REVENUE REPORT 

1998-1999 & 1999-2000

OVERVIEW

The Ways and Means Committee Staff forecast for both the National and State economy is slightly more optimistic than that contained in the Executive Budget. Consistent with a brighter outlook for the economy is a more optimistic outlook for state revenues for State Fiscal Year 1998-99 and State Fiscal Year 1999-2000. Over the two-year forecast period, the Committee Staff estimate is $673 million higher than the Executive. This would increase the unreserved surplus from $1.789 billion to $2.462 billion in State Fiscal Year 1999-2000

State Fiscal Year 1998-99

State Fiscal Year 1999-2000


ECONOMIC OVERVIEW

Introduction

The national economy is now in its 96th month of expansion. In December 1998, the current expansion went on record as the second longest expansion of the postwar period. Only a few months ago, the nation was wondering whether a global financial meltdown would drag the U.S. economy into a recession despite the efforts of the Federal Reserve Board. Now, most of the world stands in awe of the tremendous strength and resiliency of an economy that just will not quit. The Ways and Means Committee Staff projects that the national economy will see only moderately slower growth in 1999 than in 1998, and that the current expansion will go on to become the longest since the end of the Second World War. The New York State economy will also experience only slightly slower growth in both employment and income in 1999 relative to last year.

The fundamentals of the U.S. economy remain sound, with the nation continuing to enjoy both low inflation and low unemployment. As measured by real U.S. GDP, the economy grew a solid 3.9 percent during 1998, matching its 1997 performance. This was a much stronger performance than economists were predicting a year ago. At several points during the year, it appeared as if global economic conditions might stymie the economy’s momentum, a scenario which never occurred. Economic growth for 1999 is expected to slow but only moderately, to a still healthy 3.3 percent.

The U.S. economy has not weathered the global crisis entirely without impact. A weakened Asian economy has meant reduced demand for U.S. exports, which until recently had been an important engine of growth. Moreover, devalued currencies have induced Asian producers to market their own exports even more aggressively by further reducing prices. The result has been a ballooning trade deficit accompanied by a loss of U.S. manufacturing jobs, as well as diminishing corporate profits.

With the nation’s export sector in a depressed state, the national economy has found its growth engine in domestic consumption, which remained unusually strong throughout 1998. Strong employment growth, low interest rates, and high levels of consumer confidence all contributed to our domestic vigor. In fact, consumption growth was so strong that it appeared as if the U.S. household saving rate, as traditionally defined, had fallen to zero. However, the Committee Staff finds that when the remarkable increase in the value of Americans’ net wealth is taken into account, U.S. households are not quite the spendthrifts they originally appear to be. The Committee Staff concludes that the strong stock market growth of the last four years has helped to fuel both domestic consumption and saving.

How has the State economy been affected by international economic developments? The global turmoil in which we now find ourselves began in the financial sector. Weakness in the international banking system first revealed itself in Asia, and spread to Latin America and Russia, culminating in the collapse of Long Term Capital Management, the failed hedge fund. These financial market woes were finally beginning to threaten the U.S. financial markets, as risk-weary investors, both foreign and domestic, began to flee even the highest quality corporate securities in favor of safer U.S. government debt.

As the home of the world’s financial capital, New York State stands to be deeply affected by global financial risk. The financial markets have not quite recovered from the events of the late summer, with the volumes of corporate debt and equity underwriting both down during the second half of 1998. Moreover, the increase in financial market volatility poses a threat to the high profit levels which the securities industry has enjoyed over the last four years. Indeed, a few financial services firms have announced the need for layoffs in light of their particularly poor profit performance in the third quarter. We can also expect to see a decline in bonus income earned by financial market employees during this bonus season, following three years of remarkable growth. Nevertheless, markets are still up relative to last year, and merger and acquisition activity appears to have picked up again following the September lull. All of these developments are pivotal to State income.

State Receipts Overview

As the national economy continues its current path of expansion, New York State receipts continue to exhibit strong signs of growth. The national economy remains sound, with continued low inflation and low unemployment.

Over the past several years, the State has benefited from strong growth in the national economy. Despite substantial tax reductions enacted since 1994, the State has consistently ended the last few years with a budget surplus. Last year, the State ended the fiscal year with a surplus of $2.17 billion. Once again, the Division of the Budget expects that the State will end the current fiscal year with a surplus, anticipated to be in excess of $1.8 billion. The majority of past surpluses, as well as the current expected one, are the result of revenues exceeding expectations. In addition, positive opening fund balances and decisions to create reserves have contributed to these surpluses.

The Committee Staff forecast, over the two-year forecast period, is $673 million higher than the Executive. However, for this fiscal year, the Committee Staff estimate is only $67 million higher than the Executive. While the bottom line difference from the Executive is small, estimates vary among different taxes. Receipts appear to be on target with the Committee Staff estimates made in March 1998. The Executive also concurs, as seen by the significant upward revision of over $750 million to the Financial Plan estimates since the Mid-Year Report issued in October 1998.

The Committee Staff projects that General Fund and Lottery receipts will total $38,292 million in State Fiscal Year 1998-99, an increase of $2,205 million, or 6.1 percent, over State Fiscal Year 1997-98. General Fund tax receipts are estimated to increase by a somewhat higher rate of 7.6 percent over State Fiscal Year 1997-98. The growth in tax revenues, however, has been affected by tax reductions enacted by the State over the past few years. State Fiscal Year 1998-99 receipts are reduced by $1.1 billion in tax reductions, which took effect in this year alone.

The Committee Staff projects that General Fund and Lottery receipts will total $40,863 million in State Fiscal Year 1999-2000, which represents an increase of $2,571 million, or 6.7 percent, over State Fiscal Year 1998-99. This high level of growth is partly due to the transfer of $1,775 in surplus 1998-99 revenues into State Fiscal Year 1999-2000. This transfer artificially inflates the growth in total General Fund and Lottery receipts. General Fund tax receipts, absent the refund reserve transfer, are expected to increase by 5.2 percent in State Fiscal Year 1999-2000. This growth, which is somewhat slower than the estimated growth for State Fiscal Year 1998-99, is partially the result of reductions in the business taxes, sales tax, and other taxes, since all will be affected by tax reductions enacted in 1997 and 1998. Tax reductions in State Fiscal Year 1999-2000 will total approximately $2.0 billion. The Committee Staff forecast is $606 million higher than the Executive.


RECEIPTS ANALYSIS

State Fiscal Year 1998-99

As we approach the close of another state fiscal year, a familiar pattern once again appears to be emerging. For the last several years, the national and State economies have outpaced all forecasters’ predictions. This, in turn, has resulted in State tax revenues exceeding Financial Plan estimates provided by the Executive at the beginning of the fiscal year.

General Fund and Lottery receipts are projected to total $38,292 million, which represents growth of 6.1 percent, or $2,205 million, over State Fiscal Year 1997-98. The Committee Staff estimate is $67 million higher than the Executive. Growth in General Fund taxes, excluding refund reserve transactions(1), is 7.6 percent.

The estimates of the Committee Staff and the Executive differ only slightly. However, when the fiscal year began in April 1998, this was not the case. Originally, the Committee Staff forecast for State Fiscal Year 1998-99 was $626 million higher than the forecast incorporated into the enacted Financial Plan. The Executive under-forecasted receipts for State Fiscal Year 1998-99 by approximately $1 billion.

Personal Income Tax

The majority of the growth in the Committee Staff forecast lies within the Personal Income Tax. The Committee Staff estimates that Personal Income Tax receipts will grow by $2,356 million, or 12.9 percent, over State Fiscal Year 1997-98. Over the last two years, the Personal Income Tax has been the main engine of growth for New York's revenue base. Growth in Personal Income Tax receipts is closely correlated to the strong growth experienced in New York wages and capital gains over the last two years. Once again, the Committee Staff forecasts strong capital gains growth of approximately 36.0 percent for 1998. This translates into anticipated strong growth in the estimated payments component of the Personal Income Tax. In fact, estimated payments are over 14.0 percent higher in the first ten months of the current fiscal year as compared to last year.

Estimated payments rules require taxpayers to make quarterly payments on their estimated tax liability. Historically, these taxpayers were classified as high-income earners, often with large amounts of non-wage income. Table 3 shows that in years where large capital gains realizations occurred there was high corresponding growth in estimated payments.

Strong capital gains growth over the past few years has translated into strong growth in Personal Income Tax liability. By April 15th, taxpayers are required to submit tax returns finalizing their payments on the prior calendar year’s tax liability. As a result of strong liability in 1997, payments associated with April 15th returns skyrocketed in April 1998.

The second economic factor positively affecting Personal Income Tax revenues is wage growth. Withholding collections through the first ten months of the current fiscal year are 8.0 percent higher than last year. This healthy growth can be attributed to strong wage growth. The Committee Staff believes that this growth will continue throughout the remainder of the fiscal year. Wage growth in the second half of the fiscal year has slowed slightly. The Staff believes this is a result of the tapering off of bonus payments compared to last year. The Committee Staff estimates that bonus payments will experience a year-over-year decline of 4.8 percent in State Fiscal Year 1998-99.

Another form of compensation which could be a factor driving the growth in Personal Income Tax revenues is stock options. Stock options basically allow individuals to buy shares of a company stock at a fixed price. The fixed price is usually comprised of the current market price at the time the option is offered. How these options are taxed, for income tax purposes, depends on the type of plan. With a tax-qualified plan, tax is due when the stock purchased in the plan is sold. This income is classified as a capital gain and is taxed as non-wage income (estimated payments or final returns.) A non-qualified plan, however, requires payment of income tax when the stock option is exercised. This income is taxed as ordinary income, and companies are required to withhold income taxes on the gain.


User Taxes

User Taxes and Fees are projected to increase by 3.0 percent, or $212 million, over the previous fiscal year. Sales Tax growth of 4.8 percent is the main factor driving this increase. However, this is offset somewhat by a decline in Motor Vehicle Fees, resulting from a rate reduction on passenger auto registration fees enacted in 1998, and the payment of retroactive refunds of two-year registration fees.

The strength in Sales Tax receipts is largely the result of the economy’s strong domestic consumption. High levels of consumer confidence in 1998 and growth in employment will result in 4.8 percent growth in Sales Tax revenues. The Committee Staff estimate takes into account strong year-to-date growth in receipts, with continued strength in retail sales, and relatively strong employment and wage growth.

Consumer spending is a driving force of the current expansion. A combination of low prices, employment stability and the "wealth effect" of the middle class has provided retailers with a confident and able consumer. Retailers also enjoyed a very successful holiday shopping season. This translates into Sales Tax growth which exceeds the long term trend.

While retailers have benefited from strong consumption, the risk to the overall economy and next year’s forecast lies with the consumer. If consumption declines, it will have a ripple effect on the national economy, since consumption is such a large component of Gross Domestic Product.


Business Taxes

The Committee Staff estimates a 4.0 percent decline in the Business Taxes overall, partially as a result of a decline in the growth of corporate profits of 1.1 percent this fiscal year. A weaker Asian economy and overall global malaise have led to a weaker demand for U.S. exports. In addition, currency devaluation of many of our trading partners has caused a stronger demand for less expensive foreign goods. This has kept the price of domestic products from rising, putting a squeeze on profit margins of many companies.

More importantly, the global financial woes of Russia, Asia, and Brazil have taken its toll on Wall Street firms. The Committee Staff believes corporate earnings are likely to be lower than last year. The finance, insurance and real estate sectors have been major contributors to the Corporate Franchise Tax over the past few years. Although the industry shows sign of a recovery, mediocre performance in 1998 is expected to reduce overall Corporate Tax receipts.

The decline this fiscal year in Business Tax receipts from last fiscal year is attributable to several additional factors. Corporate Franchise Tax collections are lower for the first half of the fiscal year as a result of large unanticipated payments of refunds totaling $80 million. Utility Tax collections are experiencing a modest decline resulting from tax reductions enacted in 1997, which are taking effect this fiscal year. These include a rate reduction, which is expected to reduce revenues by $28 million this fiscal year, and the Power for Jobs Program, which was designed to provide power at a lower cost to businesses in New York. The cost of this program in State Fiscal Year 1998-99 is estimated to be $55 million. Finally, the Bank Tax has experienced a large decline this fiscal year, which can be partly attributed to the financial effects of the global recession.


Other Taxes

Other Taxes are estimated to increase slightly despite the repeal of the Real Property Gains Tax in 1996. The increase is the result of a stronger liability under the Estate Tax and higher payments made under the Gift Tax in January 1999, compared to January 1998.

Lottery receipts are estimated to decline by 6.9 percent over last fiscal year mainly due to an overall decline in Lotto sales. This was caused by a limited number of large Lotto jackpots in the current fiscal year compared to last year, and the deterioration of Instant Game sales. The sales of the remaining Lottery games are either falling short of expectations, or are experiencing declines as well. As a result, the Lottery Division is planning to overhaul certain Lottery games to increase player interest.

In State Fiscal Year 1998-99, General Fund and Lottery receipts are significantly understated as the result of General Fund revenues being dedicated to finance the School Tax Relief (STAR) Program. In 1997, the Legislature enacted the State-funded STAR Program aimed at reducing property tax burdens for all homeowners. This Program will be phased in over a 4-year period. In 1998, the Legislature created a Special Revenue Fund (STAR Fund), and dedicated General Fund Personal Income Tax revenues into this Fund, to finance the program. As a result of this new dedication, General Fund receipts will be reduced by $585 million in State Fiscal Year 1998-99.

State Fiscal Year 1999-2000

The Committee Staff forecasts continued receipt growth for State Fiscal Year 1999-2000. General Fund and Lottery receipts are projected to increase to $40,863 million, projecting growth of 6.7 percent over State Fiscal Year 1998-99. This forecast reflects the Committee Staff belief that national economic growth will moderate slightly during much of the fiscal year. Substantial tax reductions will take effect in State Fiscal Year 1999-2000, thereby further depressing revenues. However, New York’s economy will benefit from a brighter economic outlook next year in the financial sector of the State.

General Fund and Lottery receipts in State Fiscal Year 1999-2000 will benefit from the transfer of $1,775 in surplus revenues from State Fiscal Year 1998-99. This transfer artificially inflates receipt growth. Absent the effect of this transfer, General Fund taxes are expected to grow at a rate of only 5.2 percent. The Committee Staff forecast is $606 million higher than the Executive.


Personal Income Tax

The majority of the growth in State Fiscal Year 1999-2000 revenue once again lies within the Personal Income Tax. The Committee Staff forecasts that Personal Income Tax receipts will total $22,822, which is $2,177 million, or 10.5 percent higher than State Fiscal Year 1998-99. The Personal Income Tax has been the State’s engine of growth and the Committee Staff projects this trend to continue.

There are three main factors driving this growth. The Committee Staff estimates that wages will grow by 5.9 percent in State Fiscal Year 1999-2000. This growth encompasses the belief that bonus payments will grow by 11.3 percent in the next fiscal year, after a decline of 4.8 percent in State Fiscal Year 1998-99. The market volatility experienced in 1998 negatively affected Wall Street firm profits, which resulted in a decline in the level of bonus payments. Although bonus earnings for 1999 are not expected to keep up with the record-breaking pace in recent years, they are still expected to be large by historical standards. In addition, mergers and acquisitions, which have remained quite strong, will continue to aid the rebound of New York’s financial sector in 1999.

Another factor tied to the growth in Personal Income Tax receipts is capital gains realizations. Much of the capital gains realization has been attributed to the substantial increase in capital asset values and the reduction in Federal capital gains taxation. Although the continued economic expansion is sustainable, in order to obtain continued high double-digit capital gains growth, Wall Street must play an important role. The Committee Staff forecasts growth in capital gains will equal 10.9 percent in 1999. This growth is fairly modest compared to the Committee's forecast of approximately 36.0 percent growth in 1998. This lower growth in capital gains is based on an estimated decline in the growth of the S&P 500 Index from 24.2 percent in 1998 to 15.4 percent in 1999. As a result, the Committee Staff estimates that growth in Estimated Payments will also slow to 7.0 percent.

Once again, strong growth in various income components taxed under the Personal Income Tax has led to strong estimated growth in 1998 liability. The Committee Staff projects growth of 19.9 percent in final payments on 1998 liability. Extensions, which are requests for additional time to file, are projected to increase by 34.1 percent. Taxpayers are required to estimate their tax liability and remit payment along with the extension request.


User Taxes

The Committee Staff forecasts growth in the User Taxes to decline slightly next fiscal year . The largest component of the User Taxes, the Sales Tax, is forecast to grow by only $81 million , or 1.4 percent. This growth rate is lower than the estimated 4.8 percent growth in receipts in State Fiscal Year 1998-99, since it takes into account $242 million in tax reductions scheduled to take effect next fiscal year. The largest tax reduction is the permanent Sales Tax exemption on clothing and footwear costing less than $110, which will take effect in December 1999. This exemption will reduce Sales Tax revenues by $171 million alone next fiscal year. In addition, the Committee Staff forecasts slower employment growth of 1.3 percent for State Fiscal Year 1999-2000.

Robust growth in consumer spending of 4.9 percent in 1998 translated into higher-than-usual growth in Sales Tax receipts. The Committee Staff is projecting a slower growth in consumption of 3.5 percent for 1999. This growth, although slower, is still high compared to a historical growth of 2.8 percent. Some economists believe that this is the result of the "wealth effect." i.e., the value of wealth can play a role in the rate of consumption. Extraordinary gains on financial assets allow consumers to use current income on consumption rather than to increase savings.

Since the Committee Staff is projecting employment to remain fairly stable, what factors might cause growth to slow? Although the unemployment rate remains low, there are indications that the Asian crisis has produced layoffs in some U.S. export industries. This may have the effect of hindering growth in consumer confidence, which is closely tied with the belief that people are more confident if they feel secure in their employment. Another factor which could work to reduce the growth in consumption is the strength of the stock market. The Committee Staff believes that the stock market and consumption move together. Therefore, a decline in the market can be expected to have a negative impact on the growth in consumption.

Other factors contributing to the stagnant growth in User Taxes and Fees are estimated declines in the Motor Vehicle Fees and Alcoholic Beverage Fees. Legislation enacted in 1998 provided a 25 percent rate reduction on Motor Vehicle passenger registration fees. The full effect of this reduction will be felt in State Fiscal Year 1999-2000. Similarly, legislation enacted in 1997 changed the payment method of Alcoholic Beverage Fees, reducing revenues by $14 million in State Fiscal Year 1999-2000.

Business Taxes

The Committee Staff projects a significant reduction in Business Taxes for State Fiscal Year 1999-2000. Business Tax revenues are forecast to decline by 3.9 percent, or $190 million, over State Fiscal Year 1998-99, despite the Committee Staff belief that corporate profits will rebound next fiscal year. The decline is mainly the result of various tax reductions, which will have the effect of reducing business tax collections by over $200 million.

Corporate Franchise Tax revenues are forecast to increase by 9.9 percent in State Fiscal Year 1999-2000. Legislation submitted with the Executive Budget proposes to change the method of taxing utility companies from a gross receipts tax to a net income tax (see review of the Governor’s Utility Tax proposal on page 43). This change would increase Corporate Franchise Tax receipts by an additional $275 million. The increase will be partially offset by the effects of legislation enacted in 1998 which will provide a rate reduction for both small and large businesses in New York. This rate reduction is scheduled to be phased in over three years and will begin on July 1, 1999, reducing revenues by approximately $170 million.

The Corporate and Utilities Tax is forecast to decline by 29.8 percent, or $436 million in State Fiscal Year 1999-2000. This reduction is partially the result of a rate reduction in the Corporate Utility Tax, which began on October 1, 1998, and the newly created Power for Jobs Program. These two reductions are estimated to reduce receipts by over $160 million in State Fiscal Year 1999-2000. As mentioned above, the Executive proposal to overhaul the taxation of utility companies will cause receipts from the sale of gas and electric to no longer be taxed under Article 9. This will reduce these receipts by $291 million in State Fiscal Year 1999-2000.

Other Business Taxes are forecast to show mixed growth in State Fiscal Year 1999-2000. Bank Tax revenues are forecast to return to more normal collection patterns as New York overcomes the effects of the Asian Crisis. Bank Tax collections were depressed in 1998-99 as a result of banks carrying forward losses from previous years, especially in 1997. As the State’s financial sector continues to rebound in 1999, the Committee Staff does not believe that prior year losses will have a substantial effect on current year liability.

Insurance Tax receipts will benefit from continued growth in premiums and investment income but will show a modest decline as the result of tax reductions enacted in 1997. In addition, the forecast assumes that the high level of catastrophic loss claims in 1998 will not re-occur. In 1998, catastrophic losses in the first half of the year were at the third highest levels experienced over the last 20 years. This trend diminished, however, for the second half of the year.

Other Taxes

The largest decline in General Fund taxes is expected in the Other Taxes. Two areas mainly contribute to the decline of 11.9 percent over State Fiscal Year 1998-99. Receipts from the Real Property Gains Tax are expected to continue their decline, since the tax was repealed in June 1996. Modest revenues are expected, however, over the next few years in the form of installment payments. Estate and Gift Tax receipts are forecast to decline by $120 million, or 11.2 percent. This decline is mainly attributable to New York increasing the threshold for taxable estates and decreasing the tax rates by adopting a death tax based on the Federal credit for State death taxes paid (a "SOP" tax). This reduction will lower revenues by approximately $150 million in State Fiscal Year 1999-2000.

Other General Fund receipts include Miscellaneous Receipts and Transfers From Other Funds. Miscellaneous Receipts are expected to decline by $269 million, or 17.3 percent. This is mainly due to the enacted reduction in Provider Assessment rates which will reduce receipts by approximately $250 million in State Fiscal Year 1999-2000. In addition, the Executive is proposing to accelerate and completely phase-out assessments on health care providers on March 31, 1999 (one year earlier than scheduled). This will have the effect of reducing revenue by an additional $33 million in State Fiscal Year 1999-2000.

The Committee Staff is projecting Lottery receipts to increase by $35 million, or 2.5 percent, over State Fiscal Year 1998-99. While Lottery revenues are projected to decline in State Fiscal Year 1998-99, the growth in State Fiscal Year 1999-2000 can be partly attributable to proposed administrative changes. The Lottery Division will be making major administrative changes to the Lotto game, effective at the end of February 1999. First, the field of numbers from which to choose will be reduced from 54 to 51, with an increase in the number of prize levels and additional prize money apportioned to lower-tier prize levels. Second, the price of a Lotto ticket will increase from 2 plays for $1 to 1 play for $1. The Lottery Division hopes these changes will increase revenue, increase the odds of winning any given prize, and increase the overall prize levels available.

The Lottery Division will also implement promotional regional Lotto games for residents of particular geographic areas beginning in March 1999. The intent of these regional games is to increase player interest in upstate portions of the State, since there is a perception that a disproportionate share of Lotto jackpots are won by downstate residents.

The Executive also proposes to permanently extend Quick Draw, which is currently scheduled to end on March 31, 1999. In addition, changes are proposed that would eliminate current restrictions on the game. These restrictions include constraints on hours during which the game can be offered, and minimum square footage and food sales requirements for establishments that offer the game. According to the Executive, these changes will preserve revenue generated from the existing game, and will yield an additional $45 million in State Fiscal Year 1999-2000. For purposes of comparability, these policy changes are incorporated into the Committee Staff estimates.

In State Fiscal Year 1999-2000, the second phase of the STAR Program will be implemented. This will act to reduce General Fund and Lottery Receipts by $1,223 million, as a result of Personal Income Tax revenues being diverted to fund the Program.


ALL FUNDS FORECAST

The concept of All Governmental Funds, which is the basis for the majority of the Executive’s Financial Plan, consists of four major fund types: the General Fund, Special Revenue Funds, Capital Project Funds, and Debt Service Funds. The General Fund is used to pay the majority of the State’s day-to-day operations and its disbursements to local governments. Debt Service, Capital Projects, and Special Revenue Funds are used to earmark funds for specific purposes. In addition to these four funds, All Governmental Funds includes Federal Funds.

In 1996, the Legislature established an annual revenue consensus forecasting process. The Executive and the Legislature agreed that the process would include an analysis based on All Funds taxes. For the purposes of this document, All Funds only includes tax revenues and Lottery receipts deposited into four funds: the General Fund, Special Revenue Funds, Capital Projects Funds and Debt Service Funds. This concept can also be referred to as State Funds. This section of the report fulfills the statutory requirement enacted in 1996.

Typically, All Funds is a better measure of how the State's revenue base is performing. Over the past several years, the popularity of dedicating tax receipts for specific spending purposes has increased. For example, last year the Legislature decided to dedicate over $2.7 billion in Personal Income Tax receipts, when fully effective, to finance the STAR Program. This reliance on dedication affects General Fund revenues by reducing the General Fund tax base. However, the transfer of tax receipts from one fund to another has no net effect on the overall level of All Funds revenues. Therefore, All Funds tax receipts speak more clearly to the question of how much the State actually collects.

On an All Funds basis, the Committee Staff projects State Fiscal Year 1998-99 tax receipts will grow by 8.1 percent, totaling $41,632 million. The Committee Staff estimate is $98 million higher than the Executive.

In State Fiscal Year 1998-99, additional tax revenues will be dedicated for specific spending purposes. The main addition is the dedication of Personal Income Tax revenues to fund the STAR Program. In 1998-99, $585 million will be diverted to finance the program.

In State Fiscal Year 1999-2000, the Committee Staff forecasts All Funds taxes to total $44,848 million, which is $3,216 million higher than State Fiscal Year 1998-99. In the next fiscal year, $1,223 million in Personal Income Tax revenues will be dedicated to finance the STAR Program. The Committee Staff estimate is $654 million higher than the Executive.


RECEIPTS AND THE ECONOMY

It should come as no surprise that the economic success of the nation has worked to the State's benefit in the form of higher revenues. As a result of the second longest economic expansion in history, many states have enjoyed substantial growth in revenues. New York is no exception. Since New York is the financial capital of the world, it reaps the benefits of the booming financial markets, allowing the State to accumulate a multi-billion dollar surplus.

Invariably, New York State's revenues are linked to the economic conditions of the Nation, since over 90 percent of its tax base depends, in one way or another, on the performance of the economy. The Committee Staff’s process of estimating tax receipts begins with the concept that there is a strong correlation between the economy and revenues. When the economy is performing well, one would expect corresponding growth in revenues. While this is often the case, other considerations such as Tax Law changes and accounting practices must be factored into the estimation process. These considerations often mask the true growth in revenues. To examine the true relationship between the economy and revenues, one must examine "underlying growth." Underlying growth takes into account factors such as Tax Law changes, and allows an examination of the relationship between the economy and revenues, absent these factors.

Composition of New York Receipts

The Personal Income Tax and the Sales Tax comprise roughly 70 percent of New York tax receipts, therefore, these two taxes are critically linked to the economy. The most dominant force contributing to receipts is the Personal Income Tax, which represents more than one-half of the total. As can be seen in Figures 1 and 2, the contribution of receipts, by major tax groups, has not changed dramatically over time. For illustrative purposes, the Petroleum Business Tax is separated from the Other Taxes category, so as to not distort the comparison of income based Business Tax collections. This tax was restructured significantly in the early 1990s.

Figure 1



Figure 2

The share of receipts collected from Business Taxes has fluctuated over time, but generally, the proportion has remained stable since 1985. Clearly, the State’s fiscal health is dependent on growth in Personal Income Tax receipts. Business Taxes are the third largest tax category in the General Fund. However, receipts from Business Taxes are often volatile, reducing the ability to obtain an accurate forecast.

As mentioned above, the composition of New York tax receipts has not changed dramatically over time. Similarly, historical growth in the major tax categories has remained relatively stable over time. Figure 3 depicts long-term growth trends by major tax category. The highlighted bars in Figure 3 (and other figures to follow) represent the Committee Staff identification of the State recessions. These time periods, depicted by the highlighted bars, are determined by using coincident indicators developed by the Committee Staff using Stock-Watson time series modeling.(2)

Figure 3

The Relationship of Receipts To The Economy

By examining a history of tax collections, New York State receipts tend to grow with the overall growth in the national economy. Average growth, as measured by the growth in the GDP in the national economy over the past 10 years was 2.7 percent, compared to a healthy growth of 6.0 percent in total tax receipts collected. This healthy growth in receipts occurred, despite anemic employment growth in New York State. During this time period, average growth in New York State employment was only 0.1 percent.

Figure 4

Recently, much attention has been given to the healthy growth in receipts that states are realizing as a result of the current economic expansion. However, policymakers should not forget that the Nation, as well as the State, has been through two recent recessions, one in the early 1980s and another in the early 1990s. Each recession had a different effect on State receipts.

In the early 1980s, New York's tax structure was different than that of the 1990s. As a result, in the early 1980s, State receipts continued to grow despite little or no growth in employment. One main difference was that income under the Personal Income Tax was taxed on two different bases, earned and unearned income. Earned Income was taxed at a rate of 10 percent, while unearned income was taxed at a rate of 15 percent. This differentiation helped maintain healthy growth in receipts during the 1981-82 recession.

However, the drop in GDP in the early 1990s had a negative impact on State employment and receipts dropped sharply. Many jobs lost consisted of high-paying Wall Street jobs. This was also a period of economic restructuring, where increasing bottom line profits was primarily a function of reducing costs, rather than increasing revenues. Many companies believed that this could be achieved by operating more efficiently with less workers. It is unclear what employment consequences the State will face with the next economic retrenchment.

A graphical analysis of how certain individual tax areas are correlated with economic factors, demonstrates how New York's tax structure tends to move in tandem with the economy. Three good examples include the Personal Income Tax and personal income, the Corporate Franchise Tax and its relation to corporate profits, and the Sales Tax which is driven by employment growth.

Personal Income Tax Receipts are highly correlated to New York personal income. However, the relationship is not a direct one. In the 1990s, Personal Income Tax receipts grew by 20 percent, while New York personal income grew at a

Figure 5

much faster pace of 49 percent. One factor limiting the growth in Personal Income Tax receipts is the Personal Income Tax reduction plan enacted in 1995. This plan lowered income taxes by approximately 25 percent. This reduction skewed the relationship between New York's tax structure and the underlying income components of New York's economy. The early 1990s also represented a point in time when Personal Income Tax receipts experienced negative growth, while the growth in personal income was positive. This time period was marked by a recession with devastating job losses.

The relation of corporate pre-tax profits to Corporate Franchise Tax receipts is not always as clear as one would like. Since corporations are taxed on a "net income" basis, basic economic principles would lead one to believe that as corporate profits increase, tax receipts should increase correspondingly. However, as Figure 5 shows, this is not always the case. For example, as corporate pretax profits continue to expand from 1993 to the present, receipts have been growing at a much slower rate. This slow rate of growth can be partly attributable to the fact that taxes on New York businesses have been reduced dramatically. In 1994, the 15 percent Business Tax Surcharge was eliminated, reducing receipts in excess of $1.5 billion. While some economic factors have a strong correlation with receipts, it is clear that the relationship between corporate profits and tax receipts is not a one-to-one relationship. In fact, it is more likely that the relationship is less than one. This partially explains why corporate pre-tax profits have grown more than 100 percent during the 1990's, while Business Tax receipts have only increased by 58 percent.

Figure 6

Another economic factor affecting tax receipts is the growth in New York employment. Figure 7 displays the relationship between employment and growth in Sales Tax receipts. As New York State employment increases, consumption expenditures tend to increase. This translates into additional Sales Tax revenues to the State. As the economy expands, consumers become more confident and tend to spend more of their household income. However, the converse also holds true. During the recession of the early 1990s, employment declined dramatically. This had a negative effect on Sales Tax revenues, which also experienced declines during this time period.

Figure 7

Recent Tax Actions

The late 1980s can be characterized as a time when tax reform was the norm at both the Federal and the State level. In New York, the last decade brought about reforms in the State's Personal Income Tax, Corporate Franchise Tax and the Bank Tax. The largest reforms, by far, occurred within the Personal Income Tax. However, the early 1990s was characterized as a time where serious erosion of tax receipts occurred.

Figure 8

When the Nation emerged from the latest recession, the National economy began to grow at incredible rates. The State also began to grow, but lagged the Nation in the magnitude and pace of growth. This growth allowed policymakers to enact tax reductions beginning in the mid-eighties. While the early 1990s was a time of financial constraints, beginning in 1994 and every year thereafter, large tax reductions were enacted. Figure 8 displays recent tax actions enacted over the last 5 years. When the tax reductions enacted since 1994 are fully implemented, State receipts will be reduced in excess of an estimated $12 billion. This estimate does not assume that economic patterns were altered, or will be altered, as a result of these tax reductions.

To date, New York, has been able to overcome the loss of these receipts in part due to a strong national economy. Over the past several years, the State has benefited from strong performances on Wall Street and exuberant growth in the stock market. These factors have led to very strong bonus payments to financial sector employees, which in turn have inflated wage growth. Figure 9 clearly shows that from State Fiscal Year 1995-96 through State Fiscal Year 1997-98, receipt growth, despite many tax reductions, was a modest 2.0 to 3.0 percent. However, Figure 9 also shows that had these reduction not been enacted, growth patterns would have resembled that of the early 1980s, when receipts grew at rates close to 10 percent. Figure 9 highlights that underlying growth in tax receipts was particularly strong in 1996, 1997 and 1998, ranging from approximately 6.0 percent to over 9.0 percent.

Figure 9

As previously mentioned, the strong performance of the national and state economies led to higher-than-anticipated growth in State tax receipts. The Executive, over the past several years, has not fully captured this trend in their revenue forecast submitted with the Executive Budget.

As a result, the Executive has consistently under-forecasted the anticipated level of revenues. This is the result of the difficulty in forecasting of New York’s economy, especially the strong performance of Wall Street, and how that translated into revenues. The Executive under-forecasted revenues by close to $4.0 billion over the last three fiscal years. This disparity is outlined in Figure 10.

Figure 10

The lst three fiscal years have ended with surpluses in the multi-billion dollar range. This trend is also expected to continue for the current fiscal year. Figure 11 outlines the pattern which has been developing. The negative numbers depicted by the bar graph reflect the fact that the Executive has been transferring surplus money from one fiscal year into the next. Also, the depiction of the year-end balances clearly display that the State has ended the last three fiscal years with a surplus.

Figure 11

Figure 12 shows how the amount of taxes New Yorkers pay in relation to New York personal income has been declining steadily. This would indicate that New York taxpayers have felt the benefits of recent tax reductions. This ratio should only improve over the next few years, as additional previously-enacted reductions are phased-in.

Figure 12


New York State's Relative Tax Burden

New York State is projected to collect over $45 billion in taxes in State Fiscal Year 1999-2000. In 1997, New York State’s tax burden, as measured by taxes collected per $1,000 of income, was ranked 34th in the nation. Personal Income Tax and other tax reductions over the past few years have improved the State’s current position of 34th from 14th in 1987. What is important to note is that New York's ranking improved greatly prior to the extraordinary tax reductions which began in 1995. By 1994, the State’s position had already moved to a more competitive rank of 27th in the Nation. However, a continuing concern is the effect of New York's local taxes, which when combined with State taxes puts New York’s ranking to 2nd overall in the country.


EXECUTIVE REVENUE PROPOSALS
FOR STATE FISCAL YEAR 1999-2000
($ amounts in millions)

1999-2000

REVENUE SOURCE REVENUE IMPACT

Revenue Enhancement Proposals

Use Tax on Electric and Gas $10.0

Eliminate Quick Draw Restrictions 45.0

Increase Instant Lottery Game Payout 20.0

Racing & Wagering Tax Surcharge 13.5

Revenue Preservation Proposals

Eliminate Quick Draw Sunset 148.0

Extend Manhattan Parking 1.5

Fee Increases

Department of Correctional Services

Increase Commissary Prices 2.8

Department of Environmental Conservation

Clean Air Operating Permits 4.8

Oil Spill Fund 13.2

Pesticide Extender 1.6

Department of Health

Radiological Facility Registration Fee 0.3

Department of Motor Vehicles

County Clerks’ Retention Fee 4.1

Mandatory Surcharges 25.0

Office of Parks, Recreation and Historic Preservation

Parking Fees 3.7

Golf Fees 3.3

Pool Admission Fees 0.8

Cabin Fees 0.7

Empire Passport 0.5

Total Executive Revenue Increases $298.8

Source: Executive Budget


EXECUTIVE REVENUE PROPOSALS

FOR STATE FISCAL YEAR 1999-2000

Revenue Enhancement Proposals

Use Tax on Gas and Electric $10.0 million

Imposes a compensating use tax on gas or electric service on any gas and electric service purchased other than for resale.

Enhance Quick Draw $45.0 million

Eliminates all restrictions on the conduct of "Quick Draw". These restrictions currently apply to maximum hours, 25 percent food sales requirement for ABC licensed vendors, and 2,500 square footage requirement for non-ABC licensed vendors.

Increase Instant Lottery Game Payout $20.0 million

Increases prize payout for "Instant" or "Scratch-Off" games from 55 percent to 65 percent.

Racing and Wagering Tax Surcharge $13.5 million

Imposes a 2.0 percent surcharge on exotic and super-exotic wagers. Of the 2.0 percent, 1.75 percent supplements General Fund dollars for administrative costs of the Racing & Wagering Board, and .25 percent will be used for the good of the New York racing industry as determined by the Racing and Wagering Board.

Revenue Preservation Proposals

Eliminate Quick Draw Sunset $148.0 million

The Executive proposes to permanently extend Quick Draw, which is set to expire on March 31, 1999.

Extend Manhattan Parking $1.5 million

The Executive proposes extending the Special Sales Tax provisions required of Manhattan parking facility operators that are set to expire on November 30, 1999.


FEE INCREASES

Department of Correctional Services

Increase Commissary Prices $2.8 million

Increase the price of products sold at commissaries located in DOC’s correctional facilities by 8 percent. These items are now sold at cost.

Department of Environmental Conservation

Clean Air Operating Permits $4.8 million

Increase the Clean Air Operating Permit fee from $33.20 per ton to a maximum of $48 per ton of regulated air contaminants. The fee increase will support the program costs imposed by the requirements of the 1990 Federal Clean Air Act.

Oil Spill Fund $13.2 million

Double the tank registration fee and the per barrel fee to generate $13.2 million in revenue. The tank registration fee (for a five-year period) now ranges from $50 to $250, depending on the size of the facility; the increase would generate $0.5 million. The per barrel fee is now 4 cents per barrel of oil imported into the State. The increase would generate $12.7 million.

Pesticide Extender $1.6 million

Permanently extends the requirement for DEC to review applications to register pesticide products within specific time frames and continues registration fees at current levels.

Department of Health

Radiological Facility Registration Fee $0.3 million

Increase the registration fee for x-ray facilities from $30 to $50; institute new fees (already authorized by law) on radioactive materials; move fees now deposited in the General Fund ($0.5 million) to a Special Revenue account. Current fees recover only 30 percent of program costs.

Department of Motor Vehicles

County Clerks’ Retention Fees $4.1 million

Centralize mail-in drivers’ license and registration renewals to save money. The State now pays county Clerks $8.2 million for processing such renewal work, which it can do itself for $1.2 million. The State would thus save $7 million. Half of the $8.2 million the County Clerks would lose under this initiative would be returned to them by raising the rate of the reimbursement for other motor vehicle transactions from 9.3 percent to 12.7 percent of gross receipts.

Mandatory Surcharges $25 million

Make permanent the provisions pertaining to the payment of mandatory surcharges pursuant to section 1809 of the Vehicle and Traffic Law (traffic infractions) and 1809-a (parking, stopping, and standing violations in cities having populations of one hundred thousand or more).

Office of Parks, Recreation and Historic Preservation

Parking Fees $3.7 million

Day use parking fees: Increase from $4 to $5 at most parks; and from $5 to $7 at parks with beaches.

Golf Fees $3.3 million

Increase of 20 percent and a $10 golf surcharge would be instituted for non-residents.

Pool Admission Fees $0.8 million

Double the current $1 fee for adults and $.50 fee for children.

Cabin Fees $0.7 million

Change current cabin fee structure and increase by 15 percent, resulting in a 25 percent increase in cabin revenues. Cabins now range from $122 to $135 per week.

Empire Passport $0.5 million

Increase the annual charge for the Empire Passport by 24 percent, from $39 per car to $49 per car.


REVENUE REDUCTION PROPOSALS

The Executive has proposed various tax reductions that will have a modest impact on State Fiscal Year 1999-2000 receipts, but will reduce receipts by approximately $1 billion when fully implemented. These proposals include:

Personal Income Tax Reduction Plan


Utility Tax Reform


Business Tax Reductions

Miscellaneous


REVIEW OF THE EXECUTIVE TAX PROPOSAL FOR
GAS AND ELECTRIC COMPANIES

Background

The hallmark of the American economic system is competition. Electricity and gas companies were given monopoly privileges to protect the substantial investment these companies had to make in order to provide economical universal coverage. However, electricity service is no longer seen as an industry that needs the economic protection of a monopoly. Technological advances have profoundly changed the management of electricity grids (electricity grids are the poles and wires that connect the generator to the houses in our neighborhood). The ability to manage smaller, more efficient electric generators on the same grid has increased through advances in computer technology. Therefore, more companies can economically sell electric power in New York. These technological advances have created an environment where the economic benefits of many sellers, can lower prices for the energy consumer.

In response to this increase in demand nationwide, the Federal government, through the passage of the Public Utility Regulatory Policy Act of 1978, initiated a competitive energy environment by creating incentives to provide for the use of alternative forms of power. Small hydro power plants and independent power producers proved to be such suitable substitutes, that a further call for competition was made with the Energy Policy Act of 1992. It also mandated deregulation at the wholesale level and required utility companies to provide open access to their transmission and distribution networks.

For the most part, energy services in New York are regulated and restricted to seven utility companies providing service to designated delivery areas. With deregulation of electricity, consumers will be able to choose who generates their electricity and are not restricted to companies in New York. The delivery of electric energy will not change. The transmission and distribution of electricity will continue to be provided by the major utility companies, within their designated service delivery areas. Transmission and distribution rates will continue to be regulated by the Public Service Commission. This deregulation process undertaken by the Public Service Commission (PSC) was done without Legislative action. This has led to minimal savings and noncompetitive prices.(3)

At the State level, utility companies pay a tax on gross receipts at a rate of 3.25 percent. At the local level, utility companies pay real property taxes based on generating facilities that are assessed significantly above book value. These taxes are passed on to the consumer through the rate setting process. However, the consumer also pays a State and local sales tax, generally at a combined rate of 8 percent. In total, New York’s State and local governments collect over $3 billion in taxes.

Utility companies had little concern about the level of taxes imposed if they had an inelastic demand. However, regional shifts in the location of energy-intensive industries show that utility companies must compete nationwide. The goal of deregulating is to allow the forces of the national market to bring about lower prices in New York. The current tax laws are based on a system where none of the conditions of open markets exist.

It has always been difficult to reconcile State Tax Laws with the operations of multi-state companies and cross border transactions. Many economists are predicting that, unless there are changes made to the current tax code, state and local governments will potentially suffer significant revenue losses due to tax avoidance practices inherent in multi-tax jurisdictional corporations.

The objective of the Executive’s legislation is to recognize the new market system for generating plants. Primarily this is done by requiring firms that sell or generate electricity to pay under a net income tax rather than a gross receipts tax.

Summary of Proposal

The Executive has submitted with his Budget legislation to significantly reform the way in which the utility industry will be taxed. The changes proposed by the Executive are designed to change the method of taxation from a gross receipts base to a net income base. In addition, the plan attempts to prevent unintended consequences associated with this change. The intent of the Executive’s proposal is also to level the playing field for New York State companies competing with out-of-state firms.

The Executive proposes three fundamental changes to the tax code:

As can be seen in Table 10 the Executive proposal is projected to reduce revenues by $155 million, when fully implemented. The Executive proposal is not intended to be revenue neutral. The Executive believes that this proposal will achieve a fair and efficient tax system. The Division of Budget believes that these reforms go beyond already enacted tax reductions.



Gross Receipts Tax to Net Income Tax

New York based utility company could face a potential market disadvantage compared to out-of-state producers. Out-of-state producers, who can avoid establishing nexus to New York (a discussion on nexus can be found at the end of this section), can deliver the same product to New York companies without an obligation to pay or collect taxes. By the Executive choosing to subject the receipts from the sale of electricity to a net income tax, New York companies would face the same consequences as other companies that compete with outside multi-state companies. However, the transmission and distribution of gas and electricity will continue to be regulated and subjected to the gross receipts tax.

Some provisions of the Executive’s proposal to change the method of taxation of utility companies are purely technical. Others are substantive and attempt to protect government from immediate revenue loss and reduce taxes paid by utilities companies.

Transition Provisions

Revenue Preservation

Tax Reductions

The Executive proposal contains various provisions relating to the transition from a gross receipts tax to a net income tax. The provisions add new accounting treatments for previously regulated assets that have little tax value remaining. At the Federal level, various preferential accounting treatments allow companies to recapture their investment through the tax code faster than would be achievable under general accounting rules (i.e.; accelerated depreciation rules). Since the State basis of income begins with Federal net income, the value on assets that were amortized using accelerated depreciation methods would have minimal value under the State’s net income tax. The Executive proposal requires the use of the straight-line method of depreciation for transitional property. This would provide a larger corresponding expense to offset revenues, resulting in lower entire net income.

Similar adjustments are made for calculating basis for long-term capital assets. Using the straight-line method of accounting would amortize the asset slower, provide a higher sales basis and reduce capital gains income when the asset is sold. The Executive’s rationale for this inclusion is to provide a more appropriate basis for items that lost tax value through accelerated federal depreciation

Under the regulated environment, utility companies had certain "regulated assets" that under the rate setting process had limits as to how much they could recover each year. The remaining cost would be recovered in future years. The Executive’s proposal contains a transitional provision that would allow previous regulated companies to expense these deferred cost under Article 9-A.

Sales Tax

The Sales Tax on electricity was developed for a closed regulated system. As such, the Tax Law does not contain an equivalent use tax. With consumers now able to take advantage of "retail wheeling" of electricity service (the purchase of electricity, which is then transmitted over networks which are not owned by the seller) from beyond state borders, the potential exist for significant revenue loss in the Sales Tax. This "loophole" will give an advantage to large commercial users especially in New York City.

Critical aspects of the current Sales Tax with respect to electricity include the following:

Most importantly, the Executive proposal would institute a Compensating Use tax. Prior to deregulation, there was no reason to impose a Compensating Use tax for energy products, since all of the production was generated within the State. Now with open markets, the Executive believes that a Compensating Use tax would promote fair competition for New York State suppliers and prevent tax avoidance by New York and outside suppliers. However, before imposing the Compensating Use tax, the Executive has to correct misinterpretations of the Tax law relating to the restructuring of major utility companies.

The attempts by the Executive at correcting and applying new Sales Tax rules in the new deregulated environment, demonstrates the difficulty in changing the tax landscape of an industry. Complicating the move to deregulation is the refusal of the Executive Branch to seek statutory authority in establishing deregulation. It was clear that the tax consequences would be an important element in providing the right competitive environment, as well as savings to the consumer. Yet, this momentous structural change to the vital infrastructure of New York State was initiated without the Legislature. Public Service Commission (PSC) Settlement Agreements and utility contracts for competitive power were entered into assuming the current Tax Law structure. However, the interpretation of the Tax Law under deregulation was based on an Opinion of Counsel rather than through clarification of the law through the legislative process.

The consequences of trying to clarify the intent of the law under a deregulated system by an opinion of the Tax Department, rather than through legislation, was to complicate issues and agitate market participants. In the early part of January, the Department of Tax and Finance reversed an Opinion of Counsel that proclaimed that unbundled transmission and distribution service was not taxable. However, the industry took exception to this ruling, since their contract prices were designed without a sales tax component included. The Executive’s proposal provides a tax credit under the Article 9-A for Sales Tax paid pursuant to this ruling for one year. The Department of Tax and Finance also issued a Tax Advisory Memorandum reaffirming that receipts from the unbundled transmission and distribution service would be subject to the Sales Tax in the same manner as transmission bundled together with the generation of electricity. It also provided that this ruling would not take effect until April 1, 1999. There are also provisions in the proposal to clarify the definition of electricity service.

Consequently, the Executive has proposed a credit for energy providers equal to the amount of State sales tax paid by their customers on the cost of transmission and distribution. The Executive believes this will put the providers roughly in the same economic position they were in prior to the re-interpretation. This credit would apply to sales tax paid through March 31, 2000.

Property Taxes

Local property tax assessments might also be affected under a deregulated environment. Electric generating plants are being forced to "unbundle" their generating system from their transmission and distribution system to promote open and fair competition with new service providers. With the sale of generating plants, many companies will seek to have their assessment value match current sale price. In most cases, utility assessments are seen to have an assessed value that exceeds the price of many older generating plants.

Utility companies in New York are revenue workhorses for local governments. Energy companies pay over $2 billion in taxes at the local level, mostly in property taxes. It is expected that some local governments, who are dependent on utility taxes, will suffer substantial revenue losses.

The Executive proposal contains a phase-in of a Real Property Tax Law provision which provides an exemption on certain moveable machinery and equipment from the property tax. Currently, utility companies paying under Article 9 of the Tax Law are not provided this exemption. However, companies paying under a net income base (Article 9-A) benefit from this exemption. Since the Executive proposes to allow utilities to pay tax on a net income basis, utility companies will now also benefit from this exemption. However, this exemption is estimated to reduce local taxes by $30 to $50 million. This is the impetus for the Executive proposal to phase-in this exemption over a ten year period.

The Executive proposal, however, does not address changes in assessments due to changes in market value. Power generation facilities are generally considered to be "specialty properties" (i.e., properties designed and built exclusively for a particular use which cannot be readily and economically converted for another use and which are not bought and sold on an open market). In New York, specialty properties are appraised using the "reproduction cost new less depreciation" (RCNLD) method.

The RCNLD method is a widely accepted method to determine the value of utility and special franchise property. The market approach is not used for this type of property in New York primarily because utility property is seldom sold.

Local governments, dependent on property tax revenue from regulated utilities, will experience significant reductions in property tax revenues due to the reduction in the market value of unregulated generation plants. However, the use of the reproduction cost method tends to overvalue the asset due to an inability to properly factor in the diminished depreciation value or functional obsolescence.

When the generating plants are auctioned off in the unbundling process, utility companies may challenge the current assessment practices. It is expected that the price of the generating assets will not allow for the full recovery of investments made under a regulatory environment. This will create what is known as stranded cost. Financing this stranded cost will lower the profitability of the plant. Under the income approach, if deregulation were to lower prices, then the income potential of the plant will go down again, lowering the overall value of the plant. There is little doubt that the assessed value of the current generating plant will decrease.

PROPERTY TAXES PAID BY UTILITIES

Utility
Company

Taxes Paid on Real Estate*

Special Franchise
Taxes Paid*

Total Property Tax Paid

County of Location

Central Hudson

27,998,819

7,181,683

35,180,502

Dutchess

Consolidated Edison

302,785,380

278,817,776

581,603,156

Westchester, NYC

NY State Electric & Gas

76,078,482

21,601,837

97,680,319

Tompkins, Cayuga, Chenago

Long Island Lighting

234,893,211

97,055,296

331,948,507

Suffolk

Niagara Mohawk

174,724,870

69,758,915

244,483,785

Warren, Herkimer

Orange & Rockland

33,273,049

12,075,216

45,348,265

Orange, Rockland

Rochester Gas & Electric

37,509,330

18,754,413

56,263,743

Wayne, Monroe

* The Energy Associaew York State, 1997.

Multi-jurisdiction Issues – Nexus

As noted earlier, deregulation of the utility industry will open New York’s boarders to competition from out-of-state energy producers. Constitutional issues of Due Process jurisdiction and Commerce Clause discrimination become more relevant than in the old world of the regulated utility limited in its geographical service area.

The United States Supreme Court determined in Complete Auto Transit (1977) that a state tax will be held constitutional if it:

  1. Applies to an activity with substantial nexus (connection) with the taxing state;
  2. Is fairly apportioned;
  3. Does not discriminate against interstate commerce; and
  4. Is fairly related to the services provided by the taxing state.

This four-prong test includes both Due Process Clause and Commerce Clause concepts. These two clauses with the Supremacy Clause support most federal limits on state taxation.

The Due Process Clause, which demands that government act fairly, requires nexus, i.e. some contact and exchange of benefits, between the taxpayer and the taxing jurisdiction. The Commerce Clause authorizes the federal government to regulate interstate commerce and has been interpreted to prohibit state actions, including taxes, that discriminate against interstate commerce. The Supremacy Clause provides that laws of the United States enjoy legal superiority over any conflicting provision of state law.

Presence

Most constitutional tax issues raised by a competitive interstate electric industry involve whether out-of-state electric service providers will have sufficient nexus with the State to allow taxation. A shorthand way of stating the problem is will there be sufficient presence for taxation? Presence is both a Due Process issue and an issue under Public Law 86-272, which applies to state income taxation.

Physical Presence

In 1959, under pressure from business interests who were worried by a series of court decisions expanding the power of states to tax interstate commerce, Congress quickly passed Public Law 86-272 which briefly stated requires a physical presence within a state that goes beyond mere "solicitation." Public Law 86-272 is why New York can not tax L.L. Bean under its corporate franchise tax. Significantly, Public Law 86-272 only applies to sellers of tangible personal property. What then is electricity? It is not clear. As a question of federal law under Public Law 86-272, the question has not been decided. Looking to state definitions is not helpful. Some states treat electricity as a service; some treat it as an intangible; some treat it as personal property. Some vary their treatment depending on the context. In New York, one Tax Tribunal decision held that electricity was a "manufactured good" for purposes of the Investment Tax Credit. The State then changed the law to exclude electricity from the term "goods".

Economic Presence

Assuming that Public Law 86-272 is not applicable, both Due Process and the Commerce Clause demand some level of contact or presence with the taxing state. But need it be physical? As usual, the cases do not point only in one direction. The Quill case dealing with the obligation of an out-of-state vendor to collect use tax held that physical presence was not required by the Due Process clause but was required by the Commerce Clause (subject therefore to Congressional control). Is Quill limited to the sales and use tax arena and for other tax purposes economic presence would be sufficient? Language in Quill can certainly be so read as can the Supreme Court’s denial of certiorari in Geoffrey. In Geoffrey, the South Carolina Supreme Court held that revenue from an intangible, the ToysRUs copyright subjected a Delaware corporation to South Carolina tax although the intangible was the Delaware Corporation’s only contact with South Carolina.

Assuming further that economic presence satisfies both Due Process and the Commerce Clause, what would constitute sufficient economic presence for an out-of-state provider of electricity? Would there need to be a purposeful exploitation of a state’s market? Or, given the dangerous nature of the product and the traditionally highly regulated place of electricity, would one unsolicited sale be sufficient. Pennsylvania, as noted above, has attempted to solve these vexing nexus problems by requiring out-of-state providers to agree to be subject to the Pennsylvania Gross Receipts Tax. This solution, similar to a New York requirement that Subchapter S Corporation shareholders agree to pay personal income tax to the State, has been questioned as beyond Pennsylvania’s power.

One solution to the out-of-state provider problem does not address any other issues raised by a gross receipt tax. It would mirror the State’s reaction to interstate natural gas competition. As the Gross Receipts Tax is imposed on sales within the State, sales outside the state of natural gas delivered within the State were not taxed. To level the playing field between in-State and out-of-state providers, the State enacted a gas import tax (Tax Law Section 189) at a rate equivalent to the Gross Receipts Tax (GRT). Under current court challenged, some find Section 189 similar in operation to a provision of the Petroleum Business Tax (PBT) that was struck down in Tug Buster Bouchard. The PBT, as is the GRT, was legally imposed on the business – not on the consumer. The PBT provision struck down by the courts imposed a tax on the privilege of importing petroleum. The State courts found the State was taxing only consumers who bought out-of-state and thus improperly discriminating against interstate commerce. A 1997 United States Supreme Court case, General Motors, upholding an Ohio tax scheme that imposed a sales tax on consumers who bought from out-of-state gas providers but not on consumers from in-state regulated utilities, may or may not support this approach in New York. The Supreme Court emphasized the regulatory distinction while in New York a significant portion of the Gross Receipts Tax is imposed on all providers, whether regulated or not, of utility services.

TAXES PAID BY GAS AND ELECTRIC COMPANIES

State Level

Tax Imposed

Explanation

Tax Rate

Sections 186 Franchise Tax

Section 186 levies a tax on the gross earnings of energy utilities whose receipts are greater than 50%.

The tax rate is .75%.

Section 186

Excess Dividends Tax

Section 186 imposes an additional tax on the portion of dividends paid in excess of 4% of paid-in capital employed in New York.

The tax rate 4.5%.

Section 186-A Tax on Furnishing Utility Services

Section 186-A is an excise tax on all utility sales and services made by utilities and other providers

Prior to October 1, 1998 the rate was 3.5%, however, 1997 legislation reduced the rate to 3.25% effective that date. Effective January 1, 2000, the rate will be further reduced to 2.5%.

Section 189

Gas Importation Privilege Tax (GIPT)

Section 189 levies a tax on the importation of gas into NYS for self-use.

The tax rate is 4.25%.

Petroleum Business Tax (PBT)

The PBT is a tax on business that produce, import or cause to be imported petroleum into the State. Regulated utilities pay only a part of the tax.

Regulated:

Diesel: $.811/gal.

Residual: $.655/gal.

 

Non-regulated:

Diesel: $.132/gal.

Residual: $.116/gal.

Sales and Use Tax

Electricity for residential and manufacturing purposes is untaxed. Other uses are subject to tax.

Tax rate for residential use is 0%; other uses are taxed at 4%.

MTA Surcharge

Levied under Sections 186 and 186-A on businesses within the Metropolitan Commuter Transit District

The tax rate is 17%.

Local Level

Tax Imposed

Explanation

Tax Rate

Gross Receipts Tax

Cities and villages may impose a tax on the gross operating income of a utility company.

The tax rates range from 1% to 3%.

Real Property Tax

Utility property is assessed either by the State or by the local assessor. Special franchise property, which is property in the public right of way, is assessed by the State. Other utility-owned property is assessed locally.

Varies.

Sales and Use Tax

Localities have the option of taxing electricity used for residential purposes. Electricity use in manufacturing, processing, etc is subject to tax at 4% NYC MAC tax.

Various localities impose a tax on residential energy at a rate ranging from 1% to 4%.

 

Consumer Utility Tax

Imposed as separate levy by certain cities and school districts on utility bills

1% to 3%.

 

TABLE 11

STATE AND LOCAL TAXATION OF UTILITIES – 1997

STATE TAXES Total in millions % State and Local

% State and Local Excl. Sales

% State

% State Excl. Sales

A. STATE TAXES PAID BY UTILITY

1. Gross Receipts (GRT)

$810.97

23.9

29.5

65.8

79.6

2. Excess Dividends (Art. 9)

36.81

1.1

1.3

3.0

3.6

3. Petroleum Business Taxes (PBTs)

53.41

1.6

1.9

4.3

5.2

4. 15% State Surcharge

.43

0.0

0.0

0.0

0.0

5. 17% MTA Surcharge

91.90

2.7

3.3

7.5

9.0

6. GIPT* (with 17% MTA Surcharge)

12.75

0.4

0.5

1.0

1.3

7. Other

1.34

0.0

0.0

0.1

0.1

Sub Total

1,007.62

       

B. STATE TAXES BILLED CUSTOMERS

1. Sales and Use

213.40

6.3

 

17.3

 

2. GIPT (with 17% MTA Surcharge)

11.39

0.3

 

0.9

 

TOTAL – STATE TAXES

1,232.41

       
LOCAL TAXES      

% Local

% Local Excl. Sales

A. LOCAL TAXES PAID BY UTILITY

1. Real Property

1,483.33

43.7

54.0

68.6

85.7

2. Gross Receipts

         

a. Utility Service (Muni. Gross Inc.)

233.11

6.9

8.5

10.8

13.5

b. Special Franchise (NYC Only)

13.54

0.4

0.5

0.6

0.8

3. Other

0.12

0.0

0.0

0.0

0.0

B. LOCAL TAXES BILLED CUSTOMERS

1. Sales and Use

431.47

1.5

 

20.0

 

TOTAL – LOCAL TAXES

2,161.57

       

TOTAL STATE AND LOCAL TAXES

3,393.98

       

* GIPT refers to the import tax on natural gas.

Source: The Energy Association of New York State Tax Survey, 1997


TAX ANALYSIS


Alcoholic Beverage Fees

Distillers, brewers, wholesalers, retailers, and others who sell alcoholic beverages in New York State are required by Articles 4, 4-A, 5, and 6 of the Alcoholic Beverage Control Law to be licensed by the State Liquor Authority. Currently, 2,500 retail outlets and 24,000 bars and restaurants are licensed.

The fees vary, but most licenses are issued for a three-year period.


General Fund

The Committee Staff estimates receipts will total $27 million in State Fiscal Year 1998-99, a decline of 12.9 percent. This estimate is the same as the Executive. Following normal patterns of collection, State Fiscal Year 1998-99 is a peak year — receipts are expected to increase significantly. However, legislation enacted in 1997 will have a $6 million negative effect on revenue.

The Committee Staff forecasts receipts to total $16 million in State Fiscal Year  1999-2000, a decline of 40.7 percent. Since State Fiscal Year 1999-2000 is the year after a peak year, collections would normally average approximately $30 million. However, legislation enacted in 1997 to alter the payment method of certain fees will reduce revenues by $14 million.

Recent Legislative History

In 1997, the credit period offered to beer and wine retailers was decreased from 30 days to 15 days. Also, the payment period for licenses relating to liquor licenses for on-premise consumption, special on-premise consumption, and bottle club liquor licenses was changed from 3 years to 2 years, effective December 1, 1998. These actions are expected to reduce revenues by $6 million in State Fiscal Year 1998-99 and $14 million in State Fiscal Year 1999-2000.



Alcoholic Beverage Tax


New York State, through Article 18 of the Tax Law, currently imposes a tax on various Alcoholic Beverages, including beer, wine, and other spirits. The tax rate varies depending on the alcohol content. All of the receipts are deposited in the General Fund.


General Fund

Alcohol consumption has been decreasing at a slow but steady rate every year as a result of increased health concerns tied to alcohol consumption, increased enforcement of DWI laws, and to a lesser extent, raising the legal drinking age to 21 in New York State. Year-to-date receipts as of January 1999, total $159 million, an increase of 1.9 percent over January 1998. This increase is mainly attributable to the repeal of the Electronic Funds Transfer program in April 1997. This repeal had the effect of lowering State Fiscal Year 1997-98 receipts by approximately $6 million. The Beer Tax reduction which took effect on January 1, 1999 will reduce State Fiscal Year 1998-99 collections by $1 million and $8 million in State Fiscal Year 1999-2000.

The Committee Staff estimate for State Fiscal Year 1998-99 is $182 million, representing a 2.8 percent increase over State Fiscal Year 1997-98. On January 1, 1999 the Beer Tax rate was reduced from 16 cents per gallon to 13.5 cents per gallon. This will reduce State Fiscal Year 1998-99 collections by $1 million. The Committee Staff estimate is $3 million lower than the Executive.

The Committee Staff forecast for State Fiscal Year 1999-2000 is $172 million, a decline of 5.5 percent. Legislation enacted in 1998, which reduced the Beer Tax rate to 13.5 cents per gallon beginning January 1, 1999, will reduce State Fiscal Year 1999-2000 receipts by $8 million. The Committee Staff estimate is $1 million lower than the Executive.

Recent Legislative History

In 1998, legislation was enacted which reduced the tax rate on beer from 16 cents-per-gallon to 13.5 cents-per-gallon. This became effective on January 1, 1999, and will reduce State Fiscal Year 1999-2000 revenues by $8 million.

In 1997, legislation was enacted that repealed 1996 legislation, which required payment by Electronic Funds Transfer (EFT). The Alcoholic Beverage Enforcement provisions, which were due to expire on October 31, 1997, were extended until October 1, 2002.

In 1996, legislation was enacted to require alcohol distributors with an annual tax liability of more than $5 million to remit payment by means of EFT.

On January 1, 1996, the State excise tax on beer was reduced from 21 cents to 16 cents per gallon.



Auto Rental Tax


The Auto Rental Tax, imposed by Article 28-A of the Tax Law, applies to the rental of any passenger car with a gross vehicle weight of 9,000 pounds or less that can seat up to a maximum of nine passengers. The tax is imposed at a rate of 5 percent on the charges incurred for any rental for use in New York State. The tax does not apply to leases of one year or more. All of the receipts are deposited in the General Fund.


General Fund

Based on historical collection patterns, the Committee Staff estimates that State Fiscal Year 1998-99 receipts will total $34 million, a growth rate of 6.3 percent. This estimate is the same as that of the Executive.

The Committee Staff forecast for State Fiscal Year 1999-2000 is $36 million, which represents growth of 5.9 percent. This estimate is $1 million higher than the Executive.



Bank Tax

Article 32 of the Tax Law, imposes a tax on banking corporations for the privilege of operating a banking business in a corporate manner, employing capital, owning or leasing property, or maintaining an office in New York State. The tax is assessed at a rate of 9 percent of Entire Net Income, allocated or attributable to New York, after credits. One of the three alternative bases, allocated capital, alternative minimum income, or fixed dollar minimum, must be used if it results in a greater amount of tax owed. All of the receipts are deposited into the General Fund.


General Fund

The Committee Staff estimates that State Fiscal Year 1998-99 receipts will total $587 million, representing a decline of 17.0 percent. Year-to-date collections through the first three quarters of the current fiscal year are 18.8 percent lower than last fiscal year. This is mainly the result of lower than anticipated 1998 liability, and lower than expected bank profits in 1998. This estimate is $7 million higher than the Executive.

The Committee Staff forecast for State Fiscal Year 1999-2000 is $660 million, an increase of 12.4 percent. This forecast reflects a moderate rebound in the growth of bank profits. The Committee Staff estimate is $20 million higher than the Executive.

Recent Legislative History

Proposed legislation submitted with the Executive budget would reduce the Entire Net Income (ENI) tax rate on banks from 9 percent to 7.5 percent over three years. This will have no effect on State Fiscal Year 1999-2000, and will reduce bank tax revenues by $100 million when fully implemented in 2001-2002.

In 1998, the Investment Tax Credit, currently available to manufacturing corporations, was extended to banks that are brokers or dealers in securities. The credit can be taken for equipment used in broker/dealer activity. To be eligible for the credit, employees using the eligible equipment must be located within New York.

In 1997, two measures were enacted affecting the Bank Tax. First, the tax was extended for 4 years, with an expiration date of December 31, 2001. In addition, banks, beginning in the year 2001, will be allowed a Net Operating Loss deduction, similar to that afforded to other corporations.



Cigarette Tax

The Cigarette Tax, Article 20 of the Tax Law, is levied at a rate of 56 cents per package of 20 cigarettes on the sale of cigarettes within the State. All of the receipts are deposited in the General Fund.

The State levies a tax on all other tobacco products equal to 20 percent of the wholesale price of such products. In addition, there is an annual license fee of $100 for all retail establishments and $25 for every vending machine that sells cigarette and/or tobacco products.


General Fund

The Committee Staff estimates Cigarette Tax receipts in State Fiscal Year 1998-99 to total $667 million, a decline of 1.3 percent over State Fiscal Year 1997-98. This is attributable to the continuous decline in cigarette consumption as a result of increasing health concerns related to the use of tobacco products. The decreasing popularity of cigars will result in a decline in receipts from tobacco products for State Fiscal Year 1998-99 and State Fiscal Year 1999-2000. A greater decline in cigarette consumption is expected due to the 50 cents per pack price increase by the industry on November 24, 1998. The price increase was a direct reaction to the $206 billion "Tobacco Settlement" on November 15, 1998. The Committee Staff estimate is $2 million higher than the Executive.

The Committee Staff forecasts revenues of $620 million in State Fiscal Year 1999-2000, which represents a 7.0 percent decline. Further State and Federal restrictions on cigarette advertising and expanded public health laws will aid in the decline. In addition, revenues will be affected by the full year effect of the price increase by the industry on November 24, 1998. The Committee Staff estimate is $2 million higher than the Executive.

Recent Legislative History

Chapter 629 of the Laws of 1996 enacted strict Cigarette and Tobacco Tax
enforcement measures, which were aimed at curbing the sale of bootlegged cigarettes in New York State. The increased enforcement provisions were estimated to increase State Fiscal Year 1997-98 revenues by $13 million.



Container Tax

New York State, under Article 18-A of the Tax Law, levies a tax on the sale of all nonrefillable soda containers at a rate of 1 cent per container. All of the receipts are deposited in the General Fund.

General Fund

The Committee Staff estimates receipts in State Fiscal Year 1998-99 will total $18 million, a decline of 33.3 percent. This decline is the result of the repeal of the Container Tax, effective October 1, 1998. This estimate is the same as the Executive.

The Committee Staff forecast for State Fiscal Year 1999-2000 is $0, since this tax will be completely repealed.

Recent Legislative History

In 1997, legislation was enacted which repealed the remaining 1-cent tax per container, effective October 1, 1998.

In 1995, the Container Tax was reduced from 2 cents to 1 cent per container.



Corporate Franchise Tax

The Corporation Franchise Tax is comprised of Articles 9-A and 13 of the Tax Law. Article 9-A imposes a tax on corporations for the privilege of operating a business in a corporate form in New York State. The tax is assessed at a rate of 9 percent of Entire Net Income (ENI), allocated or distributed to New York, after credits. One of the three alternative bases (allocated capital, alternative minimum income, or fixed dollar minimum) must be used if any of the three results in a greater amount of tax owed. Article 13 authorizes the tax on unrelated business income. This is a tax on the unrelated business income of not-for-profit corporations and other organizations whose activities are otherwise tax-exempt. All of the receipts are deposited in the General Fund.

General Fund

The Committee Staff estimates receipts for State Fiscal Year 1998-99 to total $2,021 million. This estimate represents a decline of 2.9 percent. The decline is partly the result of large unanticipated refunds that were paid in June 1998. This estimate is $35 million higher than the Executive.

The Committee Staff current law forecast for State Fiscal Year 1999-2000 is $1,982 million, representing a decline of 1.9 percent. This forecast incorporates growth in corporate profits of approximately 4.3 percent in 1999, a return to more normal refund payouts and an increase in net prior year collections. However, legislation enacted in 1998, which includes a rate reduction under the Net Income tax base, will reduce revenue by approximately $174 million.

The Committee Staff proposed law forecast for State Fiscal Year 1999-2000 is $2,221 million, an increase of 9.9 percent over State Fiscal Year 1998-99.

Legislation submitted with the Executive Budget would change the taxation of gas and electric companies, moving them from Article 9 to Article 9-A. In addition, it would give a franchise tax credit for sales taxes paid for transmission and distribution receipts of gas and electricity for one year. These changes are expected to raise Article 9-A collections $239 million during State Fiscal Year 1999-2000.

The Executive proposes to increase the wage component of the Emerging Technology Credit from $1,000 to $1,500 per employee. The proposal would also increase the investment component of the Emerging Technology Credit, from 10 percent to 20 percent for assets held from four to nine years, with the limitation increasing from $150,000 to $500,000 per company. For assets held over nine years, the credit would be increased from 20 percent to 50 percent, with the limitation increasing from $300,000 to $1 million per company. These changes are expected to reduce revenues by $20 million, when fully effective.

The Executive Budget proposes to lower the Alternative Minimum Tax (AMT) rate to 2.5 percent. The Executive estimates that this will cost an additional $12 million per year, when fully effective.

The Executive also proposes to create an Urban Jobs Credit, which would provide employers with a credit of $250 to $500 per year for each new employee hired in excess of twenty five people above their employment level of the previous year. This credit is estimated to reduce revenues by $60 million per year, when fully effective.

Additionally, the budget would provide an exclusion of a certain percentage of the capital gains realized from the sale of assets used in New York, provided that such assets were first used in New York after June 1, 1999. This program is estimated to reduce revenues by $20 million per year, when fully effective.

Recent Legislative History

In 1998, the Legislature enacted several measures that will have an impact on Corporate Franchise Tax revenues. Among these measures were the following:

The above measures are estimated to reduce State Fiscal Year 1998-99 Corporate Franchise Tax revenue by $20 million.

In 1997, various tax reductions were enacted, which will affect Corporate Franchise Tax collections when fully implemented. Among these measures were an extension of the Investment Tax Credit carry-forward period from 10 to 15 years, a tax credit for employers that hire workers with disabilities, and a new credit for companies that purchase alternative fuel vehicles.



Estate & Gift Tax


Articles 26 and 26-A of the Tax Law impose taxes on the transfer of property among individuals. Transfers of property upon death are taxed under the Estate Tax Law (Article 26), and transfers of property during an individual’s lifetime are taxed under the Gift Tax Law (Article 26-A). All of the receipts are deposited into the General Fund.

General Fund

The Committee Staff estimates State Fiscal Year 1998-99 receipts will total $1,070 million, which represents an increase of 4.7 percent. Of this, $948 million is derived from the Estate Tax and $122 million from the Gift Tax. This estimate reflects the receipt of large Estate Tax payments during the fiscal year, as well as the recent upward trend in the stock market, since stock represents the largest component of estates subject to the tax. This estimate is $12 million higher than the Executive.

The Committee Staff current law forecast for State Fiscal Year 1999-2000 is $951 million, which represents a decrease in overall Estate and Gift Tax receipts of 11.1 percent. The forecast for Gift Tax receipts in State Fiscal Year 1999-2000 is $92 million, a decline of 24.6 percent. This decline is mainly the result of tax reductions enacted in 1997, which increases the threshold for taxable estates to $300,000 on October 1, 1999. A further increase to match the Federal threshold is scheduled to be implemented on February 1, 2000. The current law forecast for Estate Tax is $859 million, a decline of 7.2 percent.

The proposed law forecast for State Fiscal Year 1999-2000 is $950 million. The overall decline in the forecast is attributable to the phased-in reduction of the Estate and Gift Tax, which was enacted in 1997.

Legislation submitted with the Executive Budget would conform New York State Estate and Gift Tax Law to the Federal IRS Restructuring and Reform Act of 1998, which provides a qualified family-owned business interest deduction. This would allow heirs to exempt a total of $1.3 million from the New York State Estate Tax. This proposal would reduce State revenues by $1 million in State Fiscal Year 1999-2000.

Recent Legislative History

In 1998, legislation was enacted that conforms the Estate Tax to the effective Federal exemption of $1.3 million if the value of a family-owned farm or business constitutes 50 percent of the gross value of the estate.

In 1997, legislation was enacted which phases-in a reduction of the Estate and Gift Tax. As of October 1, 1998, estates valued under $300,000 will be exempt from Estate Taxes. As of February 1, 2000, the exemption will increase to the Federal exemption of $600,000. Should the Federal government increase its exemption threshold above $600,000, the State will automatically conform as long as the exemption does not exceed $1 million. In addition, as of January 1, 2000, the Gift Tax will be repealed.

In 1996, legislation made a technical correction to a 1994 amendment, which resulted in unintended tax increases for certain taxpayers. The legislation limited the liability to that which would have resulted absent the 1994 Tax Law change.

In 1995, legislation was adopted that provided a new deduction equal to a maximum of $250,000 of assets that represent equity in the decedent’s principal residence. By reducing the tax on such assets, this legislation facilitates the transfer of homes from decedents to their heirs. In effect, when combined with the unified credit, as much as $365,000 of assets are now exempt from tax.

In 1994, legislation was enacted that increased the maximum unified credit from $2,750 to $2,950, thereby effectively increasing the exemption equivalent from $108,333 to $115,000. This legislation also established a new credit equal to five percent of the first $15 million of assets in a closely-held business (for estates where such assets constitute 35 percent or more of the estate), up to a maximum credit of $750,000. This reduces the tax burden on the transfer of small businesses to heirs upon an owner’s death.



Highway Use Tax

Article 21 of the Tax Law imposes a Highway Use Tax for the privilege of operating any vehicle on the highways of New York State. Three component taxes are imposed upon the operation of trucks, tractors, trailers and semi-trailers for their use of the highways:

General Fund

All Highway Use Tax receipts are dedicated to the Highway and Bridge Trust Fund.

All Funds

The Committee Staff estimates that receipts in State Fiscal Year 1998-99 will total $170 million, an increase of $5 million over State Fiscal Year 1997-98. This increase is primarily due to a higher demand for trucking services. This estimate is $6 million higher than the Executive.

The Committee Staff forecasts Highway Use Tax receipts will total $142 million in State Fiscal Year 1999-2000, a decrease of $28 million, due to the full year effect of the 50 percent reduction of the supplemental truck mileage tax. The Committee Staff estimate is $2 million higher than the Executive.

Recent Legislative History

In 1998, the supplemental portion of the Truck Mileage Tax was reduced by 50 percent, effective January 1, 1999. This resulted in a 25 percent overall rate reduction in the Truck Mileage Tax. This legislation also transferred revenues from General Fund Motor Vehicle Fees to hold the dedicated transportation funds harmless.

New York complied with federal legislation requiring conformity with the International Fuel Tax Agreement (IFTA) with respect to reporting and collection of taxes relating to fuel use by a single base state and proportional sharing of revenue among the states where a commercial motor vehicle is operated.

The truck mileage tax was reduced by one-half for miles traveled on the Thruway in 1995 and eliminated in 1996.

Taxpayers were authorized to claim refunds or credits for fuel use taxes paid (including the sales tax portion).

The diesel motor fuel rate was reduced two cents from 10 to 8 cents per gallon.



Insurance Tax

The Insurance Taxes are contained in Articles 33 and 33-a of the Tax Law, and Articles 11 and 12 of the Insurance Law. Article 33 of the Tax Law imposes an income and premiums tax on insurance companies. Article 33-a imposes a tax on independently procured insurance. Articles 11 and 12 impose retaliatory taxes and a tax on excess line brokers (brokers authorized to procure insurance from out-of-state carriers not authorized to do business in New York). The Franchise Tax on insurance corporations consists of a tax measured by allocated Entire Net Income (or one of three alternative bases, if a higher tax would result), plus a tax on subsidiary capital and an additional Franchise Tax based on gross premiums less certain deductions. All of the receipts are deposited into the General Fund.

General Fund

The Committee Staff estimates receipts in State Fiscal Year 1998-99 will total $668 million, an increase of 4.2 percent. This estimate reflects strong financial activity through the first three quarters of the calendar year, which has allowed strong growth in insurance company portfolios. Partially offsetting growth in capital gains is an increase in catastrophic losses claimed in 1998 versus 1997. The estimate also assumes moderate growth in Property and Casualty premiums. In addition, the estimate reflects an anticipated $25 million increase the March 1999 payment due to recent law changes. This estimate is $1 million lower than the Executive.

The Committee Staff forecast receipts for State Fiscal Year 1998-99 to total $655 million, representing a decline of 1.9 percent from State Fiscal Year 1998-99 estimate. The forecast incorporates continued moderate growth in premiums, a return to more normal patterns for catastrophic losses, and the effects of tax cuts enacted in 1997, which will reduce receipts by approximately $10 million.

Legislation submitted with the Executive budget would reduce the Entire Net Income (ENI) rate from 9 percent to 7.5 percent. It would also reduce the cap of tax as a percentage of premiums from 2.6 percent to 2.0 percent for property and casualty insurers. This proposal would reduce insurance tax revenues by $50 million, when fully implemented.

Recent Legislative History

In 1997, three Insurance Tax measures were instituted to help maintain the competitiveness of this industry in New York State. First, beginning in 1998, life insurance companies will receive a reduction in their premiums tax rate from 0.8 percent to 0.7 percent, and an increase in their March estimated payment from 25 percent to 40 percent. In addition, two other provisions enacted will allow for the formation of captive insurance companies and allow for investment in Certified Capital Corporations (CAPCOs). A captive insurance company is generally a company that primarily insures the risks of a parent or its parents’ affiliated companies. Captive insurers will be subject to a special premiums tax in lieu of the premiums and "income-base" tax that applies to other insurance companies. Insurance companies that invest in CAPCOs will be able to claim a credit for 100 percent of their investments.



Lottery


The New York State Lottery is currently comprised of the Instant, Daily Numbers, Win 4, Pick 10, Take 5, Quick Draw, and Lotto 54 games. A percentage of the revenue derived from the sale of each game, ranging from 25 to 45 percent depending on the game, is dedicated to fund education. In addition, 15 percent of Lottery sales are placed into a Special Revenue account to cover the administrative expenses of the Lottery. The remaining revenues from each game’s sales are the prize payouts to Lottery players. The administrative expenses are appropriated by the Legislature each year as part of the State Operating Budget. Any revenue remaining, after paying the administrative costs of the Lottery, is then transferred back to the Lottery receipts account and dedicated to education.

General Fund

The Committee Staff estimates State Fiscal Year 1998-99 revenues to total $1,428 million, representing a decline of 6.9 percent. This is $102 million lower than the Lottery Aid Guarantee for State Fiscal Year 1998-99.

The Lottery continues to experience a substantial decline in receipts. Through January 1999, total Lottery receipts have fallen by 6.6 percent over the same period in Fiscal Year 1997-98. Negative growth has been prevalent recently because most games have reached their maturity.

Specifically, education revenues from Lotto and Instant Games are currently on track to fall 13.0 percent and 6.4 percent respectively for State Fiscal Year 1998-99. Receipts for the Win 4 and Daily Numbers games are increasing, but only at a marginal rate. Sales for the Pick 10, Take 5, and Quick Draw games have also all fallen off significantly.

The Committee Staff current law forecast for State Fiscal Year 1999-2000 is $1,268 million, a decline of 11.2 percent. This forecast assumes that overall sales will continue to be disappointing. A recent decision by the lottery to make some administrative changes to Lotto and to introduce a new promotional regional Lotto game should help curb some of this decline. However, the Quick Draw game, which currently generates more than 8 percent of Lottery revenues dedicated to education, is scheduled to end on March 31, 1999. This accounts for a large portion of the anticipated decline in revenues for 1999-2000.

The Committee Staff proposed law forecast for State Fiscal Year 1999-2000 is $1,463 million, an increase of 2.5 percent. This estimate is $15 million higher than the Executive.

Legislation submitted with the Executive Budget would allow the Quick Draw game to continue permanently, and would eliminate the current restrictions associated with that game (hours during which the game can be offered, minimum square footage required, and food sales requirements). An increase in the allowable prize payout for Instant Games has also been proposed.

Recent Administrative History

The Lottery will implement regional Lotto games for residents of particular geographic areas beginning in March 1999. This is intended to increase player interest in upstate portions of the State, since there is a perception that a disproportionate share of Lotto jackpots are won by downstate residents. The State will be divided into four regions for the purposes of this new game: Upstate, Western New York, New York City, and Long Island.

Further, the Lottery will be making major administrative changes to the Lotto game effective at the end of February 1999. With Lotto sales tapering off dramatically, the Lottery is hoping to reinvigorate player interest. First, the field of numbers from which to choose will be reduced from 54 to 51, with an increase the number of prize levels and additional prize money apportioned to lower-tier prize levels. Second, the price of a Lotto ticket will increase from 2 plays for $1 to 1 play for $1. These changes are designed to increase revenue, increase the odds of winning any given prize, and increase the overall prize levels available.

In August 1998, the Division of the Lottery once again altered the structure of Lotto jackpots. Due to both low sales levels and low interest rates, the Lottery has been unable to continue to support jackpot levels with unclaimed prize money. To combat this, the Lottery has slowed the progression of jackpot levels – in essence, the $17 million jackpot was reduced to $15 million; the $25 million jackpot was reduced to $20 million; and the $40 million jackpot was reduced to $25 million. The jackpot progression now proceeds as follows: $3 million; $10 million; $15 million; $20 million; $30 million. The Division of the Lottery believes this will not have a negative impact on revenue since there is a negligible difference between the $15 million and $17 million jackpot levels, and the $25 million and $40 million jackpot levels are not frequently attained.

In January 1998, the Division of the Lottery introduced two new high-stakes Instant Games. The first, "Hit the Jackpot," is the State’s first $5 Instant Ticket. The second, called "Quarterly Dividends," was introduced to offer a "compromise" between "Win For Life," in which winners receive $1,000 per week for the rest of their lives, and "Tax-Free Million," where winners can instantly win $1 million tax-free. Winners of "Quarterly Dividends" can win up to $10,000 every three months for the rest of their life, with a guaranteed payout of $1 million.



Miscellaneous Receipts

Miscellaneous Receipts are different from the Other Taxes in that they are not collected pursuant to any specific Article in the New York State Tax Law. Miscellaneous Receipts are derived from a wide range of revenue sources. There are currently six categories comprising the collections of these receipts: Abandoned Property, Federal Grants, General Fund Refunds and Reimbursements, Investment Income, Licenses and Fees, and Other Transactions. All of the receipts are deposited in the General Fund.


General Fund

The Committee Staff estimates Miscellaneous Receipts will total $1.554 billion in State Fiscal Year 1998-99, which represents a decline of $4.4 million, or 2.8 percent, over State Fiscal Year 1997-98. This decline can be mainly attributed to one-time revenue actions in the Other Transactions category, which will not re-occur in State Fiscal Year 1998-99. In addition, the assessments on Health Care Providers is gradually being phased-out. This will reduce receipts by an additional $74 million in State Fiscal Year 1998-99. The Committee Staff estimate is $10 million higher than the Executive.

The Committee Staff current law forecast for State Fiscal Year 1999-2000 is $1,318 million, which represents a reduction in overall Miscellaneous Receipts of 15.2 percent, or $236 million over State Fiscal Year 1998-99. A significant cause of the reduction is attributed to the phased-out of Provider Assessments which will affect Other Transactions. The assessments are scheduled to be completely phased-out by March 31, 2000. The Committee Staff proposed law forecast for State Fiscal Year 1999-2000 is $1,285 million. This estimate is $8 million higher than the Executive.

The Executive proposes to accelerate the elimination of Provider Assessments to March 31, 1999.

Recent Legislative History

Legislation in 1997 enacted a five-year phase-out of the Health Care Provider Assessments. The assessments levied on hospitals and nursing homes will begin phasing-out during State Fiscal Year 1997-98 and will be completely phased-out in State Fiscal Year 2001-02. The estimated impact is $540 million when fully implemented.



Motor Fuel Tax

Article 12-A of the Tax Law imposes a tax upon motor fuel sold within the State. It applies to motor fuel imported, manufactured or sold within the state by a distributor. The tax applies to the first sale or use of diesel. The current tax rate is 8 cents per gallon for both motor fuel and diesel motor fuel. Four cents from the Motor Fuel Tax is deposited in the Dedicated Highway and Bridge Trust Fund. One and three-quarters cents from the receipts of both motor fuel and diesel motor fuel are earmarked for the Emergency Highway Reconditioning and Preservation Fund. The remainder is deposited in the General Fund.


General Fund

General Fund receipts are comprised of 2.25 cents per gallon of motor fuel and 6.25 cents per gallon of diesel motor fuel. The Committee Staff estimate for State Fiscal Year 1998-99 is $171 million, an increase of 3.6 percent over the previous fiscal year. This increase is partly attributable to increased demand for motor fuel as a result of lower prices. This estimate is $2 million above that of the Executive.

The Committee Staff forecast for State Fiscal Year 1999-2000 is $177 million, representing 3.5 percent growth over State Fiscal Year 1998-99. This growth reflects continued growth in New York Personal Income. The Committee Staff estimate is $7 million higher than the Executive.

All Funds

The Dedicated Highway and Bridge Trust Fund was created to help finance the preservation of highways in the State. The Emergency Highway Construction and Reconstruction Fund, and the Emergency Highway Reconditioning and Preservation Fund were created to finance certain highway construction needs. These transportation funds are supported in part by motor fuel receipts.

The Committee Staff estimates All Funds receipts of $502 million for State Fiscal Year 1998-99. The Emergency Highway Construction and Reconstruction Fund, the Emergency Highway Reconditioning and Preservation Fund and the Dedicated Highway and Bridge Trust Fund will receive $331 million. The Committee Staff estimate is $3 million higher than the Executive.

For State Fiscal Year 1999-2000, the Highway Funds will receive $331 million, which when combined with General Fund collections, will result in an All Funds forecast of $508 million. This estimate is $8 million higher than the Executive.

Recent Legislative History

The tax on diesel motor fuel was reduced by 2 cents per gallon, effective January 1, 1996.



Motor Vehicle Fees

Revenue from Motor Vehicle Fees comes from over 50 different license, registration, service, and penalty receipts. Passenger and commercial vehicle registrations, and licensing fees are the largest components.


General Fund

The Committee Staff estimates Motor Vehicle Fees to total $444 million in State Fiscal Year 1998-99, representing a 8.8 percent decrease. Legislation enacted last year, reduced auto registration fees by 25 percent and increased the dedication of Motor Vehicles Fees to the transportation fund to account not only for the fee reduction, but also for the reduction of the Truck Mileage Tax component of the Highway Use Tax. Moreover, refunds for second-year registration fees explain the reduction is Motor Vehicle Fees.

The Committee Staff current law forecast for State Fiscal Year 1999-2000 is $351 million, which represents a 20.9 percent decrease. The full effect of the 25 percent fee reduction and additional dedication of revenues enacted in 1998 explain the reduction in Motor Vehicle Fees.

The Committee Staff proposed law forecast for State Fiscal Year 1999-2000 is $355 million. This estimate is the same as the Executive.

All Funds

The Dedicated Highway and Bridge Trust Fund, which currently receives 34 percent of registration and fee collections would receive 45.5 percent on January 1, 1999, is projected to receive $108 million in State Fiscal Year 1998-99, and $137 million in State Fiscal Year 1999-2000. All Funds receipts are expected to total $556 million in State Fiscal Year 1998-99, and $492 million in State Fiscal Year 1999-2000.

Legislation submitted with the Executive budget would reduce county clerk retention receipts by $4.1 million, thus increasing receipts by the same amount.

Recent Legislative Changes

In 1998, auto registration fees were reduced by 25 percent and the percentage earmarked to the dedicated transportation fund was increased to hold this fund harmless from the fee reduction.


Other Taxes

Article 19 of the Tax Law allows for the levying of a 4 percent tax on the admissions charge to racetracks and simulcast theaters and a 5.5 percent tax on the gross receipts from boxing and wrestling exhibitions, including receipts from broadcast and motion picture rights. All of the receipts are deposited in the General Fund.

General Fund

The Committee Staff estimates receipts from Other Taxes in State Fiscal Year 1998-99 will total $1 million. The Committee Staff forecast for State Fiscal Year 1999-2000 is also $1 million. The State Fiscal Year 1998-99 and 1999-2000 estimates are the same as the Executive.



Pari-Mutuel

The Racing, Pari-Mutuel Wagering and Breeding Law imposes a Pari-Mutuel Tax on bets placed at racetracks, simulcast theaters and Off-Track Betting (OTB) facilities. For-profit and not-for-profit racing associations, as well as OTB Corporations, are taxed a percentage of their total betting pools for the privilege of conducting pari-mutuel wagering. All of the receipts are deposited in the General Fund.


General Fund

The Committee Staff estimates that receipts will total $37 million in State Fiscal Year 1998-99, representing a decline of 5.1 percent over last fiscal year. This estimate is the same as the Executive.

The Committee Staff forecast for State Fiscal Year 1999-2000 is $36 million, representing a decline of 2.7 over State Fiscal Year 1998-99. This estimate is the same as the Executive.

Recent Legislative History

In 1998, the Legislature extended for four years provisions affecting various statutes relating to takeouts, tax rates, and the purse payments of non-profit racing, as well as authorizations for on-track and off-track simulcast wagering.

In 1997, the New York Racing Association (NYRA) was authorized to conduct racing at Belmont, Aqueduct, and Saratoga through December 31, 2007. Furthermore, various simulcasting provisions were extended for an additional one year, including in-home experiment, telephone wagering and out-of-state harness simulcasting.

NYRA was also required to use the first $2 million of annual profits for increasing purses, and any additional profits would then be used to reduce debt obligations.



Personal Income Tax(4)

Article 22 of the Tax Law imposes a Personal Income Tax on the income of New York State individuals, estates, and trusts. Tax collections are received through employee withholding, estimated tax payments, payments accompanying tax returns, late payments, and assessments. All of the receipts are deposited in the General Fund.


General Description

Personal Income Tax (PIT) receipts contribute over one-half of all receipts to the General Fund. Withholding is the single largest component, comprising roughly 80 percent of Personal Income Tax receipts.

New York State’s definition of income closely mirrors federal rules, which include wages, salaries, capital gains, unemployment compensation, and interest and dividend income. The sum of these sources is Federal Adjusted Gross Income. New York Adjusted Gross Income (NYAGI) is calculated starting with this base, from which certain income is added or subtracted to arrive at New York Adjusted Gross Income

The New York standard deduction or itemized deductions, and a dependent exemption are subtracted from NYAGI, which yields New York State Taxable Income. Taxes are calculated based on this amount. Certain credits are then subtracted from the calculated tax to determine total tax liability.

General Fund

The Committee Staff estimates that State Fiscal Year 1998-99 receipts will total $20.131 billion, which reflects an increase of 13.4 percent from State Fiscal Year 1997-98. This includes a $71 million Refund Reserve transaction, which is an administrative adjustment used to transfer General Fund surpluses from one fiscal year to the next. This estimate is $24 million higher than the Executive.

The largest component of the Personal Income Tax is withholding. Employers withhold tax from wages based on the estimated liability of each employee. Receipts from withholding also include taxes withheld on bonus payments paid to employees.

Withholding receipts are projected to total $16.581 billion. This represents an increase of $1.296 billion, or 8.5 percent over State Fiscal Year 1997-98. This increase is attributable to several factors, such as falling unemployment rates and rising wages.

Estimated payment collections are projected to total $5.187 billion. This represents an increase of $767 million, or 17.4 percent over last fiscal year. Estimated payments consist of quarterly payments made by certain taxpayers on their estimated tax liability. These taxpayers historically have consisted of high income earners, or people who realize significant capital gains. The performance of the financial markets in 1998 will generate strong capital gains realizations, which is primarily responsible for the increase in estimated payments. Consistent with this strong growth is the Committee Staff forecast for capital gains growth of approximately 36.0 percent in 1998.

The Committee Staff forecast that Personal Income Tax collections will total $23,374 million in State Fiscal Year 1999-2000.

Withholding receipts are projected to increase to $17.88 billion in State Fiscal Year 1999-2000. This represents a growth of $1.299 billion or 7.8 percent over State Fiscal Year 1998-99. The Committee Staff forecast wage growth of 5.9 percent, coupled with no new additional tax cuts, will allow withholding to increase by 7.8 percent.

The Committee Staff forecasts that estimated payments will total $5.804 billion representing a growth of $617 million or 11.9 percent over State Fiscal Year 1998-99. Over the last two years, strong capital gains growth has led to double-digit growth in estimated payments. The Committee Staff forecast the S&P 500 Index will grow 15.4 percent in 1999, a growth smaller than the 24.2 percent estimated for 1998. This average annual growth rate implies that the S&P 500 index remains at its present level. This moderately lowers growth in estimated payments to 11.9 percent in State Fiscal Year 1999-2000.

 

Legislation submitted with the budget proposed a $600 million Personal Income Tax reduction plan. This plan would increase the top tax rate threshold from $40,000 in taxable income to $60,000 over a two-year period, beginning on January 1, 2002. In addition, the dependent exemption would be increased from $1,000 to $2,000 over the same two-year period.

All Funds

In 1998, the Legislature created the School Tax Relief (STAR) Fund to help finance school tax reductions under the STAR program. Every fiscal year, revenues from the Personal Income Tax will be diverted to finance this State-funded program. As a result, $585 million in General Fund revenues will be dedicated in State Fiscal Year 1998-99. The Committee Staff All Funds forecast for State Fiscal Year 1998-99 is $20.716 billion, which represents a growth rate of 16.7 percent. In State Fiscal Year 1999-2000, $1.223 billion will be diverted to fund the Program. The Committee Staff All Funds forecast for State Fiscal Year 1999-2000 is $24.488 billion, representing a growth of 18.2 percent.

Recent Legislative History

In 1998, the Legislature enacted Personal Income Tax provisions, which:

In 1997, the legislature enacted several provisions under the Personal Income Tax. They include:

In 1996, the Legislature enhanced the Child and Dependent Care Credit by increasing the credit to 30 percent of the Federal credit in 1996, and to 60 percent in 1997, for taxpayers with incomes less than $10,000. The credit is phased down to 20 percent for taxpayers with income greater than $14,000. The credit was also made refundable.

A tax amnesty program was also established in 1996, which was provided to taxpayers with outstanding liability for Tax Years up to and including 1994. Penalties, but not interest, were waived. Gross Personal Income Tax revenues collected exceeded $130 million under the program.

In 1995, the Legislature enacted a three-year Personal Income Tax reduction plan. This legislation:



Petroleum Business Taxes

Article 13-A of the Tax Law imposes a tax on petroleum businesses (PBT) for the privilege of extracting, producing, refining, manufacturing or importing petroleum in New York State. Imposition of the tax occurs at different points in the distribution chain, depending upon the type of petroleum product.


General Fund

The Committee Staff projects receipts in State Fiscal Year 1998-99 will total $105 million, a decline of 7.9 percent. Additional dedication of General Fund revenues to the transportation funds is reflected in the negative growth. The General Fund share of Petroleum Business Tax receipts was reduced from 14.5 percent of the supplemental tax to 12.4 percent on January 1, 1998. Additionally, a further reduction of 0.75 cents per gallon on the supplemental diesel tax took effect on January 1, 1999, as well as a 5 percent reduction in all Petroleum Business Tax rates due to a downward revision of the index, which took effect on January 1, 1999. This estimate is $1 million higher than the Executive.

The Committee Staff forecasts receipts to decline by an additional 13.3 percent, to a total of $91 million in State Fiscal Year 1999-2000. An additional reduction in the General Fund share (from 12.4 to 10.7 percent) of Petroleum Business Taxes explain this decline. The Committee Staff estimate is $1 million higher than the Executive.

All Funds

The General Fund, MTOAF, and other dedicated receipts comprise the All Funds estimate for the Petroleum Business Tax. In State Fiscal Year 1998-99, All Funds receipts are estimated to total $1,032 million, a 5.5 percent increase, due to the economic expansion and lower oil prices. Receipts for State Fiscal Year 1999-2000 are projected to total $988 million, a 4.3 percent decrease.

Recent Legislative History

In 1997, additional refunds and credits were created for the Petroleum Business Tax and Motor Fuel Taxes for commercial vessels where the purchases of fuel exceed consumption of fuel in the State.

In 1996, legislation was enacted that: reduced the tax on "railroad diesel" by 7 cents per gallon; eliminated the Petroleum Business Tax on non-automotive diesel motor fuel and residual used in manufacturing; increased the basic credit or reimbursement on residual petroleum products or diesel fuel for utility companies by 0.5 cents per gallon; reduced the automotive diesel motor fuel component by 1.75 cents per gallon; and changed the distribution of revenues from the Petroleum Business Tax to hold the transportation funds and MTOAF harmless from these reductions. Furthermore, other provisions included: the reimbursement of the Petroleum Business Tax on aviation and kero-jet fuel purchased in-state but consumed out-of-state; expanded the time for which taxpayers may claim a refund for taxes paid on fuel purchased in-state but consumed out-of-state; and allowed taxpayers to file for refunds for taxes paid up to four years after the tax was paid.



Real Estate Gains Tax

The Real Estate Gains Tax is imposed, pursuant to Article 31-B of the Tax Law, at a rate of 10 percent on the gain from certain large realty transfers, where the consideration is $1 million or more. All of the receipts are deposited into the General Fund.


General Fund

The Committee Staff estimates that Real Estate Gains Tax receipts will total $28 million in State Fiscal Year 1998-99, a decline of 15.2 percent over State Fiscal Year 1997-98. This reflects the repeal of the Gains Tax, effective for transfers that occur after June 15, 1996. State Fiscal Year 1998-99 primarily reflects collections from transactions that occurred prior to June 15, 1996. This estimate is the same as the Executive.

The Committee Staff forecasts total receipts of $14 million in State Fiscal Year 1999-2000, a decline of 50.0 percent. Despite the repeal of the Gains Tax in 1996, revenues will continue to accrue due to audits and installment payments from prior year transfers.

Recent Legislative History

Chapter 309 of the Laws of 1996 repealed the Gains Tax, retroactive to all conveyances of property that took place after June 15, 1996.


Real Estate Transfer Tax

The Real Estate Transfer Tax, Article 31 of the Tax Law, is levied on real property transfers where the value of the interest in the property exceeds $500. The rate is $2 for each $500, or a fraction thereof, of net consideration. An additional tax of 1 percent is levied on residential transfers where the consideration is over $1 million. The party that sells the property pays the tax.


General Fund

All Real Estate Transfer Tax revenues are dedicated for environmental programs.

All Funds

Under current law, $112 million in Real Estate Transfer Tax revenue is dedicated to the Environmental Protection Fund, and all remaining revenue is dedicated to pay debt service on the Clean Air/Clean Water Bond Act. Therefore, General Fund collections from the Real Estate Transfer Tax will total $0 in both State Fiscal Years 1998-99 and 1999-2000.

For State Fiscal Year 1998-99, All Funds Real Estate Transfer Tax revenue is estimated to total $320 million. Collections in the current fiscal year have been relatively strong, due in part to low mortgage interest rates, and collections from large real estate transactions occurring this fiscal year. This estimate is $10 million lower than the Executive.

The Committee Staff estimates that current law Real Estate Transfer Tax receipts will total $280 million in State Fiscal Year 1999-2000. This forecast is based on projections of moderate growth in the economy and stable interest rates. The decrease is mainly the result of a return to more normal real estate transfers.

Legislation submitted with the Executive Budget proposes to extend the reduced rate for the State and New York City Transfer Taxes for Real Estate Investment Trusts (REITS). The current rates are reduced for these transfers from $2 to $1 per $500 of conveyance under the New York State Real Estate Transfer Tax Rate and it is estimated that it will cost the State $1.3 million in State Fiscal Year 1999-200.

Recent Legislative History

In 1996, legislation was enacted that extended the current New York State Real Estate Transfer and New York City Real Estate Transfer Tax reductions for Real Estate Investment Trusts. Further, it temporarily expanded the application of the REIT provisions to transfers to existing REITs, and changed the 40 percent interest requirement to 50 percent for existing REITs. It also eliminated the "seventy-five percent" rule for existing REITs until September 1, 1998. On the expiration date, the present REIT provisions again become effective permanently. This change is expected to have a minimal effect on overall collections.

Also in 1996, voters approved the Clean Air/Clean Water Bond Act. As part of the Act, revenues in excess of the $112.0 million already dedicated to the Environmental Protection Fund will be used to pay debt service on the Bond Act. Any funds in excess of that which is necessary to make debt service payments will be transferred back to the General Fund and show up as transfers to the General Fund.



Regional Business Tax Surcharge

The Regional Business Tax Surcharge is comprised of a 17 percent surcharge applied on the portion of Article 9-A (Corporate Franchise), Article 9 (Corporations and Utilities), Article 33 (Insurance), and Article 32 (Bank) taxes attributable to business activity carried on within the Metropolitan Commuter Transportation District (MCTD). This district consists of seven counties (Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester) and the City of New York.

All Funds

Collections from the surcharge are deposited into the Mass Transportation Operating Assistance Fund, associated with the Metropolitan Transportation Authority.

The Committee Staff estimates State Fiscal Year 1998-99 revenues will total $556 million, representing a 7.5 percent decline over State Fiscal Year 1997-98. The estimate is based on earnings for businesses, especially for the financial sector, which is a very significant element within the MCTD. This estimate is $18 million higher than the Executive.

The Committee Staff forecast for State Fiscal Year 1999-2000 totals $548 million, representing a 1.4 percent decline. This estimate is $19 million higher than the Executive.

Recent Legislative History

In 1997, the State extended the surcharge for an additional 4 years to December 31, 2001.

Additionally, recent rate reductions under Articles 9-A, 32 and 33 have been made at the State level, but the MTOAF is still to be computed using the old tax rates, thus holding MTOAF harmless.

Recent tax reductions under Article 9 also hold MTOAF harmless, with the exception of collections under Section 186-a. Reductions under this section reduce the MTOAF collections proportionally.



Sales Tax

The Sales and Compensating Use Tax, imposed by Article 28 of the Tax Law, is a broad-based consumption tax levied on the sale of tangible personal property, excluding items such as food and products used in manufacturing, and including a limited number of services such as trash removal and interior design services. The State Sales Tax rate is 4.0 percent.


General Fund

The Committee Staff estimate for State Fiscal Year 1998-99 is $5,705 million. This represents a growth of $263 million, or 4.8 percent, over State Fiscal Year 1997-98. Despite previously enacted tax cuts, the persistent strength of current collections is the result of a stable economy, combined with continued growth in both retail sales and employment. This estimate is the same as that of the Executive.

The Committee Staff current law forecast for State Fiscal Year 1999-2000 is $5,776 million, which represents growth of $71 million, or 1.2 percent. This forecast is based on the expectation of moderate gains in employment, and assumes the maintenance of relatively high levels of consumer confidence. This estimate also accounts for the implementation of the elimination of the Sales Tax on clothing and footwear costing less than $110, which is scheduled to begin on December 1, 1999.

The Committee Staff proposed law forecast for State Fiscal Year 1999-2000 is $5,786 million. This estimate is $20 million lower than the Executive.

Legislation submitted with the Executive Budget would impose the Compensating Use Tax on gas and electric services, extend certain record keeping requirements for Manhattan parking operators, and implement a new index to calculate the prepaid cigarette sales tax. The Committee Staff estimates that the implementation of these proposals would boost General Fund receipts by an additional $10 million in 1999-2000, while the Executive believes the fiscal impact would be minimal.

All Funds

The All Funds category is comprised of the General Fund, the Local Government Assistance Tax Fund, and the Mass Transportation Operating Assistance Fund (MTOAF). The Committee Staff estimates that All Funds receipts in State Fiscal Year 1998-99 will total $7,920 million. All Funds receipts in State Fiscal Year 1999-2000 are projected to total $8,036 million under current law, and $8,049 million under proposed law.

One percent of the State Sales Tax is dedicated to pay for the debt service of the Local Government Assistance Corporation (LGAC), which was created in 1990 to eliminate the annual Spring Borrowing. Once the debt service obligations are paid, any remaining excess revenue is then transferred back to the General Fund. In State Fiscal Year 1998-99, $1,895 million will be dedicated to LGAC. The forecast for State Fiscal Year 1999-2000 is expected to yield an LGAC dedication of $1,925 million.

In 1981, MTOAF was created to help finance the State’s public transportation system. A portion of the revenue is derived from the 0.25 percent Sales Tax that is imposed in the Metropolitan Commuter Transportation District (MCTD). In State Fiscal Year 1998-99, the Committee Staff estimates that $320 million will be deposited in MTOAF and $335 million will be deposited in State Fiscal Year 1999-2000, from the 0.25 percent Sales Tax in the MCTD.

Recent Legislative History

Articles of clothing and footwear costing less than $500 per item were exempt from the State Sales Tax for the eight-day period beginning January 17, 1999 and ending January 24, 1999. This is expected to decrease State Fiscal Year 1998-99 sales tax collections by $20 million. A week-long exemption was also in effect from September 1, 1998 – September 7, 1998, which is estimated by the Committee Staff to produce a one-time revenue loss in State Fiscal Year 1998-99 of $25 million.

Articles of clothing and footwear costing less than $500 per item were exempt from the State Sales Tax for the week of September 1 through September 7, 1998. (The original exemption, authorized by the Legislature in 1997, was only for clothing costing less than $100 per item. The enhancement occurred as part of the 1998 enacted budget.) A local option was again provided for municipal governments that levy a local sales tax. An eight-day exemption was also authorized by the Legislature in 1998, for the period beginning January 17, 1999 and ending January 24, 1999. This exemption also applies to items of clothing and footwear costing less than $500 per item.

The permanent clothing exemption scheduled to begin December 1, 1999, was enhanced as part of the enacted budget in 1998. Originally created with a threshold of $100 and limited only to items of clothing, the exemption has been expanded to now include footwear with a threshold level of $110.

Miscellaneous sales tax exemptions that were enacted in 1998 include the exemption of:

The exemptions for college textbooks and computer hardware became effective June 1, 1998; the exemptions for coin-operated telephones and telephone central office equipment became effective September 1, 1998. In addition, the sales tax exemption of the receipts from the parking, garaging, or storing of motor vehicles in condominium and cooperative housing units that was authorized in 1997, was extended so as to now include all State and local sales and parking taxes. This became effective September 12, 1998. The total estimated loss of these provisions is approximately $27 million in State Fiscal Year 1998-99, $44 million when fully implemented.



Utility Tax


The Corporations and Utilities Tax, Article 9 of the Tax Law, imposes a gross receipts and franchise tax on regulated utilities and industries. The major industries subject to this tax are utilities (gas, electric, water and steam), telecommunications (telephone and telegraph), and transportation industries (trucking and railroad). The majority of revenue from Article 9 is deposited into the General Fund. However, a portion of the tax imposed on the capital stock of telecommunications and transportation companies is dedicated to the Mass Transportation Operating Assistance Fund (MTOAF).


General Fund

The Committee Staff estimates receipts for State Fiscal Year 1998-99 to total $1,462 million, a decline of 2.8 percent. The contributing factors to this decline are rate reductions enacted in 1996 for trucking and railroad companies, and the Power for Jobs Program. In addition, the rate reduction enacted in 1997, which began phasing-in on October 1, 1998 will reduce revenues by $28 million. This estimate is $2 million higher than the Executive.

The Committee Staff current law forecast for State Fiscal Year 1999-2000 is $1,335 million, representing a decline of 8.7 percent. This decline is mainly attributable to a full-year impact of the rate reduction enacted in 1997. The current rate reduction is estimated to reduce revenues by approximately $103 million in State Fiscal Year 1999-2000.

The Committee Staff proposed law forecast for State Fiscal Year 1999-2000 is $1,026 million. This is based on the proposed overhaul of Article 9 by the Executive to accommodate energy competition. The proposed overhaul of Article 9 is expected to reduce revenues by $309 million in State Fiscal Year 1999-2000

Legislation submitted with the Executive Budget proposes to restructure Article 9 to accommodate competition in the electric industry. The proposed law would do the following:


All Funds

Through a special revenue fund, the Metropolitan Transportation Authority (MTA) receives a dedicated share of collections from Sections 183 and 184 of the Tax Law. For April 1, 1996 through December 31, 1996, 48.9 percent of revenues collected under these two sections of law was dedicated, and 49.5 percent was dedicated for Calendar Year 1997. The amount dedicated will increase to 54.5 percent for Calendar Year 1998 and 1999. All Funds receipts are expected to total $1,538 million in State Fiscal Year 1998-1999, $1,424 million current law in State Fiscal Year 1999-1900 and $1,115 proposed law in State Fiscal Year 1999-2000.


Recent Legislative History

In 1997, legislation that was enacted included:

In 1996, the tax rate on trucking and railroad industries, under Section 184 of Article 9, was reduced from 0.75 percent to 0.6 percent of gross receipts starting in Tax Year 1997. Further, these industries have the option of converting from taxation under Article 9 to Article 9-A beginning in Tax Year 1998 and thereafter. There was no fiscal impact for State Fiscal Year 1996-97, and a reduction of $6 million is estimated for State Fiscal Year 1997-98.

In 1995, Telecommunications Tax reform was enacted in response to a Court of Appeals decision. The major implications involved the moving of the access charge deduction from long distance companies to local telephone companies, updating the computation of the tax (Goldberg methodology) for providing telecommunication service, and the agreement that long distance companies would forgo refunds due to them.

In 1994, the dedicated portion of receipts to the MTA was temporarily reduced for two years. The "undedicated" revenues were deposited in the General Fund.


TAX RELIEF FOR MIDDLE CLASS FAMILIES

The Assembly has always focused on tax reduction plans aimed at providing tax relief to New York’s middle class families. The Assembly has long fought to provide relief to middle class families, to help them make ends meet.


Providing for Child and Dependent Care

The Child and Dependent Care Credit subsidizes New York families who purchase such care in order to find or hold a job. The State credit is calculated as a share of the federal Childcare and Dependent Credit by as much as 100 percent of the federal credit for lower-income workers and at least 20 percent for all qualifying workers.

The federal credit, which forms the basis for the New York State credit, works as follows. The maximum amount of child care expenses that can be used in calculating the federal credit is $2,400 a year for families with one child in day care, or $4,800 a year for those with two or more children. Workers with income of $10,000 or less are eligible for a credit of 30 percent of eligible child care costs, with the rate scaled down one percentage point for every $2,000 of income until it reaches a rate of 20 percent for workers with income over $28,000.

In 1997, the New York State Assembly proposed, and the Executive signed into law, new legislation that grants the full amount of the federal credit to workers with incomes below $17,000. The State credit is phased down to 20 percent of the federal credit for those with incomes between $17,000 and $30,000 and remains at 20 percent for those with incomes above $30,000. Furthermore, the new law provides that, beginning in tax year 1999 and subsequent years thereafter, the income level of those eligible for the full federal credit will increase to $35,000. The credit will then be phase down to 20 percent of the federal credit for those with income between $35,000 and $50,000. Above $50,000 the credit will remain at 20 percent of the federal credit.

An important characteristic of the child care credit that makes it particularly valuable for low-income workers is that it is "refundable." That means that any portion of the credit that exceeds a worker's tax liability is refunded; thus low-income workers benefit from the child care credit even if their incomes are so low they have no federal income tax liability.

Until the 1996 legislative session, the Child Care Credit was not refundable; that is, before this change was enacted, working families with incomes so low they had no State income tax liability received no benefit from the credit. Under the new provisions, those workers who have the greatest need for assistance in child care expenses and for whom the assistance could prove crucial in remaining in the work force will receive the full benefit of the child care credit. Thereby making the Child and Dependent Care Credit an important component of the State's "make work pay" agenda.

Helping Working Families - Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is an increasingly important component of the effort to promote work. The New York State Assembly's proposal for a State EITC was enacted in 1994. The credit is taken as 20 percent of the federal EITC. Taxpayers are eligible for the credit only if they work, and for the most part, only if they are raising children. There is a credit available to workers between the ages of 24 and 65 who do not have dependent children, but its maximum value is only 9.0 percent of the maximum EITC for parents with two or more children. The value of the credit depends on a taxpayer's income and the number of children.

Families with two or more children: The State EITC offers a wage supplement of eight percent for the first $9,140 of income. At incomes between $9,140 and $11,930, the State credit is at its maximum, $731. With incomes over $11,930, the credit phases out gradually until it is eliminated for incomes over $29,290.

Families with one child: The state EITC offers a wage supplement of 7 percent for the first $6,500 of income. For incomes between $6,500 and $11,930, the State credit is at its maximum, $442. The credit is then phased out until it is eliminated for people with incomes over $25,760.

Workers without qualifying children: The credit for workers who are not raising children is less than for those with children. The State EITC offers a wage supplement of 2 percent for the first $4,340 of income. At incomes between $4,340 and $5,430, the State credit is at its maximum, $66. The credit is then phased out until it is eliminated for workers with incomes over $9,770.

Like the State childcare credit, the EITC at both the federal and State level are refundable. The original intent of this feature in the federal law was to compensate low-income workers for the social security and Medicare taxes that are imposed on the very first dollar of earnings. At the State level, the refundable portion of the credit can be considered a rebate of a small portion of the sales, excise, and property taxes paid by low-income workers.

A final characteristic of the EITC that is worth noting is the simplicity of the State's credit. Because it is taken as a share of the federal credit a flat 20 percent, there is little complexity for State filers. If taxpayers qualified for the federal credit, they are eligible for the State credit as well. Moreover, the State piggyback means that only one, simple calculation must be made, multiplying the federal credit times 20 percent.

In 1984, a two-parent family of four in New York began paying the state income tax after earning $7,000, compared to the 1997 threshold of $22,300.

Reflected in constant 1997 dollars, the 1984 threshold for a two-parent family of four was $11,270 while the 1997 threshold is $22,300.

Income Tax Thresholds

A measure of the income tax burden on families, especially low-income families, is the income tax threshold, the level at which individuals first begin to incur income tax liability. The threshold is derived by combining the value of credits, deductions, and exemptions for which all workers, or more typically, all workers in particular family structures are eligible, such as the standard deduction or dependent exemptions. (Because the mortgage interest deduction, for instance, is not available to workers who rent, its value is not calculated in determining the income tax threshold. On the other hand, since every low-income worker is eligible for the EITC, its value is factored in when calculating the income tax threshold).

In recent years New York State has enacted policies to ensure that the state income treats low-income families fairly. A recent national report allows a comparison between the New York State income tax threshold and those of other states for typical families.(5)

In 1997, New York State's income tax threshold for a two-parent family of four was reported at $22,300, 36 percent above the poverty line for such families of $16,405.

The State income tax threshold for a single-parent family of three in 1997 was $21,100.

For the two-parent families of four: The average income tax threshold among the 42 states except New York with broad-based income taxes for a two-parent family of four was $14,853. New York's threshold was 50 percent higher than this average.

The 42-state average threshold was $14,919, or nine percent below the poverty line.

In 1997, five states (Maryland, Rhode Island, Vermont, California, and Connecticut) had higher income tax thresholds for two-parent families of four than New York.

For the single-parent families of three: If New York State is excluded from the list of 42 states with broad-based income taxes for a single-parent family of three was $12,603. New York's threshold for these families was 67 percent higher than this average.

In 1997, the only states with higher income tax thresholds than New York for single-parent families of three were Maryland, Rhode Island, and Vermont.

The increases in New York's income tax threshold, effective in 1997, reflect a continuing trend to relieve the tax burden for low-income New Yorkers. In just over a decade, New York's income tax thresholds have more than tripled; even after adjusting for inflation, the state thresholds have more than doubled.

In 1984, a single-parent family of three in New York began paying the state income tax at an income of $6,420, compared to the 1997 threshold of $21,100.

Reflected in constant 1997 dollars, the 1984 threshold for a single-parent family of three was $10,311 while the 1997 threshold is $21,100.

School Tax Relief Program (STAR)

The School Tax Relief Program (STAR) was introduced as a way to relieve some of the tax burden on families without compromising the importance of public education. Because the State reimburses localities for funds lost due to the savings on real property taxes, there is no negative impact on education spending.

Enacted by the Legislature in 1997, the STAR program is a $2.2 billion State-financed real property tax exemption that provides homeowners with a deduction from the full value of their homes for school tax purposes. Originally, the exemption was to be phased in over a four-year period. In the 1998-99 budget, however, an acceleration of the schedule implementing the STAR exemption was achieved so that senior citizens would be granted the full exemption in the 1998-99 school year. As a result, seniors with an income of less than $60,000 will receive the fully implemented exemption of $50,000.

For non-senior homeowners, the program is scheduled to be phased-in over a four-year period. When fully implemented in the 2001-02 school year, non-senior homeowners will receive an exemption of at least $30,000. School tax savings for most senior citizens will average about 45 percent. Non-senior homeowners will save, on average, 27 percent on their school taxes.

Since the local tax burden on New York City homeowners extends beyond real property taxes, a State-financed reduction in the New York City Personal Income Tax was included as a part of the STAR program. The reduction will be in the form of a rate reduction and a refundable tax credit. This will save New York City taxpayers over $460 million when fully implemented.

Sales Tax on Clothing Exemption

Evidence points to the Sales Tax on clothing as being a regressive tax. Eliminating the Sales Tax on clothing and footwear will reduce tax burdens and give consumers greater purchasing power, especially for those in the middle and lower income classes.

Six neighboring states already have some type of sales tax exemption on clothing. This results in New York retailers being at a competitive disadvantage. The permanent exemption on clothing and footwear will help to eliminate this disadvantage, and will help New York retailers in regaining market-share not only in clothing and footwear, but in taxable items as well.

In 1995, the Assembly introduced legislation to exempt the purchase of clothing and footwear costing less than $500 from the State Sales Tax. Since then, temporary exemptions of clothing and footwear have proven to be quite popular.

The first was a one-week exemption on items of clothing and footwear costing less than $500 per item for the period of January 18, 1997 through January 24, 1997. The Department of Taxation and Finance released a study of this exemption period in November 1997. Their results showed that sales increased significantly during the exemption period in many counties and in New York City. The Department determined that the cost of the exemption to the State was approximately $16.5 million, and that taxpayers saved over $30 million if local savings were included.

Due to the success of the first exemption period, four additional temporary exemption periods were subsequently provided. These periods took place in September 1997, January 1998, September 1998, and January 1999. During the first of these exemption periods, only certain items of clothing costing less than $100 per item were exempt from the State sales tax. For each of the other three, items of clothing and footwear costing less than $500 were exempt.

Beginning December 1, 1999, items of clothing and footwear costing less than $110 per item will be permanently exempt from the State Sales Tax. An option is provided to local governments, allowing them to exempt the same items of clothing from their local sales tax.

College Savings Program

The Assembly has always recognized the benefits of affordable higher education. Recently, two proposals were implemented to help working and middle class families provide affordable higher education to their children.

The first measure of relief was provided for students and their families in the form of the College Savings Program. The College Savings Program, which was enacted in 1997, allows anyone to establish a Family Tuition Account for a named beneficiary and deduct the annual contributions on their State income tax. Individuals may annually contribute and deduct up to $5,000, while married couples are allowed up to $10,000. Contributions made on behalf of each beneficiary are capped at $100,000. Withdrawals from the account, including any investment earnings on contributions, are exempt from State income taxes provided they are used only for qualified higher education expenses. Withdrawals can only be made, however, after the account has been open for three years. Federal taxation of the investment earnings may be deferred until the funds are withdrawn as well.

The Assembly took the initiative to implement another proposal aimed at providing relief to college students. Legislation, effective June 1, 1998, exempted textbooks purchased by full-time or part-time college students from State and local sales taxes. This was done to help combat the rising costs of education, and is expected to save students approximately $50 million annually in State and local sales taxes.


ASSEMBLY WAYS AND MEANS COMMITTEE
PUBLICATIONS

Statistical and Narrative Summary of the Executive Budget
This volume, known as the "Yellow Book", is published each year shortly after the release of the Executive Budget. It provides an overview of the fiscal and policy initiatives recommended in the Executive Budget as well as a summary of the proposals for each agency, in accordance with Section 53 of the Legislative Law.

New York State Economic Report
This report provides an in-depth analysis of the U.S. and State economies, with particular focus on the most recent income and employment trends for the State. This report presents the Ways and Means Committee staff economic forecast. It is typically issued early in March.

New York State Expenditure Report
This report provides a detailed analysis of the Ways and Means Committee staff forecast for selected State government programs for the current and upcoming State fiscal year. It describes the relationship between expenditures and the State economy and other forces which drive budgetary spending. This report is typically issued in March.

Report of the Fiscal Committees on the Executive Budget
This publication, also known as the "Green Book", is jointly issued by the Senate Finance Committee and the Assembly Ways and Means Committee shortly after the enactment of the State Budget by the Legislature, in accordance with Section 22-b of the State Finance Law. It describes Legislative intent with respect to the Budget and the changes the Legislature has made to the Executive Budget.

Perspectives, Economic Update, Economic News
The Ways and Means Committee from time to time issues a Perspectives report on a topic of fiscal concern to the State. The Economic Update is a report on the State's economy and financial plan and is issued regularly throughout the year. In each issue, special attention is focused on a topic of significance to the State's economy or finances. Economic News is a one-page newsletter issued regularly during the legislative session, highlighting an aspect of the State economy of particular interest.

For more information on publications of the Assembly Ways and Means Committee, please contact:

Deborah Priest, Director of Information Center
Empire State Plaza, Agency Bldg. 4 - 14th Floor
Albany, New York 12248
(518) 455-4780


Footnotes

  1. The Refund Reserve is a fund containing revenues for the purpose of paying refunds. This fund is often used to transfer surplus money when the books are closed at the end of each fiscal year. In other words, funds set aside in March of any given fiscal year can be used to pay refunds in April of the next fiscal year.

  2. See New York State Assembly Ways and Means Committee, "A New Composite Index of Current Economic Activity for the New York State Economy" 1995.

  3. For more discussion on PSC restructuring see Shedding Light on the Governor's Failed Electric Utility Restructuring, February 1999.

  4. These estimates include a Refund Reserve Transaction of $71 million in State Fiscal Year 1998-99 and $1,775 million in State Fiscal Year 1999-00; and a STAR Transfer of $585 million in State Fiscal Year 1998-99 and $1,223 million in State Fiscal Year 1999-2000.

  5. Tax Analysts Document Number: Doc 98-13928 (24 pages).

White Book
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