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Daily Tax Report: State

Cuomo Proposes N.Y. Tax Cuts for Small Businesses, Farmers (2)

Jan. 8, 2020, 8:10 PMUpdated: Jan. 8, 2020, 10:19 PM

New York small businesses would get their corporate tax rate cut almost in half, and farmers would see better tax treatment under new proposals by Gov. Andrew M. Cuomo (D).

The plans for small businesses and farmers were among the features of Cuomo’s Jan. 8 State of the State address, which also included proposals for the legislature to take another shot at legalizing marijuana—with an estimated eventual revenue payoff of $300 million—and to institute “green tax credits” for environmental-related job creation and capital investments.

Cuomo touted what he called “the lowest middle class tax rate since 1947, the lowest manufacturers tax rate since 1917, and the lowest corporate tax rate since 1968” in the state under his tenure, which began in 2011. He also took credit for last year’s action to make permanent a 2% statewide property tax cap begun in 2012, which he said has saved taxpayers $45.6 billion since then.

The annual speech, which kicked off the 2020 legislative session, offered no broad-based tax cuts, but touted the third year of implementation of phased-in tax cuts enacted in 2016. The personal income tax rate will drop in 2020 to 6.09% from 6.85% for taxpayers in the $40,000 to $150,000 bracket, and to 6.41% in the $150,000-$300,000 bracket. That represents a savings of $1.8 billion for taxpayers this year, Cuomo said.

The newly proposed small business tax cut would lower the current rate to 4% from 6.5% for corporations with fewer than 100 employees and less than $390,000 in income. Some 36,000 taxpayers meet that definition. The 6.5% rate itself was the product of a corporate franchise tax reform package adopted in 2014, when it was cut from 7.1%.

In other proposals, the governor’s plan would repeal the penalty on S corporations that underpay their estimated tax. Only 15,000 of the state’s 400,000 S corporation taxpayers are required to make the estimated payments, which are triggered by a threshold of $1,000 in taxes owed.

Also, some 4,000 sole proprietors and farmers would see a tripling of the amount they can exclude from adjusted gross income if they file returns under the personal income tax and have less than $250,000 in net income. The current excludable amount is 5% of adjusted gross income.

Farmers with state investment tax credits would also be allowed to claim refunds from the credit, in an expansion of refundable status that now applies only to new businesses. That would allow taxpayers whose primary source of income is farming operations to “receive the full benefit of their credits earned,” Cuomo said.

Checks for Low-Income Taxpayers

Low-income taxpayers would receive checks for the state earned income tax credit even if they don’t claim it on their returns, under another Cuomo proposal. The program provides more than $1 billion in tax relief annually, but “thousands of eligible New Yorkers fail to claim this valuable credit each year,” he said.

Cuomo also pledged to take on abuses by software vendors that try to charge fees for help with the state’s “free file” program for low-income taxpayers, by stepping up tax agency public awareness outreach drives and offering volunteer assistance in using the program.

He also took another swipe at the 2017 federal tax law’s cap on the state and local tax deduction, vowing to continue efforts to reverse “the Federal Government’s unjust, unconstitutional taxation of our state

Republicans Respond

Republican legislators, in response to Cuomo’s speech, hit on talking points about New York’s population losses, its tax burden, and a looming $6 billion budget deficit tied to the state Medicaid program.

“Our state is in a challenging chapter in our history,” Assemblyman Mike Norris (R) said in a statement. “Sadly, we top population out-migration of all states in the nation and this is directly linked to high taxes and burdensome cost of doing business here.”

Spending cuts, not tax increases or added debt, should be the answer to the budget hole, Assemblyman Mark Johns (R) said. “We cannot borrow—or tax—our way to prosperity,” he said.

But Republican views aren’t expected to carry much weight in the 2020 session, with a Democratic advantage of 106-43 in the Assembly and 40-22 in the Senate.

In another response, the Food Industry Alliance, a trade association of retailers, wholesalers, and suppliers, welcomed Cuomo’s plan for a small-business tax cut. The proposal would benefit the state’s small and independent groceries, the group said. But it complained that Cuomo’s proposed labor mandates and product bans could have “unintended consequences” for the industry and its workers.

Welcoming Cuomo’s tax proposals for farmers was David Fisher, president of the New York Farm Bureau, who said in a statement that the “significant tax cuts” highlighted in the speech are priorities for the industry association.

(Updates with marijuana revenue estimate in second paragraph, New York Farm Bureau statement in last paragraph.)

To contact the reporter on this story: John Herzfeld in New York at jherzfeld@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Vandana Mathur at vmathur@bloombergtax.com

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