New York Leaders Unveil Overhaul of State Tax Code

Governor Andrew M. Cuomo, Senate Majority Leader Dean Skelos and Assembly Speaker Sheldon Silver have reached a proposed three-way agreement on legislative and executive proposals to cut taxes for middle class New Yorkers.

The agreement includes support for a comprehensive New York Works Agenda that will pass a fair tax reform plan that achieves the first major restructuring of the tax code in decades resulting in a tax cut for 4.4 million middle class New Yorkers taxpayers, approving $50 million in additional relief for areas devastated by recent floods, and reducing the MTA payroll tax to provide relief for small businesses. The leaders will now present the agreement to their members for approval.

The Governor and the legislative leaders have agreed to tax code reforms including a temporary restructuring of current tax brackets to reduce taxes for 4.4 million middle-class New Yorkers. The Governor is also establishing a commission to examine a comprehensive overhaul of the state’s entire tax code that will make it simpler and fairer for all taxpayers and to create economic growth in the state.

In addition to these agreements, the Governor and legislative leaders announced a new round of flood relief, including a $50 million grant program for at businesses and counties impacted by Hurricane Irene and Tropical Storm Lee. The plan also includes a job retention tax credit for businesses impacted by a natural disaster during the last year. Finally, the Governor and legislative leaders announced that the MTA payroll tax will be reduced for small businesses.

The details of the proposed agreement are as follows:

Inner City Youth Employment Program and Tax Credit

The agreement includes the creation of an inner-city youth employment program and a $25 million tax credit for employers who hire unemployed youth between 16 and 24 years of age over the first six months of 2012. The program and credit would be available to employers in businesses such as clean energy, healthcare, advanced manufacturing and conservation. Eligible employers would receive up to $3,000 for a six month training period and an additional $1,000 if they retained their workers for an additional six months.

Nearly $37 million in funding will be provided to critical jobs programs for inner city youth. This includes $12 million in support grants to youth providers for work readiness training, occupational training, placement or job matching, workplace mentoring and follow up services to increase retention. Participating youths will be provided with up to three monthly stipends of $300 each to cover costs associated with transitioning into the workplace. An additional $25 million will be appropriated for workforce skills training and support programs including digital literacy, basic education and occupational training, summer youth employment, job search and placement, and facilitated child care enrollment.

Fair Tax Code Reform

The Governor and the legislative leaders announced tax code reforms to create jobs and restore fairness to the tax system. Under the new rate structure, a total of 4.4 million New Yorkers would receive a tax cut, including a $690 million reduction for middle class taxpayers, and all taxpayers would see a tax reduction or no change compared to their previous tax bill. Brackets would increase with the rate of inflation. The newly implemented top bracket expires in December 31, 2014.

The new tax structure would generate $1.9 billion in additional revenue for the State. Any additional unspent funds from this revenue would be held in a new priority reserve fund to be dedicated towards future needs regarding job creation, local mandate relief, education, health care and mortgage foreclosure protection.

The new tax bracket structure would be reorganized as follows:

Income Level                   Previous Tax Rate           New Tax Rate
$40,000 to $150,000               6.85%                      6.45%
$150,000 to $300,000             6.85                         6.65%
$300,000 to $2 million             7.85% - 8.97%          6.85%
Over $2 million                       8.97%                    8.82%

Through an executive order, the Governor has created the New York State Tax Reform and Fairness Commission to address long term changes to the tax system and create economic growth. The commission will have thirteen members, including four recommended by the Senate and Assembly majority leaders and two recommended by the Senate and Assembly minority leaders. The chair of the Commission will be appointed by the Governor. All members are required to have expertise in the tax field and will receive no compensation.

The Commission will conduct a comprehensive and objective review of the State’s taxation policy, including corporate, sales and personal income taxation and make revenue-neutral policy recommendations to improve the current tax system. In its review, the Commission will consider ways to eliminate tax loopholes, promote administration efficiency and enhance tax collection and enforcement.

Flood Recovery Grant Program

The agreement includes establishing a $50 million grant program to continue recovery efforts in regions of the State impacted by Hurricane Irene and Tropical Storm Lee.

The program includes the following support for communities recovering from the storms:

- $21 million for small businesses, farms, multiple-dwellings and non-profit organizations that sustained direct physical flood-related damage costs not covered by other federal, State or local recovery programs. Grants would be limited to $20,000 and eligible only to companies that are on the Small Business Administration’s list of companies that have sustained damage.

- $9 million for county flood mitigation or flood control projects. The grants for each county would range from $300,000 to $500,000; however, counties could jointly apply. Eligible counties must be included in Federal disaster declarations

- An additional $20 million included in federal disaster declarations distributed on an as needed basis

- Permitting local government to let taxpayers impacted by the storms to pay their property taxes in installments

Jobs Retention Credit for Businesses Impacted by a Natural Disaster

The Governor and the legislative leaders have agreed to the enactment of a job retention credit for businesses harmed by a natural disaster. The credit would be available to firms with at least 100 employees that have retained or expanded their workers’ roles during this time.

The credit would equal 6.85 percent of the wages of retained jobs and is targeted towards employers in financial services, manufacturing, software development, new media, scientific development, agriculture and other sectors.

Reduced Manufacturing Tax Rate

The Governor and the leaders agreed to provide a new reduction in the tax provided to corporate manufacturers by lowering their tax rate that would save them $25 million.

Reducing the MTA Payroll Tax

The Governor and the legislative leaders have agreed to reduce the MTA payroll tax on small businesses while maintaining the necessary funding for the MTA from other sources. The payroll tax would be eliminated or reduced for 294,900 taxpayers overall. The tax would also be eliminated from an additional 415,000 taxpayers by raising the self-employment income exemption. In addition, private elementary and secondary schools, as well as parochial schools, would be exempt from the tax. The State would compensate the MTA for the $250 million in lost revenue.

Also See:

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IRS Provides Penalty Relief to Farmers Affected by MF Global Bankruptcy

IRS Issues Guidelines to Parents and Students on College Tax Benefits

Treasury, IRS Issue Proposed Regulations for FATCA Implementation

IRS Issues Guidance to Encourage Small Employers to Check Out Small Business Health Care Tax Credit