2005-2006 NEW YORK STATE EXECUTIVE BUDGET
REVENUE
ARTICLE VII LEGISLATION
MEMORANDUM IN SUPPORT

CONTENTS

MEMORANDUM IN SUPPORT

A BUDGET BILL submitted by the Governor in Accordance with Article VII of the Constitution

AN ACT to amend the alcoholic beverage control law, in relation to permitting eligible out-of-state and in-state wineries to direct ship limited quantities of wine to New York state residents under certain circumstances (Part A); 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, and to amend the tax law, in relation to the lottery game of Quick Draw (Part B); to amend the tax law, in relation to accelerating the phase of the temporary increases to the personal income tax rates (Part C); to amend the tax law, in relation to providing an exemption for new Energy Star appliances from the state’s sales and compensating use taxes imposed by article 28 of the tax law during two seven-day periods each year and authorizing counties and cities to elect such exemption from their sales and use taxes imposed by or pursuant to the authority of such law (Part D); to amend the tax law and the administrative code of the city of New York, in relation to requiring certain tax return preparers to electronically file income tax returns (Part E); to amend the tax law, in relation to the imposition of filing fees on limited liability companies which are disregarded entities for federal income tax purposes (Part F); to amend the public housing law, in relation to providing a credit against income tax for persons or entities investing in low-income housing (Part G); to amend the tax law, in relation to providing two exemption weeks each year for certain clothing and footwear from sales and compensating use taxes imposed by or pursuant to the authority of article 28 or 29 of such law and authorizing counties and cities to elect such exemptions from such taxes; and to repeal section 6 of part A of chapter 60 of the laws of 2004, relating to the authority of certain counties and cities to elect or repeal the year-round clothing and footwear exemption from their sales and compensating use taxes, effective June 1, 2005 (Part H); to amend the tax law, in relation to making permanent section 1142-A of such law, which sets forth special requirements relating to the service of providing parking, garaging or storing for motor vehicles (Part I); to amend the tax law, in relation to changing the requirement that residents must file New York personal income tax returns even if they do not have sufficient income to incur New York tax (Part J); to amend the tax law, in relation to permitting the commissioner of taxation and finance to agree with the finance commissioner of the city of New York to credit certain city tax overpayments against outstanding state tax warrants and to agree with officials of other states for reciprocal application of tax overpayments to tax debts owed this and such other states (Part K); to amend the alcoholic beverage control law, the tax law, the education law and the judiciary law, in relation to tax compliance by persons seeking state liquor authority licenses, state contracts, or licenses to practice medicine, certified public accountancy or law (Part L); to amend the tax law, in relation to the determination of entire net income of corporations under articles 9-A, 32 and 33 of such law (Part M); to amend the tax law, in relation to increasing the amount of the capital base tax under article 9-A of such law (Part N); to amend the tax law, in relation to extending the time to apply for and claim green building tax credits and providing an additional amount of such credits (Part O); to amend the tax law, in relation to the exemption from the franchise tax on town or county cooperative insurance corporations (Part P); to amend the tax law, in relation to requiring the disclosure of certain information related to participation in tax avoidance transactions, or tax shelters, imposing penalties for non-disclosure or underpayments attributable to tax shelters, extending the statute of limitations applicable to certain deficiencies arising from tax shelter transactions, and establishing a voluntary compliance initiative with respect to tax avoidance transactions (Part Q); to amend the tax law, in relation to providing a refundable personal income tax credit related to the STAR real property tax exemption (Part R); to amend the civil practice law and rules, in relation to the undertaking required of tobacco product master settlement agreement signatories and affiliates to stay enforcement of a judgment during appeal (Part S); to authorize compensation to the state for any reimbursements, overpayments, adjustments or other modifications made to a county or the city of New York (Part T); to amend the tax law, in relation to the long-term care insurance credit and the computation of such credit for nonresident taxpayers and part-year resident taxpayers (Part U); to amend the tax law, in relation to extending certain provisions concerning taxes imposed on the sale of alternative fuel vehicles, and in relation to providing tax credits and exemptions for alternative fuel vehicles and the production and storage of biofuel (Part V); and to amend the tax law, in relation to taxes on wines under article 18 of the tax law (Part W)

PURPOSE:

This bill contains provisions needed to implement the Revenue portion of the 2005-06 Executive Budget.

SUMMARY OF PROVISIONS, EXISTING LAW, PRIOR LEGISLATIVE HISTORY AND STATEMENT IN SUPPORT:

Part A – Allow the direct shipment of wine to individuals in New York State from out-of-State wineries.

This bill amends the Alcoholic Beverage Control Law to allow for the direct shipment of wine into New York State by out-of-State wineries.

This bill allows New York State licensed wineries and out-of-State wineries, upon obtaining an “out-of-State winery shipper’s license” from the New York State Liquor Authority for an annual license fee of $125, to ship up to two cases (18 liters) of wine per month to a New York resident who is 21 years of age or older for the resident’s personal use. To be eligible, an out-of-state-winery would have to be located within a state which affords New York State wineries reciprocal shipping privileges. The bill imposes strict recordkeeping requirements on wineries and common carriers which ship wine; requires all applicable taxes be paid to New York; requires the labeling of shipping containers and the signature of a person who is at least twenty-one at the time of delivery.

This bill was introduced as an Executive Budget bill last year. It allows New Yorkers to order their favorite out-of-State wines and have them shipped directly to their homes. The bill is consistent with the Twenty First Amendment to the Constitution that indicates the states have the right to regulate the “delivery or use” of intoxicating beverages. Currently, out-of-State wineries may not ship directly to New York residents.

If this bill becomes law, New York wineries would be allowed to ship wine directly to consumers in “reciprocating states.”

Part B – Ease restrictions on Quick Draw and make the game permanent.

The bill: (i) makes permanent the Lottery Division’s authority to operate the Quick Draw game; and (ii) eases certain restrictions on the operation of the Quick Draw game.

This bill authorizes the Lottery division to operate the Quick Draw game permanently. Current law includes a sunset provision which automatically repeals the authorization to operate the Quick Draw game on May 31, 2005. This bill also removes the restrictions on hours of operation and food sales and eases the restriction on the minimum size of the premises imposed on Quick Draw by the 1995 authorizing statute. The restriction on the size of premises not selling alcoholic beverages is retained, but reduced from 2,500 square feet to 1,200 square feet. Removal of those restrictions makes it unnecessary to provide exceptions for bowling establishments and pari-mutuel facilities; therefore, the bill also deletes these exceptions. Finally, an obsolete authorization of emergency rulemaking at the time of Quick Draw start-up is deleted.

Current law authorizes the Lottery to operate the Quick Draw game with the following restrictions. Quick Draw may only be offered at: (1) premises licensed for the sale of alcoholic beverages for on-premises consumption where at least 25 percent of gross sales are from sales of food; (2) premises greater than 2,500 square feet in area which are not licensed for the sale of alcoholic beverages for consumption on the premises, (3) commercial bowling establishments, or (4) pari-mutuel gambling facilities. In addition, Quick Draw is limited to no more than 13 hours of daily operations, no more than 8 hours of which may be consecutive.

The restrictions imposed on Quick Draw by the 1995 authorizing statute were experimental. In practice, they have proven to be cumbersome and unnecessary, and have substantially reduced the amount of revenue otherwise available from this game.

The 25 percent food sales requirement for bars, restaurants, and other businesses licensed to serve alcoholic beverages on premises is similar to a discredited policy that previously was applied to those same businesses under the Alcoholic Beverage Control Law. It is impossible to enforce the restriction without conducting regular, systematic audits of the financial records of each business; and the Lottery has never possessed the resources needed to carry out such an aggressive audit program. Most of the businesses licensed to sell Quick Draw would rather surrender their Lottery Sales Agent Licenses than submit to such an intrusion into their finances.

The limitation on the minimum size of a Quick Draw location has the effect of eliminating many locations that are ideal for the game and deprive many small businesses of the opportunity to increase their profits through the commissions paid on Quick Draw sales and from the ancillary sales accompanying the increased traffic generated by offering a popular lottery game

The limitations on the hours of operation also has the effect of arbitrarily restraining Quick Draw sales. Expanding the hours of operation would benefit the 3,300 businesses that currently offer the game and produce a significant increase in revenue dedicated to education.

The restrictions were intended to protect against the possibility of compulsive playing of the Quick Draw game. Quick Draw has proved to be only slightly more attractive than other Lottery games and there have been few, if any, instances of players wagering more than they could afford. The restrictions are unnecessary; they produce no perceptible benefits; they are difficult and sometimes impossible to enforce; and they cause poor relations with Quick Draw retail businesses. Eliminating these restrictions is not expected to cause any undesirable results, while adding substantially to sales and aid to education. Removing restrictions on the licensing of Quick Draw retailers maintains the Lottery’s ability to generate and grow revenues to support education at the budgeted levels. There will be no increased costs to administer or operate this game.

The Quick Draw game was authorized in 1995 and reauthorized in 1999 and 2004 and is now due to sunset on May 31, 2005. By the end of November 2004, Quick Draw sales exceeded $4.509 billion since inception while generating over $1.425 billion for education and over $270 million to Lottery retailers as commission. Ticket sales during fiscal year 2003-2004 were over $508 million. In that fiscal year alone, Quick Draw produced over $166 million in earnings which were available for aid to education. So far this fiscal year, Quick Draw has produced $315 million in sales, with over $103 million in aid to education.

This bill seeks to safeguard these revenues by making the Quick Draw game’s authorization permanent. Permanent authorization may also have the effect of encouraging retailers who are reluctant to offer the game because of concerns about its stability, to apply for licenses to sell the game, resulting in an increase in Quick Draw sales and revenue, and in an increase in aid to education.

Part C – Accelerate the phase-out of the temporary personal income tax surcharge enacted in 2003.

The purpose of this bill is to alleviate some of the tax burden imposed upon taxpayers in the 2003-04 State Budget by reducing both the second highest and highest personal income tax rates for 2005.

Section 1 of the bill amends subsections (a), (b) and (c) of section 601 of the Tax Law by reducing the two highest personal income tax rates in 2005 from 7.25% and 7.7% to 7.0% and 7.6% respectively. Section 2 of this bill provides that this act shall take effect immediately.

Section 601 of the Tax Law was amended by Chapter 62 of the Laws of 2003 to increase personal income tax rates by including two additional tax rate brackets. These two brackets are set to expire on December 31, 2005, and the tax rates schedule will return to 2002 Law on January 1, 2006.

This is a new proposal.

The temporary increase to the personal income tax rates passed by the Legislature in the 2003 State budget were strongly opposed by the Governor as negatively impacting job growth in this State. This bill reduces the two highest personal income tax rates in 2005 and from 7.25% and 7.7% to 7.0% and 7.6% for tax year 2005. As such, this bill demonstrates to the business community that this State is committed to expanding economic development by reducing the burden of the personal income tax.

Part D – Provide two sales tax exemption weeks for certain “Energy Star” items.

This bill would exempt new Energy Star appliances from State sales and compensating use taxes imposed by Article 28 of the Tax Law for two seven-day periods each year and would authorize New York City to elect such exemptions from the taxes imposed by section 1107 of the Tax Law and authorize counties and cities to elect such exemptions from their local taxes imposed pursuant to the authority of Article 29 of the Tax Law.

Bill section 1 adds a new paragraph (29) to section 1101(b) of the Tax Law to define “new Energy Star appliances.” A new Energy Star appliance is one which is sold for the first time at retail. Thus, a used appliance would not qualify for the exemption added by bill section 2. For example, an otherwise qualifying appliance that is the subject of a “cancelled sale” would be eligible for the exemption when it is subsequently “sold for the first time at retail” but a “used” item would not. Energy Star appliances consist of non-commercial refrigerators (including combination refrigerator/freezers), dishwashers, clothes washers (but not including combination washer/dryers unless the clothes are washed and dried in the same compartment), ceiling fans, ceiling fan light kits, and room air conditioners, provided such appliances qualify for, and are labeled with, an Energy Star label by the manufacturer pursuant to an agreement among the manufacturer, the U.S. Environmental Protection Agency and the U.S. Department of Energy.

Bill section 2 adds a new paragraph (41) to section 1115(a) of the Tax Law to exempt new Energy Star appliances from State sales and compensating use taxes for two seven-day periods each year. The exemption periods would be the same as the clothing and footwear exemption periods, namely those commencing on the last Monday of January and ending on the first Sunday in February and commencing on the Tuesday immediately preceding the first Monday in September (Labor Day) and ending on Labor Day.

Bill section 3 amends paragraph (9) of section 1107(b) of the Tax Law to provide that, except as otherwise provided by law, the new Energy Star appliances exemption would not apply to the section 1107 Municipal Assistance Corporation (MAC) taxes imposed in New York City.

Bill section 4 amends subdivision (f) of section 1109 of the Tax Law to provide that the new Energy Star appliances exemption would not apply automatically to the section 1109 0.25 percent rate of taxes imposed in the Metropolitan Commuter Transportation District (MCTD).

Bill section 5 adds a new subdivision (h) to section 1109 of the Tax Law to provide that, if a county or city located in the MCTD provides the exemption from its own taxes, the exemption will also apply to the MCTD taxes in the area of the MCTD located in that county or city. In that case, the State and county or city (or both) shall reimburse the MCTD for the revenue forgone on account of the exemption from the section 1109 taxes as a result of the county or city (or both) electing the exemption from its own taxes.

Bill section 6 amends paragraph (1) of section 1210(a) of the Tax Law to authorize a county, city or school district imposing sales and use taxes to elect the new Energy Star appliances exemption from its own taxes.

Bill section 7 amends subdivision (d) of section 1210 of the Tax Law to provide that a county, city or school district’s local enactment providing or repealing the Energy Star appliances exemption must take effect only on March first.

Bill section 8 reletters subdivision (m) of section 1210 of the Tax Law as subdivision (n) and adds a new subdivision (m) to authorize New York City to adopt a resolution to provide or repeal the new Energy Star appliances exemption from the section 1107 MAC taxes imposed in the city. If the city adopts the resolution, it would also amend the city’s suspended sales and use taxes imposed pursuant to the authority of section 1210 of the Tax Law. The form of the resolution is set out in new section 1210(m)(2).

Bill section 9 is an unconsolidated provision to authorize counties and cities imposing sales and use taxes to adopt a resolution to provide this exemption commencing with the August/September, 2005, exemption period.

This is a new proposal. However, the provisions of this bill mirror and are intended to operate in substantially the same manner as provisions in existing law regarding the so-called “temporary” clothing and footwear exemptions for two one-week periods during the year.

Energy Star products are manufactured and labeled in accordance with criteria determined by the U.S. Environmental Protection Agency and the U.S. Department of Energy with input from the appliance manufacturing industry. These products are more energy efficient than required by the current Federal minimum energy efficiency standards. Providing an exemption for these products will encourage consumers to purchase energy-efficient appliances, thereby conserving the State’s water and energy resources while affording consumers with reduced utility costs over time.

Part E – Require electronic filing of personal income tax returns by large tax preparer firms.

This bill would reduce costs associated with processing and storing tax returns by requiring certain larger income tax return preparers to file returns electronically.

Section 1 of the bill would amend section 658(g) of the Tax Law by adding a new paragraph (10). Subparagraph (A) of new paragraph (10) would phase-in a mandatory electronic filing program for larger income tax return preparers. Clause (i) would provide that if a preparer prepared more than 200 original income tax returns during calendar year 2005 (i.e., tax year 2004 returns), and prepared at least one authorized return using tax software in calendar year 2006, then all authorized returns prepared by such preparer during calendar year 2006 and for each subsequent calendar year thereafter would have to be filed electronically, in accordance with instructions prescribed by the Commissioner of Taxation and Finance. Clause (ii) would provide that if a preparer prepared more than 100 original returns during any calendar year beginning on or after January 1, 2006, and if in any succeeding calendar year the preparer prepared one or more authorized returns using tax software, then all authorized returns prepared by the preparer for such succeeding calendar year and for each subsequent calendar year thereafter would have to be filed electronically, in accordance with instructions prescribed by the commissioner. Subparagraph (B) of new paragraph (10) would define terms used in subparagraph (A). “Electronic” would be defined to mean computer technology. However, the Commissioner of Taxation and Finance would be authorized to provide in instructions that use of barcode technology would also satisfy the mandatory electronic filing requirements of the new section. “Authorized return” would be defined to mean any return required under Article 22 of the Tax Law which the Commissioner of Taxation and Finance authorized to be filed electronically. “Original return” would be defined as a return required under Article 22 of the Tax Law that is filed, without regard to extensions, during the calendar year for which that return is required to be filed. “Tax software” would be defined to mean any computer software program intended for tax return preparation purposes. Section 2 of the bill would amend section 685(u) of the Tax Law by adding a new paragraph (5) to penalize those income tax return preparers required to file electronically but failing to do so. The penalty would be $50 for each return required to be filed electronically. The penalty would be waived if the failure to electronically file was due to reasonable cause and not to willful neglect. Reasonable cause would be defined to include, but not be limited to, a taxpayer’s election not to file his or her return electronically. Sections 3 and 4 of the bill would make conforming amendments to sections 11-1758(g) and 11-1785(t) of the New York City Administrative Code, respectively. Section 5 of the bill would provide for an immediate effective date.

There is no provision in current law requiring income tax return preparers to electronically file returns.

This is a new proposal.

The Department of Taxation and Finance derives significant benefit from electronic filing through lower costs of processing and storing electronic as opposed to paper documents. Due to taxpayer cost and digital divide concerns, this proposal seeks to require income tax return preparers to electronically file only if they meet certain volume thresholds and they are already using computer software to prepare returns. Thus, the proposal seeks to assist the Department while minimizing the impact on preparers. Mandating electronic filing will also benefit tax professionals and taxpayers. Tax professionals subject to the mandate will be operating on a level playing field and will realize reduced costs and increased operational efficiencies from electronic filing. The proposal specifically applies to practitioners that are already using tax preparation software to prepare client returns in order to minimize the impact. Also, taxpayers will not be limited to paper filing based on the bias of their tax preparer and more taxpayers will receive the superior customer service that the Department of Taxation and Finance can provide for electronically filed returns. The initial phase of the proposal requires larger income tax return preparers to electronically file and phases-in the mandate for medium firms. Very small practitioners, or those that are not using computers to prepare returns, are not subject to the requirement to electronically file in any phase of this mandate. This practitioner-sensitive approach should provide tax professionals with the lead time that they need to satisfy the statute. At least 11 states have mandated electronic filing at the practitioner level, and several others are contemplating mandates. Many in our practitioner community will be, or are already affected by, the mandates in other states. Connecticut is expected to enact a mandate with the same thresholds as in this proposal and New Jersey is also planning a mandate for practitioner filers of 200 or more for either the 2005 or 2006 tax year. There is a significant expectation in the professional community that New York will join the growing number of states that have implemented mandates and feedback from the Department’s outreach efforts indicate that many practitioners are supportive of the requirement to e-file. Experience in the other states indicates that a mandate is best implemented with a reasonable implementation time frame. Once practitioners begin e-filing any previous reluctance is overcome.

Part F– Make permanent the temporary increase in limited liability company fees enacted in 2003.

This bill makes permanent the increases in limited liability company filing fees which expired after 2004. The bill also imposes the filing fees on all limited liability companies which are disregarded entities for Federal Income Tax purposes.

The bill re-establishes the increases in the filing fees on all limited liability companies which are disregarded entities for Federal Income Tax purposes, which expired on January 1, 2005. Part J3 of Chapter 62 of the Laws of 2003 established a temporary two year filing fee of $100 per member with a minimum total fee of $500 and a maximum of $25,000 for subchapter K limited liability companies and limited liability partnerships. In addition, the filing fees were extended to single member limited liability companies which are disregarded entities for Federal Income Tax purposes. Effective January 1, 2005, the fees reverted back to the pre 2003 levels of $50 per member with a total minimum fee of $325 and a maximum of $10,000.

In addition, this bill amends paragraph (3) of section 658(c) of the Tax Law to close a loophole caused by the Internal Revenue Service’s issuance of Revenue Procedure 2002-69. This Revenue Procedure held that a husband and wife that own a limited liability company as community property (in states other than New York) can elect to treat the entity as disregarded for federal income tax purposes even though it has more than one member. Accordingly, under the law in effect in 2003 and 2004, this entity was not required to pay a filing fee because it is not a single member limited liability company which is a disregarded entity, nor is it a limited liability company taxed as a partnership (a subchapter K limited liability company). The bill would require this particular entity to now pay a filing fee if it has income derived from New York sources, along with single member limited liability companies which are disregarded entities.

Part G– Allow for an additional $2 million in tax credits annually, or $20 million over the ten-year life of the program, for the Low-Income Housing Tax Credit program.

This bill increases the aggregate amount of low-income housing tax credit the Commissioner of the Division of Housing and Community Renewal (DHCR) can allocate to $8 million.

Section 1 of the bill amends section 22 of the Public Housing Law by increasing the aggregate amount of low-income housing tax credit the Commissioner may allocate from $6 million to $8 million per taxable year.

Currently the $6 million in credits allocated by the Commissioner can be claimed each year for ten years, for a total credit allowed over the ten-year life of the program of $60 million.

The low-income housing credit was first enacted by Chapter 80 of the Laws of 2000, and the aggregate dollar amount of the tax credit that could be allocated in a taxable year was most recently increased by $2 million by Chapter 60 of the Laws of 2004.

The demand for the low-income housing credit exceeds the current supply, which has slowed development of affordable housing. Providing an additional allocation of $2 million in tax credits, for a total program allocation of $8 million, would encourage developers and investors to devote additional resources to the program.

Part H – Replace the permanent clothing and footwear sales tax exemption with two $250 exemption weeks.

This bill would exempt clothing and footwear costing less than $250 per item of clothing or pair of shoes from State sales and compensating use taxes imposed by Article 28 of the Tax Law for two seven-day periods each year; to authorize New York City to elect such exemption from the local sales and use tax imposed in the city by section 1107 of the Tax Law; and to authorize counties and other cities to elect such exemption from their local taxes imposed pursuant to the authority of Article 29 of the Tax Law.

Bill section 1 amends the version of section 1115(a)(30) of the Tax Law that is to become effective on June 1, 2005, to exempt clothing and footwear costing less than $250.00 per item of clothing or per pair of shoes from State sales and compensating use taxes for two seven-day periods each year. The exemption periods would commence on the last Monday of January and end on the first Sunday in February and commence on the Tuesday immediately preceding the first Monday in September (Labor Day) and end on Labor Day.

Bill section 2 amends the version of section 1210(k) of the Tax Law that is to become effective on June 1, 2005, to authorize New York City to adopt a resolution to provide or repeal the new clothing and footwear exemption from the section 1107 Municipal Assistance Corporation (MAC) taxes imposed in the city. If the city adopts the resolution, it would also amend the city’s suspended sales and use taxes imposed pursuant to the authority of section 1210 of the Tax Law. The form of the resolution is set out in revised section 1210(k)(2).

Bill section 3 is an unconsolidated provision to authorize counties and cities imposing sales and use taxes or in which the section 1107 MAC taxes are in effect to adopt a resolution to reject or elect the new clothing and footwear exemption commencing with the Fall, 2005, exemption period. Section 3(a)(1) provides that if the January/February, 2005 clothing and footwear exemption week applied to the local taxes in a county or city, including in New York City, then the new two annual one-week exemption periods will thenceforth apply in that county or city unless the county or city enacts the rejection resolution set out in section 3(a)(2) and mails a certified copy of it to the Commissioner of Taxation and Finance by June 1, 2005, and otherwise complies with the provisions of section 1210(d) and (e) of the Tax Law relating to the adoption of local enactments.

Section 3(b)(1) provides that, if the January/February, 2005 clothing and footwear exemption week did not apply to the local taxes in a county or city, then the new two annual one-week exemption periods will not apply in that county or city unless the county or city enacts the election resolution set out in section 3(b)(2) and mails a certified copy of it to the Commissioner of Taxation and Finance by June 1, 2005, and otherwise complies with the provisions of section 1210(d) and (e) of the Tax Law relating to the adoption of local enactments.

Section 3(c) provides that section 1109(g) of the Tax Law shall apply to a county or city located in the Metropolitan Commuter Transportation District (MCTD).

Bill section 4 is the usual Municipal Assistance Corporation (MAC) bond resolutions savings clause.

Bill section 5 repeals section 6 of Part A of Chapter 60 of the Laws of 2004. Such section 6 permitted a county or city which had previously elected the currently suspended year-round exemption to repeal it effective June 1, 2005. Section 6 also authorized a county or city which had not elected such permanent exemption to elect it effective June 1, 2005. In the absence of section 6, a county or city would be able to elect or repeal the year-round exemption effective only on March first. Since this bill eliminates the year-round exemption by amending section 1115(a)(30) of the Tax Law in section 1 of the bill, section 6 of such Part A must be repealed since it no longer has any effect.

Bill section 6 provides that the bill will take effect immediately and apply in accordance with applicable transitional provisions in sections 1106 and 1217 of the Tax Law. However, bill sections 1 and 2 take effect on June 1, 2005, since that is the date that those versions of sections 1115(a) (30) and 1210 (k) of the Tax Law come back into effect pursuant to section 5 of Part I3 of Chapter 62 of the Laws of 2003, as amended by section 2 of Part A of Chapter 60 of the Laws of 2004.

The so-called “permanent” or “year-round” exemption from State sales and compensating use taxes for clothing and footwear sold for less than $110.00 per article of clothing or pair of shoes was suspended effective June 1, 2003; it is scheduled to resume on June 1, 2005. Counties and cities had the option to provide the exemption from their sales and use taxes; and some did. Their exemptions were also suspended for the same period. The year-round exemption did not apply to the section 1109 0.25 percent rate of tax imposed in the MCTD unless a county or city in the MCTD elected the exemption, in which case the exemption applied to the section 1109 taxes in the area of the MCTD in that county or city. However, if a county or city in the MCTD elected the exemption, then it was required to reimburse the MCTD for 50% of its revenue loss; and the State reimbursed the MCTD for the other 50% of the loss. While the year-round exemptions were suspended, there were two one-week State tax exemption periods each year, each also with a threshold of $110.00. Counties and cities also had the option to provide the weekly exemptions; and many did. As with the year-round exemption, these weekly exemptions did not apply to the MCTD 0.25 percent tax unless a county or city in the MCTD elected the exemption, in which case the exemption also applied in the area of the MCTD in that county or city. The MCTD State and local 50/50 reimbursement scheme also applied to the recent two one-week exemption periods.

This bill replaces the year-round exemption with two one-week exemption periods each year. The exemption threshold would rise from $110.00 to $250.00. The exemption would apply to State taxes, but not to local and MCTD taxes unless a county or city elected the exemption. If the county or city is in the MCTD, then the section 1109 MCTD taxes would also be exempt in the area of the MCTD located in that county or city. In that case, existing section 1109(g) of the Tax Law provides that the State and the county or city would each reimburse 50% of the revenue forgone from the MCTD taxes.

Part I – Make permanent the sales tax reporting requirements for Manhattan parking vendors.

This bill would make permanent Tax Law section 1142-A providing special requirements relating to the service of providing parking, garaging or storing for motor vehicles in Manhattan.

Bill section 1 amends subdivision (a) of section 1142-A of the Tax Law to remove its expiration date and make it permanent.

Bill section 2 provides that the bill takes effect immediately.

Section 1142-A applies only to Manhattan parking operators. Affected operators must keep additional records; namely copies of tickets or other documentation given to customers. They are affirmatively required to give consecutively numbered or computer-issued tickets to all customers, indicating the time and date of vehicle entry. When the customer leaves, the copy kept by the operator must also indicate the time and date the vehicle left unless the operator charged a flat fee for the parking service and the price for the service is indicated on the ticket. There are also special rules for monthly and longer term customers.

In addition to the usual sales tax returns, Manhattan parking operators also have to file an additional, separate schedule for each garage location specifying the parking receipts, number of licensed spaces and license number for the location. (Generally, sales tax vendors are able to file a single consolidated return.) If the operator does not file the required schedule, its general return would not be complete and penalties would be assessed. This serves as an effective compliance tool.

Section 1142-A(d) authorizes Tax Department employees to announce their presence to management and enter a parking facility and observe the number of licensed and “real” spaces, the number of vehicles, how long the vehicle is parked, the times the facility is open, and other useful information to ensure the proper collection of tax. Tax Department employees request permission to enter first. These “walkabouts,” as they are called, are an effective means to observe and confirm information to ensure the proper collection of tax.

If an operator does not keep the required records or allow a walkabout, that would be sufficient grounds under section 1138(a) of the Tax Law for the Tax Department to estimate the tax due from the operator based on appropriate external indices. This is also a very effective compliance tool.

Section 1142-A affords various protections to affected operators. Subdivision (e) requires the Tax Department annually to give operators copies of the law and any regulations and a written description of the Department’s authority to conduct the walkabouts. Subdivision (f) requires the Department to furnish the operators with a poster in certain size bold type indicating that the Department may inspect the premises to enforce the sales tax law. Subdivision (j) requires the Commissioner to promulgate regulations to establish walkabout procedures that will not unreasonably interfere with the facility’s operations, including when Department employees arrive to inspect the premises. Finally, subdivision (k) allows an operator to request a hardship exemption from the section’s requirements.

Section 1142-A of the Tax Law expired November 30, 2004. Section 1142-A was drafted and enacted in 1992 at the behest of numerous parking facility operators in Manhattan. They were concerned that many operators were either collecting the full or a reduced rate of tax but not remitting it or were not collecting tax at all. In any of such cases, the operator would have a competitive advantage over an honest operator who collected and remitted the then-full 18 ¼% rate (now 18 5/8%), since the non-compliant operator could charge its customers less than the compliant operator charged. The Department of Taxation and Finance also sought the advice of New York City agencies which regulate parking when section 1142-A was drafted; and the City was supportive of its enactment and extensions. Section 1142-A became effective on December 1, 1992. Originally it was to sunset in 1995, but it was extended to 1999 and then again to its recent expiration in 2004.

This is a new budget proposal.

The Tax Department has found the tools provided by section 1142-A to be effective to ensure proper collection and enforcement of the parking tax in Manhattan. It is important to enter parking facilities to confirm the number of licensed spaces and the actual number, since many operators are known to park more vehicles than the facility is licensed for, but to report tax collected only from the licensed number. Also, operators were known to claim that vehicles were parked for less time than they were and thus report less receipts and tax thereon. Requiring consecutively numbered tickets, with rate and entry information printed thereon, also facilitates the audit process.

If this bill is not enacted, it can be expected that State and local revenues would be eroded as unscrupulous parking garage operators take advantage of the reduced oversight. This would also adversely affect honest parking operators. In light of 12 years of proven effectiveness, section 1142-A should now be made permanent.

Part J – Increase the income level at which the filing of personal income tax returns is required.

This bill would modify the requirement that residents must file New York personal income tax returns even if they do not have sufficient income to incur New York tax.

The bill amends the resident income tax filing rule (Tax Law § 651(a)(1) to (A) ) eliminating the requirement that an individual must file a New York return if he or she is required to file a Federal return. This bill also changes the filing threshold to be the taxpayer’s Federal adjusted gross income increase by the modifications under Tax Law § 612(b) and replaces the $4,000 income threshold for filing with the taxpayer’s standard deduction, effective for taxable years beginning on or after January 1, 2005.

Tax Law § 651(a)(1) requires resident individuals to file a New York income tax return if, among other things, (A) they are required to file a Federal Income tax return or (B) Federal adjusted gross income plus New York additions to income exceeds the lesser of $4,000 or the New York standard deduction. However, under the New York tax calculation, there is no New York taxable income unless New York (not Federal) adjusted gross income exceeds the taxpayer’s New York standard deduction. Also, the New York standard deduction nearly always exceeds $4,000. Accordingly, the filing rules require low income taxpayers to file a New York return even when no tax liability accrues.

This bill was included in the Governor’s SFY 1999-2000 and 2004-2005 fiscal year Budgets.

When the present-law filing threshold was enacted as part of the 1987 New York Tax Reform and Reduction Act (Chapter 28, Laws of 1987), it approximated the New York standard deduction amounts then in effect ($2,650 – $5,300, depending on filing status.) Since then, the New York standard deduction has been increased numerous times so that only the standard deduction of “dependent filers” (taxpayers who can be claimed as a dependent on another taxpayer’s return) is less than $4,000. For other filing classes, the standard deduction ranges from $6,500 to $14,600. These increases in the standard deduction have shielded many low income individuals from the obligation to pay New York income tax, but they are still required to file New York returns, resulting in many more “no-tax” filings than anticipated in the 1987 Tax Act. To relieve these “no-tax” individuals from the burden of filing, it is also necessary to eliminate the rule that individuals must file a New York tax return if they are required to file a Federal return and to change the filing threshold to be the taxpayer’s Federal adjusted gross income increased by the modifications under Tax Law § 612(b) rather than Federal adjusted gross income. New York does not tax certain kinds of income which are taxable at the Federal level, such as Federal bond interest and most retirement benefits. Accordingly, if the Federal filing rule and the Federal adjusted gross income filing threshold are retained, “no-tax” individuals with these kinds of income, most notably retirees, would continue to be required to file New York returns even though they owe no New York State tax. The bill in no way limits an individual’s right to file a return, for instance to secure the return of tax withheld on wages, or the payment by the State of tax benefits such as the refundable circuit breaker, child care, earned income and New York City STAR credits. We anticipate that these individuals will continue to file New York returns. It is estimated that this proposal would eliminate the filing of approximately 500,000 “no-tax” returns annually.

Part K – Authorize the Tax Department to arrange reciprocal offset tax agreements with New York City and other states.

This bill expands collection opportunities against delinquent taxpayers by authorizing the Commissioner of Taxation and Finance to enter into an agreement with the New York City Finance Commissioner under which New York City (NYC) would pay the State certain City tax overpayments in satisfaction of State tax judgments and authorizing agreements between New York State and other states for mutual application of tax overpayments against debts owed New York and other states.

Section 1 of the bill adds a new section 171-m to the Tax Law.

This new section permits the Commissioner of Taxation and Finance and the Commissioner of Finance of the City of New York to agree upon procedures to apply certain City tax overpayments against tax debts owed the State represented by filed tax warrants. These warrants serve as judgments for tax in favor of the State of New York.

To the extent required by the City’s Finance Commissioner, overpayments of any City tax may be first applied to all debts owed New York City agencies before they are remitted to the State Tax Department. New York City will not be subject to any litigation for an overpayment made to the State. All legal proceedings must be brought against the Commissioner of Taxation and Finance.

Section 171-m would facilitate collection of tax judgments owed New York State in the same fashion that NYC tax judgments are satisfied by application of State tax overpayments to City judgments under section 171-l of the Tax Law (Chapter 60, Part R of the Laws of 2004). The City and State would also be authorized to exchange return information sufficient to implement an agreement about how City overpayments will be applied to State tax judgments. This provision creates reciprocity between the State and the City with respect to the application of tax overpayments against debts.

Existing law, Tax Law section 171-l, authorizes payment of New York City tax judgments by application of certain State tax overpayments.

Section 1 is a new proposal. In 2004, section 2 of this proposal was introduced as S. 6664 in the Senate (2004 Tax Department legislative proposal # 4) and was referred to Investigation and Government Operations.

Section 2 of the bill adds a new section 171-n to the Tax Law.

This new section permits the Commissioner of Taxation and Finance to enter into agreements with tax administrators of other states to offset New York tax overpayments against tax liabilities owed other states, provided that those other states agree to a reciprocal arrangement whereby they offset overpayments made to their taxpayers against tax debts owed New York.

Section 171-n facilitates collection of past due tax from New York State resident and nonresident taxpayers who refuse to pay New York State tax. This will be accomplished by mutual agreements between the State Tax Commissioner and tax administrators of other states, subject to the provision of due process rights of taxpayers to notice and an opportunity to object. Basically, tax overpayments owed one state would be offset by the tax debt owed a different state or states.

Due process for taxpayers is assured by providing notice and an opportunity to produce evidence about such things as the identity of the taxpayer, amounts paid, discharge in bankruptcy, prior arrangement to pay in installments, etc. However, because “tax debts,” a definition derived from Internal Revenue Code section 6402(e)(1), are only those which are finally fixed and determined by judicial decision, or an unappealable administrative decision or assessment, the underlying liability for the tax will be uncontestable since a hearing or an opportunity to be heard on such liability will have already been provided to a taxpayer.

Inasmuch as only legally final and fixed tax debts are subject to this bill and New York tax law is not a consideration, Tax Appeals Division hearings are unnecessary with regard to the validity of the underlying debt; but aggrieved taxpayers would still have an exclusive right to appeal by instituting a New York Civil Practice Law and Rules, Article 78 proceeding on issues involving the proper application of an overpayment to a debt (for example whether a debt was already discharged in bankruptcy). Moreover, taxpayers would still have recourse to the Division of Tax Appeals if the issue is within its purview. For example, if a taxpayer had never timely challenged an assessment, his or her refund could be applied to a tax debt arising from the assessment. However, if a taxpayer asserted he or she had not been assessed, or assessed improperly, the issue would be whether there was in fact a tax debt (whether there had been an assessment, or whether that assessment was still appealable), and that issue could be raised with the Division of Tax Appeals.

Should information, beyond anything already part of public record, be needed to correctly identify a taxpayer or accomplish the offset, the Tax Law permits exchange of confidential tax material for almost every tax with other states granting substantially similar privileges to New York (e.g., Tax Law §§ 211[8] [c], 697[f], 1146[d]). Exchanged confidential tax data would be subject to safeguard by other states as would other states’ data need to be protected by the Tax Commissioner.

Among other things, the language allowing the Commissioner to agree to pay “the whole or part of an overpayment” to the claimant state allows the Commissioner to make provisions in the agreement for prior satisfaction of debts owed other New York agencies and the Federal government. It is anticipated that only an overpayment, reduced by debts owed New York State, local taxes administered by the Commissioner and Federal tax levies, would be available to other states.

Part L – Require tax clearance to obtain certain State licenses and contracts.

This bill would promote tax compliance and assure that persons seeking to contract with the State, or granted valuable licenses by the State, are held to a basic standard of compliance with their tax obligations as a condition of obtaining their contracts or licenses. Specifically, the proposal would require persons seeking to obtain State contracts, or to obtain or maintain licenses to traffic in alcoholic beverages, or to practice medicine, certified public accountancy or law, to be current with respect to all tax liabilities.

Section 1 of the proposal would add a new section 131 to the Alcoholic Beverage Control Law to provide that a license or license renewal to traffic in alcoholic beverages shall not be issued by the State Liquor Authority to an applicant if the applicant has taxes due and owing, unless the Tax Department issues a tax clearance for the applicant.

Subdivision 1 provides definitions of terms used in section 131. Paragraph (a) of subdivision 1 defines “applicant” to mean a person applying to the State Liquor Authority for a license or license renewal to traffic in alcoholic beverages. Paragraph (b) of subdivision 1 defines “department” to mean the Department of Taxation and Finance. Paragraph (c) of subdivision 1 defines “tax” to mean a tax, fee, special assessment or other imposition administered by the Commissioner of Taxation and Finance. Paragraph (d) of subdivision 1 defines “taxes due and owing” to mean a tax owed by an applicant for which a warrant has been issued by the Commissioner of Taxation and Finance and filed in the office of the appropriate county clerk. The term would not include a warranted liability which has been paid in full and for which such Commissioner has filed a satisfaction in the office of the appropriate county clerk. By defining “taxes due and owing” as encompassing final determinations only, the proposal ensures that applicants contesting a tax liability administratively or judicially would not be barred from obtaining or maintaining licenses to traffic in alcoholic beverages. Paragraph (e) of subdivision 1 defines “tax clearance” to mean information provided by the Tax Department indicating that an applicant does not have taxes due and owing. The document would be issued where the Tax Department determines that there are no taxes due and owing or that all taxes due and owing have been paid in full or are being paid pursuant to an installment or other payment agreement, or where, based on information provided by the State Liquor Authority, the Tax Department is unable to determine that the applicant has taxes due and owing. (The terms “traffic in” and “alcoholic beverages” are already defined by subdivisions 30 and 1, respectively, of the Alcoholic Beverage Control Law.)

Subdivision 2 of section 131 requires the State Liquor Authority, prior to issuing or renewing a license to traffic in alcoholic beverages, to determine whether an applicant has taxes due and owing by using either of the following two procedures: a) itself matching against an electronic posting of Tax Department warrant information; or b) providing the Tax Department with the name, address and, where available, federal identification number of the applicant, and having the Tax Department match such information against its records. The Tax Department would, as soon as practicable, but in no event more than three business days, determine whether or not the applicant has taxes due and owing.

If the applicant, in the case of a new license application, has taxes due and owing, then the State Liquor Authority would be required to notify the applicant by mail that the license will not be issued unless the applicant presents to the State Liquor Authority a tax clearance obtained from the Tax Department. If the applicant, in the case of a license renewal application, has taxes due and owing, then the State Liquor Authority would be required to notify the applicant by mail that the license will not be renewed unless the applicant, within a period prescribed by the State Liquor Authority, but in no event less than 45 calendar days of the mailing date of the notice, presents to the State Liquor Authority a tax clearance obtained from the Tax Department. If the applicant failed to obtain the tax clearance timely, then the applicant would no longer be licensed to traffic in alcoholic beverages.

Subdivision 3 of section 131 requires the Commissioner of Taxation and Finance to consult with the State Liquor Authority in developing procedures governing the conduct of the processes prescribed by the new section for determining whether an applicant has taxes due and owing. These would include, but not be limited to, the format of verification requests or inquiries, and the times at which verification requests or inquiries may be made.

Subdivision 4 of section 131 makes clear, for privacy purposes, that the State Liquor Authority would be asking applicants to furnish their federal identification numbers for tax administration purposes.

Section 2 of the proposal would add a new section 5-b to the Tax Law, concerning tax compliance by persons seeking to obtain or maintain State contracts, and their affiliates.

Subdivision 1 sets forth definitions used in section 5-b. Paragraph (a) of subdivision 1 defines “affiliate” as a person which, through stock ownership or other affiliation, directly, indirectly or constructively controls another person, is controlled by another person, or is, along with another person, under the control of a common parent. Section 5-b addresses tax compliance by affiliates of contractors in order to limit the ability of contractors to structure deals with one or more affiliates which are designed to circumvent the requirements of the new section. Paragraph (b) of subdivision 1 defines “contract” as an agreement between a person and a covered agency having a value in excess of $15,000. All types of state government contracts are intended to be subject to the new section, whether entered into pursuant to, or authorized by, the provisions of the State Finance Law, the Public Buildings Law or other state statute. The $15,000 contract threshold is included in order to avoid wasting scarce State resources holding up small contracts because of tax problems. Paragraph (c) of subdivision 1 defines “covered agency” as New York State; any department, board, bureau, commission, division, office, council or agency of New York State; public authorities; and public benefit corporations. Paragraph (d) of subdivision 1 defines “person” as an individual, partnership, limited liability company, society, association, joint stock company, or corporation. If referring to an entity, the term “person” includes an entity in business for either profit or not-for-profit purposes.

Paragraph (e) of subdivision 1 defines “tax” as a tax, fee, special assessment or other imposition administered by the Commissioner of Taxation and Finance.

Paragraph (f) of subdivision 1 defines “taxes due and owing” as a tax owed by a person seeking to obtain or maintain a contract, or any affiliate of such person, for which a warrant has been issued by the Commissioner of Taxation and Finance and filed in the office of the appropriate county clerk. The term would not include a warranted liability which has been paid in full and for which such Commissioner has filed a satisfaction in the office of the appropriate county clerk. Paragraph (g) of subdivision 1 defines “tax clearance” to mean information provided by the Tax Department indicating that a person seeking to obtain or maintain a contract or, if applicable, an affiliate of such person, does not have taxes due and owing. The document would be issued where the Tax Department determines that there are no taxes due and owing or that all taxes due and owing have been paid in full or are being paid pursuant to an installment or other payment agreement, or where, based on information provided by the applicable covered agency, the Tax Department is unable to determine that such person or affiliate has taxes due and owing.

Paragraph (a) of subdivision 2 of section 5-b provides that a contract shall not be approved by the State Comptroller, or other responsible approver if the State Comptroller is not required to approve the contract, if the contractor, or an affiliate of the contractor, if applicable, has taxes due and owing, unless the Tax Department issues a tax clearance for such person or affiliate. This requirement is in addition to any other requirements prescribed by law for approval of contracts to which a covered agency is a party.

Paragraph (b) of subdivision 2 requires a covered agency, prior to submission of a contract to the State Comptroller or other responsible party for approval, to determine whether a person seeking to obtain the contract or, if applicable, any affiliate of such person, has taxes due and owing by using either of the following two procedures: a) the covered agency itself matching against an electronic posting of Tax Department warrant information; or b) providing the Tax Department with the name, address and federal identification number of the person seeking the contract and, if applicable, each affiliate of such person, and having the Tax Department match against its records. The Tax Department would, as soon as practicable, but in no event more than three business days, determine whether or not such person or affiliate, if applicable, has taxes due and owing.

Paragraph (c) of subdivision 2 provides that if the person seeking the contract, or any of its affiliates, if applicable, has taxes due and owing, then the covered agency must notify the person seeking the contract by mail that the contract will not be approved unless such person, within a time period prescribed by the covered agency, but in no event less than forty-five calendar days from the mailing date of such notice, presents to the covered agency all required tax clearances obtained from the Tax Department.

Paragraph (c) of subdivision 2 also requires the covered agency to document in the procurement record, or comparable documentation if the State Comptroller is not required to approve the contract, whether the person seeking the contract or any affiliate, if applicable, has taxes due and owing and, if so, that all required tax clearances have been obtained from the Tax Department.

Subdivision 3 of section 5-b requires a covered agency to determine whether or not a person holding an approved contract, or any affiliate, if applicable, has taxes due and owing prior to: commencement of each subsequent contract year, in the case of a multi-year contract; commencement of any renewal term of a contract, in the case of a contract subject to renewal upon expiration of the term of the contract, including any prior renewal term; or commencement of each subsequent contract year and commencement of each renewal term in the case of a multi-year contract subject to renewal upon expiration of the term of the contract, including any prior renewal term. The pre-contract approval procedures described above will apply and, if the Tax Department determines that the person holding the contract and/or any affiliate has taxes are due and owing, then the contracting agency must so notify the person holding the contract by mail. The agency shall consider such fact as a material breach of the contract, and may take steps to terminate the contract for material breach if the agency determines that such action is in its best interests, unless the contractor, within a time period prescribed by the contracting State agency, but in no event less than forty-five calendar days from the mailing date of such notice, presents to the covered agency all required tax clearances obtained from the Tax Department.

Subdivision 4 of new section 5-b requires the Commissioner of Taxation and Finance, following consultation with the heads of the covered agencies, to prescribe procedures governing the conduct of the processes prescribed by the new section for determining whether a person seeking to obtain or maintain a State contract, or, if applicable, any affiliate of such person, has taxes due and owing. These would include, but not be limited to, the format of verification requests or inquiries, and the times at which verification requests or inquiries may be made. Pursuant to this grant of authority, the Commissioner of Taxation and Finance could, for example, choose to develop an internet application which would be accessible only to the State Comptroller, other contract approvers, and covered agencies, allowing them to check a Tax Department list of warranted liabilities to determine if contractors or their affiliates had taxes due and owing.

Subdivision 5 of new section 5-b provides that such section shall not apply to a contract if the covered agency and the State Comptroller, or other contract approver, as applicable, determine in writing that the contract is necessary to address an “emergency,” within the meaning of Article 11 of the State Finance Law, or ensure the public health, safety or welfare.

Section 3 of the proposal would add a new section 6524-a to the Education Law, concerning tax compliance by persons seeking to obtain or maintain licenses to practice medicine.

Subdivision 1 would provide definitions of terms used in new section 6524-a. Paragraph (a) of subdivision 1 defines “applicant” to mean a person applying to the Education Department for a license to practice medicine. Paragraph (b) of subdivision 1 defines “licensee” to mean a person licensed to practice medicine in accordance with the provisions of Article 131 of the Education Law. Paragraph (c) of subdivision 1 defines “tax” to mean a tax, fee, special assessment or other imposition administered by the Commissioner of Taxation and Finance. Paragraph (d) of subdivision 1 defines “taxes due and owing” to mean a tax owed by an applicant or licensee for which a warrant has been issued by the Commissioner of Taxation and Finance and filed in the office of the appropriate county clerk. However, the term would not include a warranted liability which has been paid in full and for which such Commissioner has filed a satisfaction in the office of the appropriate county clerk. Paragraph (e) of subdivision 1 defines “tax clearance” to mean information provided by the Tax Department indicating that an applicant or licensee does not have taxes due and owing. The document would be issued where the Tax Department determines that there are no taxes due and owing or that all taxes due and owing have been paid in full or are being paid pursuant to an installment or other payment agreement, or where, based on information provided by the Education Department, the Tax Department is unable to determine that the applicant or licensee has taxes due and owing.

Subdivision 2 of section 6524-a would require the Education Department, prior to issuing a license to practice medicine, to determine whether an applicant has taxes due and owing by using either of the following two procedures: a) itself matching against an electronic posting of Tax Department warrant information; or b) providing the Tax Department with the name, address and, where available, federal identification number of the applicant, and having the Tax Department match such information against its records. The Tax Department would, as soon as practicable, but in no event more than three business days, determine whether or not the applicant has taxes due and owing.

If the applicant has taxes due and owing, then the Education Department would be required to notify the applicant by mail that the license will not be issued unless the applicant presents to the Education Department a tax clearance obtained from the Tax Department.

Subdivision 3 of new section 6524-a requires the Education Department to determine whether or not licensed medical doctors have taxes due and owing as part of the biennial registration process for medical doctors. The procedures described above applicable to applicants for licenses to practice medicine will apply and, if it is determined that the licensee has taxes due and owing, then the Education Department would be required to notify the applicant by mail that his/her license will be suspended unless the licensee, within a period prescribed by the Education Department, but in no event less than 45 calendar days of the mailing date of the notice, presents to the Education Department a tax clearance obtained from the Tax Department.

A licensee who has had his/her license to practice medicine suspended would have his her license revoked unless, within a period prescribed by the Education Department, but in no event less than 45 calendar days of the mailing date of the notice of license suspension, such licensee presents to the Education Department a tax clearance obtained from the Tax Department.

Subdivision 4 of section 6524-a would require the Commissioner of Taxation and Finance to consult with the Education Department in developing procedures governing the conduct of the processes prescribed by the new section for determining whether an applicant or licensee has taxes due and owing. These would include, but not be limited to, the format of verification requests or inquiries, and the times at which verification requests or inquiries may be made.

Subdivision 5 of section 6524-a would make clear, for privacy purposes, that the Education Department would be asking applicants and licensees to furnish their federal social security numbers for tax administration purposes.

Section 4 of the proposal would add new section 7404-a to the Education Law, and section 5 of the proposal would add new section 460-C to the Judiciary Law, to enact provisions comparable to those described in section 3 of the proposal for purposes of obtaining or maintaining licenses to practice certified public accountancy, or law, respectively.

Section 6 of the proposal provides that it shall take effect immediately. However, section 1 of the proposal, adding new section 131 to the Alcoholic Beverage Control Law, would apply to applications for licenses or license renewals to traffic in alcoholic beverages received by the State Liquor Authority on or after January 1, 2006, and the Commissioner of Taxation and Finance and the State Liquor Authority would be authorized to take any steps necessary to implement the provisions of section 1 of the bill on or after the date it shall have become a law; section 2 of the proposal, adding new section 5-b to the Tax Law, would apply to procurements begun by New York state on or after January 1, 2006, and the Commissioner of Taxation and Finance would be authorized to prescribe any procedures necessary to implement the provisions of section 2 of the bill on or after the date it shall have become a law; section 3 of the proposal, adding new section 6524-a to the Education Law, would apply to applications for licenses to practice medicine, and biennial registrations received by the State Education Department on or after January 1, 2006, and the Commissioner of Taxation and Finance and the State Education Department would be authorized to take any steps necessary to implement the provisions of section 3 of the bill on or after the date it shall have become a law; section 4 of the proposal, adding new section 7404-a to the Education Law, would apply to applications for licenses to practice certified public accountancy, and triennial registrations, received by the State Education Department on or after January 1, 2006, and the Commissioner of Taxation and Finance and the State Education Department would be authorized to take any steps necessary to implement the provisions of section 4 of the bill on or after the date it shall have become a law; and section 5 of the proposal, adding new section 460-C to the Judiciary Law, would apply to applications for certification for admission to practice as an attorney or counselor in New York State received by the State Board of Law Examiners, and biennial registrations required to be filed with the Chief Administrator of the Courts, on or after January 1, 2006, and the Commissioner of Taxation and Finance, the State Board of Law Examiners and the Chief Administrator of the Courts would be authorized to take any steps necessary to implement the provisions of section 5 of the bill on or after the date it shall have become a law.

There are no statutory provisions requiring persons seeking to obtain or maintain State contracts, or licenses to traffic in alcoholic beverages, or to practice medicine, certified public accountancy or law, to stay current with their tax payment responsibilities as a condition of obtaining or maintaining such contracts or licenses. There are several statutory provisions requiring persons to keep child support payment obligations current in order to maintain driving privileges, State professional, occupational and business licenses, and recreational licenses. See, Family Court Act sections 458-a, 458-b, 458-c; Domestic Relations Law sections 244-b, 244-c, 244-d. Section 5 of the Tax Law requires individuals and business to provide their identification numbers (social security numbers or employer identification numbers) to State and county agencies issuing licenses to such persons. The licensing agency is to provide such numbers to the Department of Taxation and Finance upon request. The section specifically states that the numbers shall be obtained by the licensing agency as part of the administration of the taxes administered by the Commissioner of Taxation and Finance for the purpose of establishing the identification of persons affected by such taxes. However, the section does not address the licensing consequences if a person refuses to provide an identifying number. Section 5-a of the Tax Law requires certain persons awarded contracts valued at more than $15,000 by state agencies, public authorities or public benefit corporations to certify that they, their affiliates, their subcontractors and the affiliates of their subcontractors have a valid certificate of authority to collect New York State and local sales and compensating use taxes. Persons awarded contracts with state agencies, public authorities or public benefit corporations are required to make this certification before the State Comptroller, or other responsible approver if the State Comptroller is not required to approve the contract, will approve the contract. Persons holding state contracts are also subject to this requirement at specified intervals during the terms of multi-year contracts and for those contracts subject to renewal upon expiration of an initial or renewal term. Section 171-f of the Tax Law authorizes the Commissioner of Taxation and Finance to credit a taxpayer’s overpayment of tax against the amount of a past-due legally enforceable debt owed by the taxpayer to a State agency. Sections 203-a and 217 of the Tax Law provide that that the Secretary of State may dissolve a domestic corporation and declare its charters forfeit, and may annul the authority of a foreign corporation to do business in this State, if such companies are delinquent in filing returns or paying taxes for two consecutive years. However, these provisions apply only to those corporations subject to the provisions of Article 9 or Article 9-A of such Law. Section 163 of the State Finance Law provides, in part, that both commodities and services contracts must be awarded to responsive and responsible offerors. While the statute does not contain a precise definition of “responsible,” the New York State Procurement Guidelines state that “responsibility” may include, but is not limited to, the offeror’s qualifications, financial stability and integrity. The Department of Taxation and Finance has traditionally considered tax compliance in its responsibility determinations, viewing it as an element of vendor “integrity.” However, there is no standardized definition of the term, and each State agency is responsible for administering its own “responsibility” determination process.

The Comptroller has the inherent authority, pursuant to his duties as the State’s chief fiscal officer, to offset valid claims of the State of New York against claims made against the State. This recoupment and offset authority is derived from the Comptroller’s “constitutional and statutory duty to audit all vouchers before payment (NY Constitution, art V, § 1; State Finance Law, § 8)” See, Matter of Carlon v Regan, 98 A.D. 2d 52d 1011; Smith v. Hudacs, 158 Misc. 2d 149. The Department of Taxation an44, 546, affd as mod 63 N.Y. d Finance has an agreement with the State Comptroller to offset contract payments due the contractor if the contractor has a delinquent tax account with the Department. (See, OSC Accounting Bulletin A-226-R1.)

There is no prior legislative history for this bill.

By linking tax compliance with the ability to obtain or maintain State contracts, medical, certified public accountancy or legal licenses, or State Liquor Authority licenses to traffic in alcoholic beverages, the proposal creates a strong incentive for the affected persons to stay current with respect to their tax responsibilities. At the same time, the proposal sends a clear message to all taxpayers that the State will not reward noncompliant taxpayers with State privileges. As a condition to the granting by the State of these valuable privileges, the proposal would require contractors and licensees to meet certain basic obligations to the State, i.e., the payment of taxes.

Part M – Close the loophole regarding tax treatment of real estate investment trusts (REITS) and regulated investment companies (RICS) to conform to Federal and New York City tax treatment.

This bill would amend provisions of Articles 9-A, 32 and 33 of the Tax Law to disallow the exclusion of all or part of the dividends paid by a real estate investment trust (REIT) or a regulated investment company (RIC) subsidiary, or by a subsidiary that owns or controls (individually or with other affiliated corporations) over 50 percent of the capital stock of a REIT (a “REIT holding company”) or RIC (a “RIC holding company), to exclude the capital of such subsidiaries from the base of the subsidiary capital tax under Articles 9-A and 33, and to disallow a deduction for rent paid to a closely held REIT.

Section 1 of the bill amends subparagraphs (1) and (2) of Tax Law section 208.9(a). The amendment to subparagraph (1) provides that, in determining entire net income of a corporation taxable under Article 9-A of the Tax Law, the exclusion for income, gains or losses from a subsidiary shall not include the distributions made paid by a REIT as defined in Internal Revenue Code (“IRC” or “Code”) section 856 (or gains or losses from the disposition of an ownership interest in a REIT), distributions made by a RIC as defined in IRC 851 (or gains or losses therefrom), or distributions made by a REIT holding company or a RIC holding company (or gains or losses therefrom). The amendment to subparagraph (2) provides that the 50 percent exclusion allowed for dividends received from a non-subsidiary shall not include any dividends received from a REIT or a REIT holding company. A holding company includes a corporation that itself owns over 50 percent of the capital stock of a REIT or RIC, and a corporation that is part of an affiliated group with the taxpayer and that along with its other affiliates owns over 50 percent of a REIT or RIC. In addition, the amendment to subparagraph (2) specifically allows the 50 percent exclusion for dividends received from a subsidiary RIC, a non-subsidiary RIC (to the extent these dividends are properly designated under section 854(b)(1)(A) pertaining to RIC distributions that are deductible by corporate shareholders), or a subsidiary RIC holding company (even though the 100 percent deduction relating to RIC and RIC holding company subsidiaries is not allowed), to the extent the dividends are attributable to the interest in the RIC owned by the subsidiary. For purposes of these amendments, the terms “distributions” and “dividends” mean the amounts distributed by the REIT or RIC (or holding company thereof) that are includable in the gross income of the shareholder regardless of the whether such amounts are designated as capital gain dividend, exempt interest dividend, or other designation.

Section 2 of the bill amends Tax Law section 208.9(b). The amendment to section 208.9(b)(6) eliminates the add back required for interest expense or other deduction attributable to subsidiary capital, or to income, gains or losses from subsidiary capital if, pursuant to Tax Law section 208.9(a)(1), the income, gains or losses from this capital would not be excluded from the determination of entire net income. One such type of subsidiary capital is a REIT (as provided by the amendment made in section 1 of the bill). New subparagraph (19) creates an add back provision for rent paid to a REIT if the taxpayer owns, directly or indirectly, over 50 percent of the capital stock of the REIT or if one or more corporations that are part of an affiliated group that includes the taxpayer owns over 50 percent of the REIT.

Section 3 of the bill amends paragraph (e) of subdivision 1 of section 210 of the Tax Law. This amendment removes from the base that is subject to the subsidiary capital tax the investments in those subsidiaries the income, gains or losses from which are included in entire net income pursuant to Tax Law section 208.9(a)(1).

Section 4 of the bill adds a new paragraph (14) to subsection (b) of section 1453 of the Tax Law. New paragraph (14) requires a taxpayer to add back any rent paid to a REIT in which the taxpayer directly or indirectly owns over 50 percent of the capital stock, or in which affiliates of the taxpayer own over 50 percent.

Section 5 of the bill amends paragraph (11) of Tax Law section 1453(e). The amendment provides that the 60 percent deduction allowed for dividend income from subsidiaries and the 60 percent deduction for net gains from subsidiary capital shall not include any dividends from a REIT, a RIC, or a REIT or RIC holding company, or the gain or loss on any sale of an ownership interest in such entities (to the extent such dividends, gains or losses are attributable to the ownership interest in the REIT or RIC).

Section 6 of the bill makes amendments to subparagraphs (A) and (B) of Tax Law section 1503(b)(1) that are similar to those made in section 1 of the bill.

Section 7 of the bill makes amendments to paragraph (2) of Tax Law section 1503(b) (regarding the entire net income of insurance corporations) that are similar to those contained in section 2 of the bill relating to the add back for expenses attributable to subsidiary capital and for rent paid to a more than 50% owned REIT.

Section 8 of the bill states that this act takes effect immediately and applies to taxable years beginning on or after January 1, 2005.

Section 856 of the Internal Revenue Code (“IRC” or “Code”) defines a real estate investment trust. Among the requirements to qualify as a REIT are that beneficial ownership of the entity is held by at least 100 individuals and at least 75% of the income of the REIT is derived from certain interests in real property or securities relating to real property. IRC section 857 provides for the taxation of REITS and their shareholders. Generally, a REIT is taxed upon its real estate investment trust taxable income, but the REIT is allowed to take a deduction for dividends paid to its shareholders. For taxable years beginning after 2000, a REIT must distribute at least 90 percent of its dividends to avoid taxation of this income to the REIT. The dividends paid to the shareholders of the REIT are taxable to the shareholder as ordinary income, except that capital gains may be passed through to shareholders (who would pay tax on such income at capital gain rates), or may be retained by the REIT and subjected to tax at capital gain rates (with a deemed payment of tax by the shareholders). Dividends received by a corporate shareholder of a REIT, or that are deemed to be received, do not qualify for the dividends received deduction allowed to corporations under the Code.

A RIC is a domestic corporation that meets the requirements of section 851 of the IRC. One of the requirements is that at least 90 percent of the gross income of the corporation is from dividends, interest, payments with respect to certain securities loans, gains on the disposition of stocks or other securities, or income derived from the business of investing. Also, like a REIT, a RIC must distribute at least 90 percent of its annual ordinary income (not including capital gain income) and tax-exempt income to its shareholders. RICS and their shareholders are taxed at the federal level much the same way as REITS and their shareholders. Generally, if the RIC satisfies the 90 percent distribution requirement, it is taxable only on that portion of its income that is not distributed to shareholders (because it is allowed a dividends paid deduction for the amount distributed to the shareholders). The RIC shareholders receive pass through treatment of any capital gains, tax exempt interest, and foreign tax credits attributable to the distributions. Unlike a REIT though, the dividends received deduction applies to the amount distributed to a corporate shareholder from the RIC to the extent that the distribution does not include a capital gain dividend and the gross income of the RIC is from corporate dividends. Generally, seventy percent of the distributed amount is deductible as a dividend received.

REITS and RICS are taxable entities under Article 9-A of the Tax Law (even if a majority interest in the REIT or RIC is owned by a banking corporation or insurance company), but since they are allowed a deduction for dividends paid to shareholders, which flows through to the determination of taxable income for New York purposes, and because they are not taxed based on capital or assets, these entities usually pay the minimum tax under Article 9-A.

A corporation subject to tax under Article 9-A of the Tax Law is allowed to deduct income, gains or losses from subsidiaries in determining its entire net income (“ENI”). Similarly, corporations are allowed to deduct fifty percent (50 percent) of the dividends received from non-subsidiary corporations in determining ENI. Thus, dividends are 100 percent deductible if paid by a REIT or RIC that is considered a subsidiary (due to ownership of over 50 percent of the voting stock by the taxpayer) under Article 9-A and are 50 percent deductible if the taxpayer owns less than 50 percent of the stock of the REIT or RIC.

The tax imposed under Articles 9-A and 33 also includes a tax based on the amount of subsidiary capital held by the taxpayer. The rate of tax on the subsidiary capital base is 0.09 percent of the amount of such capital allocated to New York State under Article 9-A, and 0.08 percent under Article 33.

In determining entire net income, a banking corporation subject to tax under Article 32 of the Tax Law is allowed to deduct 60 percent of the dividend income received from a subsidiary, and 60 percent of net gains from the sale or other disposition of subsidiary capital.

An insurance corporation subject to tax under Article 33 of the Tax Law, like an Article 9-A taxpayer, is allowed to deduct 100 percent of income, gains or losses from subsidiaries and 50 percent of income, gains or losses from non-subsidiaries.

In addition, corporations taxable under Articles 9-A, 32 or 33 are generally allowed under the Internal Revenue Code to deduct rental payments made to other persons or entities. This deduction flows through to the calculation of entire net income under these Articles of the Tax Law.

This is a new proposal.

Corporations subject to tax in New York are generally required to pay a franchise tax based on entire net income or some other base of taxation. The entire net income base is derived from the taxable income reported by the corporation for federal purposes. At the Federal level, a REIT can generally avoid taxation if it distributes its earnings, but the REIT shareholders must include these distributions in their taxable incomes. While most dividends received by a corporation are partially or wholly deductible under the Code, a distribution to a corporate shareholder of a REIT does not qualify for the dividend received deduction. This federal scheme ensures that either the REIT or its shareholders pay tax on the income earned by the REIT.

As at the Federal level, the REIT itself can avoid almost all New York State tax. Furthermore, corporations subject to tax in New York are generally permitted to deduct amounts they receive as shareholders in other corporations. This deduction can be as great as 100 percent under Article 9-A (the general corporate franchise tax article) or Article 33 (pertaining to the taxation of insurance corporations) if the amount is received from a subsidiary of the taxpayer. A distribution from a REIT subsidiary qualifies for this deduction. This treatment of a REIT and its corporate shareholder allows a corporate taxpayer to form a REIT, receive through distributions the income earned by the REIT, and avoid the payment of New York tax on this distributed income. Because the REIT itself usually has little New York tax liability, the income is almost entirely untaxed by New York. Corporate taxpayers, particularly banking corporations subject to tax under Article 32 of the Tax Law, have exploited these provisions of the Tax Law by transferring large mortgage loan portfolios or other assets to a controlled REIT so that the income from these assets can be funneled back to the taxpayer in the form of a deductible dividend. This practice converts what would have been ordinary income, fully includible in entire net income, into income from a subsidiary that is subject to a full or partial deduction.

Similarly, a RIC avoids almost all taxation by the State under Tax Law Article 9-A if it distributes its earnings to shareholders. In addition, the 100 percent deduction under Articles 9-A and 33 for distributions received by a corporate taxpayer from a subsidiary (and the 60 percent deduction under Article 32 for subsidiaries of banking corporations) applies to the distributions from a RIC, and allows the RIC shareholder to eliminate or reduce the distributions by the RIC subsidiary that will be included in entire net income.

Corporate taxpayers have also used REIT subsidiaries to artificially create a rental expense. Real estate that may have been directly held by the taxpayer is transferred to a REIT subsidiary and then rented back to the taxpayer. Rental payments made to the REIT generate a substantial deduction for the taxpayer that ultimately reduces New York taxable income. At the same time, any distribution of the net income of the REIT subsidiary to its corporate parent is deductible in computing New York entire net income of the parent corporation.

It is evident that the current method of taxing REITS and RICS, and their corporate shareholders, can be exploited to shelter all or most of the income earned in New York from taxation. Other states, including California, Connecticut and Massachusetts, have recognized the problems posed by permitting corporate shareholders to exclude REIT or RIC distributions from their income, and have passed legislation requiring such distributions to be included in the taxable income base. The amendments set forth in this bill address the problems recognized by these other states by preventing the use of REITS or RICS to avoid taxation of income that the corporation tax provisions were intended to cover.

Part N – Increase the capital base cap under the Article 9-A Corporate Franchise Tax from $350,000 to $1,000,000.

This bill would increase the maximum amount of the tax base on capital in Article 9-A of the Tax Law for all taxpayers except manufacturers.

Section 1 of this bill amends paragraph (b) of subdivision 1 of section 210 of the Tax Law to increase, for all taxpayers except manufacturers, the maximum amount of the Article 9-A capital base from $350,000 to $1,000,000. A manufacturer is defined as a taxpayer which during the taxable year is principally engaged in the production of goods by manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture or commercial fishing. Moreover, for purposes of computing the capital base in a combined report, the combined group shall be considered a “manufacturer for this purpose if the combined group during the taxable year is principally engaged in the activities set forth above, or any combination thereof. A taxpayer or a combined group shall be “principally engaged” in activities described above if, during the taxable year, more than fifty percent of the gross receipts of the taxpayer or combined group are derived from receipts from the sale of goods produced by such activities.

Under existing law, the taxpayer’s capital base generally is equal the taxpayer’s total business and investment capital, or portion thereof allocated within New York State, multiplied by .00178. The maximum amount prescribed for the capital base is $350,000.

This is a new proposal.

The maximum amount of the capital base tax under Article 9-A was established under Chapter 817 of the Laws of 1987. The increase in the capital base provided for under this bill reflects the changes in economic realities since the capital base provision was last amended in 1987.

Part O – Enhance the Green Buildings Program to allow for an additional $25 million in tax credits.

This bill extends the existing Green Buildings Tax Credits Program and provides an additional $25 million in credits.

This bill would amend a provision in section 19(c) of the Tax Law to provide an additional $25 million in credits under the Green Buildings Tax Credits Program described in section 19 of the Tax Law. The bill would provide for two time periods, with the first covering the initial $25 million and the second time period covering the allocation of the additional $25 million. Under the second time period, the Department of Environmental Conservation (DEC) would have five years, from 2005 through 2009, to accept applications for and issue initial credit component certificates for this additional $25 million. Taxpayers issued these certificates (a pre-requisite for claiming the credits) will have nine taxable years, from 2006 through 2014, to claim the credits. The program during the second time period would operate and the credits would be allocated in a manner substantially similar to the way the program allocated the initial $25 million except that no initial credit component certificate can be issued under the second time period for an amount in excess of $2 million per project. A taxpayer that received credits for a project under period one will be ineligible to receive credits under period two for the same project. This bill also covers some contingencies not addressed under existing law. If under the second time period, the initial credit component certificates have not been issued for the entire amount of $25 million by the close of 2009, the last year to issue certificates, DEC will have one more year to issue certificates for the balance not yet issued. Also, for both period one and period two, if a taxpayer issued an initial credit component certificate is unable to claim all of the credits provided pursuant to such certificate, DEC would have the option of allocating such unclaimed amount of credit to either a taxpayer that has already been issued an initial credit component certificate or opening up the process for other taxpayers to apply for and be issued initial credit component certificates.

The bill also amends the time for the Department of Taxation and Finance and DEC to issue final and preliminary reports, to the Governor and the Legislature, on the Green Buildings Tax Credits Program for periods one and two. A final report for the first time period is due on April 1, 2011, with a preliminary report due on April 1, 2005 (existing law). A final report for the second time period is due on April 1, 2016, with a preliminary report for this period due on April 1, 2010.

Finally, the provision mandating that DEC, every two years, amend regulations relating to various standards is relaxed and DEC would be required to issue such regulations only if it was deemed necessary.

Under existing law, initial credit component certificates for the $25 million provided under the program must be issued by the end of 2004 by DEC. This is one of the pre-requisites for a taxpayer to be eligible to claim the green buildings tax credits. Also, these credits must be claimed no later than taxable years beginning in 2009. If a taxpayer is unable to claim the credits that are allocated, the law is silent as to what happens to such credit amounts that are unused. A preliminary report on the Green Buildings Tax Credits Program is to be submitted to the Governor and the State legislative leadership by April 1, 2005. The report is to be prepared by Tax and Finance and DEC in consultation with the New York State Energy Research and Development Authority (NYSERDA). A final report is due April 1, 2008, even though the program is not scheduled to end until after that date. The Department of Environmental Conservation is required to review and issue new regulations every two years relating to the various standards that determine whether a building qualifies as a green building.

There has been no prior legislation introduced on this subject.

Under existing law, $25 million was allocated for Green Buildings Tax Credits for the life of the program which was to run from taxable years beginning in 2001 through taxable years beginning in 2009. The entire amount of $25 million has been allocated to the taxpayers that have been issued initial credit component certificates through 2004. Adding $25 million dollars to the program, extending the time 5 years to 2009 for DEC to issue initial credit component certificates, and adding 5 years to 2014 for the credits to be claimed will fully implement and extend the innovative and successful Green Buildings Tax Credits Program. The influx of new credit amounts will enable additional environmentally friendly buildings to be erected. The purposes of the program to provide a healthier and safer work and living environment for more New Yorkers will be more fully realized.

Part P – Remove the premiums tax exclusion for certain insurance companies that are currently exempt as county cooperative insurance corporations.

The bill limits the exemption from the franchise tax on insurance corporations for town or county co-operative insurance corporations in order to prevent unfair competition.

Section 1 of the bill amends the exemption for town and county co-operative insurance corporations in section 1512(a)(7) to provide that the exemption will apply only to corporations which properly reported direct written premiums to the Superintendent of Insurance of $25 million or less for the taxable year. Section 2 provides that this amendment will apply to taxable years beginning on or after January 1, 2005.

Section 1512(a)(7) provides an exemption to a town or county co-operative insurance corporation as heretofore contemplated by section 187 of Tax Law in effect immediately prior to January 1, 1974. A search of the legislative history of this exemption shows that it applied only to town and county co-operative insurance companies in existence prior to 1937 (which is when the “heretofore contemplated” language was added to the statute).

This is a new proposal.

Some of the corporations which come within the language of this exemption have significantly expanded their business beyond what was originally contemplated when the exemption was enacted. These companies are competing with other insurance companies doing business in New York State; yet they have an unfair advantage because they pay no State franchise tax. This bill is intended to level the playing field between large co-operative insurance corporations and other insurance companies, and limit the exemption to those companies whose operations are more closely aligned with the original intent of the exemption.

Part Q – Adopt tax shelter provisions based on Federal provisions.

This bill gives the Department of Taxation and Finance tools to address the increasing use of “tax shelters” by requiring disclosure of information relating to transactions that present the potential for tax avoidance, imposing penalties for nondisclosure and the underpayment of taxes due to the participation in such transactions, extending the statute of limitations for assessments relating to these transactions, and creating a voluntary compliance initiative to allow taxpayers to report and pay underreported tax liabilities and interest attributable to abusive tax avoidance transactions with the waiver of penalties. The bill tracks recent amendments to the laws of California and Illinois, as well as Federal law.

Section 1 of this bill adds a new section 25 to the Tax Law which provides new disclosure obligations with respect to tax shelters. Subdivision (a) of newly added section 25 imposes a reporting requirement that parallels the Federal tax shelter disclosure provisions of Internal Revenue Code (“IRC” or “Code”) Section 6011 and its associated regulations. This subdivision requires New York taxpayers (or other persons required to file reports, such as partnerships) who are required to disclose participation in certain transactions (referred to as “reportable transactions”) to the Internal Revenue Service to report such activity to New York State. This subdivision also authorizes the Department of Taxation and Finance to identify and require disclosure of additional transactions (referred to as “New York reportable transactions”) that have the potential for New York State tax avoidance or evasion. Under this subdivision, the commissioner may in his discretion prescribe, by regulation, New York reportable transactions. The subdivision also authorizes the Commissioner to designate specific transactions as tax avoidance transactions. Any such designation of a specific transaction is not subject to the rulemaking provisions of the State Administrative Procedures Act, but must be made through public notice or some other form of published guidance. This designation by public notice is consistent with the procedure used by the Internal Revenue Service to identify under IRC Section 6011 “listed transactions” (specific transactions determined to be tax avoidance transactions).

Subdivision (b) of newly added section 25 imposes a reporting requirement that parallels the requirement in IRC Section 6111. This subdivision requires material advisors (i.e., generally, promoters of tax shelters) who have a sufficient connection to New York to file a duplicate of the Federal return or statement required under IRC Section 6111 with the Department of Taxation and Finance within 60 days of the later of (i) the date the return is required to be filed with the IRS, (ii) the date the connections of the advisor with New York first arise, or (iii) 90 days after the enactment of section 25.

Subdivision (c) would add a disclosure requirement similar to the one imposed on material advisors under IRC Section 6112. The provision requires material advisors with sufficient connection to New York to maintain a list of persons with respect to whom the advisor acted as a material advisor in a potentially abusive tax shelter. The new subdivision also requires the advisor to provide a duplicate of such list to the Department of Taxation and Finance within 20 days of a written request.

Subdivision (d) provides enhanced record keeping requirements for taxpayers and material advisors involved in tax shelters.

Subdivision (e) provides that the filing, disclosure and record keeping provisions of this bill are intended to supplement existing provisions of law.

Subdivision (f) references new penalty provisions in Tax Law sections 685 and 1085 for violations of the requirements in subdivisions (a), (b) or (c).

Section 2 of the bill adds a new paragraph (11) to subsection (c) of section 683 of the Tax Law. This new paragraph extends the statute of limitations for assessments attributable to listed transactions required to be disclosed under subdivision (a) new section 25 of the Tax Law (see section 1 of the bill) to one year after the earlier of the date the commissioner is furnished with the information required under new section 25(a), or the date the list required by subdivision (c) of new section 25 is provided to the Commissioner. However, if later than the time for assessment otherwise imposed in section 683, tax may be assessed at anytime within six years after the return was filed if the deficiency is attributable to an abusive tax avoidance transaction. An abusive tax avoidance transaction is defined as a plan or arrangement devised for the principal purpose of avoiding tax.

Section 3 of this bill amends subsection (p) of section 685 of the Tax Law to incorporate some of the substantial understatement penalty provisions in the IRC Section 6662 of the Code (on which subsection (p) was modeled). The amendments also coordinate the provisions of the reportable transaction understatement penalty added by section 4 of the bill with the existing provisions of subsection (p). Among the amendments to subsection (p) that provide federal conformity are special provisions for determining whether an understatement meets the “substantial” threshold when it is attributable to a tax shelter transaction. A tax shelter is defined in this subsection to include entities, plans or arrangement if a significant purpose behind them is the avoidance or evasion of tax. This definition, therefore, would include such entities, plans or arrangements designed to avoid federal or state tax.

Section 4 of the bill adds new subsection (p-1) to section 685 of the Tax Law to impose a separate “reportable transaction understatement penalty.” This penalty is modeled after a similar penalty in IRC Section 6662A, which was added to the Code in October, 2004, and applies to “listed transactions” and to “reportable transactions” with a significant tax avoidance or evasion purpose. Thus, the new penalty would apply to understatements that are attributable to transactions considered “reportable” under the IRC or new Tax Law section 25 (see section 1 of the bill), if a significant purpose for the transaction is Federal or State tax avoidance or evasion.

The penalty imposed by new subsection (p-1) is 20 percent of the understatement attributable to the reportable transaction(s), but is increased to 30 percent if the transaction is not disclosed in accordance with subdivision (a) of new Tax Law section 25 of the bill (see section 1 of the bill). The penalty can be waived if there was reasonable cause for the understatement and the taxpayer acted in good faith. However, new subsection (p-1) contains a strengthened reasonable cause requirement. Under this strengthened requirement, a taxpayer must show that there was adequate disclosure under new Tax Law section 25(a), there is substantial authority for the tax treatment of the item(s), and that the taxpayer reasonably believed that such treatment was more likely than not the proper treatment. A taxpayer cannot rely on the opinion of a tax advisor in establishing reasonable belief if the advisor is a “disqualified advisor” or if the opinion is a “disqualified opinion.” A disqualified advisor is generally a person involved in specified ways with the reportable transaction (e.g., a promoter) or related to such a person, or who is compensated by such a person or receives a fee that is contingent on the intended tax benefits being sustained. A disqualified opinion is generally one that makes unreasonable assumptions, unreasonably relies on certain representations of the taxpayer (or others), fails to consider all relevant facts, or otherwise fails to meet any requirements prescribed by the Department.

Section 5 of the bill amends subsection (r) of section 685 of the Tax Law to increase the penalty for aiding or assisting in the giving of fraudulent returns, reports, statements or other documents from $1,000 to $5,000.

Section 6 of the bill adds five new subsections (x), (y), (z), (aa) and (bb) to section 685 of the Tax Law. Subsection (x) would impose a penalty for failure to report reportable and listed transactions as defined by newly added section 25 of the Tax Law. This penalty provision parallels the penalty imposed under IRC Section 6707A for such a violation. The amount of the penalty is $10,000, except that the penalty for listed transactions is $25,000. The Commissioner may rescind penalties if the violation did not involve a listed transaction and rescission would promote compliance and effective tax administration.

New subsection (y)of section 685 would impose a penalty for failure to comply with the return filing requirement imposed on material advisors under subdivision (b) of newly added section 25. This penalty is modeled after the penalty imposed under IRC Section 6707. The penalty amount is $20,000 in the case of reportable transactions, and the greater of $50,000 or 50 percent of gross income derived from tax avoidance activities in the case of listed transactions. The rescission provisions that apply to new subsection (x) of section 685 also apply to this failure to file penalty.

New subsection (z) of section 685 would impose a penalty for failure to maintain and provide the list of persons for whom advice has been provided concerning a reportable transaction. This penalty is modeled after the penalty imposed under IRC Section 6708. The penalty amount is $10,000 for each day after the twentieth day following a request for the list by the commissioner that the violation continues. As with the federal provision, a reasonable cause exception is provided.

New subsection (aa) of section 685 would impose a penalty on tax return preparers. This subsection is modeled after IRC Section 6694. However, the standards are somewhat different. IRC Section 6694 imposes a penalty if there was no realistic possibility of being sustained on the merits, and the position taken on the return was not disclosed or was frivolous. The new subsection applies if there was no reasonable belief that the tax treatment of a position reflected in the return was more likely than not the proper treatment, the preparer knew (or should have known) of the position, and either that the position was not disclosed or there was no reasonable basis for its tax treatment. Subsection (aa) imposes a penalty of $1,000 for each return where the higher standard is not met. Furthermore, where the action is willful, or shows recklessness or intentional disregard the penalty shall be $5,000. A reasonable cause exception is provided.

New subsection (bb) of section 685 would impose a penalty on promoters of abusive tax shelters. This penalty is modeled after the penalty imposed under IRC Section 6700. Subsection (bb) imposes a penalty of 50 percent of gross income derived from tax avoidance activities when the promoter knows or has reason to know such statement is false or fraudulent, or in the case of a gross valuation overstatement as to a material matter, the lesser of $1,000 or 100 percent of the gross income from tax avoidance activities. A reasonable cause exception is provided.

Section 7 of this bill adds a new paragraph (11) to subdivision (c) of section 1083 of the Tax Law that is similar to the new paragraph added by section 2 of this bill.

Section 8 of the bill amends subsection (k) of section 1085 of the Tax Law relating to substantial understatement penalties imposed on corporate taxpayers. The amendments made by this section parallel the amendments made in section 3 of the bill with regard substantial understatements by individuals subject to the personal income tax.

Section 9 of this bill adds new subsection (k-1) to section 1085 of the Tax Law that is similar to the new subsection (p-1) added to Tax Law section 685 by section 4 of this bill.

Section 10 of the bill adds five new subsections (p), (q), (r), (s) and (t) to section 1085 of the Tax Law that are similar to the new subsections added to Tax Law section 685 by section 6 of the bill.

Section 11 of this bill establishes a voluntary compliance initiative to be administered by the Commissioner of the Department of Taxation and Finance. The voluntary compliance initiative (“VCI”) will allow taxpayers to report and pay underreported tax liabilities and interest attributable to abusive tax avoidance transactions. Taxpayers participating in this initiative will have the option to participate with a waiver of the right to appeal their liability for any taxes paid under the program, or to participate with the right to appeal. If a taxpayer forgoes the right to appeal, all applicable penalties are waived. Participation with appeal rights results in a waiver of all penalties except the negligence and substantial understatement penalties under the Tax Law.

Section 12 of this bill provides that the new provisions will take effect immediately; provided however, that (i) section one of this act shall apply to all disclosure statements described in paragraph one of subsection (a) of section twenty-five of the tax law, as added by section one of this act, that were required to be filed with the internal revenue service at any time with respect to “listed transactions” as described in such paragraph one, and shall apply to all disclosure statements described in paragraph one of subsection (a) of section twenty-five of the tax law, as added by section one of this act, that were required to be filed with the internal revenue service with respect to “reportable transactions” as described in such paragraph one, other than “listed transactions,” in which a taxpayer participated during any taxable year for which the statute of limitations for assessment has not expired as of the date this act shall take effect, and shall apply to returns or statements described in such section one required to be filed by taxpayers (or persons as described in such paragraph) with the Commissioner of Taxation and Finance on or after sixty days following the date this act shall take effect; and (ii) sections two through four and seven through nine of this act shall apply to any tax liability for which the statute of limitations on assessment has not expired as of the date this act shall take effect.

There are no existing provisions in the Tax Law that specifically deal with disclosure of tax shelters. This bill does, however, provide enhanced penalties and record keeping requirements that will supplement existing penalty and document retention provisions in the Tax Law. The bill also adds a new rule to the statute of limitations provision in the existing Tax Law. The current law provides generally that assessments must be issued within three years after a tax return is filed. The new provision will extend the limitations period for assessing deficiencies if there is a failure to disclose the taxpayer’s involvement in a tax shelter or if after the return was filed it is determined that the deficiency is attributable to an abusive tax avoidance transaction.

This bill substantially changes the provisions of a departmental bill dealing with tax shelters, S. 6500 introduced in 2004. The bill would add provisions that incorporate into the Tax Law many of the amendments made to the Internal Revenue Code by the recently adopted American Jobs Creations Act of 2004 (P.L. 108-357, enacted 10/04). It would also add a number of tax shelter penalty provisions modeled after legislation recently enacted by other states, including California in 2003.

An outgrowth of the accounting and corporate finance scandals of recent years, tax shelter abuse has emerged as an issue of national notoriety, undermining the taxpaying public’s confidence in the integrity and fairness of both national and state tax administration. In response, the Federal government has stepped up its efforts to combat tax shelters and has entered into new partnerships with state tax administrations, including New York’s Department of Taxation and Finance, to share information and resources regarding abusive transactions. Similarly, states such as California and Illinois have recently enacted legislation that specifically targets tax shelters by bringing abusive schemes to light and attacking them with substantial penalties. Using the California and Illinois legislation as a guide and starting point, this bill will place New York State in a leading position in the continuing effort to combat abusive schemes and restore public confidence in the administration of our tax laws.

Part R – Create a new State STAR credit under the personal income tax to protect the STAR benefit from the effects of inflation.

This bill would provide a credit to taxpayers who are entitled to the STAR real property tax exemption, on their New York State personal income tax return, equal to the product of their STAR savings and the consumer price index adjustment.

Section 1 of this bill adds a new subsection (hh) to section 606 of the Tax Law to

provide a taxpayer with a credit against his or her New York personal income tax equal to the product of his or her STAR savings and the consumer price index adjustment. The credit shall not be allowed to a taxpayer in a year in which his or her school district is not in compliance with the statutory spending cap set forth in Education Law section 2022. If 2 or more taxpayers together own real property which qualifies for the STAR exemption and the taxpayers file separate returns, the credit allowed is divided between the taxpayers based on their percentage of ownership in the property. The consumer price index adjustment applicable to a taxable year is the percentage increase, if any, of the average of the monthly consumer price indices published by the United States Bureau of Labor Statistics for the 12 month period ending with the month of June in that taxable year from the average of those monthly consumer price indices for the 12 month period ending with June, 2004. If this credit exceeds the taxpayer’s tax for the year, the excess is refundable. Section 2 of this bill provides that this bill shall take effect immediately and shall apply to taxable years beginning on or after January 1, 2005.

The Real Property Tax Law provides a school tax relief program referred to as STAR. Section 425 of the Real Property Tax Law provides a partial tax exemption from school property taxes. All New Yorkers who own and live in their one-, two-, or three-family home, condominium, cooperative apartment, manufactured home, or farm dwelling are eligible for a STAR exemption on their primary residence. Under section 1306-a(2) of the Real Property Tax Law, school districts are required to put a statement on each school tax bill that tells home owners the amount of their tax savings from the STAR exemption.

This proposal was included in the 2004-2005 Executive Budget.

The formula set forth in the Real Property Tax Law to calculate the amount of the STAR real property tax exemption does not provide for any inflationary adjustments. By allowing taxpayers a refundable income tax credit equal to the product of their STAR savings and the consumer price index adjustment, taxpayers get the benefit of an adjustment to their STAR savings for inflation without imposing any additional costs on school districts around the State.

Part S – Safeguard the flow of funds to the State under the tobacco master settlement agreement (“MSA”).

This bill would protect the flow of funds to the State under the Tobacco Master Settlement Agreement (MSA).

This bill adds a new provision to the civil practice law and rules to establish a maximum aggregate undertaking of $100 million to stay the execution of a judgment against a signatory, or an affiliate thereof, to the MSA. It also permits the courts to require a higher bond amount, not to exceed the total amount of the judgment, if there is evidence of deliberate action to avoid the payment of a judgment.

This bill protects the flow of funds to the State and localities under the MSA by imposing a $100 million limit on the bond required to stay the execution of a judgment against signatories, successors or affiliates of the MSA. Without such a limit, the burden placed on the assets of tobacco companies from large awards could cause payments under the MSA to become unaffordable.

Part T – Compensate the State for any reimbursements, refunds, overpayments, adjustments, or other modifications to local revenues or payments.

This bill would ensure that the State is compensated for any reimbursements, refunds, overpayments, adjustments, or other modifications to local revenues or payments pursuant to a State appropriation to which the State and the chief elected official of a county or the City or New York may agree.

This bill allows the State to enter into agreements with any county or the City of New York to allow the comptroller, upon the certification of the director of the budget, to intercept tax revenues, or payments pursuant to a State appropriation, payable to such county or city, to compensate the State for any reimbursements, refunds, overpayments, adjustments, or other modifications to which the State and such chief elected official may agree. Subdivision (a) makes clear that the bill does not apply to monies pledged for the benefit of bondholders of the authorities identified in the subdivision or of a state public benefit corporation, so that these bond pledges will not be disturbed by this act. Subdivision (b) of section 1 of the bill provides that counties’ obligation or commitment to make local distributions under part IV of article 29 shall be unaffected by this legislation, while subdivision (c) of section 1 provides that this legislation shall not limit the powers of the Commissioner of Tax and Finance under section 1261(c) of the Tax Law or similar provisions of the Tax Law.

Part U – Change how nonresidents compute the credit for long-term care insurance.

This bill would amend the computation of the long term care insurance credit for nonresident and part-year resident taxpayers.

Section 1 of the bill amends subsection aa of section 606 of the Tax Law to provide that the long term care insurance credit of a nonresident or part-year resident taxpayer shall be limited in relation to the amount such taxpayer’s adjusted gross income is derived from New York sources. The nonresident or part-year resident taxpayer’s credit shall be computed by multiplying the taxpayer’s long term care insurance credit by the taxpayer’s New York source fraction. The New York source fraction is the taxpayer’s New York source income divided by such taxpayer’s New York adjusted gross income from all sources as set forth in Tax Law section 601(e).

Section 2 provides that the bill takes effect immediately and applies to taxable years beginning on or after January 1, 2005.

To determine their New York State tax, nonresident and part-year resident taxpayers compute their tax liability as if they were full year residents and then allocate their tax to New York by multiplying the tax by a New York source fraction (New York source income divided by New York adjusted gross income). Currently, a nonresident and part-year resident taxpayer’s long term care insurance credit is applied in full against this allocated tax liability.

The long term care insurance credit is equal to 20 percent of the premium paid during the taxable year for a qualifying long term care insurance policy. If the credit exceeds the taxpayer’s tax for the year, the excess is carried over to the following tax year.

This is a new budget proposal.

Currently, nonresident and part-year resident taxpayers are allowed to claim the full amount of the long term care insurance credit against their allocated tax. This results in a significant tax advantage to nonresidents and part-year resident taxpayers since only part of their income may be subject to New York tax. This proposal will ensure that the credit applies in proportion to a nonresident or part-year resident taxpayer’s income earned from New York sources. This proposal will have no impact on taxpayers whose entire income is subject to tax in New York.

Part V – Restructure and expand the alternative fuel vehicles program.

This bill revises and extends existing provisions of the Tax Law that provide income and corporate tax credits for electric vehicles, qualified hybrid vehicles and clean-fuel vehicle refueling property through December 31, 2006 (except that the credit for qualified hybrid vehicles having a gross vehicle weight rating of less than ten thousand pounds shall terminate for vehicles placed in service after December 31, 2005), and allows the existing sales tax exemptions for these products to expire on February 28, 2005.

Section one of the bill amends section 187-b of the Tax Law by (i) amending the existing credit for electric vehicles to change the amount of the credit from 50 percent of the incremental cost of such vehicle to 10 percent of the cost of such vehicle, and to provide that such credit shall not exceed $5,000 per vehicle for vehicles with a gross vehicle weight rating of less than ten thousand pounds and $10,000 per vehicle for all other vehicles, (ii) amending the credit for clean-fuel vehicle refueling property to provide that such credit shall not exceed $500,000 per clean fuel vehicle property and $500,000 in the aggregate per taxpayer per tax year, (iii) amending the credit for qualified hybrid vehicles to increase the credit to $4,000 per vehicle having a gross vehicle weight rating of ten thousand pounds or more and placed in service on or before December 31, 2006, and retaining the $2,000 credit per vehicle having a gross vehicle weight rating of less than ten thousand pounds and placed in service on or before December 31, 2005 and (iv) adding a credit equal to 50 percent of the costs associated with the production for sale of a minimum of ten thousand gallons of biofuel. This credit shall not exceed $1 million per taxable year.

Section two provides revisions similar to section one above to the existing corporate tax credits in section 210(24) of the Tax Law. Section three provides similar revisions to the existing personal income tax credits in section 606(p) of the Tax Law.

This bill also adds a credit against corporate and income taxes equal to fifty percent of the costs associated with the production for sales of at least 10,000 gallons of biofuel in section s 187-b, 210(24) and 606(p) of the Tax Law. “Biofuel”, “biodiesel”, and “ethanol” are newly defined terms. The biofuel production tax credits sunset on December 31, 2009.

Section four contains the effective date provision.

Existing law provides a tax credit for electric vehicles, qualified hybrid vehicles and clean-fuel vehicle refueling property against corporate income tax, corporate franchise tax and personal income tax. The law also provides for an exemption of a portion of the sales tax for purchases of this property. The tax credit provisions of the law sunset on December 31, 2004 and the sales and use tax provisions sunset on February 28, 2005.

This bill would continue to stimulate the developing market for alternative fuel vehicles by offering tax credits for the purchase of vehicles and the installation of alternative fuel vehicle property and alternative fuel vehicle refueling property until December 31, 2006. Reflecting the rapid market acceptance of light duty hybrid vehicles (less than 10,000 lbs.), tax credits for these vehicles will be phased out after 2005. Credits for medium and heavy duty hybrid vehicles will increase from $2,000 to $4,000. This is an emerging market where incentives are needed to stimulate the development and use of the technology. A multiyear approach is critical to stimulate investment in these technologies and offer certainty to investors. By offering credits against corporate and personal income taxes for producing biofuels, this proposal also seeks to promote the growth of ethanol and biodiesel production and distribution here in New York State. The bill offers a comprehensive effort to encourage investment in energy efficient transportation technologies that displace petroleum consumption and reduce emissions of harmful pollutants.

Part W – Increase the excise tax on wine from 5 cents to 28 cents per liter and use the portion of the increase paid by New York wineries to promote New York wine.

This bill increases the Article 18 excise tax on wines to $1.06 per gallon and also imposes a floor tax on wines to prevent tax avoidance.

Section 1 of the bill amends paragraphs (b), (c) and (d) of subdivision (1) of section 424 of the Tax Law to increase the rate of excise tax on still wines, artificially carbonated sparkling wines and naturally sparkling wines from 18.93 cents to $1.06 per gallon.

Section 2 of the bill imposes a floor tax (imposition of the tax increase on inventory that has already been taxed at the lower rate) on all wines subject to the rate increase imposed under the bill. There is an exclusion from the floor tax for the first 264 gallons of wine and for wine upon which no Article 18 tax has yet been imposed which is in the inventory of a registered distributor. Such wine in the inventory of a registered distributor will be subject to the Article 18 tax at the new rate established by this bill when and if it is sold by such distributor in this State or used in this State. The floor tax is payable in two installments, 25% being payable on the twentieth day of the first month which is at least 60 days after the effective date of this bill and the remainder being due on the twentieth day of the first month which is at least 180 days after such effective date. The installment method of payment of the floor tax shall only be allowable if the total floor tax liability exceeds $500.

BUDGET IMPLICATIONS:

Part A – Allow the direct shipment of wine to individuals in New York State from out-of-State wineries.

Enactment of this bill is necessary to implement the 2005-06 Executive Budget because it would increase State revenues by $2.6 million.

Part B – Ease restrictions on Quick Draw and make the game permanent.

Easing Quick Draw restrictions will provide estimated additional receipts of $39 million in 2005-06, while permanent reauthorization of Quick Draw will preserve receipts estimated at $142 million in 2005-06. These amounts have been included in the State’s Financial Plan. Thus, enactment of this bill is necessary to implement the 2005-06 Executive Budget.

Part C – Accelerate the phase-out of the temporary personal income tax surcharge enacted in 2003.

Enactment of this bill is necessary to implement the SFY 2005-2006 Executive Budget because it would reduce personal income tax receipts $190 million, as provided in the Financial Plan.

Part D – Provide two sales tax exemption weeks for certain “Energy Star” items.

This bill will result in a reduction of State sales and use tax revenue of approximately $4.0 million in State Fiscal Year 2005-06.

Part E – Require electronic filing of personal income tax returns by large tax preparer firms.

Enactment of this bill is necessary to implement the 2005-2006 Executive Budget because it would result in administrative savings of $2 million.

Part F – Make permanent the temporary increase in limited liability company fees enacted in 2003.

Enactment of this bill is necessary to implement the SFY 2005-2006 Executive Budget, increasing revenue by $22 million.

Part G – Allow for an additional $2 million in tax credits annually, or $20 million over the ten-year life of the program, for the Low-Income Housing Tax Credit program.

This bill reduces tax revenues by $2 million beginning in SFY 2006-07. As with the existing program, since the additional $2 million in credit allocation by the Commissioner of DHCR can be claimed each year for ten years, the total aggregate credit allowed over the ten-year life of the program expansion would be an additional $20 million, for a total program amount of $80 million.

Part H – Replace the permanent clothing and footwear sales tax exemption with two $250 exemption weeks.

During State Fiscal Year 2005-06, this bill will increase State sales and use tax revenue by approximately $456 million. In its first full year of implementation, State Fiscal Year 2006-07, the bill will increase State sale and use tax revenue by approximately $584 million.

Part I – Make permanent the sales tax reporting requirements for Manhattan parking vendors.

This bill protects approximately $700,000 in State compliance revenue annually.

Part J – Increase the income level at which the filing of personal income tax returns is required.

Enactment of this bill is necessary to implement the SFY 2005-2006 Executive Budget because it would result in administrative savings of $1 million.

Part K – Authorize the Tax Department to arrange reciprocal offset tax agreements with New York City and other states.

There will be no impact in SFY 2005-06. When the proposal becomes fully implemented, it will result in an annual revenue increase of $3 million.

Part L – Require tax clearance to obtain certain State licenses and contracts.

Enactment of this bill is necessary to implement the 2005-2006 Executive Budget because it would foster encourage improved tax compliance, thereby protecting tax revenues.

Part M – Close the loophole regarding tax treatment of real estate investment trusts (REITS) and regulated investment companies (RICS) to conform to Federal and New York City tax treatment.

Enactment of this bill is necessary to implement the SFY 2005-2006 Executive Budget since it results in a revenue increase of $50 million annually.

Part N – Increase the capital base cap under the Article 9-A Corporate Franchise Tax from $350,000 to $1,000,000.

Enactment of this bill is necessary to implement the 2005-2006 Executive Budget because it increases revenues by $26 million.

Part O – Enhance the Green Buildings Program to allow for an additional $25 million in tax credits.

This bill reduces tax revenues by $1 million in SFY 2006-07.

Part P – Remove the premiums tax exclusion for certain insurance companies that are currently exempt as county cooperative insurance corporations.

Enactment of this bill is necessary to implement the SFY 2005-2006 Executive budget because it increases revenues by $18 million.

Part Q – Adopt tax shelter provisions based on Federal provisions.

Enactment of this bill is necessary to implement the SFY 2005-2006 Executive Budget because it increases revenues by $25 million.

Part R – Create a new State STAR credit under the personal income tax to protect the STAR benefit from the effects of inflation.

This bill reduces personal income tax receipts by an estimated $12 million in 2005-06. This receipts decrease is included in the 2005-06 Financial Plan and, therefore, enactment of this bill is necessary to implement the 2005-06 Executive Budget.

Part S – Safeguard the flow of funds to the State under the tobacco master settlement agreement (“MSA”).

Enactment of this bill is necessary to preserve future cash flows to the State and localities.

Part T – Compensate the State for any reimbursements, refunds, overpayments, adjustments, or other modifications to local revenues or payments.

Enactment of this bill is necessary to implement the 2005-2006 Executive Budget.

Part U – Change how nonresidents compute the credit for long-term care insurance.

Enactment of this bill is necessary to implement the 2005-2006 Executive Budget because of the revenue increase of $1.5 million in SFY 2006-07.

Part V – Restructure and expand the alternative fuel vehicles program.

This bill has no effect on tax revenues in SFY 2005-06.

Part W – Increase the excise tax on wine from 5 cents to 28 cents per liter and use the portion of the increase paid by New York wineries to promote New York wine.

Enactment of this bill is necessary to implement the 2005-2006 Executive Budget because this legislation would result in an estimated annual State revenue increase of approximately $37.7 million in SFY 2005-06. This includes an estimated $5.4 million in ABT floor tax collections. In SFY 2006-07, the first full year in effect, the bill would result in estimated annual State revenue increase of $43.7 million. The SFY 2005-06 estimate assumes a June 1, 2005, effective date.

EFFECTIVE DATE:

Part A – Allow the direct shipment of wine to individuals in New York State from out-of-State wineries.

This bill takes effect 60 days after if becomes a law.

Part B – Ease restrictions on Quick Draw and make the game permanent.

This bill takes effect immediately.

Part C – Accelerate the phase-out of the temporary personal income tax surcharge enacted in 2003.

This act takes effect immediately.

Part D – Provide two sales tax exemption weeks for certain “Energy Star” items.

This act shall take effect immediately and will apply to sales made and uses occurring during the exemption periods on or after that date in accordance with applicable Tax Law transitional provisions.

Part E – Require electronic filing of personal income tax returns by large tax preparer firms.

This bill takes effect immediately.

Part F – Make permanent the temporary increase in limited liability company fees enacted in 2003.

The bill takes effect immediately and applies to taxable years beginning on or after January 1, 2005.

Part G – Allow for an additional $2 million in tax credits annually, or $20 million over the ten-year life of the program, for the Low-Income Housing Tax Credit program.

This bill takes effect immediately.

Part H – Replace the permanent clothing and footwear sales tax exemption with two $250 exemption weeks.

This act shall take effect immediately and apply in accordance with applicable transitional provisions in sections 1106 and 1217 of the Tax Law; provided, however, that sections 1 and 2 of this act shall take effect June 1, 2005.

Part I – Make permanent the sales tax reporting requirements for Manhattan parking vendors.

The bill takes effect immediately.

Part J – Increase the income level at which the filing of personal income tax returns is required.

This bill takes effect immediately and applicable to taxable years beginning on and after January 1, 2005.

Part K – Authorize the Tax Department to arrange reciprocal offset tax agreements with New York City and other states.

This bill takes effect immediately.

Part L – Require tax clearance to obtain certain State licenses and contracts.

The bill would take effect immediately but apply to procurements and license applications received on or after January 1, 2006.

Part M – Close the loophole regarding tax treatment of real estate investment trusts (REITS) and regulated investment companies (RICS) to conform to Federal and New York City tax treatment.

This act shall take effect immediately and applies to taxable years beginning on or after January 1, 2005.

Part N – Increase the capital base cap under the Article 9-A Corporate Franchise Tax from $350,000 to $1,000,000.

This bill shall take effect immediately and apply to taxable years commencing on and after January 1, 2005.

Part O – Enhance the Green Buildings Program to allow for an additional $25 million in tax credits.

This bill takes effect immediately.

Part P – Remove the premiums tax exclusion for certain insurance companies that are currently exempt as county cooperative insurance corporations.

This bill takes effect immediately and applies to taxable years beginning on or after January 1, 2005.

Part Q – Adopt tax shelter provisions based on Federal provisions.

This act takes effect immediately; provided however, that (i) section one of this act applies to all disclosure statements described in paragraph one of subsection (a) of section twenty-five of the tax law, as added by section one of this act, that were required to be filed with the internal revenue service at any time with respect to “listed transactions” as described in such paragraph one, and applies to all disclosure statements described in paragraph one of subsection (a) of section twenty-five of the tax law, as added by section one of this act, that were required to be filed with the internal revenue service with respect to “reportable transactions” as described in such paragraph one, other than “listed transactions,” in which a taxpayer participated during any taxable year for which the statute of limitations for assessment has not expired as of the date this act shall take effect, and applies to returns or statements described in such section one required to be filed by taxpayers (or persons as described in such paragraph) with the Commissioner of Taxation and Finance on or after sixty days following the date this act takes effect; and (ii) sections two through four and seven through nine of this act applies to any tax liability for which the statute of limitations on assessment has not expired as of the date this act takes effect.

Part R – Create a new State STAR credit under the personal income tax to protect the STAR benefit from the effects of inflation.

This act takes effect immediately and applies to taxable years beginning on or after January 1, 2005.

Part S – Safeguard the flow of funds to the State under the tobacco master settlement agreement (“MSA”).

This bill takes effect 30 days after enactment, and applies to any pending or future cause of action.

Part T – Compensate the State for any reimbursements, refunds, overpayments, adjustments, or other modifications to local revenues or payments.

This bill takes effect April 1, 2005.

Part U – Change how nonresidents compute the credit for long-term care insurance.

The act takes effect immediately and applies to taxable years beginning on or after January 1, 2005.

Part V – Restructure and expand the alternative fuel vehicles program.

This bill takes effect immediately. Sections one through three apply to taxable years beginning on or after January 1, 2005.

Part W – Increase the excise tax on wine from 5 cents to 28 cents per liter and use the portion of the increase paid by New York wineries to promote New York wine.

The act takes effect on June 1, 2005; but, if it does not become a law by May 1, 2005, then this act will take effect on the first day of the month which is at least 30 days after the date this act shall become a law.