January 2012
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A Fresh Look at Our Business Climate
As we head into what promises to be a lively election season, “business friendly” has become a popular phrase—meaning that New York State government fosters an environment that helps business owners, and, by extension, their employees, which, in turn, benefits the entire state. The phrase, however, is used so much we often don't stop to consider the details of what it means to be business friendly. What does a good business environment involve, especially for New York?
Consider an October jobs report from the U.S. Department of Labor: Thirty-nine states saw an increase in nonfarm payroll employment in October, but New York was not among them. New York had the second-high-est number of jobs lost, behind only Wisconsin. However, in the bigger picture, New York had 61,500 more jobs in October 2011 than it had in October 2010. This is a positive trend, but new businesses won't come to New York and the ones here won't stick around if neighboring states offer a more hospitable business climate than New York does. How can Governor Cuomo and our state legislature ensure that it does?
For one, legislators would do well to listen to their constituencies, who are knowledgeable about the issues they are considering. For business and finance, that often means CPAs. Think of the resource available through the NYSSCPA: nearly 29,000 business and finance experts. Now consider how crucial the CPA perspective is in Albany.
Earlier this year, we faced an expansion of New York's venerable and powerful Martin Act, which would have given large institutional plaintiffs essentially the same powers as the attorney general when it comes to prosecuting fraud. The NYSSCPA supports a strong stance against fraud, but such a wide-ranging expansion would not have reined in malefactors. Instead it would have put legitimate companies under a constant threat of baseless litigation by allowing institutional investors to bring a suit against an issuer's independent auditor under the Martin Act, even if the auditor had no knowledge of the alleged fraud. The bill never made it out of committee, but the Society's leadership continues to monitor any developments.
This is a perfect example of what happens when legislators try to write laws without considering the effects they'll have on specific businesses or professions, or the obligations and duties already imposed on those professions. Tax preparer registration is another example. New York is one of the last states to adopt cross-border practice mobility, which allows CPAs to provide services outside their home state of licensure as long as they meet a certain set of standards and are in good standing in their home states. The law benefits New York CPA firms because some of New York's neighboring states that had already adopted this law were not allowing New York CPAs to provide client services in their states. Mobility resolved that issue, allowing our CPAs to meet their clients' needs in whatever state they were doing business. But another possible piece of legislation, passed by the very same legislature, could negate this law by requiring CPAs who are paid to file tax returns in New York to register with the state. The rule already applies to non-licensed tax preparers, but currently, CPAs, attorneys, and enrolled agents are exempt from it. That could change with the release of a September 2011 report issued by a state task force on tax preparer regulations, which recommends that the legislature consider whether it should end the exemption “in order to serve the overall purposes of the program” (http://www.tax.ny.gov/pdf/documents/task_force_report_reg_preparers.pdf).
The Value of Input from CPAs
CPAs already have stringent testing and continuing education requirements. Additional registration requirements will not make CPAs better tax preparers; instead, they will only burden CPAs, negate the recently passed mobility law, and harm the already tenuous relationship between government and businesses in New York State. Sound and logical regulation provides a balance between the private and government sectors. Most CPAs understand that—sound financial perspective and logic is what CPAs are hired to provide—but when the unintended consequences of what seem like easy revenue raisers come back to haunt New York everyone—government, citizens, businesses—suffers.
Some have praised notoriously inefficient Albany for passing Cuomo's recent compromise deal that features tax cuts for the middle class and tax increases for the wealthiest New Yorkers. However, more public debate would have given CPAs, who have their collective finger on the pulse of business finances, an opportunity to provide input on potential unintended consequences before the bill was pushed through—not after. Will the long-term budget needs of the state be met by the new revenue plan, or will we find ourselves in even worse shape a year from now? Will the new tax rates prove good for businesses in the state, or has Albany not gone far enough? It isn't clear what we're left with: For all the cheering about something getting done in Albany, will the state still have a sizable deficit when all is said and done?
Time will tell whether this deal was sufficient, while many in the state, including even some in the legislature, say there should have been more time for input. We join them in wishing the governor had spent more time seeking insight from the public, where tax professionals like CPAs, for example, could have weighed in. With thousands of tax expert members—indeed, an entire committee devoted to state tax issues—the Society's informed input could have made for a more inclusive result.
These won't be the last issues affecting not only CPAs, but also the entire business community in the state. CPAs are unique ly qualified to provide significant input into decisions affecting the state's business environment. It is our job to make sure we are part of that dialogue.