Newsmaker: New Tax Commissioner Reveals His Priorities

By:
Chris Gaetano
Published Date:
Dec 10, 2019


Michael R. Schmidt was nominated by Gov. Andrew Cuomo in January to be commissioner of the New York State Department of Taxation and Finance, and was confirmed by the state Senate in June. Prior to his current position, Schmidt served as deputy secretary for economic development, where he oversaw policy and operations for 12 state agencies and authorities. Previously, Schmidt served as economic policy adviser to Hillary Clinton during her 2016 presidential campaign, and he also served in the Office of Domestic Finance at the U.S. Department of the Treasury.  He took the time to talk to The Trusted Professional and go over his policies and priorities. The Q&A has been edited for length and clarity.

What would you say is the biggest tax administration challenge facing your department today?

You can think of the New York state tax department as a large organization, almost a business, that operates at scale. In New York, we have 26 million tax returns filed every year, 24 million electronically. We take around 5 million calls and send 17 million pieces of discrete correspondence, so that’s really a lot of activity. The shift toward automated, technology-driven operations has developed really rapidly over the last 20 years. So one thing I’ve been struck by is maintaining the taxpayer perspective in the context of a large, automated, technology-driven business and making sure we have that perspective well represented. To give just one example—and one, in fact, where the NYSSCPA has had a role in helping us think through the issues—we have a lot of work to do to make our correspondence as clear and as understandable as possible, and those are the types of challenges I’d like to take on.

What new program or initiatives will your office be focusing on over the coming months?  What’s on the horizon for you?

Most immediately, we have tax season coming up for the personal income tax, so we’ve got to get ready for that; to implement all the legislative changes associated with last year’s budget; and to get ready for the upcoming legislative session, where the tax department does have a role in supporting the executive and legislative branches in designing tax legislation going forward. One big potential piece of business on that front, with huge implications for the department, is the potential adoption of an adult-use, regulated cannabis program, which would be a sizeable new regulated market in the state, and there are very important decisions that have to do with tax policy and tax administration associated with that.

And what would be the tax department’s role in that program? How would you be supporting this effort?

I think important questions with respect to what an adult-use cannabis program will look like are: How is it taxed? What are the tax rates? Where is that tax collected and from whom? And how do we work to operate such that we’re pulling as much of the black market into a regulated and taxed program? So I think the role of the tax department would be administering that program but also working with other regulators in the state—health regulators and others—in providing a kind of coordinated, comprehensive statewide approach to the issue.

You spent many years focused on federal policies, from the U.S. Treasury Department’s Office of Domestic Finance to the 2016 Clinton campaign. In what ways do New York’s tax policy challenges mirror those of the nation as a whole and in what ways are they unique to this state?

In some ways, they’re identical in the sense that, in New York state, we actually start, as the basis of our personal income tax, with the federal adjusted gross income. So to the extent that the federal government adjusts its tax policies, there is an immediate and potentially consequential effect on the state, which is what we saw after the federal government passed the Tax Cuts and Jobs Act and we had to respond to that. But there are areas where it’s completely different. If you look at the state and local level, the largest tax collected is not even collected at the federal level—property tax—and the department has a role in overseeing that system. Similarly, there are all sorts of challenges associated with sales tax policy and collection, which we in the state have to grapple with. In addition, at the state level, we really have to think of what it means to operate in an integrated national economy, and the types of policy and administrative challenges that presents, such as the attribution of tax for multinational companies—how do we do that at the state level? We think about collection of sales tax from out-of-state vendors—there’s a lot of activity going on there right now. So that’s a set of challenges that exist at the state level as well.

Similarly, when you were deputy secretary of economic development in Albany, you oversaw a wide variety of agencies, each focused on different sets of issues. What kind of insights does this macro view give you into the specific area of state tax policy and administration?  As tax commissioner, how can you advance the overall economic agenda that you focused on before?

I think it’s safe to say that I really value the broader set of policy-related experiences I’ve had in economic development and housing policy. Earlier, I worked at the U.S. Treasury Department, focusing on regulatory reform issues in the wake of the 2008 crisis. It’s very valuable to have a perspective not only on these other policy areas and how they can have an impact on the economy and people’s lives, but also on how tax policy can interact with these other areas. Having that broader range of perspectives has really been a help.

Understanding that it’s always a little of both, do you view your position as more administrative, as in making sure that processes and procedures run smoothly, or transformative, as in using your position as tax commissioner to drive broader economic change?

I would adjust the question or even challenge the premise. One of the things I’m excited about in this job is just the impact you can have operating in the context of tax administration, given the extent to which we touch so many people’s lives. One thing the governor has said in the past is that when you think of how people interact with the government, they go to the DMV and they pay their taxes. But the real day-to-day touchpoints, the year-to-year touchpoints, to me, as someone who believes in the role of the public sector in making people’s lives better, it’s critically important we make those interactions as modern and customer-friendly as we possibly can. So that’s something I talk about a lot. I started out talking about the importance of maintaining the taxpayer perspective, and that’s where it really comes from for me: understanding that when we serve taxpayers well, we can really have an important impact on how they perceive their government.

A lot of our readers are tax practitioners who will be directly affected by your policies. What message would you have for them?  And, similarly, what could New York’s preparer community do for you and your department?

The most important thing we can do in tax administration, for everyone, is to encourage voluntary compliance. That is the name of the game. It’s better for taxpayers, better for the state, better for the department, and the practitioner community can be such a huge part of that. If we are communicating well with practitioners, if we are effective in maintaining that partnership, then tax practitioners can be a multiplying force in terms of allowing us to encourage responsible compliance throughout the state with all taxpayers. So I view it as a really critical relationship in that sense. In terms of what practitioners can do to support us, feedback is really important. I want to hear when things are going wrong, when there are areas of department operations that can be improved. If there’s a notice that goes out that can be improved, we need to know that because then we can take the time to fix it. So that type of feedback loop is something I’m really focused on making sure we have, and I’ve been in touch with the NYSSCPA, figuring out how we can interact with your organization on a regular basis, and I’m excited about that.

New York has joined other states in working to both repeal the $10,000 state and local tax (SALT) deduction cap, as well as to legitimize the use of charitable deductions to mitigate its effects. Do you believe this matter is eventually bound for the Supreme Court?

Well, it’s a matter of ongoing litigation, so I won’t necessarily comment on that path, but I can talk briefly about the SALT issue. The background, of course, is that legislation the federal government passed at the end of 2017, which for the first time in the history of the income tax—going back to the Civil War—significantly limited the deductibility of state and local taxes. That’s an action that had a disproportionate and negative impact on states like New York. We have calculated that we expected federal tax liability to increase for New York residents as a result of the cap by around $15 million every year. One thing proponents of the cap talked about in the past is that the SALT deduction is a subsidy for high-tax states; in fact, the subsidy has already been going in the other direction. In New York, we pay the federal government billions more than we get back every year. We are the largest “donor state” in the country, and this cap takes that imbalance and really supercharges it in a way that I think is significantly damaging for the competitiveness of the state and [its] residents.

Tax departments all over the country have faced IT challenges, particularly where it concerns upgrading from old legacy systems. Where do you think New York is when it comes to these challenges, and what is the plan to meet them?

I spend a good amount of time interacting with other state tax administrators, and I think it’s fair to say that when it comes to the adoption of technology over the last 10–15 years to improve process streams and security in the overall operations of the department, we have been at the forefront here in New York, and there’s a lot to be said for that, but there’s a lot that we can still do. Like almost every

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