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Oct. 17 — When New York state enacted sweeping changes to its business taxes in 2014, it was widely hailed as one of the most significant overhauls of the state’s taxes in decades.
The measures included eliminating the business income base rate for qualified manufacturers, lowering the corporate income tax rate and merging the state’s bank tax into the corporate franchise tax.
While the changes haven't taken full effect, preliminary data from 2015 provides a glimpse of how the tax overhaul has impacted state revenue. Total business tax revenue for the state’s 2015-16 fiscal year, which ended March 31, declined by $641 million, according to Department of Taxation and Finance data.
The state collected $6.9 billion in business taxes, an 8.5 percent decrease from FY 2014-15. About $205 million of the decline is due to the 2014 changes in the corporate tax, including the rate reductions, according to Morris Peters, a spokesman for the Division of the Budget (DOB). Another $505 million decrease was due to fewer collections from corporate tax audits, he said.
“Those two negative numbers are partially offset by increases to the underlying liability,” Peters told Bloomberg BNA in an e-mail.
The state projected that business tax revenue would decline by $205 million in FY 2015-16, $401 million in FY 2016-17 and $451 million in FY 2017-18, according to Peters.
The state collected $3.7 billion from its Article 9-A Corporate Franchise Tax in FY 2015-16, a 26 percent increase from the prior fiscal year. Some of that increase resulted from elimination of the Article 32 Bank Tax. For tax years beginning in 2015, banks were taxed under the Corporate Franchise Tax.
Article 32 tax revenue declined by $1.4 billion as a result of the change.
“It’s too early to tell the revenue impacts because the 2015 filing season isn’t over yet,” James Gazzale, a spokesman for the Department of Taxation and Finance, told Bloomberg BNA in an e-mail. “And given the changes and new guidance being released to filers, many companies are extending the due date.”
James Parrott, chief economist for the labor-backed Fiscal Policy Institute, told Bloomberg BNA that corporate tax collections have been weak since the 2014 changes were enacted.
“However, several factors make it difficult to pinpoint the precise impact of the 2014 tax policy changes,” he said.
Parrott said, for example, that the impact of tax credit deferrals from the 2011-13 fiscal years totaled about $550 million and could have reduced tax liability under Article 9-A by that amount in the 2014 and 2015 fiscal years. Similarly, he estimated the amount of tax credit carry-forwards under Article 9-A at $3.1 billion, as of tax year 2012.
Parrott said the implementation and administration of the complex changes enacted in 2014 could also be having an impact on revenue, as more companies seek filing extensions in order to digest the new rules. The extensions could potentially shift liability—and revenue—from one year to the next.
Jack Trachtenberg, counsel at Reed Smith LLP and the former state Taxpayer Rights Advocate, commended the tax department “for its transparency” and for “soliciting public comment prior to formally promulgating the regulations” to implement the law.
“This process has resulted in a productive dialogue between the Department, taxpayers and tax practitioners that may help avoid tax compliance and enforcement issues in the future,” he told Bloomberg BNA in an e-mail.
Trachtenberg said many corporate taxpayers are interested in exploring ways to qualify for the zero percent tax rate for qualified manufacturers. In addition, the provisions for converting prior net operating losses is generating interest among corporate taxpayers, he said.
The NOL provisions allow companies to convert losses incurred prior to 2015 into a new prior NOL deduction.
“Because of the way the prior net operating loss conversion subtraction works, some taxpayers are at risk of losing their historical net operating losses, so they are looking for ways to interpret the law to preserve them,” he said. “Both of these issues have the potential to reduce corporate tax liabilities.”
|New York State Taxes Collected by the Department of Taxation and Finance|
|Fiscal Years 2014-15 and 2015-16|
|Tax||FY 2014-15||FY 2015-16||Change|
|Personal Income Tax||$43,709,833,323||$47,055,282,776||7.7|
|Business Taxes, Total||$7,554,189,246||$6,913,034,564||-8.5|
|Business Corporations Art. 9-A||2,969,705,402||3,744,077,623||26.1|
|Corporations, Art. 9, Total||808,988,201||852,072,457||5.3|
|Foreign Corporation Licenses, Sec. 181||26,511,684||25,108,451||-5.3|
|Transportation, Transmission, Sec. 183||11,037,395||16,659,513||50.9|
|Transportation, Transmission, Sec. 184||36,521,507||23,383,010||-36.0|
|Agricultural Co-operatives, Sec. 185||-308,811||-6,946||97.8|
|Light, Water, Power, Sec. 186||6,346,854||-10,046,629||-258.3|
|Utilities, Sec. 186-a and 186-a PSC||161,632,428||175,675,300||8.7|
|Telecommunications, Sec. 186-e||381,985,062||435,954,772||14.1|
|Public Safety Communications Surcharge, Sec 186-f||185,262,082||185,344,986||0.0|
|Importers of Natural Gas, Sec. 189||0||0||NA|
|Corporations, Art. 13||20,279,346||18,897,057||-6.8|
|Banks, Art. 32, Total||1,323,377,194||-128,954,818||-109.7|
|Savings Institutions (Savings Banks and Savings and Loan Associations)||45,131,963||-17,839,799||-139.5|
To contact the reporter on this story: Gerald B. Silverman in Albany, N.Y., at GSilverman@bna.com
To contact the editor responsible for this story: Ryan C. Tuck at firstname.lastname@example.org
Tax revenue data is at http://src.bna.com/joj.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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