Wealthy New Yorkers Hardest Hit by State's Efforts to Ward Off Massive Potential Deficit

The Bloomberg BNA Tax Management Weekly State Tax Report filters through current state developments and analyzes those critical to multistate tax planning.

By Gerald B. Silverman

ALBANY, N.Y.—New York Gov. David A. Paterson (D) signed a budget bill that includes $5.1 billion in tax increases and revenue raisers, including a hike in the state's personal income tax on wealthy state residents. [A.B. 157, enacted 4/7/09]

The bill also eliminates a $1.4 billion property tax relief rebate program that supplements the state's STAR property tax relief program. The state's 2009-10 fiscal year began April 1.

State lawmakers used a combination of tax increases, spending reductions, and $6.2 billion in federal stimulus funds to close a $17.7 billion potential deficit in the $131.8 billion budget.

Under the budget, the state would raise $4 billion in personal income tax revenues by raising the top marginal rates for tax years 2009 through 2011, when the increase is scheduled to sunset. The top rate would increase from 6.85 percent to 8.97 percent for all taxpayers with incomes above $500,000, according to a summary of the budget from the Senate Finance Committee.

The rate would increase to 7.85 percent for taxpayers filing jointly with incomes above $300,000, for heads of households with incomes above $250,000, and for single taxpayers with incomes above $200,000, according to the summary.

The budget also would raise $140 million by eliminating the use of itemized deductions by individuals with incomes above $1 million and allow them only to take the standard deduction.

Key Tax Provisions


According to the Senate Finance Committee summary, the state would raise $351 million in FY 2009-10 by increasing the percentage used by large companies to compute the mandatory first installment in their prepayment of corporate income taxes.

Other key tax provisions in the budget include:

• enhanced tax compliance efforts, including increases to underpayment penalties, raising an estimated $273 million;
• an amendment of “vendor” to include “affiliate nexus” for Internet sales, raising $9 million;
• reform of the tax breaks offered through the Empire Zone economic development program, reducing state expenditures by $90 million;
• a requirement that captive insurance companies receiving 50 percent or less of their gross receipts from insurance premiums file a combined return with their closest affiliated taxpayer, raising $33 million;
• an increase in the prepaid tax on cigarettes, from 7 percent to 8 percent, raising $14 million;
• an increase in the rental car tax from 5 percent to 6 percent, raising $8 million; and
• a reclassification of for-profit health maintenance organizations as Article 33 insurance corporations, raising $120 million.

A summary of the budget is available at http://www.senate.state.ny.us/ under the link “Senate Reports.” A copy of the revenue bill is available at http://assembly.state.ny.us/leg/?bn=A00157&sh=t.