Savings Initiatives – Revenue Loophole Closers
skip breadcrumbsState tax law currently contains a number of loopholes that enable certain taxpayers to shelter income in unintended ways. The Executive Budget proposed the elimination of a number of such loopholes, some of which are included in the Enacted Budget as summarized on the following table.
| 2007-08 | 2008-09 | |||
|---|---|---|---|---|
| Executive Proposal |
Enacted Budget |
Executive Proposal |
Enacted Budget |
|
| Personal Income Tax | 36 | 6 | 181 | 121 |
| Extend/Restructure LLC Fees | 30 | 0 | 30 | 0 |
| Extend Reporting of Tax Shelters | 6 | 6 | 6 | 6 |
| S Corporation Election | 0 | 0 | 100 | 100 |
| Sales Tax Itemized Deduction | 0 | 0 | 30 | 0 |
| Partnership Tax Abuse | 0 | 0 | 15 | 15 |
| Business Taxes | 398 | 444 | 366 | 415 |
| Corporate Franchise Tax Combined Filling | 185 | 328 | 185 | 328 |
| Add Back Expenses of Subs. Cap. & Elim. Disc Wage Factor | 35 | 0 | 28 | 0 |
| Decouple from Federal Deduction for Qualified Production Activities | 25 | 0 | 30 | 0 |
| Cooperative Insurance Companies | 23 | 0 | 18 | 0 |
| Grandfathered Corporations | 19 | 19 | 15 | 15 |
| Real Estate Investment Trusts | 88 | 87 | 70 | 62 |
| Conform to Federal Bad Debt Deduction | 13 | 0 | 10 | 0 |
| Extend Reporting of Tax Shelters | 10 | 10 | 10 | 10 |
| User Taxes and Fees | 15 | 0 | 20 | 0 |
| Sales Tax on Full Cost of Hotel Room Purchased Over Internet | 15 | 0 | 20 | 0 |
| Total General Fund Savings | 449 | 450 | 567 | 536 |
| (1) Revised estimates reflect amendments in Executive Budget proposals and additional information. | ||||
The Enacted loophole closers, which were used in part to finance $150 million of new business tax cuts described earlier, include:
Personal Income Tax
- Continue to deter the use of tax shelters by extending for two years the authorization for the Department of Taxation and Finance to require the reporting and disclosure of Federal and New York tax planning strategies that might be contrary to proper compliance with tax law (the same provisions apply to the corporate franchise tax).
- Require certain corporations that are Federal S Corporations to also be New York S corporations. This provision will close a loophole that allows State taxpayers to avoid tax by taking advantage of the preferential investment allocation provision under the corporate franchise tax.
- Provide the Commissioner of Taxation and Finance with authority similar to that now provided to the Federal Secretary of Treasury to end practices used by New York partnerships that allow nonresidents to avoid paying personal income tax on New York source income.
Business Taxes
- Require closely affiliated corporations which conduct substantial inter-corporate transactions across the affiliated group to file a combined, rather than separate, corporate franchise tax return.
- Phase out over four years the deduction for certain subsidiary dividends received by a parent company from a real estate investment trust (REIT) or regulated investment company (RIC). This will ensure that the shareholders of the REIT or RIC pay tax on the income earned by the REIT or RIC. Banking corporations with taxable assets of $8 billion or less will not be subject to the phase out.
- Close a loophole that allows banks to shelter income by using subsidiaries that were grandfathered as corporate taxpayers when the bank tax was changed in 1985.
NOTE: The information on this page is taken from the 2007-2008 Financial Plan.