• New York: Controversies Over the Governor’s Tax Plans Take Shape
  • April 13, 2017 | Authors: David D. Ebersole; David M. Kall; Michelle Rood
  • Law Firms: McDonald Hopkins LLC - Columbus Office; McDonald Hopkins LLC - Cleveland Office
  • In Gov. Andrew Cuomo’s 2018 Executive Budget, the Budget Director touted the state’s “prudent fiscal management,” the features of which are constrained expenditures, lower taxes, economic stability, governmental innovation, and monetary discipline. This has generated a turnaround in New York’s circumstances such that it now enjoys the second-highest or highest investment-grade credit ratings on various bonds, record level support for schools, cost-effective health care, and expanded opportunities for the middle class. 
     
    Even so, this fiscal year’s tax receipts have not been as high as expected, so state officials are proceeding cautiously with next year’s budget. Among other things, they are holding spending growth to 2 percent, increasing reserves, and building in contingencies for unpredictable federal payments, while also maintaining, for the most part, the recently enacted tax reforms. 
     
    More specifically on the tax front, the Executive Budget contemplates a three-year extension of the top income tax rate of 8.82 percent, reduced from 8.97 percent on January 1, 2012, until the end of 2020; a permanent extension of the high-income charitable contribution deduction; and an increase to the Child and Dependent Care Credit. 
     
    In addition, the Executive Budget strives to capture the revenue lost from on-line purchases when the seller is located outside of New York by modernizing sales tax collections to reflect the internet economy. The plan is to require “facilitators,” like eBay and Amazon.com, to tax the sale whether the seller is in or outside of New York. The Executive Budget similarly seeks to authorize - and tax - transportation network companies (TNC’s) for operations outside New York City and throughout the state. For rides commencing outside of the Big Apple, the tax would be 5.5 percent, and for those starting within the city, the existing rate is 8.875 percent. These two measures have generated the expected controversy. 

    TAXING INTERNET PURCHASES

    In opposition testimony at the Joint Legislative Public Hearing on the 2017-2018 Executive Budget, the Vice President of the Business Council of New York State stated that:
     
    [t]he issue of sales tax collection on Internet sales is a national issue, and the correct forum is Congress, which has the authority to address existing limitations and allow states to compel remote vendors to collect and remit sales tax. We do not support this proposal to share a single-state rule for sales tax nexus. 
     
    Likewise, the Internet Association (Association), a group that calls itself “the voice of the internet economy,” opposes the sales tax collection plan, and has opened an Albany office just in time to fight them. Said the president and CEO in a February press release, “New York State is at the epicenter of some of the country’s most important internet policy debates.” The New York State Executive Director added that the state “has tried to brand itself as open for business, but entire sectors of the internet economy remain closed off from doing business here.”
     
    The press release claimed that “the internet sector is 6 percent of U.S. GDP and employs nearly 3 million Americans, including more than 200,000 jobs in New York State.” Thus, in early February, the executive director “urg[ed] lawmakers to reject the [g]overnor’s unprecedented proposal to require online marketplaces to collect sales taxes on behalf of individual vendors. The proposal creates compliance burdens for growing marketplaces and sets a new precedent for discriminatory tax collection in New York State.”
     
    The Association’s mission is to “foster innovation, promote economic growth, and empower people through the free and open [i]nternet.” To that end, in a report titled “Refreshing Our Understanding of the Internet Economy,” the Association explained that “[t]oo often policies and regulations for the internet are designed and implemented without any real appreciation for their short- or long-term impact. Often, this arises from a misunderstanding of the sector as a whole or from a misunderstanding of the particular platform or service model being targeted.” The group laments that “[b]usinesses that didn’t exist just two or three years ago are being treated the same as industries created over a century ago,” and asserts that the gap needs to be closed. 
     
    On the other hand, many businesses, especially those that operate under the more classic brick-and-mortar store model, support taxing on-line purchases, because it levels the playing field, making it easier for them to compete with the internet giants.

    TAXING AND REGULATING RIDESHARING

    New Yorkers for Ridesharing is not pleased that currently, ridesharing services are only available in New York City, citing research concluding that 77 percent of New Yorkers want it throughout the state. 
     
    The governor agrees, and his efforts to bring this to fruition, by way of a comprehensive taxing and regulation scheme, got a bit closer to reality with the Senate’s passage of Senate Bill 4159. The Citizen pointed out that in contrast to the 5.5 percent tax rate contained in Gov. Cuomo’s Executive Budget, the legislation calls for a 2 percent rate, to be used for infrastructure investments, and exempts rideshare services from the New York’s 4 percent sales tax. 
     
    The Citizen underscored the fact that SB 4159 has bi-partisan support. One senator declared that "[r]idesharing will mean more jobs, safer roads and better transit options for my community and those like it across upstate.” But not everyone agrees. The Upstate Transportation Association, “which has spoken out against proposals to allow ridesharing outside of New York City, blasted the Senate's proposal and referred to it as a one-house bill.”