ALBANY – The Democratic leadership of the Assembly rejected a proposal yesterday to increase taxes on unincorporated businesses in New York City and other downstate counties because of its potential impact on small businesses and some financial services and consulting firms, the speaker of the Assembly, Sheldon Silver, said late yesterday.

The state Senate had proposed adding a 10% surcharge on the business income of unincorporated businesses within the 12-county service area of the Metropolitan Transportation Authority. Corporations in the area currently pay a 17% surcharge on top of income tax payments to support the transportation network’s annual $8 billion budget.

“The Senate tax proposal is off the table,” Mr. Silver told The New York Sun.

Sources close to the negotiations said the Assembly viewed the proposed tax as a potential excuse for small businesses in and around New York City to leave the state. The president of the Partnership for New York City, Kathryn Wylde, said staff members for Mr. Silver yesterday afternoon gave members of her staff a verbal commitment that they would not support the proposal.

“We understand that Speaker Silver felt this tax would have had a negative impact on this region and that the Assembly was not supportive of it, which we appreciate very much,” Ms. Wylde said. “It was a tax that was particularly onerous to New York City, and it would have been a major disincentive for many of our professional-service and financial firms to remain in the city and of others to relocate here. We’re very pleased the Senate has backed off.”

The leader of the Senate, Joseph Bruno, a Republican of Brunswick, said talk of the proposal dying in the Assembly was “speculation.”

The legislative committee responsible for proposing an alternative to Governor Pataki’s transportation budget closed its sessions yesterday without resolving how $3 billion in transportation funds would be raised. The tax on unincorporated businesses was expected to raise $250 million.

The Legislature is proposing to spend $17.9 billion for the MTA, or $1.3 billion less than Mr. Pataki proposed in his executive budget in January. Legislators say the governor’s proposal did not outline revenue sources. The Legislature was not clear yesterday on how it would raise funds, either.

The Republican chairman of the Senate’s transportation committee, Senator Thomas Libous, said $3 billion in the legislative proposal would be raised from sources that legislative leaders like Messrs. Bruno and Silver would have to determine. “I think if we got into a menu right now, it would not solve the issue of coming up with the revenues,” Mr. Libous told legislative leaders at a joint budget conference meeting yesterday.

The transportation committee has agreed on an Assembly proposal to put $2.9 billion in transportation borrowing up for a referendum. The committee agreed that half the money, if approved by voters in November, would go to upstate road and bridge work, while the other half would go to the MTA. Voters rejected a $3.8 billion transportation bonding act in a 2000 referendum.

The transportation committee proposed drawing $5.8 billion in transportation funds from the federal government; $1.4 billion from the sale of assets, including the West Side rail yards; $2.9 billion from the bond act; $3 billion from revenue sources that have yet to be determined, and an additional $4 billion through borrowing that it agreed to approve for the MTA.

A member of the committee, Assemblyman Richard Brodsky, could not say late yesterday where the remaining $800 million would come from. Mr. Brodsky, a Democrat of Westchester, said the legislative proposal did not include $2 billion for subway construction in Manhattan that Governor Pataki promised if the Jets stadium were approved and built. Mr. Brodsky also said he did not know whether the MTA’s chairman, Peter Kalikow, would be happy with the plan, seeing that members of the MTA board had asked the state for $27.1 billion for its core needs and its five-year capital plan.

“That’s a funny word, ‘Happy,’ ” Mr. Brodsky said. “We would have liked for this to be a richer program.”