State Assemblymember Jim Brennan is introducing legislation to reform New York State taxes on business. The reforms, which would include changes in the corporate minimum tax, caps on the use of special tax breaks, and a surcharge on final tax liability, would yield $1.3 billion in the fiscal 2010-11 tax year and $1.75 billion in 2011-12. Approximately 10% of the revenue would go to the M.T.A., or about $130 million in the coming year. The surcharge would last four years.
Rates of taxation on business income have declined substantially over the past 23 years and tax rates on corporate profits would still be below the levels of the mid-to-late nineteen nineties even after the new legislation. With New York business profits estimated at about $130 billion in 2010, the impact of the legislation in 2010 would be to require business in New York to pay an additional 1% of its income to assure stability to education, health care, transportation and other vital services. That number would move to about 1.3% in 2011.
The legislation includes a 15% surcharge on final corporate tax liability, estimated to yield about $950 million in 2010. The surcharge would be in effect for four years. The bill provides for an increase in the corporate alternative minimum tax from 1.5% to 3.5%, with an estimated yield of $200 million, and a cap of $15 million per business entity in the use of tax credits, which would yield about $600 million, and would take effect in the 2011 tax year. About one-fourth of the revenue from the tax credit cap would be available for the 2010-11 fiscal year. Businesses would still be eligible for tax credits but would have to carry them forward to future tax years. The New York State department of tax and finance provided Mr. Brennan’s office with the information needed to derive the estimates for the credit tax cap.
New York State’s top rate on business income now stands at 7.1%, down from 10% in 1986, and 9% until 1998. The alternative minimum tax stood at 5% in the 1990s until 1995, when it was reduced to 3.5%. The rate was only dropped to 1.5% in 2007. New York State’s top rate is lower than 23 other states now and would still be lower than 15 other states after the legislation. The rate would go to 8.1 % after the surcharge, which would be in effect for four years. As a result, the new temporary top rate would still be lower than the top rate in effect in 1998.
The State Tax Department provided estimates to Mr. Brennan’s office, in response to his inquiries, indicating that businesses in New York, including partnerships and S corporations that flow through their income to individuals, will have their tax liability reduced by $1.4 billion in 2010 through the use of a broad variety of tax credits. The legislation would cap all business tax credits at a maximum of $15 million per business entity (both corporations and partnerships). Companies eligible for more than $15 million in tax credits would tend to be fairly large companies, meaning that smaller business entities would not have their tax credits reduced.
“Business in New York has benefited from substantial cuts in rates for several decades,” Mr. Brennan said, “and even with these modest increases top rates would still be lower than they were in 1998,” he added. “The minimum tax, at 1 ½ per cent, is too low and unfair to the rest of the taxpayers, in that business is not paying a fair share of taxation. The corporate minimum tax used to be 5% and this legislation would only restore it to 3 ½%. The legislation would also rein in overly generous special tax breaks by limiting the applicability of tax credits to a maximum of $15 million per business,” he continued.