New Tax Code Will Boost State Business

Sometime around noon on Friday, a small group of lawmakers took their seats on an elevated dais in an aging indoor amphitheater at the Capitol. With hundreds of spectators looking on, the mixed group of Republicans and Democrats announced they had reached agreement on how to spend $106.5 billion over the next 12 months. The budget process, as far as the Legislature was concerned, was finished. The meeting, however, was not.Before listing all the points of agreement, a little piece of political theatre would have to play out first. As the cameras rolled, the legislators spent several minutes pretending to negotiate policy changes that had taken months and, in some cases, years, to reach this point. The final decisions had all been made already, but the appearance of dialogue would give politicians the opportunity to take or deny credit. Throats were cleared.The lead actors in this telling, if dry, performance were Senator Joseph Bruno, the Republican leader of the Senate, and Assemblyman Sheldon Silver, the Democratic leader of the Assembly. Senator Dean Skelos, a Republican from Long Island, and Assemblyman Herman Farrell, a Democrat from Manhattan, played supporting roles. Objections were raised and met. Messrs. Bruno and Silver punctuated each round with a quip. Spectators laughed.As far as theatrical performances go, the final meeting of the General Conference Committee was more or less flat. A few lines were delivered with emphasis, but there was little action. And there were no surprises for many of the lobbyists in the audience. They knew the outcome already after weeks of negotiations. Some had even written the lines. The real drama had taken place behind the scenes.This was especially so for one issue in particular. For years, businesses in the state have pushed with no success a change in the way they are taxed. According to people close to the negotiations, a series of unexpected events resulted in a sweeter change than even the most optimistic lobbyists on the issue could have expected this year. And the script was barely dry by the time it reached the hands of Messrs. Bruno and Silver.Until now, corporate taxes in New York were based on three factors: in-state sales, the number of in-state employees, and the value of instate property and equipment. Last year, Governor Pataki proposed taxing businesses based only on in-state sales. When legislators rejected this proposal for a so-called single sales factor, the governor introduced it again this year with stricter limitations. Only businesses that operated within narrowly-drawn upstate districts would be included.Several weeks ago, legislators indicated they planned to reject the program around which the new districts would be drawn. The single sales factor appeared dead again. But on Thursday night, the mood began to change. Members of the Assembly were apparently under pressure from manufacturers, financial service firms, the television and filmmaking industries, and publishing houses, all of which would have benefited from the change.Late Friday morning, lobbyists heard stirrings the plan would be approved. Moreover, the Legislature was now agreeing to offer a more expansive plan than even the governor had proposed. Mr. Bruno spoke first, suggesting lawmakers implement the plan wholesale. Mr. Silver nodded approvingly. Mr. Skelos said it made sense not to penalize in-state companies. Mr. Farrell urged caution. Phase it in over four years, he said. Everyone agreed this was a sound approach.The ease of this play negotiation concealed sharp reactions elsewhere. Those who view the single sales factor as a tax giveaway sounded off. “This is terrible,” said the director of the labor-backed Fiscal Policy Institute, Frank Mauro. “Unless it includes some requirement for job retention, it’s a complete free lunch.” The president of the Partnership for New York City, a business group, Kathryn Wylde, said she was pleased. “This change is very important to a number of our members in manufacturing and service industries in terms of making New York City more competitive,” she said.The news even spread to Massachusetts, where lawmakers had adopted the single sales factor to retain manufacturers and mutual fund firms. With New York adopting the same plan, the Bay State no longer benefits by comparison. “We’re disappointed,” said the executive vice president of a Massachusetts business advocacy group, Associated Industries of Massachusetts, Brian Gilmore. “We’ve found this to be a valuable economic tool. The less other states know about it the better.”The impact of the single sales factor remains to be seen. Taxing businesses only on New York sales means that New York-based companies like IBM and Kodak will see a decrease in taxes. Out-of-state firms like Virginia-based Philip Morris that have high sales here should see an increase. Proponents say the new tax formula is the positive answer to outsourcing because it removes a major incentive for sending jobs elsewhere.But all these factors have long been understood. The real reason the change took place this year, one lobbyist said, is that one unnamed company was threatening to nix a major investment in New York unless lawmakers adopted the single sales factor. Stay tuned. If this account is true, the company’s chief executive will no doubt be handed his or her own script in the weeks ahead.Mr. McGuire is the Albany correspondent for The New York Sun. bmcguire@nysun.com

New Tax Code Will Boost State Business

New Tax Code Will Boost State Business

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