Pataki Announces $1.1 Billion In Tax Cuts For New York Firms

by Leroy Baker, Tax-News.com, New York

13 January 2006

Governor George E. Pataki this week announced a new $1.1 billion package of business tax cuts focusing on job creation in the state as part of his 2006/7 Executive Budget.

The major tax measures announced by Mr Pataki on Wednesday include: eliminating the Alternative Minimum Tax, which hurts manufacturers; cutting the business income tax rate by 10 percent; increasing the sales tax vendor credit; reforming the tax code to encourage businesses to make new capital investments in New York; eliminating the tax on S-Corporations, most of whom are small businesses; accelerating the designation of nine new Empire Zones; expanding low-interest loans for small businesses; and reducing Workers’ Compensation costs.

“We've proven over and over again that tax cuts create the financial freedom that creates new jobs and new opportunities for New Yorkers,” Governor Pataki, a Republican, said.

“This new $1.1 billion job-creating tax cut package will give New York’s employers even greater opportunities and incentives to grow, expand and create jobs across the State,” the Governor added.

Many of these new proposals were recommended by the Commission on Tax Reform and Simplification, which the Governor created last year.

Headed by Lawrence Kudlow - renowned economist and one of the nation's leading tax reform experts - the Commission recommended changes that would reform and improve the State’s tax code.

Under the proposals to eliminate the AMT and capital base taxes, which primarily hurts manufacturers and stymies new manufacturing investments by limiting the amount of tax credits that a company can claim on their tax returns, Pataki hopes to save businesses $330 million annually when the measure becomes fully effective in 2008.

The pledge to cut the Business Income Tax Rate by 10% would would cut the corporate franchise tax rate on net income for companies that pay the corporate franchise or bank tax from 7.5 percent to 6.75 percent. This measure would save businesses $110 million annually when fully effective in 2009.

Under the proposal to increase the sales tax vendor credit, the credit would increase by nearly 43% - from the current 3.5 percent of collections to 5 percent. This measure would save businesses $69 million annually when fully effective in 2008.

Reforms aimed at encouraging new capital investments in New York would allow business to immediately “expense” any new capital investment they make in New York, such as new plants, facilities and equipment. This means that they would be allowed to immediately count the full investment as a cost of doing business in year one, as opposed to current law which requires that they do this over the course of many years. This measure would save businesses $560 million annually when fully effective in 2008.

Eliminating tax on S-Corporations would abolish the corporate tax assessed on the more 150,000 S-Corp businesses in New York – most of which are small businesses. This measure would save businesses $40 million annually when fully effective in 2006.

The Governor’s Executive Budget will include legislation that would accelerate the current Empire Zone designation process to ensure that every county currently without an Empire Zone – which includes Delaware, Greene, Hamilton, Putnam, Rockland, Schoharie, Tompkins, Yates and Wyoming Counties – has one by the end of this year. This measure would save businesses $66 million annually.

The Governor’s Executive Budget will increase the State’s Excelsior Linked-Deposit Program by $60 million – to a total of $410 million. The program allows banks, credit unions and the New York Business Development Corporation to make low-interest loans to small businesses that are looking to expand and create jobs.

Finally, the budget also includes a comprehensive plan that would reform and improve New York’s Workers’ Compensation system by reducing costs for businesses while increasing benefits for injured workers. The new measures would reduce Workers’ Compensation costs for businesses by more than 15 percent, while increasing benefit levels for injured workers by 25 percent.

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