2009-10 Enacted Budget Gap-closing Plan – Revenue Actions

Revenue Actions

To preserve essential services while closing a combined record $20.1 billion budget deficit for the 2008-09 and 2009-10 fiscal years, the Enacted Budget recommends a number of revenue actions.

On a General Fund basis, actions in the February Deficit Reduction Plan and April Enacted Budget will together increase tax or fee revenue by a total of $4.8 billion ($6.1 billion All Funds) in 2009-10. (On an All Funds basis, this includes $5.3 billion in tax and fee actions as part of the 2009-10 Enacted Budget and additional actions as part of the 2008-09 Deficit Reduction Plan.)

Other General Fund revenue actions total $581 million ($610 million All Funds) in 2009-10.

Increased Taxes or Fees

(General Fund: $4.8 billion; All Funds: $6.1 billion in 2009-10)

• Tax Reform and Actions. The Enacted Budget contains actions that would reform or change certain components of the State’s tax code to ensure that tax burdens are fairly distributed, improve consistency with other taxing jurisdictions, ease tax administration, close loopholes, and eliminate unaffordable or ineffective exemptions. These actions are expected to produce $4.2 billion in additional tax revenue in 2009-10 on a General Fund basis ($4.3 billion on an All Funds basis).
• New or Increased Fees.  The Enacted Budget includes new or increased fees, most of which finance specific activities and/or have not been increased in several years. They are expected to produce $78 million in additional General Fund revenue ($271 million All Funds) during the 2009-10 fiscal year.
• Charges and Assessments for Specific Sectors.  The Enacted Budget contains targeted charges and assessments either on specific sectors or to finance health care-related investments. These actions are expected to produce $557 million in additional General Fund revenue ($1.5 billion All Funds) during the 2009-10 fiscal year.

Other Revenues

(General Fund: $581 million; All Funds: $610 million in 2009-10)

• New or Increased Fines. The Enacted Budget includes new fines meant to discourage illegal or dangerous behavior and improve public safety. These fines are expected to produce $21 million in revenue on both a General Fund and an All Funds basis during the 2009-10 fiscal year.
• Other Revenue Actions. The Enacted Budget contains other revenue actions, ranging from expanding the bottle bill, reforming the Empire Zone Program, and changing the timing of certain tax payments but not a taxpayer’s overall liability, among others. They are expected to produce $564 million in additional General Fund revenues ($593 million All Funds) during the 2009-10 fiscal year.
• New or Expanded Tax Credits. The Enacted Budget includes two new or expanded tax credits at a cost of $4 million in 2009-10 on both a General Fund and All Funds basis.

Tax Reforms and Actions

• Temporary Personal Income Tax Increase. For tax years 2009, 2010, and 2011 a new 7.85 percent bracket applies to single filers with taxable income above $200,000, head of household filers with taxable income above $250,000 and married filing jointly filers with taxable incomes above $300,000. In addition, a new 8.97 percent bracket applies to all filing statuses with taxable incomes in excess of $500,000.
• Extend Sales Tax to Transportation-Related Spending. Imposes a sales tax on transportation-related consumer spending, including limousines and black cars. Sixteen states currently tax limousine services.
• Limit Itemized Deduction for High Income Taxpayers. Limits the ability of taxpayers with incomes over $1 million to reduce their tax liability by claiming itemized deductions. Currently, taxpayers with incomes over $525,000 are allowed to claim 50 percent of the value of itemized deductions. So as not to discourage philanthropy, charitable deductions are excluded from this limitation and may still be claimed as itemized deductions for the purposes of state income taxes. Additionally, all of these deductions can still be claimed on federal taxes.
• Increase Tobacco Tax Rate. Increases the tobacco products tax from 37 percent of the wholesale price to 46 percent of the wholesale price. This tax was last increased in 2002.
• Eliminate Underutilized Tax Credits. Eliminates two credits currently allowed under corporate franchise taxes and the personal income tax. Both of these credits are underused, as indicated by the number of claimants and by the small total dollars claimed. The eliminated credits are the fuel cell electric generating credit and the transportation improvement contributions credit.
• Treat Gain from the Sale of Partnerships as Income. Requires nonresidents to include gains from the sale of entity interests as New York-source income if the gain is from sales of real property located in New York. Previously, nonresidents could create partnerships to sell property located in New York State and then sell their partnership interest, which was not taxable for a nonresident because it was considered intangible income.
• Amend the Definition of Presence in New York. Closes the loophole which allowed taxpayers to avoid residency in New York (and therefore avoid New York tax liability) by having family members stay at sites other than the taxpayer’s primary residence. This legislation requires that spouses and children only be “present in New York” instead of “present at taxpayers’ PPA in New York” for purposes of a test of New York residency.
• Address Abusive Tax Avoidance. Ends two sales tax avoidance schemes used during the purchase of motor vehicles, aircrafts (including but not limited to corporate jets), and vessels (including but not limited to yachts). First, this proposal targets business entities that avoid sales tax on their purchases of aircrafts used primarily to transport their corporate executives. Such entities take advantage of a sales tax exemption for commercial aircrafts by having the airplane purchased by a non-resident affiliate, which then charges resident affiliate employees for use of the aircraft. Second, the proposal targets New York residents that avoid sales tax on motor vehicles, vessels, and aircraft used in-state by forming a new corporation or a limited liability corporation that purchases the item in question out-of-state, brings the item into the state, and then allows the New York resident to use the item at will.
• Expand Definition of Affiliate Nexus for Internet Sales. Prevents a company from avoiding charging sales and use tax on internet purchases by creating independent but affiliated out-of-state entities to make those sales. Under this proposal, a company would create “nexus” with the State (and thus be required to collect sales tax) if an in-state affiliate uses a trademark, service mark, or trade name the same as or similar to that of the remote affiliate or if an in-state affiliate engages in activities that help the remote affiliate develop or maintain a market for its goods or services.
• Change Filing Requirement for Overcapitalized Captive Insurance Corporations. Clarifies that captive insurance companies receiving 50 percent or less of their gross receipts from insurance premiums will no longer meet the definition of an insurance business and must file a combined return with their closest affiliated corporate taxpayer. This provision closes a tax loophole that allowed companies to form a captive insurance subsidiary to shelter excessive amounts of income from assets held in pay-out reserves.
• Increase Beer and Wine Tax Rates. Increases the excise tax on wine and beer. The tax on wine would increase from 18.9 cents per gallon to 30 cents per gallon (approximately 2 cents per bottle of wine), and the beer tax would increase from 11 cents per gallon to 14 cents per gallon (approximately one-and-a-half cents per six pack). Alcohol excise taxes were last increased in 1991. These tax rates are still among the lowest in the nation.
• Increase Auto Rental Tax. Increases the auto rental tax from 5 percent to 6 percent on charges for the rental or use in the State of a passenger car with a gross vehicle weight of 9,000 pounds or less. This tax was established in 1990 and has not been increased since that time.
• Film Credit Program Modifications. For tax years beginning in 2009 or later, credit claims greater than or equal to $1 million will be payable over two or three years, depending on the size of the credit. See also the Film Credit Expansion in the New or Expanded Credits section below.
• Impose Insurance Premiums Tax for For-Profit HMOs. Includes for-profit health maintenance organizations as insurance corporations subject to the premiums tax under Article 33 of the Tax Law.

New or Increased Fees

• Increase Feed Tonnage Fees. Increases fees for distributors transporting feed from $.05 per ton to $.10 per ton to help recoup a greater portion of inspection costs. This fee was last amended in 1996.
• Increase Food Licensing Fees. Increases biennial food licensing fees from $200 to $400 for food processors and warehouses; from $200 to $900 for complex food processors requiring more frequent inspection; and from $100 to $250 for retail food stores. Revenues will help to cover the costs of conducting inspections. Food processing fees were last amended in 2002, while retail food store and food warehouse fees were last increased in 2003.
• Increase Civil Service Exam Fees. Increases fees for open-competitive exams by $5 above the existing range of $20 to $40, establishes fees for promotional exams ranging from $10 to $25, and changes the charge for local exam fees to a per-application cost rather than a per-completed test cost. The existing fees were last changed in 2004.
• Increase Public Management Intern Placement Fee. Increases the fee paid by state agencies to recruit and place a Public Management Intern from $5,000 to $7,600 per appointment to fully offset program costs. The last increase to this fee was in 2006.
• Establish Security Guard Training Fee. Establishes an initial certification fee of $500 to qualify as a security guard instructor, as well as a renewal fee of $250 every five years. In addition, security guard training schools would be required to pay an initial certification fee of $1,000, and a renewal fee of $500 every two years.
• Increase Nuclear Power Plant Fee. Increases fees paid by nuclear power plant operators from $550,000 to $1 million per nuclear reactor. These annual fees support the radiological disaster preparedness efforts of the state and the local communities where the plants are located. These fees were last changed in 1994.
• Increase Motor Vehicle Registration Fee. Increases registration fees for most vehicles and fees for distinctive plates by 25 percent. The average vehicle registration fee will increase from $44 to $55. Revenues will be directed to the Dedicated Highway and Bridge Trust Fund. These fees were last increased in 1998.
• Increase Motor Vehicle License Fee. Increases original and renewal driver’s license fees by 25 percent. Revenues will be directed to the Dedicated Highway and Bridge Trust Fund. These fees were last increased in 1992.
• Reissue License Plates. Effective April 1, 2010, the license plate reissuance associated fee is increased from $15 to $25, with the additional revenues directed to the General Fund. License plates were last issued in 2001.
• Establish a Fee for MV-278 Certificates. Creates a new $50 fee for a book of MV-278 pre-licensing classroom certificates. Currently, these books are distributed to driving schools at no charge.
• Increase State Pollutant Discharge Elimination System Fees. Increases 13 permit fees for private, commercial and institutional facilities, industrial facilities and stormwater facilities. A portion of these fees were last increased in 2003.
• Establish New Marine Fishing License. Establishes a new marine fishing license at a cost of $10 for State residents, and $15 for out-of-state individuals. The marine fishing licensing would also serve as a registry of New York marine anglers and would fulfill requirements of the National Saltwater Angler Registry and State Exemption Program.
• Increase DEC Education Camp Fee. Increases tuition at DEC’s four education camps from $250 to $325. This fee was last increased in 2005.
• Increase Certificate of Need Fees. Increases fees on health care providers for new establishment/licensure, construction or renovation. Revenue generated by such fees will be used to support DOH’s administration of the certificate of need process. These fees were last raised in 2001.
• Increase Asbestos Project Notification Fees. Increases the fee for asbestos abatement project notification, which is based on project scale. The fee ranges from $100 to $1,000 and will be doubled. This fee was last increased in 1988.
• Increase Insurance Company Boiler Fees. Increases the fee for insurance industry boiler inspection reports. The fee is currently $50 and will be doubled. This fee was last increased in 2004.
• Establish Explosives Fee and Penalty. Adds explosives handling and pyrotechnics to the explosives licensing requirements, and adds new civil penalties for violation of these requirements. This change would impose a civil penalty of up to $10,000 per day for each violation of licensing and other explosives requirements.
• Increase Real Property Transfer Fee. Raises the real property transfer fee that is paid whenever a deed is recorded. Last changed in 2004, the fee would increase from $75 to $125 for residential property, from $165 to $250 for commercial property, and from $50 to $100 for non-deeded transfers (housing cooperatives) in New York City.
• Increase Parks Administrative Fees. Raises administrative fees for various park activities, such as camping, cabin rentals, golf, and marina usage, as well as for Empire passports, passes and permits. These fees were last increased at various times between 2003 and 2006.
• Establish Horse Entrance Fee. Establishes a new fee of $10 for every horse starting in pari-mutuel races conducted in New York State.
• Increase Surcharge on Auto Insurance. Increases the Motor Vehicle Law Enforcement Fee on auto insurance policies from $5 to $10 to support state police operations. This fee was last raised in 2003.
• Establish Bad Check Fee. Creates a new fee of $50 for checks returned due to insufficient funds by the Department of Taxation and Finance.
• Establish Tax Preparer Fee. Creates a new fee of $100 to be paid by all persons who are compensated for the preparation of 10 or more tax returns.
• Increase Highway Use Tax Registration Fee.  Increase the highway use fee for a registration certificate from $4 to $15 for a motor vehicle, and from $2 to $15 for a trailer, semi-trailer, dolly or other drawn device. The fee was last amended in 1984.
• Increase Cigarette and Tobacco Retail Registration Fee. Increases the cigarette and tobacco retailer license fee from $100 to $1,000 for retailers with gross sales of under $1 million, to $2,500 for retailers with gross sales of $1 million but less than $10 million, and to $5,000 for retailers with gross sales of $10 million or more. This fee was last changed in 1990.
• Establish Non-LLC Partnership Fee. Imposes a new fee on non-LLC partnerships equal to fee amounts that currently apply to LLCs. Amounts range from $1,500 to $4,500. Unlike the current LLC fee, partnerships with New York-source gross income under $1 million would be exempt.
• Increase Pesticide Applicator Fee. Pesticide applicator permit fees are doubled. The first $5 million of revenues are deposited into EPF.
• Establish Wetland Permit Application Fee. Wetland permit application fees are established at various levels for all wetland applications. All fees collected will be deposited into EPF.
• Increase Mined Land Reclamation Fees. Fees are doubled for mined land reclamation at sites of 20 acres or more. Proceeds will be directed to the Mined Land Reclamation account.
• Increase Hunting and Fishing License Fees. Increases various hunting and fishing license fees. Proceeds will be directed to the Conservation Fund.
• Increase Title V Program Fees. Title V operation permit program fees are increased on a sliding scale based on emissions levels. Revenues will be deposited to the operating permit program account.

Charges and Assessments for Specific Sectors

• Increase Utility Assessment. Increases the current regulatory fee on public utilities, including electric, gas, and water. This action will pay for state regulatory and management oversight by raising the fee from 1/3 of 1 percent to 1 percent of intrastate revenues, expanding the fee to include energy service companies, and establishing an additional 1 percent state energy and utility service conservation assessment, which will expire on March 31, 2014. The impact in an average residential bill is expected to be approximately $4 per month. In recognition of the competitive nature of the telecommunications industry, telecommunications utilities regulated under Public Service Law Section 18-a are exempted from this temporary assessment.
• Reinstitute Hospital Assessment. Reinstitutes the 0.35 percent assessment on hospital inpatient revenues.
• Reinstitute Home Care Assessment. Reinstitutes a 0.35 percent assessment on total home care provider revenues. A similar assessment was in effect from 1995 to 1999.
• Increase Hospital Surcharges. Proportionately increases the three health care surcharges paid by insurers on hospital patient services. These were last increased in 2006.
• Increase Covered Lives Assessment. Increases the covered lives assessment on insurers to $1.04 billion. This assessment was last raised in 2008.
• Extend the Covered Lives Assessment. Applies the covered lives assessment to insurers headquartered out-of-state.
• Increase Insurance Assessment for Public Health Programs. Finances the Healthy New York and HMO Direct Pay programs through assessments on the insurance industry.

New or Increased Fines

• Allow Civil Penalties for Non-Housing Cases.  Authorizes the assessment of civil penalties for violations of Human Rights Law. Currently, civil penalties are authorized only for housing discrimination violations of the Human Rights Law. These penalties were established in 1997 and carry a maximum civil penalty of $50,000 unless the discrimination is shown to be malicious, in which case the maximum penalty is $100,000.
• Increase Cap on Traffic Violation Surcharges. Raises the cap on surcharges for violators with two or more convictions arising out of the same traffic incident from $100 to $180.
• Increase Vehicle Safety Fines. Increases the civil penalty for repair shops, inspection stations, and dealers who falsify safety and emission inspections or falsify vehicle repairs, from a maximum of $350 for each violation to $750 maximum for first violation and $1,000 maximum for additional violations within a thirty month period. This bill mandates a minimum of $350 fine for each fraud violation. This bill will also increase the civil penalty for dealers from a maximum penalty of $1,000 for each violation to a maximum of $1,000 for the first violation and a maximum of $1,500 for additional violations within a thirty month period.
• Establish Uncertified Crane Operation Penalty. Adds a new civil penalty of $1,000 to $3,000 for individuals that operate a crane without a certificate of competence issued by Department of Labor. In addition, employers that knowingly allow employees to operate a crane without certification will be assessed a penalty of $5,000 to $10,000.
• Increase License Suspension Fees. Increases fees for license suspension from $25 to $50 for non-alcohol related suspensions. This proposal also increases the scofflaw termination fee from $35 to $70, and increases the license reinstatement fee from $50 to $100. These fees were last increased in 1992.
• Increase Food Safety Violation Penalties.  Increases the maximum penalty for the first critical health violation of Agriculture & Markets Law from $300 to $600, and from $600 to $1,200 for each subsequent finding. This penalty was last amended in 1990. Additionally, the maximum penalty for the first critical health deficiency finding related to a rule or order of the Department will increase from $200 to $400 and from $400 to $800 for each subsequent finding. This penalty was last amended in 1968. Both increased penalties are intended to improve compliance with statutes and regulations.

Other Revenue Actions

• Expand the Bottle Bill. Expands the 5-cent deposit to include additional beverage containers and provides for the return of a portion of the unclaimed deposits to the state. Proceeds will be directed to the General Fund.
• Reform the Empire Zones Program. The Enacted Budget includes a number of reforms that will rein in long-documented abuses in the Empire Zone program. Firms that have re-incorporated to maximize Empire Zone credits without making any new investments or creating any new jobs (“shirt-changers”), as well as those producing less than $1 in actual investment and wages for every $1 in State tax incentives (below 1:1 cost-benefit standard) will be decertified from the program. For companies certified after April 1, 2009, a 75 percent cap on the amount of Real Property Tax Credits that a firm can receive will be imposed, and no state sales tax exemption will be provided to a firm unless the local county also provides an Empire Zone sales tax exemption. Additionally, the Enacted Budget creates a statutory requirement that all new program participants meet a 20:1 cost-benefit standard, except for manufacturing firms, which must meet a 10:1 standard, reflecting the unique nature of their industry. To accelerate future reforms, the Empire Zone program will sunset on June 30, 2010 – one year earlier than in current law. Overall, these actions will provide savings of $90 million in 2009-10.
• Expand Tax Compliance. Provides the Department of Taxation and Finance with a variety of tax enforcement tools to ensure that taxpayers are remitting the taxes they owe, including the ability to verify tax liability through the use of third party information, and increases in the interest rates tied to the underpayment of tax. This package will provide for a more comprehensive audit, compliance and tax enforcement program.
• Enact Reciprocal Vendor Offsets. Create a reciprocal program with the U.S. Treasury Department and other states to intercept vendor payments to satisfy legally enforceable and past due income tax debts.
• Increase Prepaid Sales Tax Rates on Cigarettes. Increase the prepaid sales tax rate on cigarettes from 7 percent to 8 percent, consistent with the sales tax rate in most New York State jurisdictions. This will not change the amount of tax liability, but simply the timing of payments.
• Allow for Mailing of Decals To TMT Carriers. Provides the authority for the Tax Department to mail decals to TMT carriers. The state amended its Highway Use Tax law due to a federal law that stated that states were no longer allowed to use a permit/decal system. That law has since been repealed. No fiscal impact.
• Increase Tax Prepayment. Increases the mandatory first installment of tax due from certain taxpayers from 30 percent to 40 percent of the previous year’s tax liability. For most taxpayers, this installment is due in March with the filing of the previous year’s tax return. This will not change the amount of tax liability, but simply the timing of payments.
• Extend Pari-Mutuel Tax. Extends lower pari-mutuel tax rates for one year. This proposal would also extend by one year the rules governing the simulcasting of out-of-state races and the authorization for account wagering. No fiscal impact.
• VLT Technical Amendments. Makes technical amendments to the VLT law to remove duplicative language and to clarify administrative provisions of the law. No fiscal impact.
• Allow for Additional Multi-Jurisdictional Lottery Games. Removes the restriction that currently allows the Division of the Lottery to join only one multi-jurisdictional game. This action would allow the Lottery to be part of new multi-jurisdictional gaming associations.

New or Expanded Tax Credits

• Expand the Low Income Housing Tax Credit Program. Authorizes the Commissioner of the Division of Housing and Community Renewal to allocate an additional $4 million in aggregate credit awards to taxpayers that develop qualifying housing projects for low-income New Yorkers. Credits are given in equal installments for a 10 year period, so that the total amount of credits that will be awarded from this new authorization will be $40 million.
• Film Credit Expansion. Includes $350 million in new authorization for the State’s film tax credit. This funding will help New York continue to attract film and television industry business and maintain its standing as the most popular destination outside of Hollywood for filmmakers.  In 2008, the State raised its film tax credit to 30 percent of qualified costs, which was three times larger than the credit it replaced. Due to the program’s enormous success, the allocated funds for this tax credit incentive were exhausted. The $350 million included in the Budget agreement will extend the program for another year, with New York State’s film and television production tax credit remaining at 30 percent of qualified costs.