Cuomo Budget: Proposed Changes Could Affect CPAs and Their Clients

Published Date:
Jan 28, 2014

In his budget speech on Feb. 21, Governor Cuomo pointed out that under his administration, the state has passed three on-time budgets in a row—something that hadn't happened in more than 30 years. Now, he said, he's going for four in a row, which  New York hasn't achieved since Nelson Rockefeller was governor and many current legislators were still learning how to walk.  His talk was upbeat, with Cuomo saying "we are swinging for the fences in the fourth year." In fact, he had already mapped much of his tax strategy, so there wasn't much in the way of surprise in that area, but that doesn't mean there won't be any push-back as the state's fiscal year draws to a close on March 31.

The governor outlined his proposals in two documents: a 12-page summary and an 89-page Briefing Book. The summary highlighted eight tax-reform items, some of which clearly came out of the Tax Reform and Fairness Commission and the Tax Relief Commission, both of which released reports late last year. CPAs should look for possible changes to tax issues that affect their employers and their individual and corporate clients.

  • Corporate Tax Reform. Not only reducing the tax rate on net income to 6.5 percent, but also combining the corporate franchise and bank taxes to provide simplification and improve voluntary compliance.
  • A 20-Percent Real Property Tax Credit for Manufacturers. A refundable credit equal to 20 percent of property taxes paid by manufacturers who own property.
  • Eliminate the Net Income Tax Rate on Upstate Manufacturers. Lowers the tax rate on income for upstate manufacturers from the current 5.9 percent to zero in 2014 and thereafter.
  • Eliminate 18-a Temporary Assessment for Industrial Customers, Accelerate Phase Out for All Others. This is slated to disappear by March 2017, but the governor proposes moving that up to the next fiscal year and accelerating the phase-out for all other customers.
  • Establish the Real Property Tax Freeze as a Personal Income Tax Credit. Proposed late last year and widely discussed, this proposal would freeze property taxes for two years for many homeowners, but only in jurisdictions that meet extensive and strict standards for fiscal discipline and savings.
  • Establish the Residential Real Property Personal Income Tax Credit. A progressively distributed refundable tax that would provide property tax relief based on an individual homeowner’s ability to pay. The governor estimates this would yield an average benefit of $500 per homeowner.
  • Establish a Renter's Personal Income Tax Credit. Homeowners aren't the only ones seeing a break: Cuomo is proposing a refundable credit for renters. He estimates that the average benefit for a family of four in New York City with income of less than $50,000 would be about $410.
  • Reform the Estate Tax. Much sought after by taxpayers, this proposal would raise the current state exclusion threshold from $1 million to "eventual conformity" with the federal exemption amount—while reducing the top rate from 16 to 10 percent over four years.

Looking at the Fine Print
Governor Cuomo goes into more details on how these proposals might work in the Briefing Book. Especially relevant to CPAs is a section titled "Tax Reform, Revenue Actions and STAR."

Among the items receiving more attention is estate tax reform. Cuomo noted that New York is one of only 15 states that impose an estate tax, and has particularly low exemption levels and high rates. According to the Briefing Book, the state's current policies encourage elderly New Yorkers to leave and makes transfers of small family-owned businesses problematic. Cuomo said he is also suggesting that the value of gifts be added back to the estate and that the state close loopholes that allow certain trusts to avoid paying New York taxes.

Cuomo also lists various tax simplification proposals, including increasing the PIT tax filing income threshold from the current $4,000—set in 1987—to the amount of the taxpayer's standard deduction. This would eliminate the need to file for some 270,000 filers.

Another proposal is the repeal of article 12 of the tax law, which covers tax collections on stock sales transfers from financial service companies. Cuomo said these are fully and immediately rebated and that this tax exists only as "an alternative source to repay New York City Municipal Assistance Corporation Bonds," which have long been retired.

CPAs will be particularly interested in two filing changes the governor is suggesting. One is modifying signature requirements on professionally prepared e-filed returns. Preparers would no longer have to obtain a signed signature document from clients, but could use a electronic certification.

For CPAs who have self-employed clients, the budget includes a provision to let these clients file and pay MTA mobility taxes while they file their personal incomes taxes, simplifying compliance.

Not Everyone Is Happy
Although it seems as if there's something for everyone in the budget bill,  there's already criticism with strong political undertones. Recently elected New York City Mayor Bill de Blasio made universal pre-kindergarten a centerpiece of his campaign—and proposed a new tax on the wealthy to fund it. That's not the route Cuomo was planning to take. Rather, even amidst his tax cuts, he was offering $1.5 billion for pre-K. But de Blasio is saying that's not good enough, according to a New York Times article. The Times said this was a symbol of possible problems between the state's two most powerful Democrats: the pragmatic, centrist governor and the unabashedly liberal mayor who just won an overwhelming victory. The article said the Republicans in the state legislature whom Cuomo has to work with may have little appetite for any tax increases—an intra-party fight is possible.

Meanwhile, Crain's New York Business pointed out the non-financial provisions of the budget bills, such as government ethics overhaul. Governors often slip these extras into budget bills, hoping to see pet projects pass with the rest of the budget, but there's a good chance they'll be removed before a final vote. Crain's also pointed out a recent report that showed that fourth-quarter sales tax revenue in the state's 57 counties outside of New York City grew by a mere 1.4 percent over the previous year. Balancing tax cuts against lower revenues could be a problem.

Major political figures in the state have not yet issued a formal reply to the budget, but State Senator Dean Skelos, a Republican and the Majority Coalition Leader, and Sheldon Silver, a Democrat and the Assembly Speaker, both sounded notes of cautious optimism in TV interviews. Skelos said he thought he could work with the governor on the budget and felt confident there would be an on-time passage yet again. Silver hedged on the education disagreement between de Blasio and Cuomo, saying it was always good to get more for education and hinting at a compromise.

Of course, everything is still at the discussion stage. Now comes the tricky part of negotiating all the provisions between Democrats and Republicans and between downstate and upstate legislators. As the budget proceeds to a final vote, the NYSSCPA E-zine will continue to report on changes.

Meanwhile, those who want to read every detail, including the dozen different bills that make up the proposed budget, can do so on the state's Division of the Budget site. 

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