 of the Laws of 1993 to remove the October 31, 2002, expiration date of the enforcement tools authorized by such chapter which were enacted to ensure more efficient collection of State and New York City alcoholic beverage taxes, particularly with respect to liquors. The following provisions of the Tax Law were amended by Chapter 508 of the Laws of 1993 and are scheduled to sunset on October 31, 2002. At that time, the sections of law are to revert to the language of such sections as they existed prior to the effective date of Chapter 508:
Sections 1.10 and 1.20 of the Criminal Procedure Law were amended by Chapter 508 to grant limited police officer status to certain employees of the Department of Taxation and Finance assigned to the enforcement of the alcoholic beverage tax; these provisions are also scheduled to expire on October 31, 2002.
Current law contains no provisions permitting inspections of premises licensed under sections 54, 54-a, 63 and 79 of the ABC Law. The provisions of Chapter 508 of the Laws of 1993 outlined in the “Summary of Provisions” above are currently set to expire on October 31, 2002.
Except for the inspection provisions, this is a new proposal. A bill with similar inspection provisions was introduced as a State Liquor Authority legislative proposal in 1997 as S.5166. It was referred to the Senate Investigations, Taxation and Government Operations Committee.
Currently any peace officer acting pursuant to his special duties, the police and duly authorized representatives of the State Liquor Authority may inspect any premises where alcoholic beverages are sold for on-premises consumption (such as taverns, restaurants, hotels, etc.); but, there is nothing in the law permitting the inspection of premises licensed to sell beer, and wine products or liquor or wine for off-premises consumption. As a result, law enforcement is severely handicapped in investigating serious violations of law which often occur in the non-public areas of these licensees. Additionally, certain serious violations of the Tax Law are difficult, if not impossible, to prove. For example, a serious problem is the sale of alcoholic beverages by one retailer to another. However, in order to prove such conduct, it is necessary to enter storage areas to physically count inventory and to have immediate access to office areas so that invoices and other documents can be examined at the same time the violation is observed. Currently, law enforcement can only enter the public area of the business and cannot examine the other areas if the owner or other person in charge objects, which they frequently do.
Extending the provisions of the original enforcement legislation, thus continuing the restriction of unregistered importation of liquors through manifest and invoice requirements and providing stricter criminal penalties and enforcement tools for the Department of Taxation and Finance, ensures an improved revenue stream for the State and a more level playing field for legitimate, law-abiding businesses. Further, the Department of Taxation and Finance’s “Report on the Alcoholic Beverage Tax Enforcement Law,” released on January 1, 1997, recommended that the enforcement tools authorized by the 1993 legislation be made permanent, as the tools have led to substantial deterrence of alcoholic beverage tax evasion in the State. This continues to be the case.
This bill amends the Alcoholic Beverage Control Law by adding a new section 131 to adjust alcoholic beverage control license and permit fees as follows:
New York State distillers, brewers, wholesalers, retailers, and others who sell alcoholic beverages are required by law to be licensed by the State Liquor Authority. License and permit fees vary, depending upon the type and location of the establishment or premises operated.
Most categories of alcoholic beverage control license and permit fees have not changed since 1976, and the fees for grocery stores have not changed since 1992. However, inflation has eroded the real value of alcoholic beverage control license and permit fees substantially. Therefore, to adjust this revenue stream to reflect inflationary impacts, it is necessary to adjust the fees upward.
The bill amends subdivision 4 of section 22 of the Public Housing Law to increase the aggregate dollar amount of tax credits, which the Commissioner of Housing and Community Renewal may allocate to eligible investors in low-income housing, from $2 million to $4 million.
Currently, subdivision 4 of section 22 of the Public Housing Law allows the Commissioner of Housing and Community Renewal to allocate a total of only $2 million of low-income housing tax credits.
The proposal is an expansion of provisions in the SFY 2000-01 Enacted Budget.
The State Credit program is modeled after the Federal Low-Income Housing Tax Credit (LIHC) Program. LIHC is currently the most efficient and successful housing production program in the country. The program provides tax benefits (“credits”), rather than appropriated funds, to developers who invest their own funds in housing for low-income persons and families. The demand for credit in New York State far exceeds the supply.
The Division of Housing and Community Renewal has consulted with for-profit and not-for-profit housing developers, bankers, syndicators and other government housing agencies in promulgating regulations to enact the State Tax Credit Program. These housing professionals have expressed reservations about the program due to the limited availability of funds for the State Credit Program. Increasing the allocation of credits to $4 million would help encourage developers and investors to devote substantial resources to the program.
Section 1 amends Tax Law section 606(t), concerning the personal income tax credit or deduction for college tuition expenses enacted in Chapter 63 of the Laws of 2000. The amendments make three changes to the statutory scheme:
Section 2 makes a conforming amendment to the New York City personal income tax, adding the tuition deduction to the City Resident Income Tax in the New York City Administrative Code.
As enacted by Chapter 63 of the Laws of 2000, Tax Law sections 606(t) and 615(d)(4) provide a credit or itemized deduction for qualified college tuition expenses, phasing in over the four years 2001 through 2004. When fully phased in, the maximum deduction is $10,000 per year, and the maximum credit is 4 percent of the qualified tuition expenses, or $400.
This bill was an Article VII proposed as part of the Governor’s SFY 2001-02 Executive Budget.
This bill is necessary to conform current law to the intent of the legislation enacting the college tuition deduction/credit and to its current administration, which reflects that legislative intent. To accomplish these goals, this bill will clarify that:
This treatment conforms to Federal law (Internal Revenue Code section 25A(g)(3)), and, thus, also may minimize errors in claiming the New York credit.
The bill adds a new subdivision 12 to section 211 of the Tax Law to require the Commissioner of Taxation and Finance and the State Comptroller to enter into an agreement under which the Commissioner, upon request, will report, not more frequently than annually, to the State Comptroller to provide the business name and legal name, if different, the business and mailing addresses, Federal employer identification number and the date the entity entered into business, of all corporations or other entities that filed reports under the Business Corporation Franchise Tax (Article 9-A of the Tax Law), at any time during the ten calendar years prior to such report to the Comptroller. The information on each business will be ordered according to the total assets reported for the end of the year on its most recent available Article 9-A report, in descending order. However, the reports to the Comptroller will not disclose the actual amount of each business’s total assets.
These reports are to be used only for administration and enforcement of the Abandoned Property Law; and, because subdivision 8 of section 211 otherwise applies to the new subdivision 12, such information shall in all other respects retain its confidential status under the Tax Law. The Comptroller may disclose the information provided to him but only to the extent necessary for enforcement and administration of the Abandoned Property Law. Because subdivision 8 of section 211 otherwise applies to the new subdivision 12, section 1825 of the Tax Law, which provides for criminal sanctions for disclosures in violation of the Tax Law, would apply to disclosures in violation of the new subdivision 12.
The reports provided to the Comptroller will be compared with reports required to be filed under the Abandoned Property Law to enable the Comptroller to audit for compliance with the required Abandoned Property Law reports. The reports made by the Commissioner to the Comptroller shall be submitted by electronic means or in some other mutually acceptable format and shall provide the information described above, to the extent that it is readily available from the Tax Department’s system for identifying taxpayer indicative data (currently called the ATID system@). The agreement between the Commissioner and the Comptroller shall set forth the procedures for provision of such reports. The bill clarifies that these reports will not be subject to public inspection. Section 2 of the bill provides that it would take effect immediately.
Under the Abandoned Property Law, abandoned property held by third parties is to be paid or delivered to the State Comptroller. The law requires annual reports of abandoned property to be made to the Comptroller by banking organizations, utility corporations, security holders and security brokers, life insurance corporations and others. Under Tax Law section 211.8, reports filed pursuant to the Franchise Tax on Business Corporations imposed by Article 9-A of the Tax Law are confidential and may not be disclosed, except as provided by law. Tax Law section 1825 provides that persons who violate the provisions of Tax Law section 211.8 are guilty of a misdemeanor.
A similar bill was previously introduced in 2000 as a Governor’s Program Bill (S.8170/A.11398 — although it covered more business taxes than the Article 9-A Franchise Tax on Business Corporations).
Under the Abandoned Property Law, abandoned property is to be turned over to the State Comptroller. That law requires various kinds of businesses which routinely possess property of individuals to make annual reports of abandoned property in their possession to the State Comptroller. Of the thousands of entities that file business corporation franchise tax reports, few file the required abandoned property reports. The Division of the Budget and the Office of the State Comptroller’s Office of Unclaimed Funds issued a report, dated September 22, 1999, suggesting the creation of an Abandoned Property Recovery Task Force. As part of the report, it was suggested that the Tax Department supply the Office of the State Comptroller with information to be derived from business corporation franchise tax reports.
This bill enables the Tax Department to provide the information requested from business corporate franchise reports filed pursuant to Article 9-A of the Tax Law. This will include the names and addresses of businesses which should be filing abandoned property reports. Such information will be used for mailings to inform those businesses of their responsibilities under the Abandoned Property Law. With one exception, information will be provided from the TID system to the extent that it is readily accessible from such system, rather than from the Tax Department’s master files of return or report information, because the TID system has more taxpayer specific information and retains it for a longer period of time. Return or report information is not ordinarily retained on the master files for more than a few years. However, the information allowing the Tax Department to rank the businesses by asset size will be derived from other than the TID system. This ranking will allow the Comptroller’s office to utilize its limited resources more efficiently by mailing to the largest businesses first, since they are more likely to be holding greater amounts of abandoned property.
Part N – Makes technical correction for financial services concerning apportionment rule for registered securities or commodities brokers/dealers.
This bill amends Tax Law section 210.3(a)(9)(B) to include in the definition therein of a “registered securities or commodities broker or dealer” an OTC derivatives dealer as defined under regulations of the Securities and Exchange Commission at title 17, part 240, section 3b-12 of the Code of Federal Regulations.
This bill provides that the amendments made by the bill become effective immediately and apply to taxable years beginning on or after January 1, 2003.
Chapter 63 of the Laws of 2000 added a new subparagraph (9) to Tax Law section 210.3(a) to allow registered securities or commodities brokers or dealers to allocate certain types of receipts based on the location of their customers. For purposes of this new subparagraph, a “registered securities or commodities broker or dealer” is defined as a “broker or dealer registered as such by the Securities Exchange Commission or the Commodities Futures Trading Commission.” As provided in Chapter 63, the customer sourcing provisions with respect to brokerage commissions, margin interest and account maintenance fees apply to tax years beginning on or after January 1, 2001. The customer sourcing provisions for other types of receipts described in this new subparagraph (9) apply to taxable years beginning on or after January 1, 2003. These other types of receipts include income from principal transactions, advisory services fees relating to the underwriting of securities, interest from affiliated corporations not permitted to join in a combined report with the taxpayer, and fees for management or advisory services (excluding fees from management, administration or distribution services to an investment company).
The customer sourcing provisions for registered brokers and dealers enacted by Chapter 63 of the Laws of 2000 were intended to alleviate the tax burden placed on the securities industry under existing tax statutes and act as an incentive for the financial services industry to retain its strong presence in New York. However, since these provisions apply only to a “registered securities or commodities broker or dealer”, they cannot be construed to cover certain taxpayers affiliated with registered brokers or dealers that engage in OTC derivatives transactions. These affiliated companies are known as OTC derivatives dealers, and are subject to regulation by the Securities and Exchange Commission, albeit not the full range of regulations applicable to registered brokers or dealers. OTC derivatives transactions form a significant part of the financial services business in the State, and so it is appropriate to expressly extend the customer sourcing provisions to this segment of the financial services industry. Accordingly, this bill provides that OTC derivatives dealers, as defined in 17 CFR 240.3b-12, are included in the term “registered securities or commodities broker or dealer” in Tax Law section 210.3(a)(9). It is noted that one of the elements of this regulatory definition is that an OTC derivatives dealer must be affiliated with a registered broker or dealer.
This bill amends section 9 (d) of the Tax Law to decrease from $400,000 to $100,000 the aggregate annual withholding tax liability that triggers required participation in the Electronic Fund Transfer (EFT) program under section 9.
It also amends section 9 (b) (2) (B) and (C) to require the Commissioner of
Taxation and Finance, by September 1, 2002, to give notice, via certified mail,
to taxpayers who are newly required to participate in the EFT program under
this bill. The notice would advise the affected taxpayers, among other things,
of the enrollment procedure, their right to protest the notice of required participation,
and the date by which the first payment by EFT or certified check would have
to be made. Section 1 also makes the due date of that first payment an applicable
due date in January 2003.
Section 3 amends section 9 (h) to continue the penalty provisions in subdivision
(h) of Tax Law section 9 for failure to timely enroll and to make clear that
the subdivision (h) penalty also applies to taxpayers newly required to participate
in the EFT program under this bill.
Section 4 is the effective date provision. The provisions of the bill will take effect immediately and apply to program periods beginning on or after July 1, 2002.
Tax Law section 671(a) imposes a general duty on specified employers (“taxpayers”) to withhold tax from the wages they pay their employees. The taxes withheld generally must be paid to the State within either three or five business days of the payroll date, depending on the size of the employer’s payroll (Tax Law section 674[a]). Section 9 of the Tax Law provides that taxpayers can be required to pay their withholding tax liability through the EFT program when their aggregate annual withholding tax liability exceeds $400,000 (Tax Law section 9[d]). The EFT program allows taxpayers to make their payments by one of at least two EFT methods or by certified check.
Starting with the program year commencing July 1, 1995, the Commissioner is required to send a notice of required participation to those taxpayers who are newly required to participate, advising them of the enrollment procedures, and of their right to challenge the notice of required participation by requesting a hearing within 20 calendar days of the notice. The notice of required participation further advises that the first payment by EFT is to be made by an applicable due date occurring on or after 30 calendar days following receipt by the taxpayer of the notice but no later than 60 calendar days following such receipt.
Under subdivision (h) of section 9, taxpayers who fail to enroll within 20 calendar days of receiving a notice of required participation or within 10 calendar days after notification that their protest of such notice is not sustained are subject to a penalty equal to $5,000 dollars (Tax Law section 9[b][2[C]; [h]). However, the penalty is to be abated if the taxpayer enrolls within 20 days of the date notification of the assessment of such penalty is sent such taxpayer by certified mail (Tax Law section 9[h]). If, on the other hand, the taxpayer continues to fail to enroll after such notification of the imposition of penalty is sent to it, then the taxpayer is penalized an additional $500 if the failure is for a month or less and an additional $500 for each month thereafter that it continues.
Section 2 increases the number of taxpayers who are required to pay their withholding tax liability under the EFT program. Payment of tax liabilities by electronic funds transfer improves the State’s cash management by assuring timely collection of revenues and increasing interest earnings. In addition, this mode of payment allows the Department of Taxation and Finance to implement improved compliance programs due to earlier identification of delinquent taxpayers.
To ease the transition process for taxpayers newly required to participate in the EFT program during the July 1, 2002, through June 30, 2003, program year, the bill gives such taxpayers a longer period to enroll or challenge the notice of required participation (45 days versus the normal 20 days), and it allows them to make their first payment under the EFT program in January 2003. Normally, a participant must make its first EFT payment by an applicable due date occurring on or after 30 calendar days following receipt by the taxpayer of the notice of required participation but no later than 60 calendar days following such receipt.
This bill will provide State EFT thresholds that are approximately equivalent to Federal EFT thresholds. As a result, most employers who are required to remit Federal withholding through EFT also will be required to do so for State withholding.
Section 1 amends section 10 of the Tax Law, relating to the requirements to remit sales and use tax by EFT. Tax Law section 10(b)(1)(A) would be amended to decrease the threshold for requiring persons to register with the Department of Taxation and Finance to pay their sales and use tax liability by certified check or EFT monthly to $500,000 of annual State and local sales and use tax liability from the current $1 million. Section 1 would also make a conforming amendment to Tax Law section 10(b)(4)(A), which allows taxpayers to opt out of the EFT or certified check payment program under certain circumstances.
Section 2 would take effect immediately, but section 1 would apply to EFT program periods beginning on or after September 1, 2002. Section 2 also authorizes the Commissioner of Taxation and Finance to take any step on or after the date this bill becomes a law in order to implement the bill on its effective date.
Under Tax Law section 10, taxpayers whose annual State and local sales and use tax liability exceeds $1 million per year are required to remit tax due by certified check or EFT within three business days of the 22nd day of each calendar month.
By increasing the number of taxpayers who will pay their sales and use tax liabilities via certified check or EFT, this bill would improve the State’s cash management – there will be more timely collection of revenues. In addition, EFT payment facilitates improved compliance by allowing the Department of Taxation and Finance to identify delinquent taxpayers faster. Moreover, EFT program participants file eight fewer sales tax returns each year.
New Business: Section 1 of the bill amends the Article 9-A franchise tax definition of a new business. A taxpayer who qualifies as a new business is entitled to refund of the investment tax credit (ITC). Section 1 amends, without substantive change, the five-year new business period at Tax Law §210.12(j)(3) during which a taxpayer is eligible for refund of the ITC. The statute currently expresses the five-year concept as “more than four taxable years (excluding short taxable years) prior to the taxable year during which the taxpayer first becomes eligible for the investment tax credit.” This is changed to read simply “more than five taxable years (excluding short taxable years),” which is a more understandable expression of the concept. This change also removes uncertainty under the Empire Zone ITC as to how a taxpayer claiming credit there is to measure the five-year period. The Empire Zone ITC (see Tax Law §210.12-B(d)) refers to §210.12(j), thereby incorporating the period which under current law is measured by claiming the regular ITC.
Sections 7 and 8 of the bill identically amend, with respect to the above paragraph, the Article 32 bank franchise tax (Tax Law §1456(i)(8)(C)) and the Article 33 insurance franchise tax (Tax Law §1511(q)(7)(C)).
Section 2 makes conforming changes necessitated by the section 1 amendments.
Section 3 makes the same “five years” language change to the Article 22 personal income tax ITC at Tax Law §606(a)(10) new (B). Like the Article 9-A language change described above, this amendment does not make a substantive change to the definition of a new business. Likewise, this change removes uncertainty under the Empire Zone ITC (see Tax Law §606(j)(4)) as to how a taxpayer claiming credit there is to measure the five-year period.
Section 3 further amends the Article 22 ITC at Tax Law §606(a)(10) to delete the condition in subparagraph (A) that a taxpayer does not qualify as a new business if he or she has previously claimed a refund of ITC. This condition limits a personal income tax (PIT) taxpayer to claiming a new business refund for investments made in only one of the five years of the new business period. There is no such condition for new business taxpayers under Article 9-A, so that corporate taxpayers which are new businesses can claim refund of the credit for investments made in each year of the five-year new business period. Further, this condition, because it is referenced in other new business credit refund provisions, precludes a PIT taxpayer from claiming a new business refund of certain other credits once a new business ITC refund is claimed. Thus, for example, an individual is ineligible to claim a refund of the qualified emerging technology company employment credit if he or she previously received a refund of the ITC. (See, for example, Tax Law §606(q)(5)(A).)
Section 4 coordinately amends Tax Law §606(i)(B), which flows through S corporation credits to the shareholders under the PIT, to delete the condition that a credit refund does not apply if the shareholder has previously claimed a refund of ITC.
Sections 5 and 6 make conforming changes necessitated by section 3 amendments.
QEZE Technical Corrections: Section 9 amends General Municipal Law §969 to extend the Zones Program from July 31, 2004, to December 31, 2020.
Section 10 amends Tax Law §14 (the Empire Zones Program) to make various technical corrections, as follows. For purposes of Tax Law articles 9-A, 22, 32 and 33, the benefit period (renamed the “business tax benefit period”) is defined (a) in the case of a business enterprise with a test date occurring on or before December 31, 2001, as the first 15 taxable years beginning on or after January 1, 2001, and (b) in the case of a business enterprise with a test date occurring on or after January 1, 2002, as the first 15 taxable years next following the business enterprise’s test year.
Section 10 also amends the benefit period for purposes of Tax Law Article 28 and 29. The benefit period (renamed the “sales and use tax benefit period”) is amended to start such period of 120 months beginning on the later of (a) March 1, 2001, or (b) the first day of the month next following the date of certification by the Commissioner of Taxation and Finance pursuant to Tax Law §14(h).
Section 10 amends the definition of “employment test” by providing that if the base period is zero years and the enterprise has an employment number in an empire zone of greater than zero with respect to a taxable year, then the employment test will be met only if the enterprise qualifies as a new business. The employment test definition is further amended to provide that if there has been a change in zone boundaries or if there are newly designated zones, then the employment test is to be determined with respect to a taxable year as if the boundaries of the revised zone or newly designated zone on the last day of the taxable year existed during the base period and as if the business enterprise has been located in the revised or newly designated zone during its base period. Lastly, the definition of “employment test” is amended to cover the situation where a business enterprise relocates to an empire zone from a business incubator facility. In that case, the employment test will be determined with respect to a taxable year as if such business enterprise was located in the zone during the base period.
Section 10 amends the definition of “test year” by providing that if a business enterprise does not have a taxable year that ends on or before the test date, the enterprise will be deemed to have a test year which shall be either the last calendar year ending on or before its test date, or if the enterprise has as its taxable year a fiscal year, the last such fiscal year ending on or before its test date (whether or not the enterprise in fact had a taxable year during that period).
Section 10 amends the definition of “test date” to clarify that the term means the later of July 1, 2000, or the date prior to July 1, 2005, on which the business enterprise was first certified under General Municipal Law Article 18-B.
Section 10 amends the definition of “taxable year” to add Article 9 to the definition and to provide that if the business enterprise does not have a taxable year because it is exempt from taxation or otherwise not required to file a return under Tax Law articles 9, 9-A, 22, 32 or 33, then the term “taxable year” means the business enterprise’s federal taxable year, or, if the enterprise does not have a federal taxable year, then calendar year.
Section 10 amends the definition of “employment number” to provide that such number will not include individuals employed within the preceding 60 months by a related person, as such term is defined in Internal Revenue Code §465(b)(3)(c).
Section 10 makes technical changes to the sales and use tax exemption terminology used in subdivision (h) of section 14 to conform that terminology to that used in connection with current sales and use tax administrative practice.
Lastly, section 10 adds a definition of new business for purposes of QEZE benefits. This definition is derived from the “new business” definition under the investment tax credit.
Section 11 of the bill amends subdivision (b) of section 15 of the Tax Law, concerning the QEZE credit for real property taxes, to provide that the amount of the credit may not exceed the credit limitation set forth in subdivision (f) of section 15 (which is added by bill section 13).
Section 13 of the bill defines the credit limitation as the greater of the employment increase limitation or the capital investment limitation. The employment increase limitation shall be equal to the product of $10,000 and the excess of the QEZE’s employment number in the empire zones for the taxable year over that employment number for the QEZE’s test year. The capital investment limitation shall be the product of (a)10 percent of the greater of the cost or other basis for federal income tax purposes of the real property owned by the QEZE and located in empire zones on the later of January 1, 2001 or the effective date of the QEZE’s certification under Article 18-B of the General Municipal Law or the cost or other basis of such property on the last day of the taxable year, and (b) the percentage of the real property physically occupied and used by the QEZE or by a related person to the QEZE.
Section 12 amends subdivisions (d) and (e) of §15 of the Tax Law. Subdivision (d) is amended to clarify that it is the employment of the QEZE that is used in the calculation of the employment increase factor. Subdivision (e) is amended to clarify that the term “eligible real property taxes” means taxes on real property located in an empire zone which become a lien on the real property during a taxable year in which the owner of the real property is both certified pursuant to General Municipal Law Article 18-B and is a QEZE.
Section 13 amends the QEZE credit for real property taxes by adding a credit recapture provision where a QEZE’s eligible real property taxes, which were the basis for the allowance of the credit, are subsequently reduced as a result of a final order in any proceeding under Article 7 of the Real Property Tax Law.
Section 14 amends Tax Law §16 (QEZE tax reduction credit) to specifically set forth the computation of the zone allocation factor for purposes of the credit. Section 14 also amends the QEZE tax reduction credit tax factor to provide a method of calculating the credit for sole proprietors, partners, S corporation shareholders and combined filers.
Section 17 amends the QEZE sales and use tax exemption provision in Tax Law §1115(z)(1) to provide that tangible personal property related to a motor vehicle, such as a battery, diesel motor fuel, an engine, engine components, motor fuel, a muffler, tires and similar tangible personal property, used in or on a motor vehicle will be subject to the same standard, for purposes of determining whether the property qualifies for the section 1115(a)(1) sales and use tax exemption, as the motor vehicle to which this tangible personal property is related.
Empire Zone Wage Tax Credit Amendments: Section 15 of the bill amends the empire zone wage tax credit in Tax Law §210.19 to clarify that, for purposes of calculating the tax credit, the “average number of individuals” for whom a credit may be claimed shall not include individuals employed during the immediately preceding 60 months in an empire zone by a related person, as that term is defined in IRC §465(b)(3)(c), unless such related person was never allowed an empire zone wage tax credit with respect to such employees. Section 16 makes a parallel amendment to the empire zone wage tax credit under Article 22 (Tax Law §606(k)).
Section 18 contains the effective date provisions.
New Business: Under the articles 9-A, 32 and 33 franchise taxes, a corporation which is a subsidiary of a parent taxable under any of those articles, or under Tax Law §183, 184 or 185, is not a “new business” and is accordingly ineligible to claim refund of ITC. This is so even if the parent is itself a new business.
Under the Article 22 personal income tax, a taxpayer is entitled to claim ITC refund as a new business only once, so that even if ITC is earned in each of the five years of the new business period, it is refundable for only one of those years.
QEZE Technical Corrections: The Empire Zones program under the General Municipal Law is currently set to expire on July 31, 2004. This expiration date conflicts with the newly enacted Empire Zones Program Act, which specifically includes within the potential base of qualified empire zone enterprises those businesses certified under Article 18-B of the General Municipal Law prior to January 1, 2005.
Under the Empire Zones Program Act, the income and corporate tax benefits apply to the 15 taxable years next following the business enterprise’s test year, but only for tax years with respect to which the employment test is met. The income and corporate benefits are applicable to taxable years beginning on or after January 1, 2001.
The sales and use tax benefits are available for each day of the ten taxable years next following the business enterprise’s test year, but only where the year in question immediately follows a year which meets the employment test. The sales and use tax benefits are available beginning March 1, 2001. In the case of an enterprise with a test date falling within the year 2000, the 10 and 15 year benefit periods start not in the year immediately following the test year, but in the year after that.
Under the current definition of “employment test,” it is not clear how the test is calculated if the base period is zero years. In addition, if there is a change in zone boundaries or new zones are designated, the employment test is silent as to how the employment test is to be calculated. Nor does the current definition of “employment test” provide a rule where a business enterprise relocates to an empire zone from a business incubator facility operated by a municipality or by a public or private not-for-profit entity.
The current definition of “test year” does not explicitly deem a test year for taxpayers who do not have a taxable year that ends on or before the test date.
The current definition of “test date” provides that it is the later of July 1, 2000, or the date prior to July 1, 2005, on which the business enterprise was certified under General Municipal Law Article 18-B.
A “taxable year” is currently defined as the taxable year of the business enterprise under articles 9-A, 22, 32 or 33 of the Tax Law.
The term “employment number” is defined to mean the average number of individuals, excluding general executive officers (in the case of a corporation), employed full-time by the enterprise for at least one-half of the taxable year.
With respect to the QEZE sales and use tax provisions in subdivision (h) of section 14, the law currently provides that a QEZE applies to the Department of Taxation and Finance for a QEZE “exemption certificate” and that a QEZE furnishes “an exemption purchase certification” to vendors in order to receive its sales and use tax exemption.
With respect to the QEZE credit for real property taxes, the term “eligible real property taxes” is defined as taxes imposed on real property which is owned by the taxpayer and located in empire zones with respect to which the taxpayer is certified pursuant to Article 18-B of the General Municipal Law. The credit does not contain any recapture provision. There is no limitation in the law on the dollar amount of the credit allowed.
With respect to the QEZE tax reduction credit, no specific statutory rules are set forth to explain or limit the calculation of the tax factor where the taxpayer is a sole proprietor of a QEZE, a member of a partnership which is a QEZE or where the taxpayer is a shareholder of a New York S corporation which is a qualified empire zone enterprise. No specific rules are set forth for determining the tax factor where the taxpayer is required or permitted to make a report on a combined basis.
In order for the receipts from the retail sale to a QEZE of tangible personal property to be exempt from the sales and use taxes, the tangible personal property must be directly and predominantly used or consumed by the QEZE in an empire zone with respect to which the QEZE is certified. In order for a motor vehicle to be found to be used predominantly in an empire zone, at least 50 percent of its use must be exclusively in the zone or at least 50 percent of its use shall be in activities originating or terminating in the empire zone or both.
Empire Zone Wage Tax Credit Amendments: The amount of the empire zone wage tax credit is equal to the sum of the product of $1,500 (or $3,000 in the case of targeted employees) and the average number of individuals (excluding general executive officers) employed full-time by the taxpayer, who received empire zone wages for more than half of the taxable year.
This proposal was derived from the provisions included in Part A of the Governor’s 2001-02 Budget Bill (A. 2001-A/S.1149-A).
New Business: The bill clarifies the language of the five-year new business period for claiming refunds of credits both under the corporation franchise and personal income taxes, and eliminates restrictions on claiming such refunds under the personal income tax which are not present under the corporation tax. Refundable credits are important to new businesses during the start-up years, and encouraging new businesses in New York is important to the State’s economic revitalization. This bill makes the credit refunds operate as intended and ensures that Article 22 taxpayers are not penalized by their choice to do business in unincorporated form.
QEZE Technical Corrections: Extension of the Empire Zone Program under the General Municipal Law is essential for the operation of the Empire Zones Program Act (i.e., the statute creating the QEZE benefits in the Tax Law). Currently, under the Empire Zones Program Act the last possible date for an enterprise to be certified under Article 18-B of the General Municipal Law and possibly qualify as a qualified empire zone enterprise is June 30, 2005. However, under the General Municipal Law, zone designation ends July 31, 2004, and so business enterprises cannot be certified after that date. In addition, the Empire Zones Program Act was designed to provide income and corporate tax benefits to business enterprises for 14 years following an enterprise’s test year and sales and use tax benefits for each day of the ten taxable years next following the enterprise’s test year, but only for tax years with respect to which the employment test is met. If zone designation expires in 2004, then an enterprise will no longer be able to meet the employment test because the test is based upon a business enterprise’s employment number in empire zones. Thus, the expiration of the Empire Zones program on July 31, 2004, effectively ends the tax benefits provided under the Empire Zones Program Act as well.
The technical corrections made to Tax Law §14 are necessary in order to properly administer the tax benefits provided by the program. The amendments to the benefit periods for the income, corporate and sales and use tax benefits ensure that a taxpayer will receive the maximum number of tax years for such benefits. Under current provisions, given the interplay of the effective date of the program with the statutory provisions, a taxpayer (particularly a taxpayer which is a fiscal year filer rather than a calendar year filer) may not receive such benefits for the maximum period permitted by the Zones Program.
The changes to the various definitions contained within Tax Law §14 were necessary for a number of reasons, as outlined below. Amending the definition of “employment test” is necessary to ensure that taxpayers new to New York, who, by definition, would not have a base year, are able to meet the employment test if they have at least one employee in an empire zone with respect to a taxable year. Similarly, it is not clear how the employment test would work where there was a change in the boundary line of an empire zone or where a zone has been newly designated. Lastly, the current definition would restrict the ability of a business enterprise to qualify as a QEZE if such taxpayer relocates to an empire zone from a business incubator facility.
The amendment to the definition of “test year” is important to ensure that those taxpayers who do not have a taxable year ending on or before the test date will be deemed to have a test year.
Under the Empire Zone Program, one company could have multiple certification dates for multiple business locations. The amendment to the definition of “test date” in the bill clarifies that it is the enterprise’s first certification date which begins the enterprise’s eligibility for benefits.
The definition of “taxable year” is amended to include Article 9 and to clarify that an enterprise must use its federal taxable year or, if the enterprise does not have a federal taxable year, then calendar year, if the enterprise does not have a taxable year because it is exempt from taxation or otherwise not required to file a return under Tax Law articles 9, 9-A, 22, 32 or 33. From looking at the other provisions in the bill and the other empire zone benefits under the Tax Law (e.g., the sales and use tax refund provisions in Tax Law section 1119(a)(6)), it appears that the provisions added to the definition of “taxable year” by this bill were inadvertently omitted when the Empire Zones Program Act was enacted.
The bill amends the definition of “employment number” to specify that such number will not include individuals employed by a related person, as such term is defined in Internal Revenue Code §465(b)(3)(c). In addition, this provision is intended to prevent an abuse of the Empire Zone Programs Act whereby a business enterprise would transfer employees from one related entity to another simply to allow the latter entity to claim its employment number in zones or in the State outside of the empire zones has increased.
The bill also makes a technical correction to the QEZE credit for real property taxes, to clarify that the term “eligible real property taxes” means those taxes which become a lien on real property during the taxable year when the business entity is both certified pursuant to Article 18-B of the General Municipal Law and is a QEZE. The bill also adds a recapture provision if the real property taxes which were the basis for the allowance of the credit are subsequently reduced as a result of a final order in any proceeding under Article 7 of the Real Property Tax Law. This recapture provision is necessary in order to avoid a taxpayer gaining an undue windfall. The credit limitation provisions added to the QEZE credit for real property taxes are intended to curb an abuse, whereby a business entity hires only one or a few employees in order to get the benefit of the credit and potentially a refund of the real property taxes it paid. This provision will ensure that only taxpayers genuinely creating new employment or creating additional capital investment will get the full benefit of the credit.
The technical corrections made to the QEZE tax reduction credit in terms of providing a method of calculating the tax factor for sole proprietors, partners, New York S corporation shareholders and combined filers is essential for the proper administration of this credit.
The amendments to the sales and use tax exemption provisions are codifying current Department policy and clarify in the law how that exemption applies to the receipts from the retail sale of certain tangible personal property used in or on motor vehicles. Examples of such property includes engine components, tires, and motor fuel. It should be noted that the provisions of section 17 of this bill regarding the sale of motor fuel, diesel motor fuel or any other fuel used in a motor vehicle do not amend the prepayment provisions of section 1102 of the Tax Law nor do such provisions supersede the provisions of subdivision (j) of section 1115 of the Tax Law. The sales and use tax exemption provided for such fuel shall be effectuated by means of the refund or credit mechanism provided for under subdivision (d) of section 1120 of the Tax Law.
Empire Zone Wage Tax Credit Amendments: The amendments to the empire zone wage tax credits are intended to prevent the type of abuse which necessitates the amendment to the definition of “employment number” for purposes of the QEZE provisions. The amendments will prevent two related corporations or businesses from double dipping in the wage tax credit, by having one entity claim the credit for employees in the empire zone and then transferring those employees to a second related corporation or business which would again count them for purposes of the credit.
Section 1 adds a new section 187-f to Article 9 of the Tax Law to provide for an ordering of credits. This new section is identical to the ordering scheme under the personal income tax, whereby credits which cannot be carried over and which are not refundable are deducted first. Credits which can be carried over and carryovers of such credits are deducted next and among such credits, those whose carryover is of limited duration are deducted before those whose carryover is of unlimited duration. Credits which are refundable are deducted last.
Sections 2, 3, 4, and 5 make similar amendments to Article 9-A (Tax Law section 210.26), Article 32 (Tax Law section 1456(g) and Article 33 (Tax Law sections 1511(m) and (t)) of the Tax Law; provided, however, that the bill maintains the special rule for the Empire Zone wage tax credit which requires that such credit is deducted prior to all credits which may be carried forward, but which are not refundable. Tax Law section 1511 must be amended twice due to varying effective dates in amendments made to these sections by Chapter 63 of the Laws of 2000.
Section 6 is the effective date provision. The provisions of the bill generally take effect immediately and apply to taxable years beginning on or after January 1, 2000.
Tax Law Article 9 (corporation and utilities tax) currently does not contain a provision concerning the order in which a taxpayer may apply its credits against the tax due. Under Article 9-A (corporate franchise tax), a taxpayer must first deduct those credits allowable under Article 9-A that cannot be carried over. Then, a taxpayer must deduct the Empire Zone wage tax credit and any carryovers of the credit. Next, a taxpayer must deduct the credits under Article 9-A that can be carried over and any carryovers of such credits.
Under Article 32 (franchise tax on banking corporations), a taxpayer must first deduct credits that cannot be carried over and then deduct credits which can be carried over and carryovers of such credits. Article 32 also contains specific ordering rules for several credits, such as the special additional mortgage recording tax credit (Tax Law section 1456(c)) which must be deducted after the Empire Zone wage tax credit (Tax Law section 1456(e)) and the credit for employment of persons with disabilities (Tax Law section 1456(f)). Article 33 (franchise taxes on insurance corporations) contains the same general rule as Article 32 and also contains specific ordering rules for certain credits.
The current ordering rules for applying credits are confusing and inconsistent with respect to the corporate franchise taxes. In addition, the current ordering rules contained within articles 9-A, 32 and 33 do not permit a taxpayer to apply multiple credits in the most advantageous manner, as does the ordering rule currently contained within the personal income tax.
For example, there are three credits available under the corporate franchise taxes that may not be carried forward but are refundable credits. These three credits are: (1) the industrial or manufacturing business (IMB) credit for energy taxes (available to Article 9-A taxpayers); (2) the qualified empire zone enterprise (QEZE) real property credit (available to taxpayers under articles 9-A, 32 and 33); and (3) the credit for transportation improvement contributions (available under articles 9, 9-A, 32 and 33). Under current ordering rules, these non-carryforward credits must be applied first against a taxpayer’s tax liability.
An example will illustrate the issue. Assume that a taxpayer, which is not a new business, may claim both a QEZE real property credit (a non-carryforward, refundable credit) and an investment tax credit (a carryforward credit that is not refundable to the taxpayer). The value of the QEZE real property tax credit is $1,000 and the value of the ITC is $10,000. The taxpayer’s tax on entire net income is $5,000, its minimum taxable income base is $50 and its fixed dollar minimum tax is $100. Under current ordering rules, the QEZE real property tax credit, as a non-carryforward credit, must be applied first, and then the investment tax credit, a carryforward credit is applied. Therefore, the QEZE real property credit of $1,000 is deducted from $5,000, reducing the tax due to $4,000. Next, the taxpayer applies the investment tax credit of $10,000. Since the ITC cannot reduce the tax to less than the minimum taxable income base or the fixed dollar minimum tax, the taxpayer can use $3,900 of its ITC to reduce its tax to $100. The remaining $6,100 of its ITC may be carried over. However, since the taxpayer was required to use the QEZE real property tax credit first, it did not receive a refund of this credit. If the credit ordering rules are changed so that the refundable credit is applied last, the taxpayer would receive a refund of $1,000: $4,900 of its ITC is used to reduce the $5,000 tax on entire net income down to the fixed dollar minimum tax of $100. The taxpayer may carryforward $5,100 of its investment tax credit and receive a refund for the full amount of the QEZE real property credit ($1,000).
By amending the ordering rules to generally allow refundable credits to be applied last, the taxpayer will derive the maximum benefit from the refundable credits. This bill will ensure that the refundable credits which cannot be carried forward operate as they were intended and provide the maximum benefit to the corporate franchise tax taxpayer.
This bill extends for three years the tax rate reductions under the New York State Real Estate Transfer Tax and the New York City Real Property Tax for conveyances of real property to existing real estate investment trusts (REITs).
Section 1 amends section 1402(b)(2)(B) of the Tax Law to extend until September 1, 2005, the reduced tax rate for conveyances of real property into existing REITs under the real estate transfer tax.
Sections 2 and 3 amend section 1201(b)(xi)(2) of the Tax Law and section 11-2102(e)(2)(B) of the Administrative Code of the City of New York, respectively, to authorize and implement the extension until September 1, 2005, of the tax rate reduction under New York City’s real property transfer tax for conveyances of real property to REITs.
Chapter 309 of 1996, effective July 13, 1996, reduced the State tax for conveyances to existing REITs from $2 per $500 of consideration to $1 per $500 of consideration. The New York City rates were reduced as well. Chapter 407 of the Laws of 1999 extended the lower rate from September 2, 1999, to September 1, 2002.
This bill will continue to encourage the increased use of REITs to finance real estate transfers in the State. REITs, the shares of which are liquid, provide the real estate market with a source of capital. Maintaining the reduced transfer tax rates on conveyances to REITs results in the sale of buildings that might not otherwise be sold. The benefit of this tax reduction may be enhanced in a negative economic cycle.
This bill is necessary to implement the 2002?03 Executive Budget because permanent authorization of Quick Draw maintains the Division of the Lottery’s ability to generate and grow revenues to support education. Passage of this bill is essential since the Executive Budget anticipates $182.7 million in revenues for education from Quick Draw. .
This bill is necessary to implement the 2002-03 Executive Budget. Additional revenue is estimated at $43 million for State fiscal year 2002-03, $68 million for 2003-04, and $68 million for 2004-05.
This bill is necessary to implement the 2002-03 Executive Budget. The three 75 percent Instant Games are expected to generate $17.5 million in revenue.
This bill is necessary to implement the 2002-03 Executive Budget because the Fund redistribution has been incorporated into the Financial Plan accompanying the 2002-03 Executive Budget. Approximately $171.6 million of motor vehicle fees that would otherwise have been deposited into the General Fund will be shifted to the Dedicated Highway and Bridge Trust Fund in State fiscal year 2002-03.
This bill has no fiscal impact because the legislation which enacted the energy tax reform act anticipated that customers in single retailer territories within the State would qualify for the reduced rate if they purchased their energy from an ESCO.
This bill is necessary to implement the 2002?03 Executive Budget, because it ensures that the credit conforms to the intent and fiscal impact of the original legislation passed in 2000.
This bill is necessary to implement the 2002-03 Executive Budget. A projected $33.8 million of auto rental tax receipts that would otherwise have been deposited into the General Fund will be shifted to the Dedicated Highway and Bridge Trust Fund in State fiscal year 2002-03.
This bill produces an estimated $5.8 million spin-up for the State in fiscal year 2002-03. This increase in revenue has been reflected in the Financial Plan and, as a result, enactment of this bill is necessary to implement the 2002-2003 Executive Budget.
This bill is necessary to implement the 2002-2003 Executive Budget because the bill will prevent the loss of $3 million in annual State revenue.
This bill is necessary to implement the 2002-03 Executive Budget because it would increase State revenues by $8 million in 2002-03, $13 million in 2003-04, and $23 million in 2004-05.
This bill reduces tax revenues by $2 million annually for ten years, beginning in SFY 2002-03.
This bill ensures that the college tuition deduction and credit conform to the intent, and thus fiscal impact, of the original legislation. Therefore, enactment of this bill is necessary to implement the 2002-03 Executive Budget.
This bill is necessary to implement the 2002-03 Executive Budget because this legislation will generate $15 million in abandoned property receipts in 2002-03 which have been included in the Financial Plan.
This bill has no new fiscal impact since the analysis prepared in 2000 with the enactment of the customer sourcing provisions assumed derivative traders in the fiscal impact estimate.
It is estimated that this bill will cause a one-time acceleration of personal income tax receipts of $25 million into State fiscal year 2002-03, with withholding collections that would have been received in April 2003 being received instead in March 2003. This increase in receipts has been reflected in the Financial Plan and, as a result, enactment of this bill is necessary to implement the 2002-03 Executive Budget.
The bill results in a nonrecurring increase of State sales and use tax collections in State fiscal year 2002-03 of $32.5 million.
The technical changes relating to new businesses and Empire Zones have no fiscal impact for the 2002-2003 Financial Plan.
This bill has no fiscal impact. When the legislation adding the non-carryforward refundable credits was enacted, it was assumed that these credits would be available to be claimed as refunds by eligible taxpayers and the dollar value of those refunds was carried in the baseline forecasts of the affected business franchise taxes.
This bill will result in a $0.4 million State revenue loss in State fiscal year 2002-03 and $0.8 million per year in subsequent years. New York City revenues would be $0.8 million lower in State fiscal year 2002-03 and $1.5 million lower in subsequent years. This revenue loss is reflected in the 2002-03 Financial Plan accompanying the Budget and, thus, the bill is necessary to implement the 2002-03 Executive Budget.
Since this bill is an extension of current law, the estimate assumes no positive impact on the number of transactions.
Parts A, C, I, K and M shall take effect immediately.
Part B shall take effect immediately; provided, however, that the amendment to paragraph 1 of subdivision a of section 1612 of the tax law made by section 1 of this part shall not affect the repeal of such paragraph and shall be deemed repealed therewith.
Part D shall take effect April 1, 2002.
Part E shall take effect immediately and shall be deemed to have been in full force and effect on and after September 1, 2000, and shall apply to sales made, services rendered and uses occurring on and after such date although made, rendered or occurring under a prior contact.
Part F shall take effect April 1, 2002; except that section 2 of this part shall take effect January 1, 2004; and provided that the amendments to subsection (p-1) of section 606 of the tax law, made by section 1 of this part, shall apply to taxable years beginning in 2002 and 2003 and only for any existing residential fuel oil tanks removed or closed after March 31, 2002.
Part G shall take effect immediately and shall apply to taxes, penalties and interest collected or received by the commissioner of taxation and finance under article 28-A of the tax law on or after April 1, 2002.
Part H shall take effect immediately and shall apply to adjustments and determinations regarding the base retail price required to be made for periods beginning on and after September 1, 2002.
Part J shall take effect on the first day of a month starting not less than 60 days after this act becomes a law.
Part L shall take effect immediately and shall apply to taxable years beginning on or after January 1, 2002.
Part N shall take effect immediately and shall apply to taxable years beginning on or after January 1, 2003.
Part O shall take effect immediately and shall apply to program periods beginning on or after July 1, 2002.
Part P shall take effect immediately, provided that section 1 of this part shall apply to program periods beginning on or after September 1, 2002; provided, however, that effective immediately, the commissioner of taxation and finance shall be authorized to make the addition, amendment and/or repeal of any rule or regulation necessary for the implementation of this part on its effective date, on or before such effective date.
Part Q shall take effect immediately; provided that:
Part R shall take effect immediately; provided, that the amendments made by sections 1 through 4 of this part shall apply to taxable years beginning on or after January 1, 2000; and the amendments made by section 5 of this part shall take effect January 1, 2002 and shall apply to taxable years beginning on or after January 1, 2002
Article VII Revenue Bill (S.6260/A.9762)