A GUIDE TO NEW YORK STATE TAXES:
History, Issues and Concerns
Marilyn M. Rubin
February 2011
A GUIDE TO NEW YORK STATE TAXES:
HISTORY, ISSUES AND CONCERNS
Marilyn Marks Rubin
John Jay College
February 2011
Funded by the Peter J. Solomon Family Foundation
Marilyn Marks Rubin
Professor
John Jay College
City University of New York
445 W. 59th Street
New York City, NY 10019
(212) 237-8091
mrubin@jjay.cuny.edu
Peter J. Solomon
Chairman
Peter J. Solomon Company
520 Madison Avenue
New York City, NY 10022
(212) 508-1600
pjsolomon@pjsolomon.com
http://www.pjsolomon.com
Preface
The Guide to New York State Taxes is a companion to the Guide to New York City Taxes published in
December 2010. The origin of the City Guide is a report on NYC taxes prepared for me by Dr.
Marilyn Rubin, a consultant to my office when I was Deputy Mayor for Economic Policy and
Development under Mayor Edward I. Koch.
In the late 1970s, New York City and State were in the midst of a fiscal crisis – much like today.
Decisions on taxes were then and are now essential to the vitality of the State and City, yet those making
policies and opining on them often do not have sufficient knowledge. We hope that this Guide, clearly
defining the history of NYS taxes, their rates and bases, who pays them and the issues associated with
each will allow more informed tax policy decisions and a better understanding of the effect of changes.
Dr. Rubin prepared the 2011 NYS Guide and its companion NYC Guide with a grant from the Peter J.
Solomon Family Foundation under the auspices of John Jay College where she is a Professor of Public
Administration and Economics and Director of the MPA Program. Dr. Rubin is an expert on state and
local taxes and is an elected fellow of the National Academy of Public Administration (NAPA), chartered
by the U.S. Congress to help government leaders build accountable, efficient and transparent
organizations. I am indebted to Dr. Rubin for her thorough and thoughtful analysis. Her colleague, Dr.
Catherine Collins at George Washington Institute of Public Policy, provided extensive input into the
report. Adjunct faculty members at John Jay College, Caroline McMahon and Michael Walker, assisted in
data collection and in the preparation of the Guide as did Annemarie Eimicke and Dov Horwitz, former
students in the College’s MPA Program.
Dr. Rubin and I are grateful to the many professionals who have read and commented on the State Guide
including several experts in NYS agencies dealing with State taxes. We thank Stephen Solomon and
Kenneth Moore of Hutton & Solomon, LLP, for their input on some of the more technical aspects of the
State’s taxes and the many associations and companies that have provided comments on sections of the
Guide and data used in its exhibits.
In closing, the work is ours and, while we have received many helpful suggestions from the persons listed
above, we bear full responsibility for its accuracy and completeness. We welcome comments.
Peter J. Solomon
Chairman, Peter J. Solomon Company, L.P.
February 2011
CONTENTS
Executive Summary ………………………………………………………………………
i
Personal Income Tax ……………………………………………………………………..
1-1
Sales/Use Tax …………………………………………………………………………….
2-1
Cigarette/Tobacco Products Tax ………………………………………………………..
3-1
Alcoholic Beverage Tax ………………………………………………………………….
4-1
Motor Fuel Tax …………………………………………………………………………..
5-1
Highway Use Tax…………………………………………………………………………
6-1
Auto Rental Tax ………………………………………………………………………….
7-1
Corporation Franchise Tax ………………………...……………………………………
8-1
Corporation and Utility Tax …………………………………………………………….
9-1
Insurance Tax …………………………………………………………………………….
10-1
Bank Franchise Tax …………………..………………………………………………….
11-1
Petroleum Business Tax ………………………………………………………………….
12-1
Real Estate Transfer Tax ………………………………………………………………...
13-1
Estate Tax …………………………………………………………………………………
14-1
Executive Summary
EXECUTIVE SUMMARY
Introduction
The purpose of the Guide to New York State
Taxes is to provide information on State taxes to
a wide range of readers in a format that is broad
in scope and non-technical in presentation.
The State has several websites that present
information on NYS taxes including the annual
Handbook on New York State and Local Taxes
and the Economic and Revenue Outlook that
accompanies the annual Executive Budget. Both
describe the NYS tax structure, but neither
provides a broad non-technical picture of State
taxes, showing their structural elements as well
as other relevant details – how they have
evolved over time, how much revenue they
generate, how they compare to similar taxes
imposed in other states and whether local
governments impose a similar tax.
NYS levies 14 major taxes including the
Personal Income Tax, the Sales/Use Tax, five
business taxes, five excise taxes, and two
transfer taxes. Exhibit 1 at the end of this section
shows the revenues from each tax.
Personal Income Tax. The Personal Income
Tax (PIT) is the primary NYS tax source,
accounting for 60.1% of State tax revenues and
27.4% of total State revenues in FY2010 (see
Figure 2). The tax is imposed on NYS residents
and on non-residents with income attributable to
NYS sources. Non-residents generate more than
15% of State PIT revenues.2
The Guide presents this information for the
State’s major taxes as of Fiscal Year 2010.1 It
also discusses issues and concerns that must be
addressed if NYS is to maintain its competitive
position as a place to conduct business and its
reputation as a desirable place to live.
Taxes and Other NYS Revenue Sources
Taxes are the main source of NYS revenues. In
FY2010, of the $126.9 billion in total State
revenues, 45.5% was attributable to taxes (see
Figure 1).
Sole proprietors, partnership members and S
Corporation owners/shareholders are subject to
the PIT rather than to a NYS business tax. For
sole proprietors, the PIT is imposed on business
net earnings. For partnership members, the tax is
imposed on their distributive share of partnership income. Limited Liability Companies
(LLCs) are taxed as partnerships under NYS Tax
Law unless they choose to be treated as
corporations. For S Corporations, income passed
through to individual owners/shareholders is
subject to the PIT.
Mobility Tax. Effective 2009, NYS imposed the
Metropolitan Commuter Transportation Mobility
Tax, a payroll tax on most employers3 and selfemployed individuals conducting business in
i NYC and the other 7 counties in the MCTD:
Dutchess, Nassau, Orange, Putnam, Rockland,
Suffolk and Westchester. NYS distributes all
proceeds from the Mobility Tax to the MTA.

Personal Income taxes, such as the State
PIT, are always paid by individuals. Payroll
taxes may either be withheld from employee
wages or paid from the employer's own
funds. For the Mobility Tax, employers are
prohibited by law from deducting any
portion of the tax from employee wages or
compensation.
The Mobility Tax rate is 0.34%. For individuals,
the tax is imposed on net earnings from selfemployment allocated to the MCTD.4 Partners –
including members of LLCs treated as
partnerships for purposes of the Federal Income
Tax – are subject to the tax on net earnings
allocated to the MCTD. Corporations, including
S Corporations, pay the tax on the payroll of
workers employed in the MCTD. Distributions
to S Corporation owners/shareholders are not
subject to the Mobility Tax.
Sales/Use Tax. The second largest source of
NYS tax revenues is the Sales/Use Tax. It
generated $10.5 billion in FY2010, accounting
for 18.2% of NYS tax revenues and 8.3% of
total State revenues. The Sales Tax is imposed
on the sale of most goods purchased in NYS and
on enumerated services provided in the State.
The Compensating Use Tax is imposed on
purchases made outside of the State and brought
into it for use.
0.34% Mobility Tax on the payroll of workers
employed in the MCTD.5
Excise Taxes. NYS levies excise taxes on
selective commodities or transactions – cigarettes, alcoholic beverages, motor fuels,
highway use, and auto rentals. In FY2010, the
State’s five excise taxes generated $2.3 billion in
revenues, accounting for 4.0% of NYS taxes and
1.8% of total revenues.
Transfer Taxes. The two other major taxes
imposed by the State are the Real Estate
Transfer Tax (RETT) and the Estate Tax. In
FY2010, the RETT generated $493 million,
accounting for 0.9% of tax revenues and 0.4% of
total State revenues. The Estate Tax produced
$866 million, accounting for 1.5% of tax
revenues and 0.7% of total State revenues.
Trends in NYS Tax Revenues
NYS collected close to $58 billion from all taxes
in FY2010, an increase of 37% over FY2000.
These revenues are, however, in current or
nominal dollars that do not take inflation into
account. Constant dollar revenues are adjusted
for inflation and show real tax changes over
time. FY2010 constant dollar revenues were 7%
above those in FY2000 but 9% below the peak
reached in 2008 (see Figure 3).
Business Taxes. The third largest source of
NYS tax revenues comes from business taxes
imposed on general corporations, banking
corporations, insurance companies, utilities and
petroleum companies. In FY2010, the five taxes
generated $7.5 billion, accounting for 12.9% of
NYS taxes and 5.9% of total State revenues.
Business tax revenues include receipts from the
temporary 17% surcharge imposed in 1982 on
corporate taxpayers conducting business in the
MCTD. As discussed above, corporations doing
business in the MCTD are also subject to the
Because of the predominance in the NYS tax
base of the PIT and other economically sensitive
taxes, constant dollar tax revenues closely track
economic conditions in the State6 (see Figure 4).
ii Local Government Taxes
State taxes must be considered in conjunction
with local government taxes to determine the
total tax burden in NYS. More than half of total
taxes paid in NYS are collected by local
governments.7
The Real Property Tax (RPT) is the primary
source of local government revenues. In
FY2009, it accounted for 78% of local
government tax revenues and 41% of total local
government revenues, with the exception of
NYC (see Figure 5). NYC is excluded because
its revenue structure differs significantly from
that of all other jurisdictions in the State.
In addition to the Real Property Tax, NYC is the
one local government in NYS authorized to levy
a personal income tax, business income taxes
and several other taxes.8 The City of Yonkers
also levies an individual income tax. Certain
other local governments including cities,
counties, and school districts are authorized to
impose sales/use taxes, taxes on hotels and motels, real estate transfer taxes, mortgage recording taxes and utility taxes.
Real Property Tax. The Real Property Tax
(RPT) is levied in more than 4,700 taxing
jurisdictions in NYS based on the value of
residential and non-residential real properties
with certain exceptions.9 Reliance on the RPT
varies by type of government. In FY2009,
counties received 23% of their revenue from the
RPT, cities 25%, towns/villages 53% and school
districts 53%.10
Included in the school districts’ RPT share are
payments received from the NYS School Tax
Relief (STAR) fund, one of the State’s several
Special Revenue Funds discussed later in this
section. STAR is supported by a portion of NYS
Personal Income Tax receipts. Excluding STAR
payments, the RPT accounted for 46% of school
district revenues in FY2009.
The State and the RPT. Although NYS does
not levy a State real property tax, it has a major
role in determining the structure and administration of local property taxes. Some of the
State’s regulations allow local governments
discretion in their adoption. Other regulations
are mandatory, either constitutionally or
statutorily.
The expansive role of the State in local property
taxation and in all other taxes is explained by
what is known as Dillon’s Rule. Established in
1872 in a treatise on municipal corporations
authored by Iowa Supreme Court Judge John F.
Dillon, the Rule dictates that municipalities are
limited to powers explicitly given to them by the
state. The creature of the state principle remains
the legal doctrine governing current state-city
relationships throughout the U.S., as modified
by individual state laws permitting home rule.
Most states, including New York, have modified
Dillon’s Rule by providing home-rule powers to
certain or all local governments, either under
their constitutions or by statute. Home-rule
iii municipalities are taken out from under Dillon’s
Rule and permitted to operate under their own
charter which establishes local governance and
administrative practices. In general, however,
home-rule authority does not extend to
autonomy over the power to tax.
Other than setting annual Real Property Tax
rates – and even this action is taken within NYS
constitutional and statutory constraints – local
government actions related to the RPT and to
other taxes are subject to initiation or approval
by the Governor and State Legislature with the
exception of the assessing function. The State
provides guidance for assessment but cannot tell
local assessors what an assessment should be.
Only the courts or a locally appointed appeals
body may do so.
Dedicated Tax Revenues
Unlike most private sector entities that keep a single
set of accounts for all transactions, governments
generally divide their financial resources into
separate accounting entities called funds. Receipts
that flow into these funds are derived from several
sources including state taxes.
General Fund. The majority of NYS tax
revenues are deposited in the State’s General
Fund, the primary operating fund of the State.
The revenues in the General Fund are available
to pay for most purposes that the State is legally
empowered to pursue.

Budgetary shortfalls always refer to the gap
between revenues and expenditures in the
General Fund.
Other Funds. NYS revenues also flow into
other funds which are available for certain
operations but have statutory restrictions on their
use.11
Special Revenue Funds. Special revenue funds
are earmarked for specific purposes and are
supported by dedicated taxes and other revenue
sources. An example of a special revenue fund is
the NYS School Tax Relief Fund (STAR).



STAR provides Property Tax relief for State
residents with incomes below a certain level
by exempting a portion of the taxable value
of their primary residence from local school
district property taxes.
NYC residents – both owners and renters –
with annual incomes below a certain level
are also eligible for a refundable STAR
credit against City PIT liability.
STAR is financed by a dedicated portion of
NYS Personal Income Tax collections that
are used (1) to reimburse school districts for
forgone Property Taxes resulting from
STAR reductions to the taxable value of
taxpayer properties; and (2) to reimburse
NYC for forgone revenues resulting from
the STAR credit taken by taxpayers against
their City PIT liability.
Debt Service Funds. Debt service funds are
established to cover interest and repayment of
principal on the State’s general obligation debt,
special obligation debt, lease purchases, and
contractual obligations. An example of a debt
service fund is the Local Government Assistance
Tax Fund (LGATF).

To eliminate annual cash flow borrowing in
the first quarter of each fiscal year, 1990
legislation authorized the Local Government
Assistance Corporation (LGAC) to issue
bonds to finance payments to local
governments previously funded by the State.
By 1995, the Corporation had issued its
entire authorization. LGATF revenues are
dedicated to the payment of debt service on
outstanding LGAC bonds.12
 LGATF is financed by a dedicated portion
of NYS Sales/Use Tax receipts. All revenue
in excess of the aggregate amount required
for debt service payments must be deposited
in the General Fund.
Capital Projects Funds. Capital projects funds
finance the acquisition and construction of State
facilities and projects and provide financial
assistance to local governments and public
authorities. An example of a capital projects
fund is the Dedicated Highway and Bridge Trust
Fund (DHBTF).

The Dedicated Highway and Bridge Trust
Fund supports transportation projects such
as the reconstruction and preservation of
iv 
NYS and local roads. The Fund is also used
to pay debt service on State-supported
Dedicated Highway and Bridge Trust Fund
Bonds.
The DHBTF is financed by dedicated
receipts from the Motor Fuel Tax, Highway
Use Tax, Auto Rental Tax, Petroleum
Business Tax, a portion of the Corporation
and Utility Tax, and by motor vehicle fees.
Exhibit 2 provides information concerning the
NYS taxes dedicated to the Special Revenue,
Debt Service, and Capital Projects Funds.
Although fund revenues are meant to be used
solely for purposes described in their authorizing
legislation, special language may allow for
transfer of funds, particularly to the General
Fund.
Tax Expenditures
Tax expenditures can be defined as government
spending through the tax system. They result in
revenue losses to government attributable to tax
law provisions that permit taxpayers to reduce
their taxes by subtracting exclusions,
exemptions and deductions from their gross
income, applying tax credits against their tax
liability, taking tax deferrals and using
preferential tax rates.

Exclusions, exemptions and deductions
reduce taxable income. For example, Bank
Taxpayers are allowed a net operating loss
deduction (NOLD) – subject to certain
restrictions – that reduces their taxable
income.
 Credits are subtracted dollar-for-dollar from
tax liability thus reducing tax payments. For
example, taxpayers are permitted to take a
credit for college tuition paid against their
PIT liability. Certain credits are refundable
which means that if the value of the credit
exceeds tax liability, the excess is refunded
to the taxpayer.
 Tax deferrals result from delayed
recognition of income. For example, money
placed into certain retirement accounts is not
taxed until withdrawn.
 Preferential tax rates apply lower tax rates to
part or all of a taxpayer's income. For
example, some small businesses and certain
manufacturing and emerging technology
companies pay a 9A Corporation Franchise
Tax rate of 6.5% on their net income rather
than the 7.1% paid by most other
corporations.
Estimated forgone revenues to NYS resulting
from each of its tax expenditures ranges from
under a million dollars to more than a billion
dollars per year.13 Tax expenditures with an
estimated revenue impact of more than a billion
dollars in FY2010 include:



The exclusion of interest, dividends and
capital gains from Subsidiary Capital on the
9A Corporation Franchise Tax
The interest deduction on the Personal
Income Tax
The exemption of certain foods from the
Sales/Use Tax.
Comparisons with Other States
States differ with respect to the taxes they
impose, their tax structure and rates, and the
authority given to local governments to levy
their own taxes. Differences among states are
significant and contribute to their competitive
position for businesses and residents.
Several measures are used to compare taxes
among the states; individual state rankings
depend on which measure is applied. Table 1
shows how NYS ranks relative to four
neighboring states applying the two most
commonly used measures: (1) Per Capita State
Taxes and (2) State Taxes as a Percent of
Personal Income. Both measures are based on
data collected and published by the U.S. Bureau
of the Census.


Per capita state taxes measures tax
collections relative to the size of the
population served by government.
State taxes as a percent of personal income
relates tax payments to an indicator of state
economic performance.
As seen in Table 1, NYS ranks higher, i.e., has a
greater tax burden, than its four neighboring
states with one exception. Among all 50 states,
New York ranks 7th and 15th, indicating that
several states have greater tax burdens based on
the two measures.
v Table 1:NYS and Four Neighboring States: State Tax
Burden Rankings, 2009*
Measure
NY
NJ
PA
CT
MA
Per Capita
7
10
22
5
11
State Taxes
State Taxes as
15
28
29
19
31
% of Personal
Income
*Possible values range from 1 to 50. The lower the
ranking, the higher the tax burden.
Source: Federation of Tax Administrators based on U.S.
Census State and Local Government Finances
When local taxes are added, Table 2 shows that
NYS does not fare as well. According to the Tax
Foundation, a Washington D.C. research
organization, NYS has a heavier state/local tax
burden than all states with the exception of New
Jersey, and a less competitive business tax
climate than all other 49 states.14
Table 2: NYS and Four Neighboring States:
State/Local Tax Burden Rankings
Measure
NY
NJ PA
CT
MA
State/Local
2
1
11
3
23
Tax Burden
2008*
Business Tax
50
48
26
47
32
Climate
2011**
*Possible values range from 1 to 50. The lower the
ranking, the greater the tax burden.
**A larger number indicates a more unfavorable business
tax climate with 50 the lowest possible ranking.
Source: The Tax Foundation
Common Issues and Concerns
The Guide to New York State Taxes describes
the structural elements of each major NYS tax as
well as other relevant details about the tax – how
it has evolved over time, how much revenue it
generates, and how it compares to similar taxes
in other states.
Although the taxes differ, several issues and
concerns are common among them. They are
discussed briefly below and explained more
fully in the descriptions of the individual taxes
in the Guide. Exhibit 3 shows which of the
State’s major taxes are affected by the common
issue and concern.
High Taxes. As discussed above, NYS has the
least favorable business tax climate of all 50
states and the highest state/local tax burden of
all states with the exception of New Jersey. The
many taxes levied by NYC and other local
governments on top of those imposed by NYS
are a major factor contributing to the State’s
unfavorable tax burden rankings.
Combined NYS/NYC Taxes. NYS levies many
taxes on the same base as NYC. Of the 19 taxes
imposed by the City, 11 are also levied by
NYS.15 Comparative tax burden studies always
show NYC with the highest or close to the
highest combined city/state burden in the nation.


The City has the highest combined
state/local personal income tax rate and the
highest combined state/local corporate
income tax rate in the U.S.
The combined NYS/NYC Real Property
Transfer Taxes and Mortgage Recording
Taxes give NYC the highest real estate
closing costs in the U.S.
Taxes on Utilities. Variation among the states in
electricity, telecommunications and other utility
costs is primarily attributable to state and local
taxes. In NYS, taxes imposed on utilities include
the State Gross Receipts and 9A Corporation
Franchise Taxes, local business income/gross
receipts taxes, State/local sales taxes and local
property taxes. Surcharges also contribute to
high utility costs in NYS.


NYS and local government taxes/fees paid
by utilities are passed along to customers in
their bills, with few exceptions. For
example, for an average residential customer
living in NYC, taxes/fees represent almost
half of their electricity delivery bill.
NYS ranks second to Hawaii in the price of
electricity paid by most consumers; it ranks
fourth highest among all states in taxes
imposed on mobile telecommunications
providers.
Property Taxes. Residential property taxes in
many NYS jurisdictions are among the highest
in the nation. In 2009, of 10 counties in the U.S.
with the highest ratio of median real estate taxes
to median home values, 9 were located in NYS:
Monroe, Niagara, Wayne, Chemung, Chauvi tauqua, Erie, Onondaga, Steuben and Madison.
Property Taxes as a percent of median home
values in these counties ranged from 2.43% to
2.89%; the U.S. average was 1.04%.16
Electronic Commerce. The growth in ecommerce is a new challenge, with rapidly
changing communications technologies making
geographic borders less relevant for many taxes.
The increase in e-commerce sales and the failure
of most taxpayers to remit taxes on their
purchases has negatively impacted the State’s
Sales/Use Tax collections and those of local
governments that impose similar taxes. The loss
in 2009 of NYS/NYC Sales and Use Tax
revenues resulting from untaxed e-commerce
sales is estimated at $655 million.17 Cigarette
Tax revenues are also adversely affected by
Internet sales.
The growing use and reliability of
telecommunications technology also means that
more business can be conducted electronically
with physical location no longer a necessity.
This, too, has an adverse impact on NYS and
NYC tax revenues as businesses act to reduce
their tax liabilities through increased use of the
Internet and emerging technologies.
Government Regulatory Reforms. Passage of
the Federal Gramm-Leach-Bliley Act (GLBA)
in 1999 removed the regulatory demarcation
between banks, securities firms, and other
financial institutions including insurance
companies. Currently, banks are taxed under
the NYS Bank Tax; other financial services
institutions under the 9A Corporation Franchise
Tax. NYS is considering a single tax structure
for financial institutions. A proposal prepared
by the State has been forwarded to members of
the industry for review and comment. The
recently enacted Federal Dodd-Frank Wall
Street Reform and Consumer Protection Act has
changed the regulatory environment for
financial institutions, reinforcing the importance
of restructuring the State’s taxation of banks
and other financial institutions.
The Insurance Industry. GLBA confirmed the
intent of Congress that insurance companies
continue to be regulated by the 50 states. The
Dodd–Frank law, however, is giving the Federal
government an increasing role in the industry. It
provides for the creation of the first office in the
Federal government focused on insurance. One
of the functions of the office is to monitor the
insurance industry for systematic risk purposes.
Utilities. Many issues pertaining to utility
taxation relate to deregulation, particularly of
companies supplying electricity, natural gas and
telecommunications services. Deregulation has
changed the marketplace so that regulated
utility companies now compete with other
companies in providing electricity, natural gas
and telephone services.
Deregulation makes the distinction between the
taxation of NYS’s 9A Corporation Franchise
Taxpayers and Utility Taxpayers difficult to
rationalize. Most NYS corporations pay taxes
based on net income. Regulated utilites
companies are taxed on net income and gross
receipts.
Transparency. One of the standards of a good
tax and a good tax system is that they be
transparent to taxpayers. The meaning of the
different tax law provisions ought to be
straightforward and the mechanics of calculating
the tax should not be a mystery. The complexity
of several NYS taxes makes them opaque. The
94-page instruction booklet issued to taxpayers
with PIT tax forms illustrates the complexity of
the State’s major source of tax revenues. The
booklet contains instructions for three tax forms,
several tables explaining how to calculate tax
liability and advice to taxpayers for claiming
credits and deductions.
Tax Expenditures. The multi-billion dollar
revenue impact on NYS of tax expenditures
includes refunds to taxpayers by the State for
refundable credits.

For refundable credits, if the value of the
credit exceeds tax liability, the excess is
refunded to the taxpayer. For example, in
2006, the State refunded $208 million to 9A
Corporation Franchise Taxpayers of which
$41million was for Brownfield Credits.18
Some of these credits were for remediation
of Brownfield sites; some for redevelopment
vii 
of the remediated sites. Brownfield credits
taken against the PIT are also refundable.
Non-refundable credits are credits that allow
the taxpayer to reduce tax liability to zero.
The taxpayer is permitted to carry forward
many unused non-refundable credits to
reduce taxes in future years. For example,
in 2006, the unused carry forward
component of the Investment Tax Credit
(ITC) taken against the 9A Corporation
Franchise Tax was $1.3 billion.19
The annual tax expenditure report issued by the
State provides information concerning NYS
credits and other tax expenditures. No evaluation
of the effectiveness of refundable credits or any
other tax expenditures is included in the report.
Conclusions
NYS imposes a wide variety of taxes on its
residents, businesses and visitors. Most of the
State’s taxes were enacted more than 50 years
ago, long before dramatic technological
advances, new economic structures and
deregulation changed the environment in which
taxes are imposed. The information presented in
the Guide can provide a baseline for efforts
undertaken to improve and modernize the
State’s tax structure.
Endnotes
1
The NYS Fiscal Year runs from April 1 to March
31; the NYC Fiscal Year from July 1 to June 30.
2
NYS Division of the Budget. 2007 is the latest year
for which these data are available.
3
The only employers exempt from the tax are
agencies/instrumentalities of the U.S., the United
Nations, or an interstate agency or public corporation
created under an agreement or compact with another
state or Canada. Public school districts have their
mobility tax payments fully reimbursed by NYS in
the fiscal year following payment.
4
The tax does not apply if the individual’s allocated
net earnings from self employment are $10,000 or
less for the tax year.
5
The employer’s payroll expense must be greater than
$2,500 in a calendar quarter before the tax applies.
6
Economic conditions are measured by the NYS Index
of Coincident Economic Indicators developed by the
Federal Reserve Bank of New York. The Index
combines indicators of economic activity, including
employment, to measure overall changes in economic
conditions in NYS.
http://www.ny.frb.org/research/regional_ economy/
coincident_nystate.html.
7
2008 is the latest year for which composite local
government tax data are available from the U.S.
Census of Government Finances, the only published
source for such data.
8
Among the taxes levied by NYC are: the General
Corporation Tax, Bank Tax, Utilities Tax,
Unincorporated Business Tax, Commercial Rent Tax
and the Hotel Tax.
9
NYS law mandates that property owned by
government entities and certain not-for-profit
organizations be fully exempt from the RPT. Other
properties are partially exempt under various
programs.
10
NYS Office of the Comptroller (2009 data for fire
districts are not available). http://www.osc.state.ny.
us/ localgov/datanstat/findata/index_choice.htm.
11
Government funds not included here are Proprietary
Funds and Fiduciary Funds.
12
There has been no NYS intra-year short-term
borrowing since FY1994. Currently, any State intrayear short-term borrowing requires a declaration of
emergency by the Governor and legislative leaders
and must be paid down within four years following
such a declaration.
13
Estimated FY2010 revenue impacts of all NYS tax
expenditures can be found in the 20th NYS Annual
Report on Tax Expenditures
http://www.budget.state.ny.us/pubs/archive/fy0910ar
chive/eBudget0910/fy0910ter/TaxExpenditure0910.pdf.
14
Tax Foundation http://www.taxfoundation.org/news/show/335.html
and
http://www.taxfoundation.org/publications/show/226
61.html.
15
The 19 taxes include the tax on Off-Track Betting
administered by the NYC Off-Track Betting
Corporation (OTB) which was closed as of December
2010.
16
Tax Foundation http://www.taxfoundation.org/
taxdata/show/1888.html
17
Bruce et al. State and Local Government Sales Tax
Revenue Losses from Electronic Commerce.
http://cber.bus.utk.edu/ecomm/ecom0409.pdf .
18
2006 latest data available in NYS Annual Report on
Tax Expenditures. As a result of tax law provisions
enacted in the 2010 NYS budget, participants in the
Brownfield Program with cumulative tax credits in
excess of $2 million must defer them.The deferral
will apply to credits that could otherwise have been
claimed in tax years 2010, 2011 and 2012.
19
Ibid.
viii Exhibit 1: NYS General Fund and All Funds Revenues, FY2010 ($ in Millions)
General Fund
All Funds1
% of
% of
Total
% of Total
Total
% of Total
NYS
NYS
NYS
NYS
Revenues
Taxes
Revenues
Revenues
Taxes
Revenues
Total Revenues
$52,556
$126,748
All Taxes
36,997
100.0
70.4
57,668
100.0
45.5
Personal Income Tax
22,654
61.2
43.1
34,751
60.1
27.4
Sales and Excise Taxes
8,087
21.9
15.4
12,852
22.2
10.1
Sales/Use Tax
7,405
20.0
14.1
10,527
18.2
8.3
Excise Taxes
682
1.8
1.3
2,312
4.0
1.8
Cigarette and Tobacco Products
456
1.2
0.9
1,366
2.4
1.1
Alcoholic Beverage
226
0.6
0.4
226
0.4
0.2
Motor Fuel
507
0.9
0.4
Highway Use
137
0.2
0.1
Auto Rental
76
0.1
0.1
Business Taxes
5,371
14.5
10.2
7,459
12.9
5.9
General Corporation Tax (9A)
2,145
5.8
4.1
2,511
4.3
2.0
Bank Tax
1,173
3.2
2.2
1,399
2.4
1.1
Insurance
1,331
3.6
2.5
1,491
2.6
1.2
Petroleum Business Taxes
1,104
1.9
0.9
Corporation & Utility Taxes
722
2.0
1.4
954
1.7
0.8
Transfer Taxes
866
2.3
1.6
1,359
2.4
1.1
Real Estate Transfer Tax
493
0.9
0.4
Estate and Gift Taxes
866
2.3
1.6
866
1.5
0.7
Other Taxes2
19
*
*
1,247
2.2
1.0
Miscellaneous Receipts
3,888
7.4
23,557
18.6
Federal Grants
71
0.1
45,523
35.9
Transfers
11,600
22.1
1
Includes General Fund, Special Revenue Funds, Debt Service Funds and Capital Projects Funds.
2
Includes the Pari-Mutuel Tax, the Racing Admissions Tax, the Boxing/ Wrestling Exhibitions Tax. Receipts from the Mobility Tax
imposed in the Metropolitan Commuter Transportation District are included in All Funds revenues.
*Less than 0.1%
Source: All Funds Revenues reported as receipts for 2009-2010. NYS Mid-Year Financial Plan Update 2010-11 through 2013-14,
November 1, 2010, pp. 46-58.
ix Exhibit 2: Dedicated Fund Tax Receipts (Millions of $), 2009-2010
FUND
Value
Total Tax Receipts: Dedicated Funds*
$22,416
Special Revenue Funds
8,805
School Tax Relief Fund (STAR)
3,420
Personal Income Tax
3,420
Dedicated Mass Transportation Trust Fund
655
Petroleum Business Tax
363
Motor Fuel Tax
105
Motor Vehicle Fees
187
MTA Financial Assistance Fund
1,545
MCTD Payroll Tax
1,384
Motor Vehicle Fees
121
Auto Rental Tax
26
Taxicab Surcharge
14
Mass Trans. Operating Assistance Fund
1,796
Corporate Surcharges
926
Corporation Franchise Tax
461
Corporation and Utilities Tax
139
Insurance Tax
133
Bank Tax
193
Other
870
Sales and Use Tax
662
Petroleum Business Tax
135
Corporation and Utilities Tax– Sections 183 & 184
73
HCRA Resources Fund
1,348
Cigarette Tax
898
Syrup Excise Tax
450
Other Special Revenue Funds
41
Motor Vehicle Fees
41
Debt Service Funds
11,563
Revenue Bond Tax Fund
8,806
Personal Income Tax
8,806
Clean Water/Clean Air Fund
256
Real Estate Transfer Tax
256
Local Government Assistance Tax Fund
2,501
Sales and Use Tax
2,501
Capital Projects Funds
2,048
Dedicated Highway and Bridge Trust Funds
1,849
Petroleum Business Taxes
621
Motor Fuel Tax
396
Motor Vehicle Fees
621
Highway Use Tax
140
Transmission Tax
18
Auto Rental Tax
53
Environmental Protection Fund
199
Real Estate Transfer Tax
199
*Total does not include proprietary funds or fiduciary funds.
Source: Estimates as reported in 2010-2011 Executive Budget, Economic and Revenue Outlook, p. 384.
x Exhibit 3: Common Issues and Concerns Related to Major NYS Taxes
Electronic
Commerce
Regulatory
Reforms
Tax
High Taxes
Personal Income

Sales/Use

Cigarette


Alcoholic
Beverage
Motor Fuels
Highway Use

Auto Rental
9A Corporation

Franchise
Utilities


Insurance

Bank


Petroleum
Real Property

Transfer
Estate

Does not include taxes that account for less than 0.1% of NYS tax revenues.
Lack of
Transparency


NYS Taxing Same
Base as Local
Government




Tax Expenditures


















xi Personal Income Tax
1.0 PERSONAL INCOME TAX
1.1 Overview
New York State adopted the Personal Income
Tax (PIT) in 1919 under Article 22 of the State
Tax Law. In FY 2010, the PIT generated $34.8
billion, accounting for 60.3% of NYS tax
revenues and 27.4% of all State revenues. Of the
$34.8 billion, 65.3% was deposited in the State
General Fund, 9.7% in the School Tax Relief
Fund (STAR) and 25.0% in the Revenue Bond
Tax Fund (RBTF).1
Taxable Income Sources. Residents are taxed
on all sources of income; non-residents are taxed
on income attributable to NYS sources. Income
sources for residents and non-residents include
wages, salaries, divided income and income
from business entities in which the taxpayer
performs services or holds an interest.


1.2 The NYS Personal Income Taxpayer
The State PIT is imposed on the taxable income
of NYS resident or non-resident individuals,
estates and trusts.

 Non-residents accounted for 10.2% of State
PIT tax returns and 15.5% of PIT liability in
2007. 2
Tax payments from high-income filers represent
a substantial portion of total PIT revenues. In
FY2010, an estimated 33% of PIT liability was
attributable to taxpayers with NYS Adjusted
Gross Income of $1,000,000 and above and 20%
to taxpayers with NYAGI of $200,000 up to
$1,000,000. As shown in Table 1.1, of total tax
returns, 0.4% and 2.6% were filed by these two
groups of taxpayers, respectively.
Table 1.1: NYS Personal Income Taxes, 2010
Percent of Total
Income
Tax
Tax
Liability Returns
$0-$50,000
4.6%
61.0%
50,000-100,000
23.3
26.4
100,000-200,000
18.6
9.7
200,000-1,000,000
20.2
2.6
1,000,000 & above
33.3
0.4
NYS
AGI
17.5%
28.5
18.6
14.7
20.7
Note: Percentages may not add to 100% due to rounding.
Source: Estimates by NYS Division of the Budget in 2010-2012
Executive Budget, Economic and Revenue Outlook, p. 192.

For taxpayers who are sole proprietors, the
PIT is imposed on business net earnings.
For taxpayers who are members of a
partnership, the PIT is imposed on their
distributive share of partnership income.
Partnerships, including limited liability
companies treated as partnerships, with
NYS-source gross income of $1 million or
more must pay a filing fee ranging from $25
to $4,500.
Limited Liability Companies are classified
and taxed as partnerships for purposes of the
New York State PIT unless they elect to be
taxed as a corporation.
S Corporation income is passed through to
individual shareholders and subject to the
PIT.
Filing Status. The State has 5 filing statuses,
e.g., married filing jointly with 7 tax brackets for
tax years 2009-2011 – 5 brackets are in the
permanent tax structure. The two temporary
brackets were added at the top end of the income
range with the highest rate set at 8.97% on
taxable income in excess of $500,000 for all
filers (see Exhibit 1.1).
The Mobility Tax. Effective 2009, NYS has
imposed the Metropolitan Commuter
Transportation Mobility Tax, a $0.34/$100 payroll tax on most employers and self-employed
individuals doing business in NYC and the other
7 counties in the MCTD: Dutchess, Nassau,
Orange, Putnam, Rockland, Suffolk and
Westchester. NYS distributes the mobility tax
revenues to the MTA.
1-­‐1 For individuals, the tax is imposed on net
earnings from self-employment allocated to the
MCTD for the tax year.3 Partners – including
members of LLCs treated as partnerships for
purposes of the Federal Income Tax – are
subject to the 0.34% tax on net earnings
allocated to the MCTD. For S Corporations, the
tax is imposed on the payroll of workers who are
employed in the MCTD; distributions to
owners/shareholders are not subject to the
Mobility Tax.
1.3 The NYS Personal Income Tax Base
The NYS Personal Income Tax base is derived
from the taxable income of residents and nonresidents with State-source income. As shown in
Figure 1.1, the starting point for computing NYS
Personal Income Tax liability is Federal
Adjusted Gross Income (FAGI) as reported on
Federal individual income tax returns. FAGI is
then adjusted to arrive at NYS Adjusted AGI
(NYAGI).
Once NYAGI is determined, taxpayers subtract
NYS deductions and exemptions from this value
to determine NYS taxable income – the base for
calculating NYS tax liability.
Deductions. New York State PIT filers may
deduct either the NYS-defined standard
deduction or State-defined itemized deductions
from their NYAGI. Taxpayers taking the
standard deduction for Federal purposes must
use the NYS standard deduction in calculating
their taxable income for State PIT purposes. The
standard deduction is $7,500 for single filers and
$15,000 for joint filers. Figure 1.1: Calculating NYS Personal
Income Tax Liability
Federal Adjusted Gross Income
Plus
New York State Add-ons
Minus
New York State Subtractions
Equals
New York State Adjusted Gross Income
Minus
NYS Deductions and Exemptions
Equals
New York State Taxable Income
Multiplied by
NYS Tax Rates
Equals
NYS PIT Liability Before Credits
Minus
NYS Tax Credits
Equals
Certain income items not taxed by the Federal
government are taxed by NYS; these are added
back to Federal AGI to calculate NYAGI. Other
items subject to Federal taxation are not taxed
by NYS; these are subtracted from Federal AGI
to calculate NYAGI.


Add-backs to FAGI include state, local and
foreign income taxes deducted for Federal
income tax purposes, interest on bonds
issued by other states and their localities,
and certain retirement and flexible benefits
paid to NYC and NYS employees. Other
add-backs result from NYS decoupling from
the Federal tax code, e.g., depreciation
allowances. 4
Subtractions from FAGI include interest
income on U.S. government bonds, taxable
social security payments, all Federal, NYS
and local government pension income,
qualifying private pension and annuity
income up to $20,000. NYS residents are
also permitted to subtract their contributions
of up to $5,000 ($10,000 for joint filers) per
year to the NYS College Choice Tuition
Savings Program.
NYS PIT Liability Deductions for taxpayers who itemize are the
same as those allowed for Federal income tax
purposes with certain modifications. These
include adding back State income taxes which
are deductible for Federal but not for State tax
purposes. Additional modifications are applied
to higher income filers.

For single NYS PIT filers with NYAGI over
$100,000, and for married filers with
NYAGI over $200,000, deductions are
1-­‐2 


limited to 75% of their modified Federal
itemized deductions.
For all filers with NYAGI greater than
$525,000 up to $1 million, deductions are
limited to 50% of their modified Federal
itemized deductions.
For all filers with NYAGI over $1 million,
itemized deductions are limited to 50%
percent of the charitable deductions taken
on the Federal return.
In Tax Years 2010 to 2012, for all filers with
NYAGI over $10 million, itemized
deductions are limited to 25% of charitable
contributions taken on their Federal return.
Exemptions. An exemption of $1,000 per
dependent is provided for purposes of
determining State PIT taxable income. Unlike
the Federal government, the State does not
permit an exemption for the taxpayer or spouse.
Tax Liability. As shown in Figure 1.1, State PIT
liability is calculated by (1) multiplying NYS
taxable income by the appropriate tax rates and
(2) subtracting the dollar value of tax credits
allowable by NYS, where applicable.
Credits reduce tax liability by an amount equal
to the value of the credit in contrast to
exemptions and deductions which reduce taxable
income, i.e. the base upon which tax liability is
determined.
Table 1.2: Highest Value Credits Taken Against NYS
Personal Income Tax Liability, Estimated FY2010
Percent of
FY2010 PIT
Credit
Value in Millions Revenues
Earned Income
$825
2.3%
Credit
Empire State
655
1.9
Child Credit
Brownfield*
465
1.3
Child and
300
0.9
Dependent Care
Credit
College Tuition
224
0.6
Credit
Qualified Empire
170
0.5
Zone Credits**
*Credit taken by sole proprietors, partners in partnerships, including
LLCs and shareholders in State S Corporations
**Effective 7/1/10, Empire Zone Credits have been replaced by
credits under the NYS Excelsior Jobs Program.
Source: Estimates from 20th Annual NYS Tax Expenditure Report,
pp. 28-30.
1.4
Trends in NYS Personal Income Tax
Revenues
The FY2010 revenues pictured in Figure 1.2
were 50% above FY2000 revenues in current
dollars. In constant dollars they were 17% above
FY2000 but 8% below the FY2008 peak year
level.
New York State provides credits to achieve three
different policy objectives. They are:

To reduce the tax burden for taxpayers with
incomes below a certain level.
 To promote certain taxpayer behavior.
 To encourage economic development/capital
investment. These credits are provided to
sole proprietors, partnership members and
other business owners who are subject to the
PIT rather than one of the NYS business
income taxes.
Certain PIT credits are refundable which means
that if the value of the credit exceeds tax
liability, the excess is refunded to the taxpayer.
The values of the most expensive PIT tax
expenditures in FY 2010 are shown in Table 1.2.
All PIT credits are listed in Exhibit 1.3.
Figure 1.3 shows that PIT revenues are sensitive
to changing economic conditions. The increase
in PIT rates to offset declining tax collections
prevented even larger revenue fluctuations than
those that actually occurred in several years
including 2010.
1-­‐3 
The combined NYC/NYS top PIT tax rate is
the highest in any jurisdiction in the U.S.
(see Exhibits 1.1 and 1.2)
Yonkers. Yonkers levies an income tax on
residents at a rate of 10% of their NYS tax
liability after accounting for non-refundable
credits. It imposes an earnings tax on nonresidents at a rate of 0.5% of wages/selfemployment earnings in Yonkers, after an
exclusion of $3,000 that phases out when
earnings exceed $30,000.
1.5 History of the NYS Personal Income Tax
In 1919, NYS became the 7th state to enact some
type of personal income tax. In 1959, the State
PIT law was adopted defining NY income
according to Federal law. Structural reforms that
change the definition of Federal taxable income
(e.g., deductions) have a direct impact on the
NYS definition of taxable income unless the
State makes modifications to its tax. Changes to
Federal tax rates, however, do not directly
impact the State since its own tax structure is
used to calculate NYS tax liability (see Figure
1.1, p. 2). Major legislative changes to the PIT
since 1980 are summarized in Exhibit 1.5.
1.6 The Personal Income Tax in NYS Local
Jurisdictions
NYC and Yonkers are the only local governments
in NYS with statutory authority to levy a Personal
Income Tax. Both taxes are administered by the
NYS Department of Taxation and Finance and
reported by taxpayers in a separate section of their
State Personal Income Tax returns.
New York City. The New York City PIT is
imposed on the taxable income of resident
individuals, estates, and trusts. No City PIT is
imposed on non-residents with the exception of
certain employees of the NYC government who
are required to pay an amount equivalent to the
PIT they would pay if they were City residents. 1.7 The Personal Income Tax in Other States
Forty-one states plus the District of Columbia
impose some type of broad-based income tax
(see Exhibit 1.4); in two states tax imposed
solely on dividends and interest income. Among
the 41 states imposing the tax, 15 give all or
certain local governments the option to impose a
similar tax. Philadelphia is the only local
government with a higher tax rate than NYC –
but it has a lower combined city/state rate.
1.8 Issues and Concerns
High Tax Rates. The two new marginal PIT
rates imposed by the State for tax years 20092011 bring the combined NYC/NYS top
marginal rate to 12.62%. This is the highest
combined state/city tax rate imposed in any
jurisdiction in the nation and provides an
incentive for high income earners living in NYC
to relocate especially to nearby states with lower
taxes.
Tax Expenditures. In FY2010, the total revenue loss to NYS associated with tax
expenditures related to the PIT was $10.8
billion.5 The loss resulted from:



exclusions taken by taxpayers in modifying
Federal AGI to arrive at NYAGI;
deductions and exemptions subtracted from
NYAGI to arrive at NYS taxable income
(the base for calculating tax liability); and
subtraction of the dollar value of credits
from tax liability to determine the amount of
taxes owed to NYS. The estimated value of
tax expenditures associated with credits
1-­‐4 
against the PIT in FY2010 was $3.0 billion
– 8.8% of FY2010 PIT revenues. All PIT
credits are listed in Exhibit 1.3.
Many PIT credits are refundable which
means that if the value of the credit exceeds
tax liability, the excess is refunded to the
taxpayer by NYS. In FY2010, the estimated
value of refunded credits was $2.8 billion.
Transparency. The 94-page instruction booklet
issued to taxpayers with the PIT tax form
demonstrates how complicated the tax is. Its
complexity results in a lack of transparency, an
important indicator of a good tax.6 The booklet
contains instructions for three tax forms, several
tables to assist the taxpayer in calculating tax
liability and instructions for claiming tax credits
and deductions.
Several components of the PIT contribute to its
complexity. These include the many add-backs
and subtractions from Federal Adjusted Gross
Income to determine NYS Adjusted Gross
Income and the close to 40 credits that can be
used by taxpayers to reduce tax liability –
assuming taxpayers understand their eligibility
for them. Special rules that apply to high income
taxpayers also contribute to the complexity of
the PIT.
Endnotes
1
Based on estimates for 2010 published in 2010-11
NYS Executive Budget. Economic and Revenue
Outlook, p. 177. http://publications.budget.state.
ny.us/eBudget1011/economicRevenueOutlook/econo
mic RevenueOutlook.pdf
2
2007 is the latest year for which these data are
available. Generally, non-residents can claim a credit
against income tax liability in their home state for
NYS taxes paid.
3
The tax does not apply if the individual’s allocated
net earnings from self employment are $10,000 or
less for the tax year.
4
Because the calculation of NYAGI starts with FAGI,
modification of FAGI will impact NYAGI. NYS
must pass legislation if it does not want the Federal
provisions to apply to NYS/NYC tax calculations.
This legislative action is referred to as decoupling.
5
NYS 20th Annual Report on Tax Expenditures
http://publications.budget.state.ny.us/eBudget1011/fy
1011ter/TaxExpenditure10-11.pdf p. 29.
6
American Institute of Certified Public Accountants
Guiding Principles for Tax Law Transparency.
Special instructions for taxpayers with annual
incomes in excess of $100,000 are provided in
the PIT instruction booklet. They require most
taxpayers in this income bracket to multiply
taxable income by a flat tax rate rather than
applying the progressive rate structure used by
other taxpayers.
1-­‐5 Exhibit 1.1: NYS Personal Income Tax Rates by Filing Status, Tax Year 2010
Rates
4%
4.5%
5.25%
5.9%
6.85%
7.85%*
8.97%*
Single/Married
Filing
Separately
$8,000 or less
Over $8,000 to $11,000
Over $11,000 to $13,000
Over $13,000 to $20,000
Over $20,000 to $200,000
Over $200,000 to $500,000
Over $500,000
New York State Taxable Income
Head of Household Filer
Married Filing Jointly**
$11,000 or less
Over $11,000 to $15,000
Over $15,000 to $17,000
Over $17,000 to $30,00
Over $30,000 to $250,000
Over $250,000 to $500,000
Over $500,000
$16,000 or less
Over $16,000 to $22,000
Over $22,000 to $26,000
Over $26,000 to $40,000
Over $40,000 to $300,000
Over $300,000 to $500,000
Over $500,000
*Two top rates are temporary for tax years 2009-2011. ** Same rates apply to qualified surviving spouse filers.
Source: New York State Personal Income Tax Return IT150/2010
Exhibit 1.2: NYC Personal Income Tax Rates by Filing Status, Tax Year 2010*
New York City Taxable Income
Rates
Head-of Household-Filer
Married Filing Jointly**
2.907%
3.534%
Single/Married Filing
Separately
$12,000 or less
Over $12,000 to $25,000
$14,400 or less
Over $14,400 to $30,000
$21,600 or less
Over $21,600 to $45,000
3.591%
Over $25,000 to $50,000
Over $30,000 to $60,000
Over $45,000 to $90,000
3.648%
Over $50,000
Over $60,000
Over $90,000
*Includes 14% additional tax (also referred to as the surcharge). For example, the top 3.648% base rate without the 14% additional tax is 3.2%.
**Same rates apply to surviving resident spouse filers.
Source: New York State Personal Income Tax Return IT150/2010
1-­‐6 Exhibit 1.3: NYS Personal Income Tax Credits, Estimated FY2010 Value (millions of $)
Tax Credit Category
Reducing Tax Burden on Filers with
Certain Income Characteristics
Encouraging Certain Taxpayer
Behavior
Economic Development/Capital
Investment Credits
Credit
Household Credit
Earned Income Credit*
Real Property Tax Credit (Circuit Breaker)*
Value
93
825
30
Child and Dependent Care Credit*
300
Empire State Child Credit*
655
Enhanced State Earned Income Tax Credit for Certain
Non-Custodial Parents *
College Tuition Credit*(includes value for itemized
deductions)
Rehabilitation of Historic Properties Credit
Historical Homeownership Rehabilitation Credit
Clean Heating Fuel Credit *
Long-term Care Insurance Credit
3
224
5
5
0.3
75
Conservation Easement Credit *
2
Solar Energy System Equipment Credit
**
Green Building Credit
0.2
Volunteer Firefighters and Ambulance Workers Credit *
14
Security Training Tax Credit*
0.1
Low-Income Housing Credit
Investment Credit
Investment Credit for Financial Services Industry
Qualified Empire Zone Credit*
Empire Zone and Zone Equivalent Areas Tax Credit***
20
24
0.4
170
45
Employment of Persons with Disabilities Credit
Accessible Taxicabs for Individuals with Disabilities
Credit
Purchase of an Automated External Defibrillator Credit
0.1
0.1
Qualified Emerging Technology Companies Credits
(QETC)
QETC Capital Tax Credit
QETC Employment Credit*
QETC Facilities, Operations and Training Credit*
Empire State Film Production Credit *
0.1
1
0.2
5
8
Brownfields Tax Credit *
465
Alternative Fuel Credit
**
Empire State Commercial Production Credit*
6
Bio-fuel Production Credit *
10
Farmers’ School Property Tax Credit*
30
*Refundable credit **Less than $100,000 in tax expenditures ***Refundable for new businesses only Note: Accumulation Distribution Credit ($0.1million), Nursing Home Assessment Tax Credit ($14 million) and the Special Additional Mortgage Recording Tax Credit ($20 million) not included. Source: 20th Annual Report on New York State Tax Expenditures, New York State Division of the Budget and Department of Taxation and Finance , Table 4. 1-­‐7 Exhibit 1.4: State Personal Income Tax Rates, 2010*
State
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
Tennessee
Utah
Vermont
Virginia
West Virginia
Wisconsin
Dist. of Columbia
Tax Rate
Range
2.0-5.0
2.59-4.54
1.0-7.0
1.25-9.55
+1%>$1 mill
4.63
3.0-6.5
Brackets
3
5
6
6
Personal Exemptions /Credits
$300/dependent; $1,500/single filer; $3,000/married filer
$2,300/dependent;$2,100/single filer; $4,200/ married filer
Tax credit: $23/dependent; $23/single filer; $46/married filer
Tax credit: $98/dependent; $98/single filer; $196 married filer
None
Maximum exemption $13,000, decreasing as income increases; phased out at AGI of
$61,000
2.2-6.95
6 Tax credits: $110/ dependent; $110/single filer; $220/married filer;
1.0-6.0
6 $3,000/dependent; $2,700 single filer; $5,400 married filer
1.4-11.0
12 $1,040/dependent; $1,040/single filer; $2,080/ married filer
1.6-7.8
8 $3,650/dependent; $3,650/single filer; $7,300/married filer**
3.0
1 $2,000/dependent and single filer; $4,000/married filer
3.4
1 $1,000/dependent; $1,000 /single filer; $2,000 /married filer
0.36-8.89
9 Tax credits: $40/dependent; $40/single filer; $80/married filer
3.5-6.45
3 $2,250/dependents; $2,250/single filer; $4,500/married filer
2.0-6.0
6 Tax credit: $20/dependent; $20/single filer; $40/married filer
2.0-6.0
3 Combined personal exemption and standard deduction: $1,000/dependent; $4,500/
single filer; $9,000 married filer
2.0-8.5
4 $2,850/dependent; $2,850/single filer; $5,700/married filer
2.0-6.25
8 $2,400/dependent; $2,400/single filer; $4,800/married filer
5.3
1 $1,000/dependent; $4,400/single filer; $8,800/married filer
4.35
1 $3,300/dependent, $3,300/single filer, $6,600/married filer
5.35-7.85
3 $3,650/dependent; $3,650/single filer; $7,300/married filer**
3.0-5.0
3 $1,500/dependent; $6,000/single filer; $12,000/married filer
1.5-6.0
10 $1,200/dependent; $2,100/single filer; $4,200/married filer
1.0-6.9
7 $2,110/dependent; $2,110/single filer, $4,200/married filer
2.56-6.84
4 Tax Credit: $118/dependent; $118/single filer; $236/married filer
State Income Tax Limited to Dividends and Interest Income
1.4-10.75
8 $1,500/dependent; $1,000/single filer; $2,000/married filer
1.7-4.9
4 $3,650/dependent; $3,650/single filer; $7,300/married filer**
4.0-8.97
7 $1,000 /dependent; no exemption for taxpayer or spouse
6.0-7.75
3 $3,650/dependent; $3,650/single filer; $7,300/married filer**
1.84-4.86
5 $3,650/dependent; $3,650/single filer; $7,300/married filer**
0.618-6.24
9 $1,550/dependent; $1,550/single filer; $3,100/married filer
0.5-5.5
7 $1,000/dependents; $1,000/single filer; $2,000/married filer
5.0-11.0
5 Tax credit: $176/dependent; $176/single filer; $352/married filer
3.07
1
None
3.8-9.9
5 $3,650/dependent, $3,650/single filer, $7,300/married filer**
0.0-7.0
6 $3,650/dependent; $3,650/single filer; $7,300 married filer**
State Income Tax Limited to Dividends and Interest Income
5.0
1 Tax credit: 75% of Federal personal exemption amounts phased out above $12,000 in
income ($24,000 for joint returns)
3.55-8.95
5 $3,650/dependent; $3,650/single filer; $7,300/married filer**
2.0-5.75
4 $930/dependent; $930/single filer; $1,860/married filer
3.0-6.5
5 $2,000/dependent; $2,000/single filer; $4,000/ married filer
4.6-7.75
5 $700/dependent; $700/single filer; $1,400/married filer
4.0-8.5
3 $1,675/dependent; $1,675/single filer; $3,350/married filer
1
3
Note: No PIT imposed in Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.
*Rates as of 1/1/2010. Rates do not include local government taxes.
**Exemptions as provided for Federal income tax purposes.
Source: Federation of Tax Administrators, State Individual Income Taxes.
1-­‐8 Exhibit 1.5: Major NYS Legislative Actions Affecting the NYS Personal Income Tax, 1980-2010
Year
Action
1981
Commission on Modernization and Simplification of the Tax Law (also known as the Legislative Tax Study
Commission) created to suggest strategies for reforming the State Tax Law.
Three-year tax reduction plan enacted which reduced PIT liability for all income groups, especially low and
middle income taxpayers.
NYS Tax Reform and Reduction Act passed in response to Federal Tax Reform Act of 1986 (TRA). TRA
decreased rates and broadened the federal income tax base by limiting certain exclusions and by repealing
certain itemized deductions and tax preferences. The NYS reform known as TRRARA contained provisions to
phase in a reduction in the number of basic tax rates from 12 in 1986 to 5 by 1989 and removed a large number
of low-income taxpayers from the tax rolls by increasing the State’s standard deduction.
1990 rates and standard deduction frozen at 1989 levels. Rates and standard deduction amounts were frozen
again in 1992, 1993, 1994, extending full phase in until 1997.
Supplemental tax enacted to recapture the benefit of the State’s graduated income tax rates for taxpayers with
NYAGI in excess of $100,000.
Limited Liability Companies (LLCs) established to be taxed under PIT.
1985
1987
1990
1991
1993
1995
1997
Phased-in reduction of the top tax rate from 7.875% in 1994 to 6.85% in 1997. Changed from a five-bracket
structure in 1994 to a four-bracket structure in 1995, then back to five in 1996 and later. Income level of top
bracket increased from $26,000 in 1994 to $40,000 in 1997 for married, filing jointly. Excess Deductions
Credit enacted for TY 1995 to offset potential tax increases for low and middle income taxpayers.
School Tax Relief (STAR) Program created to provide Property Tax relief financed by PIT receipts
2002
Tax amnesty program adopted for one year.
2003
2007
Two new tax brackets added for 2003, 2004, and 2005 applicable to high-income taxpayers. Temporarily
increased LLC fees for 2003 and 2004.
Required certain Federal S corporations to become New York S corporations.
2008
Restructured and reformed fees and minimum tax imposed on LLCs and S and C corporations.
2009
Enacted three-year surcharge on high income taxpayers. Extended PIT to cover sale of partnership interest by
non-residents when 50% or more of partnership’s real property is located in NYS. Limited itemized deduction
for taxpayers with incomes over $1 million. Repealed certain components of the STAR rebate program.
Imposed fees on non-LLC partnerships with NY-source income at above $1 million at same rates applicable to
LLCs.
2010
Further limited use of itemized deduction by taxpayers with NYAGI over $10 million to 25% of charitable
contributions on the Federal tax return for tax years 2010-2012.
Note: Exhibit 1.5 does not include changes to PIT deductions, exemptions or most credits.
Sources: Unpublished information supplied to author by NYS Assembly Ways & Means Committee. 2010-11 NYS Executive
Budget, Economic and Revenue Outlook.
1-­‐9 Sales/Use Tax
2.0 SALES/USE TAX
2.1 Overview
New York State adopted the State-wide Sales
and Compensating Use Tax in 1965 under
Article 28 of the State Tax Law. The Sales Tax
is imposed on the sale of most commodities
purchased in NYS and on enumerated services
provided in the State. The Compensating Use
Tax (Use Tax) is imposed on purchases made
outside of the State and brought into it for use.
In FY2010, the NYS Sales/Use Tax yielded
$10.5 billion including the $0.6 billion in
revenues from the 0.375% tax imposed in the
Metropolitan Commuter Transportation District
(MCTD). The $10.5 billion accounted for 18%
of NYS tax revenues and 8% of total State
revenues.
Of the total $10.5 billion in Sales/Use Tax
revenues, 70.3% was deposited in the NYS
General Fund, 6.2% in the State’s Mass
Transportation Operating Assistance Fund and
23.4% in the Local Government Assistance Tax
Fund (LGATF).1 LGATF receipts in excess of
debt service requirements on Local Government
Assistance Corporation bonds are transferred to
the General Fund.2
2.2 The NYS Sales/Use Taxpayer
Sales by the retail trade sector are the primary
source of NYS Sales/Use Tax revenues,
accounting for 44% of all taxable sales in 20072008. This was more than twice the 21%
generated by the services sector (including food
and accommodations), the second largest source,
and four times the 10% attributable to the
wholesale trade sector, the third largest source. 3
Vendors generally act as the tax collectors for
the State but for some purchases the individual
consumer may be liable for the tax. The
responsibility for Sales/Use Tax collections
depends on the venue in which the purchase is
made.

When a taxable purchase is made in-person
in NYS, the Sales Tax is collected by the
vendor who is required to remit the taxes
collected on the sale to the State. When the
purchase of a taxable commodity is made
remotely – by mail, over the phone, from a
catalog, or on-line – and the tax is not
collected by the vendor, the customer is
liable for remitting the Use Tax to NYS.4
 When a purchase is made outside of the
State and shipped to a NYS address, the
vendor is responsible for collecting the Use
Tax if it has nexus to the State. If the vendor
does not have nexus, the customer is
responsible for paying the Use Tax to NYS.
 When a taxable purchase is made outside
NYS and the out-of-state Sales Tax rate is
less than the tax rate in NYS, a Use Tax on
the difference between the two rates must be
paid by the customer.
Nexus. The term nexus in tax law describes a
situation in which a business has presence in a
jurisdiction and is thus required to collect taxes
for sales within that jurisdiction. In NYS and
elsewhere in the U.S., the determination of
nexus is based on two U.S. Supreme Court
decisions: National Bellas Hess v. Department
of Revenue in 1967 and Quill v. North Dakota in
1992.5
The Court ruled in Bellas Hess and reaffirmed in
Quill that a vendor is exempt from collecting the
Sales/Use tax in a jurisdiction in which it does
not have an identifiable physical presence. In
both cases, the Court acted on its interpretation
of the potential adverse impact on interstate
commerce if vendors were required to know the
rates and range of taxable items in every taxing
jurisdiction. Although both Bellas Hess and
Quill dealt with catalog mail orders, the Court’s
decisions have been extended to apply to ecommerce sales.
The rapid growth of e-commerce sales has
increased the complexity and the importance of
defining nexus. NYS and local government
losses of Sales/Use Tax revenues in FY 2010
2-­‐1 related to untaxed e-commerce sales is estimated
at $655 million.6
State Actions to Address the Nexus Issue. In
Quill, the Court acknowledged the power of
Congress to overturn its decision. In the absence
of any congressional action, the states have tried
to reconcile differences in their Sales/Use tax –
the problem identified in the Quill decision –
primarily through the Streamlined Sales Tax
Project (SSTP). The project, organized in 2000
by representatives from state legislatures, local
governments, and the private sector, has been an
attempt to minimize differences among state
sales taxes.
In 2002, the SSTP group approved the Uniform
Sales and Use Tax Administration Act, known
as the Streamlined Sales Tax and Use
Agreement (SSUTA). The Agreement combines
uniform
administration
procedures
with
simplification measures, but does not mandate
any actions by the states. By signing onto the
SSUTA, states agree to revise their Sales Tax
process and to make changes to their tax laws,
rules and regulations. Currently 20 states are full
members in compliance with the SSUTA; 3 are
associate members.7
Although NYS was party to development of the
SSUTA, it has not become a signatory to it. To
do so, the State would have to make extensive
revisions to its Sales Tax law including changing
its exemptions for telecommunication services,
clothing, drugs and medical equipment.
Addressing Nexus in NYS. In 2008, NYS
amended its Sales/Use Tax Law to address the
issue of physical presence and nexus particularly
as it relates to certain Internet vendors. The
amendment expands the State’s definition of
nexus to include companies that have no
physical presence other than in-State affiliates.
Referred to as the Amazon Law, the State’s
amendment is directed at Internet vendors using
affiliates to promote in-state sales. These
affiliates, or independent in-state website
owners, place a link to the Internet vendor on
their own websites and earn a commission on
sales made from referrals. Amazon.com challenged the amendment in the NYS Supreme
Court arguing that its affiliates are independent
contractors who are advertisers, and that
Amazon.com does not have nexus in New York.
The Court granted the State’s motion to dismiss
Amazon’s suit agreeing that New York-based
associates
are
solicitors,
thus
giving
Amazon.com nexus in New York. Amazon.com
is therefore required to collect the NYS
Sales/Use Tax and whatever local taxes are
applicable.

Amazon.com appealed the decision to the
Appellate Division of the NYS Supreme
Court. In November 2010, the Court held
that the NYS Amazon law is facially
constitutional but remanded the case back to
the lower court to determine whether the law
can be constitutionally applied. In December
2010, Amazon filed to appeal the appellate
court ruling.
2.3 The NYS Sales/Use Tax Base
The NYS Sales/Use Tax base consists of most
tangible personal property purchased in NYS
and certain services enumerated in the State Tax
Law. Sales of property and services for resale as
such are not subject to the tax. The Sales/Use
Tax rate is 4%. An additional 0.375% tax is
levied by the State on sales in NYC and the
other 7 counties that comprise the MCTD.
Tax Exemptions. The tax base is reduced by
exemptions for (1) certain items of tangible
personal property, (2) certain business
expenditures and (3) purchases by certain
entities.
Tangible Personal Property. Tangible personal
property exempt from the NYS Sales/Use tax is
specifically identified in NYS tax law. Major
exemptions include:


Most food for at-home consumption,
except for certain items such as soft
drinks, candy and alcoholic beverages;
Prescription drugs;
2-­‐2  Newspapers and periodicals;  Textbooks for college students; 

Tangible personal property sold to
someone other than an exempt
organization by a contractor adding to
or improving real property by a capital
improvement.
Clothing and footwear items priced at
$110 or less were exempt through
September 2010. The exemption, suspended from October 2010 through
March 2011, will be reinstated at $55/
item from April 2011 through March
2012 and at the $110 level effective
April 1, 2012.8
Exempt Entities. Two types of entities are
exempt from the NYS Sales/Use Tax: (1) those
that are required to apply for an Exempt
Organization Certificate from NYS and (2)
those that are not required to file for the
Certificate.


Entities required to apply for the Certificate
include not-for-profit religious, charitable,
educational and certain other organizations,
the UN and other international organizations
and U.S. armed forces posts. The Certificate
can be used to make exempt purchases on
behalf of the approved organization.
Organizations not required to apply for the
Certificate include: NYS and its political
subdivisions, U.S. governmental entities,
and organizations that operate under some
other NYS or U.S. federal statute which
exempts them from state and/or local taxes.
Business Expenditures. Certain business expenditures are exempt from the NYS Sales/Use Tax
to prevent tax pyramiding that occurs when
taxes are applied several times from production
to final sale. The business exemptions are:


Purchases by retailers from manufacturers or
wholesalers for items that will be resold
Purchases by manufacturers of machinery
and equipment to be used or consumed in
the production of tangible personal property
for sale.
Table 2.1 lists the NYS Sales Tax exemptions
with an estimated revenue impact of $100
million or more in FY2010.
Taxing Services. The NYS Sales/Use Tax applies to the purchases of most goods with enumerated exemptions. In contrast, services to be
taxed are specifically enumerated. They are:
















Sales of utility/telecommunication services;
Information services;
Protective/detective services;
Maintenance, installation, service and repair
of tangible personal property;
Maintenance/service/repair of real property;
Storage;
Food/beverages sold by restaurants/caterers;
Admission charges to places of amusement;
Receipts from sales related to the service of
parking/garaging/storing motor vehicles
Interior decorating and design;
Fabricating/processing/imprinting tangible
personal property;
Transportation services;
Charges of a roof garden/cabaret;
Sales of entertainment and/or information
provided over 800 or 900 phone numbers;
Hotel occupancy;
Social and athletic club dues.
Table 2.1: NYS Sales Tax Exemptions with Largest
Revenue Impact, Estimated FY2010 (millions of $)
Exemption
Value
Food Products*
1,162
Drugs, Medicine and Medical Supplies
951
Residential Energy
708
Installation Services on Capital Improvements
569
Cable Television Services
307
Interstate or International Telephone Service
265
Fuel Gas and Electricity used in R&D and
Production
Machinery and Equipment used in Production
261
Precious Metal Bullion and Coins
185
Automotive Fuel Receipts Exceeding
$2/gallon
Food Sold in School Cafeterias*
177
Eyeglasses, Hearing Aids, and Prosthetic Aids
119
Food Purchased with Food Stamps*
110
251
131
*Sales of food items otherwise taxable.
Source: Estimates from the NYS 20th Annual Tax
Expenditure Report, pp. 148-153
2-­‐3 In addition to the services taxed by NYS, some
local governments impose the Sales/Use Tax on
services not taxed by the State. For example,
NYC imposes its Sales Tax on:



Beautician services, barbering, and hair
restoring; tanning; manicure and pedicure;
electrolysis;
Massage services and services provided by
weight control and health salons,
gymnasiums, Turkish and sauna baths, and
similar establishments; and
Written or oral credit rating services;
and oral credit reporting services not
delivered by telephone.
2.4 Trends in NYS Sales/Use Tax Revenues
The FY2010 revenues pictured in Figure 2.1
increased 20.6% over FY2000 in current dollars.
In constant dollars, revenues were 6.2% below
their FY2000 level and 17.5% below the peak
reached in 2005.
2.5 History of the NYS Sales/Use Tax
NYS adopted its Sales/Compensating Use Tax
in 1965. Prior to that time, the tax was imposed
by NYC and 12 other local governments in the
State. The NYS tax was structured along the
same lines as the NYC tax where the base was
primarily tangible personal property. This
emphasis remains until the present time. Major
legislative changes to the State Sales/Use Tax
are presented in Exhibit 2.4.
2.6 The Sales/Use Tax in NYS
Jurisdictions
Figure 2.2 shows that Sales/Use Tax revenues
are economically sensitive meaning that tax
revenues generally rise and fall with changing
economic conditions. Tax base changes, the
introduction or elimination of tax exemptions
and collections from audits also impact revenue
trends.
Local
NYS law authorizes all 62 counties in the State
to levy their own Sales/Use Tax – in addition to
the State Tax – in one-half percent increments
up to 3%. All counties in the State impose the
tax. By special State legislation, all but 6 are
also permitted to levy an additional tax at rates
ranging from 0.125% to 1.75%.9 Currently NYC
and 10 counties have a combined state/local tax
rate above 8% (see Exhibit 2.1). The Sales Tax
has replaced the Property Tax as the primary
revenue source for many NYS counties.10
Cities. NYS law permits certain cities to impose
their own Sales/Use Tax at rates up to 3% in
addition to the State and county taxes (see
Exhibit 2.1). Some cities, including NYC, have
legislative authority to impose higher rates.
School districts in cities with fewer than 125,000
residents are permitted to impose a Sales Tax of
up to 3% on utility services.
2-­‐4 When both a county and a city within the county
impose the Sales Tax, the city may pre-empt part
of the county’s regular tax and, in some cases,
part of its additional tax. If a city pre-empts a
portion of its county Sales/Use Tax, NYS law
requires that the county share the same
percentage of Sales Tax revenues with all other
municipalities in the county.
2.7 The Sales/Use Tax in Other States
New York is one of 45 states plus the District of
Columbia to impose a Sales/Use Tax (see
Exhibit 2.2). Exemptions to the Sales/Use Tax in
NYS are similar to those in other taxing
jurisdictions. Thirty six states, including New
York, permit local governments to levy
additional tax. The 10.25% combined state/local
rate in Chicago is the highest combined rate in
the U.S. (see Exhibit 2.3).
2.8 Issues and Concerns
estimated $9.9 billion – an amount almost equal
to the $10.5 billion total Sales/Use Tax
collections for the year.12
Taxing Services. NYS taxes few of the 168
services identified by the Federation of Tax
Administrators (FTA) as potentially taxable.13
The taxation of additional services would
broaden the NYS tax base thus generating
additional tax revenues. Taxing certain services
such as those of medical doctors, however,
would make the tax more regressive meaning
that it would take a greater percentage of income
from lower income taxpayers than higher
income taxpayers.
Taxing certain other services would raise
questions relating to the fairness of the tax. For
example, the services of accountants and
lawyers working within a company would not be
taxed; these same services supplied externally
would be taxed.
Use Tax. The NYS Use Tax is collected from
individuals and reported on its own line on the
NYS Personal Income Tax form. NYS also
provides a table based on income to assist
taxpayers in determining their Use Tax liability.
Most individuals, however, fail to pay the Use
Tax causing NYS to lose significant amounts of
revenue annually. This is a problem faced by all
other states.
E-commerce. The increase in e-commerce sales
and the failure of most taxpayers to remit taxes
on their purchases has negatively impacted the
State’s Sales/Use Tax collections and those of
local governments that impose similar taxes. The
loss in 2009 of NYS/NYC Sales and Use Tax
revenues resulting from untaxed e-commerce
sales is estimated at $655 million.11
Tax Expenditures. A Sales Tax transaction can
be exempt from the tax because the good/service
is exempt or because its use, purchaser, or seller
is exempt. There are currently 145 provisions in
NYS Tax Law that have been identified as tax
expenditures related to the Sales/Use Tax. In
FY2010, they reduced State Tax revenues by an
2-­‐5 Endnotes
1
Based on estimates published in 2010-11 NYS
Executive Budget Economic and Revenue Outlook,
p.245.
http://publications.budget.state.ny.us/
eBudget1011/economicRevenueOutlook/economicRe
venueOutlook.pdf
2
For FY 2010, $2.3 billion of the $2.6 billion LGATF
deposits was to be transferred back to the General
Fund.
3
Economic and Revenue Outlook, p. 255.
4
Not all Use Tax derives from sales transactions.
Some transactions internal to a company can be
subject to the Use Tax.
5
National Bellas Hess v. Department of Revenue (386
U.S. 753) (1967); Quill v. North Dakota (504 U.S.
298) (1992).
6
Bruce et. al. State and Local Government Sales Tax
Revenue Losses from Electronic Commerce
http://cber.bus.utk.edu/ecomm/ecom0409.pdf
7
Full member states are: Arkansas, Indiana, Iowa,
Kansas, Kentucky, Michigan, Minnesota, Nebraska,
Nevada, N.J., North Carolina, North and South
Dakota, Oklahoma, Rhode Island, Vermont,
Washington, West Virginia, Wisconsin and
Wyoming.
8
Counties/cities with a Sales Tax exempting clothing/
footwear priced at $110 or below may continue to
provide the exemption. Effective March 1, 2011, they
may repeal it or provide it on items priced below $55.
9
Counties must obtain NYS legislative reauthorization to impose the additional tax.
10
Local government snapshot July 2010 NY Office of
the Comptroller
11
Bruce et al. State and Local Government Sales Tax
Revenue Losses from Electronic Commerce. at
http://cber.bus.utk.edu/ecomm/ecom0409.pdf
12
NYS 20th Annual Report on Tax Expenditures
http://publications.budget.state.ny.us/eBudget1011/fy
1011ter/TaxExpenditure10-11.pdf, p. 19.
13
http://www.taxadmin.org/fta/pub/services/tan0505_
services.pdf
2-­‐6 Exhibit 2.1: Combined State/Local/ Sales Tax Rates in NYS Counties and Cities 2010
County
Onondaga County
Albany County
8.000% Ontario County
Allegany County
8.500 Orange County*
Broome County
8.000 Orleans County
Cattaraugus County
8.000 Oswego County
Olean
8.000
Oswego
Salamanca
8.000 Otsego County
Cayuga County
8.000 Putnam County*
Auburn
8.000 Rensselaer County
Chautauqua County
7.750 Rockland County*
Chemung County
8.000 St. Lawrence County
Chenango County
8.000 Saratoga County
Norwich
8.000
Saratoga Springs
Clinton County
8.000 Schenectady County
Columbia County
8.000 Schoharie County
Cortland County
8.000 Schuyler County
Delaware County
8.000 Seneca County
Dutchess County*
8.125 Steuben County
Erie County
8.750
Corning
Essex County
7.750
Hornell
Franklin County
8.000 Suffolk County*
Fulton County
8.000 Sullivan County
Gloversville
8.000 Tioga County
Johnstown
8.000 Tompkins County
Genesee County
8.000
Ithaca
Greene County
8.000 Ulster County
Hamilton County
7.000 Warren County
Herkimer County
8.250
Glens Falls
Jefferson County
7.750 Washington County
Lewis County
7.750 Wayne County
Livingston County
8.000 Westchester County*
Madison County
8.000
Mount Vernon*
Oneida
8.000
New Rochelle*
Monroe County
8.000
White Plains*
Montgomery County
8.000
Yonkers*
Nassau County*
8.650 Wyoming County
New York City*
8.875 Yates County
Niagara County
8.000
Oneida County
8.750
Rome
8.750
Utica
8.750
8.000
7.500%
8.125
8.000
8.000
8.000
8.000
8.375
8.000
8.375
7.000
7.000
7.000
8.000
8.000
8.000
8.000
8.000
8.000
8.000
8.625
8.000
8.000
8.000
8.000
8.000
7.000
7.000
7.000
8.000
7.375
8.375
8.375
8.375
8.375
8.000
8.000
*Includes the 0.375% imposed by the State on sales in NYC and the other 7 counties and their municipalities that comprise the
Metropolitan Commuter Transportation District (MCTD).
Source: NYS Department of Taxation and Finance, New York State and Local Quarterly Sales and Use Tax Return
September 1-November 30, 2010. 2-­‐7 Exhibit 2.2: State Sales Tax Rates and Selected Exemptions, 2010
State
Tax Rate
Prescription
*
*
*
*
*
*
*
*
*
*
1%
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Exemptions
Drugs
Non- Prescription
Food
Alabama
4%
Arizona
5.6
*
Arkansas
6
2%; Local tax applies
California
8.25
*
Colorado
2.9
*
Connecticut
6
*
*
Florida
6
*
*
Georgia
4
Local tax applies
Hawaii
4
Low income rebate
Idaho
6
Low income rebate
Illinois
6.25
1%
1
Indiana
7
*
Iowa
6
*
Kansas
5.3
Low income rebate
Kentucky
6
*
Louisiana
4
Local tax applies
Maine
5
*
Maryland
6
*
*
Massachusetts
6.25
*
Michigan
6
*
Minnesota
6.875
*
*
Mississippi
7
Missouri
4.225
1.23
Nebraska
5.5
*
Nevada
6.85
*
New Jersey
7
*
*
New Mexico
5
*;
New York
4
*
*
North Carolina
5.75
Local tax applies
North Dakota
5
*
Ohio
5.5
*
Oklahoma
4.5
Low income rebate
Pennsylvania
6
*
*
Rhode Island
7
*
*
South Carolina
6
*
South Dakota
4
Low income rebate
Tennessee
7
5.5%
Texas
6.25
*
*
Utah
4.7
1.75%; Local tax applies
Vermont
6
*
*
Virginia
5
*
2.5%
Washington
6.5
*
West Virginia
6
3%
Wyoming
4
Low income rebate
Wisconsin
5
*
Dist. of Columbia
6
Note: State Sales Tax not imposed in Alaska, Delaware, Montana, New Hampshire and Oregon; local taxes may apply.
*Exempt from tax. Rates do not include local government taxes.
Source: Federation of Tax Administrators, February 2010. 2-­‐8 Exhibit 2.3: Sales Tax Rates, New York City and Other Large U.S. Cities, 2009
City
City Tax
State Tax
Other Sales Taxes
New York City
4.50%
4.00%
0.375%**
Los Angeles
1.50
8.25
Chicago
1.25
6.25
2.75 **
Houston
1.00
6.25
1.0 **
Phoenix
2.00
6.30 **
0.7**
Philadelphia*
2.00
6.00
Detroit
6.00
Baltimore
6.00
Boston
6.25
Denver*
3.62
2.90
Atlanta
1.00
4.00
3.00
San Diego
8.25**
0.50
San Jose
8.25**
1.00
* City coterminous with county. **Includes tax for public transportation in area.
Sources: Compiled by author from city websites.
Total Sales Tax
8.875%
9.75
10.25
8.25
9.00
8.00
6.00
6.00
6.25
6.52
8.00
8.75
9.25
Exhibit 2.4: Major NYS Legislative Actions Affecting the NYS Sales /Use Tax , 1980-2010
Year
Action
1981
Imposed Metropolitan Commuter Transportation District Sales Tax at 0.25%.
1989
Required out-of-state businesses delivering items into NYS to collect Sales Tax.
1996
Temporarily exempted clothing/footwear under $500 for one week.
1997
Exempted clothing, excluding footwear, costing $100 or less from NYS Sales Tax and from the MCTD Sales Tax
during certain one-week periods in 1998. Permanently exempted tax on clothing under $100.
Added footwear to special tax exemption and raised exemption to $500 from $100. Expanded the permanent sales
tax exemption for clothing/footwear from $100 to $110.
Added two additional Sales Tax- free weeks for clothing items costing less than $500.
1998
1999
2000
2003
2004
2005
2006
2008
2009
2010
Repealed Sales Tax on separately purchased electricity and gas. Enhanced tax exemption for property/services used
to provide telecommunications, Internet access and digital cable television services. Exempted certain
equipment/services used by radio and TV broadcasters.
Increased the Sales/Use Tax rate from 4% to 4.25% through May 31, 2005.Suspended exemption for clothing/
footwear priced under $110 from June 2003 through May 2004 and provided for two week temporary exemptions
for such clothing/footwear. Included a line on the State PIT return to enable taxpayers to report unpaid Sales/Use
taxes. Required that regulations be promulgated to implement tax collections on sales made to non-native
Americans on recognized reservations in the State. Added cigarette excise tax to the sales price used to compute
NYS and local Sales Taxes on sales of cigarettes.
Required contractors, subcontractors and their affiliates who make deliveries of taxable services or tangible
personal property valued at more than $300,000 to New York locations to register as Sales Tax vendors effective
on or after January 1, 2005.
Suspended year-round tax exemption for clothing/footwear under $110 through March 2006 and provided for two
week Sales Tax exemption periods. Increased the Sales/Use Tax in the MCTD from 0.25% to 0.375%.
Permanently exempted clothing and footwear priced under $110. Capped Sales Tax on motor fuels at $0.08/gallon.
Required nonprofit charitable, educational, religious and other organizations to collect Sales Tax on retail sales of
certain property and services. Created Sales Tax nexus legislation for an evidentiary presumption that certain sellers
using New York residents to solicit sales in the State are vendors required to collect tax (Amazon Law).
Expanded the definition of vendor to preclude certain retailers from avoiding the tax.
Eliminated exemption for clothing/footwear under $110 from October -March 2011; provided exemption for
clothing under $55 from April 2011-March, 2012. Provided for reinstatement of exemption effective April 2012,
for clothing priced under $110. Imposed Sales Tax on charges by hotel room remarketers.
2-­‐9 Note: Exhibit does not include legislation related to most Sales Tax exemptions. Sources: Unpublished information supplied to
author by NYS Assembly Ways & Means Committee. 2010-11 NYS Executive Budget, Economic and Revenue Outlook.
2-­‐10 Cigarette/Tobacco Products Tax
3.0 CIGARETTE/TOBACCO PRODUCTS
TAX
3.1 Overview
New York State imposed an emergency excise
tax on cigarettes in 1939 that was made
permanent in 1947 under Article 20 of the State
Tax Law. The tax was extended in 1989 to cover
other tobacco products such as cigars and pipe/
chewing tobacco, but is still generally referred to
as the Cigarette Tax.
In FY 2010, the NYS Cigarette Tax generated
$1.4 billion, accounting for 2.4% of State tax
revenues and 1.1% of all revenues. Of the $1.4
billion, 29.4% was deposited in the State
General Fund and 70.6% in the Tobacco Control
and Insurance Initiatives Pool.1
3.2 The NYS Cigarette Taxpayer
The NYS Cigarette Tax is imposed on licensed
agents who bring cigarettes and other tobacco
products into the State for sale or use in the
State. As proof of payment, authorized agents
must purchase NYS tax stamps and affix them to
individual cigarette packs before they can be
sold at wholesale or retail.
If the cigarettes are to be sold in NYC, a joint
NYC/NYS tax stamp must be affixed to each
pack. Color-coded tax stamps on the cigarette
pack indicate that the NYS and NYC Cigarette
Taxes have been paid.

The NYS $4.35/pack rate is the highest
imposed in any State. The average state tax
is $1.45/pack (see Exhibit 3.1).
Cigarette Tax revenues are reduced
exemptions for some purchases. They are:




by
Cigarettes sold to Federal, State, or local
government entities, the UN, and certain
diplomatic personnel and not for resale
Cigarettes sold to or by a voluntary
unincorporated organization of the armed
forces operating a place for the sale of goods
Two cartons of cigarettes or less used in
the State if the user brings the cigarettes
into the State for use and not for resale
Cigarettes possessed by an agent or
wholesale dealer for sale to an out-of-State
dealer, or for sale and shipment to a person
in another state for use there.
3.4 Trends in NYS Cigarette Tax Revenues
In current dollars, FY2010 Cigarette Tax
revenues pictured in Figure 3.1 more than
doubled over FY2000. In constant dollars,
revenues increased by 58% over the decade,
reflecting several increases in tax rates (see
Exhibit 3.3).
The tax on other tobacco products is paid by
distributors including those who import,
manufacture or possess them for sale in NYS.
The tax is passed along and included in the price
of the cigarettes/other tobacco products paid by
the final consumer.
3.3 The NYS Cigarette Tax Base
The NYS tax on cigarettes/little cigars is
$4.35/pack, on snuff $2/ounce and on other
tobacco products 75% of the wholesale price.
Cigarette Tax revenues are insensitive to
changing economic conditions. The general
downward revenue trend shown in Figure 3.2
3-­‐1 between the years when tax rates increased
reflects the overall decline in smoking.
3.8 Issues and Concerns
Bootlegging. Tax evasion resulting from
transporting cigarettes from low-tax states for
sale in high-tax states – referred to as
bootlegging or buttlegging – has long been a
problem for tax administrators throughout the
U.S. Increasing cigarette prices in New York
provide a strong incentive for bootlegging.
3.5 History of the NYS Cigarette Tax
The Cigarette Tax was imposed as a temporary
measure in 1939 and made permanent in 1947.
The legislative changes made to the tax rate and
base since 1980 are summarized in Exhibit 3.2.
3.6 The Cigarette Tax in NYS
Jurisdictions
Local
NYC is the one local jurisdiction with NYS
statutory authority to levy its own tax on
cigarettes The NYC tax rate is $1.50/pack of 20
cigarettes. The combined 8.875% NYS/MCTD/
NYC Sales Tax is imposed on the total price of
the cigarettes that includes NYS and NYC
Cigarette Taxes plus the Federal Excise tax of
$1.01/pack. 
The NYS/NYC combined $5.85/pack
Cigarette Tax is the highest imposed in any
U.S. jurisdiction. In Pennsylvania, the tax is
$1.60/pack; in New Jersey it is $2.70.
3.7 The Cigarette Tax in Other States
All states plus the District of Columbia tax
cigarettes (see Exhibit 3.1). Most local
governments in the U.S. do not have state
legislative authority to do so.
Sales on Indian Reservations. Almost two
decades ago, the U.S. Supreme Court affirmed
the right of the states to collect taxes on sales
made on Indian reservations to persons who are
not members of the Indian nation. The recent
decision by NYS to collect these taxes has not
yet been implemented. In late 2010, a Federal
judge in Buffalo denied a request to block NYS
from collecting the tax but froze his decision to
allow the tribes requesting the decision to appeal
it.
Compliance by Internet Vendors. A 2000
NYS law banned direct sales of cigarettes over
the Internet, telephone or mail. After winning a
lengthy court battle, the State began enforcing
the law in June 2003. Federal legislation adopted
in March 2010 prohibits the mailing of cigarettes
through the U.S. Postal Service. While it would
thus appear that cigarettes cannot be sold over
the Internet for delivery to NYS consumers,
ongoing surveillance is needed to ensure
compliance.
 One Internet site still advertises that because
the vendor processes and ships orders from
outside of the U.S., it does not have to report
tax/customer information to any government
agency or other entity.2
Endnotes
1
Based on estimates for 2010 published in 2010-11
NYS Executive Budget. Economic and Revenue
Outlook, p. 215. http://publications.budget.
state.ny.us/eBudget1011/economicRevenueOutlook/e
conomicRevenueOutlook.pdf
2
http://www.cigoutlet.net
3-­‐2 Exhibit 3.1: State Cigarette Excise Tax Rates, 2010*
State
Tax/Pack
State
Alabama
$0.43
Maine
Tax/Pack
$2.00
State
Oregon
Tax/ Pack
$1.18
Alaska
2.00
Maryland
2.00
Pennsylvania
1.60
Arizona
2.00
Massachusetts
2.51
Rhode Island
3.46
Arkansas
1.15
Michigan
2.00
South Carolina
0.57
California
0.87
Minnesota
1.58
South Dakota
1.53
Colorado
0.84
Mississippi
0.68
Tennessee
0.62
Connecticut
3.00
Missouri
0.17
Texas
1.41
Delaware
1.60
Montana
1.70
Utah
1.70
Florida
1.34
Nebraska
0.64
Vermont
2.24
Georgia
0.37
Nevada
0.80
Virginia
0.30
Hawaii
3.00
New Hampshire
1.78
Washington
3.03
Idaho
0.57
New Jersey
2.70
West Virginia
0.55
Illinois
0.98
New Mexico
1.66
Wisconsin
2.52
Indiana
1.00
New York
4.35
Wyoming
0.60
Iowa
1.36
North Carolina
0.45
Dist. of Columbia
2.50
Kansas
0.79
North Dakota
0.44
Kentucky
0.60
Ohio
1.25
Louisiana
0.36
Oklahoma
1.03
*Rates do not include local government taxes
Source: Campaign for Tobacco-Free Kids, August 3, 2010 sourced from Orzechowski & Walker, Tax Burden on Tobacco, 2009;
media reports. http://www.tobaccofreekids.org/research/factsheets/pdf/0097.pdf
Exhibit 3.2: Major NYS Legislative Actions Affecting the State Cigarette Tax, 1980-2010
Year
1989
Action
Enacted Cigarette Marketing Standards Act prohibiting wholesale/retail dealers from engaging in activities that would destroy
competition, avoid the payment of cigarette taxes, or dump cigarettes onto the market.
Tax extended to include tobacco products with tax rate set at 15% of the wholesale price of tobacco products.
1993
Tax rate increased from $0.195 to $0.28 for each 10 cigarettes ($0.56/pack of 20).
2000
Tax rate increase of $0.55 effective March 1, 2000 bringing total tax to $1.11/pack.
2000
Sale of cigarettes over the Internet banned.
2002
Tax rate on cigarettes increased to $1.50 per pack. Tax on tobacco products increased from to 37% of wholesale price.
2008
Tax rate on cigarettes increased to $2.75/pack. Snuff added to tax base and taxed at $0.96/ounce.
1985
2009
Tax rate on tobacco products excluding cigarettes and snuff increased to 46% of wholesale price.
Tax rate on cigarettes increased to $4.35/pack. Tax on snuff increased to $2/ounce and the wholesale tax on other tobacco products
2010
such as cigars and pipe/chewing tobacco increased to 75%.
Sources: Unpublished information supplied to author by NYS Assembly Ways & Means Committee. 2010-11 NYS Executive
Budget, Economic and Revenue Outlook.
3-­‐3 Alcoholic Beverage Tax
4.0 ALCOHOLIC BEVERAGE TAX
4.1 Overview
New York State adopted the current excise tax
on Alcoholic Beverages in 1933 under Article
18 of the State Tax Law. In FY 2010, the tax
generated $225.6 million, accounting for 0.39%
of NYS tax revenues and 0.18% of all State
revenues. All revenues from the tax are
deposited in the State’s General Fund.
Alcoholic Beverage Control Fees. NYS distillers, brewers, wholesalers, retailers, and others
who sell alcoholic beverages must be licensed
by the State Liquor Authority. License fees vary
by beverage and by the location of the entity
applying for the license.
4.2 The NYS Alcoholic Beverage Taxpayer
The State Alcoholic Beverage Tax is levied on
registered distributors and on non-commercial
importers of alcoholic beverages. Anyone not
registered as a distributor with the NYS
Department of Taxation and Finance is
prohibited from importing liquor for sale in
NYS and NYC.
4.3 The NYS Alcoholic Beverage Tax Base
NYS imposes the Alcoholic Beverage Tax on
beer and similar fermented malt beverages,
cider, wine, liquor and all distilled or rectified
spirits sold or used in the State. The taxes listed
in Table 4.1 are included in the final price of the
beverage paid by the consumer. NYS and local
sales taxes are imposed on the total price of
alcoholic beverage which includes NYS/NYC
Alcoholic Beverage Taxes. Exemptions from the
tax include:








Sales of non-alcoholic beer, wine and liquor.
Sales to or by holders of certain NYS
Liquor Authority permits and licenses.
Alcohol sold for non-beverage purposes to
a holder of an industrial alcohol permit or
alcohol permit issued by the SLA.
Sales of wine at retail in sealed containers to
a regularly organized church, synagogue or
religious organization for sacramental
purposes.
NYS headquartered brewers are allowed
an exemption for the first 200,000 barrels
of beer brewed and sold in the State each
calendar year.
Table 4.1: NYS Alcoholic Beverage Tax Rates,
2010
Beverage
Rate/Gallon
Liquor over 24%
Alcohol Content
$6.43
Liquor 2%-24%
Alcohol Content
2.53
Beer
0.14
Wine/Wine Coolers
0.30
Cider Over 3.2%
Alcohol Content
3.79
Source: Handbook of NYS and Local Taxes, 2010 p. 28
4.4 Trends in NYS Alcoholic Beverage Tax
Revenues
Current dollar tax revenues pictured in Figure
4.1 increased by 27% from FY2000 to FY2010.
In constant dollars, FY2010 revenues were 0.9%
below those in FY2000.
Alcoholic beverages sold to the U.S.
government or its agencies/instrumentalities.
State and local governments are not exempt
from the tax.
Alcoholic beverages sold to diplomatic
missions and diplomatic personnel for
their own use and not for resale.
Sales of alcoholic beverages to the United
Nations for official use within the
confines of its facilities.
4-­‐1 Figure 4.2 shows that constant dollar tax revenues have been decreasing during the past 25
years reflecting the overall decline in drinking.
The surge in revenues in 1991 was a result of
changes in the tax law.
4.6 Alcoholic Beverage Taxes in NYS Local
Jurisdictions
NYC is the only jurisdiction in the State with
statutory authority to levy a tax on alcoholic
beverages. The tax is imposed on the sale of
beer and liquor by licensed distributors and noncommercial importers located in the City. The
tax rate is $0.12 cents per gallon of beer and
$0.264 per liter of liquor with alcohol content
greater than 24%. The City does not tax wine.
NYC also imposes a tax on retail licenses for the
privilege of selling beer, wine and liquor at
retail. The tax is 25% of the NYS license fee.
4.7 The Alcoholic Beverage Tax in Other
States
4.5 History of the NYS Alcoholic Beverage
Tax
Prior to 1896, local governments in NYS levied
license fees on the sale of alcoholic beverages.
NYS took over the licensing function in 1896
and in 1933 imposed a volume tax on liquor,
wine and beer. The several base and rate
changes to the tax since 1980 are summarized in
Exhibit 4.2.
All 50 states levy either an ad valorem tax or a
volume tax on alcoholic beverages. State taxes
generally vary by type of beverage and by
alcoholic content; with higher-alcohol content
beverages taxed at higher rates (see Exhibit 4.1).
4.8 Issues and Concerns
Bootlegging. Although not as widespread as
cigarette bootlegging, there is some tax evasion
resulting from the transportation of liquor from
low-tax states for sale in NYS.
4-­‐2 Exhibit 4.1: Alcoholic Beverages Tax Rates by State, 2010 ($ per gallon)
State
Spirits
Wine
Beer
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
a
12.80
3.00
2.58
3.30
2.28
4.50
5.46
6.50
3.79
5.98
a
8.55
2.68
a
2.50
6.46
2.50
a
1.50
4.05
a
5.03
a
1.70
2.50
0.84
0.77
0.20
0.28
0.60
0.97
2.25
1.51
1.38
0.45
1.39
0.47
1.75
0.30
0.50
0.11
0.60
0.40
0.55
0.51
0.30
0.43
1.05
1.07
0.16
0.21
0.20
0.08
0.20
0.16
0.48
1.01
0.93
0.15
0.23
0.12
0.19
0.18
0.08
0.32
0.35
0.09
0.11
0.20
0.15
0.43
Missouri
2.00
0.42
0.06
State
Nebraska
Nevada
N. Hampshire
New Jersey
New Mexico
New York
N. Carolina
N. Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
S. Carolina
S. Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Dist. of
Columbia
Spirits
Wine
Beer
3.75
3.60
a
5.50
6.06
6.44
a
2.50
a
5.56
a
a
3.75
5.42
3.93
4.40
2.40
a
a
a
a
a
3.25
a
0.95
0.70
b
0.88
1.70
0.30
2.34
0.50
0.32
0.72
0.67
b
0.60
1.08
0.93
1.21
0.20
b
0.55
1.51
0.87
1.00
0.25
b
0.31
0.16
0.30
0.12
0.41
0.14
1.00
0.16
0.18
0.40
0.08
0.08
0.11
0.77
0.27
0.14
0.20
0.41
0.27
0.26
0.26
0.18
0.06
0.02
1.50
0.30
0.09
Montana
a
1.06
0.14
Note: Does not include local government taxes.
a In 18 states, the government directly controls sales of distilled spirits.
b All wine sales are through state-run stores. Revenue is generated from various taxes, fees and net profits.
Source: Tax Foundation State Sales, Gasoline, Cigarette, and Alcohol Tax Rates by State, 2000-2010.
Exhibit 4.2: Major NYS Legislative Actions Affecting the NYS Alcoholic Beverage Tax, 1980-2010
Year
1980
Action
1990
Liquor measurements converted to liters; tax rates imposed from $0.211/liter for liquor with 24% or less alcohol to
$0.859/liter with greater than 24% alcohol.
Increased tax rates across all categories of alcoholic beverages.
1993
Limited amount of alcohol which can be brought into NYS to 90 liters.
2008
Flavored malt beverages which had been taxed at the same rate as beer to be taxed as low alcohol liquor.
2009
Tax rate on beer increased to $0.14/gallon effective 5/1/09.Tax rate on wine increased from $0.1893 to $0.30/gallon.
Sources: Unpublished information supplied to author by NYS Assembly Ways & Means Committee. 2010-11 NYS Executive
Budget, Economic and Revenue Outlook.
4-­‐3 Motor Fuel Tax
5.0 MOTOR FUEL TAX
5.1 Overview
New York State adopted the Motor Fuel Tax in
1929 under Article 12A of the State Tax Law. In
FY 2010, the tax generated $507 million,
accounting for .09% of NYS tax revenues and
.04% of all State revenues. Of the $507 million,
80% was deposited in the Dedicated Highway
and Bridge Trust Fund and 20% in the
Dedicated Mass Transportation Trust Fund.1
Motor fuel distributors operating in NYS must
also pay the Petroleum Business Tax (see
Section 12) and NYS/local Sales Taxes. The
State Sales Tax on motor fuel is capped at
$.08/gallon. An additional ¾ cent per gallon
capped Sales Tax applies to motor fuel sold in
the Metropolitan Commuter Transportation
District.
5.2 The NYS Motor Fuel Taxpayer
Other exemptions apply only to the tax on diesel
motor fuel. They are:



Certain sales for heating purposes
Sales of certain airplane fuel.
20% blend biodiesel fuel (B-20)
Full and partial refunds and credits for tax paid
are available for fuel used by:



Omnibus carriers or taxicabs
Non-public school vehicle operators,
exclusively for education-related purposes
Volunteer ambulance services.
5.4 Trends in NYS Motor Fuel Tax Revenues
From FY2000 to FY2010 the current dollar
revenues pictured in Figure 5.1 declined slightly;
constant dollar revenues fell by 24.0%.
Under NYS Law, the Motor Fuel Tax must be
passed through to the final consumer. It is
imposed on diesel motor fuel at the point of first
taxable sale/use in the State. It is imposed on
other motor fuel, including gasoline, upon first
import into, or production within, NYS.
5.3 The NYS Motor Fuel Tax Base
The current $0.08/gallon excise tax is imposed
primarily on fuel used by motor vehicles
operating on NYS public highways and on fuel
used in recreational motorboats operating on the
State’s waterways. Motor Fuel Tax revenues are
reduced by exemptions from the tax and by
refunds for certain purchases. Exemptions
include:






Kerosene and crude oil
Sales to state, local and Federal
governments and the United Nations
Qualifying Native American nations
Fuel sold to certain exempt organizations.
85% ethanol fuel products (E-85)
Compressed natural gas
Over the last 25 years, constant dollar Motor Fuel
Tax revenues have generally been declining. The
increase in the late 1980s shown in Figure 5.2
below was due to the implementation of the
State’s first import taxing system for motor fuel
which reduced tax evasion.
5.5 History of the NYS Motor Fuel Tax
The Motor Fuel Tax rate was set at $0.08/gallon
in 1972 where it has remained. Other than
changes to the distribution of tax revenues
5-­‐1 among NYS funds, the only legislative change
made since 1980 was the reduction in the tax on
diesel motor fuel from $0.10/ gallon to
$0.08/gallon effective January 1996.
5.7 The Motor Fuel Tax in Other States
All states impose an excise tax on motor fuels
(see Exhibit 5.1). Many states also levy other
taxes on motor fuel such as the NYS Petroleum
Business Tax. Some states including New York
impose state and/or local sales taxes on the price
of motor fuel.
5.8 Issues and Concerns
Price Differentials. NYS has one of the lowest
excise taxes on motor fuel in all 50 states (see
Exhibit 5.1). It ranks eighth highest, however,
when all taxes on motor fuel are considered.
Other taxes include business income and gross
receipts taxes and state/local sales taxes.
 In New Jersey, taxes on motor fuel are
$0.15/gallon compared with the NYS rate of
0.33/gallon. This price differential reduces
motor fuel sales and tax revenues for NYS.
5.6 The Motor Fuel Tax in NYS Local
Jurisdictions
No local jurisdiction in the State has statutory
authority to impose an excise tax on motor fuel
with the exception of NYC which has the
authority to impose a tax on leaded motor fuel.
Endnotes
1
NYS Division of the Budget, 2010-2011 Executive
Budget, Economic & Revenue Outlook, p. 29
http://publications.budget.state.ny.us/eBudget1011/ec
onomicRevenueOutlook/economicRevenueOutlook.p
df
5-­‐2 Exhibit 5.1: State Motor Fuel Tax Rates Per Gallon , 2010
State
Motor Fuel
Total Taxes
Tax
Alabama
0.16
0.17
Alaska
0.08
0.08
Arizona
0.18
0.19
Arkansas
0.22
0.22
California
0.35
0.35
Colorado
0.22
0.22
Connecticut**
0.25
0.41
Delaware
0.23
0.23
Florida
0.16
0.16
Georgia *
0.08
0.19
Hawaii *
0.17
0.30
Idaho
0.25
0.26
Illinois *
0.19
0.36
Indiana *
0.18
0.36
Iowa
0.21
0.22
Kansas
0.24
0.25
Kentucky
0.25
0.26
Louisiana
0.20
0.20
Maine
0.30
0.31
Maryland
0.24
0.24
Massachusetts
0.21
0.24
Michigan *
0.19
0.36
Minnesota
0.27
0.27
Mississippi
0.18
0.19
Missouri
0.17
0.17
Montana
0.27
0.28
State
N. Carolina
N. Dakota
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York *
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
S. Carolina
S. Dakota
Tennessee
Texas
Utah
Vermont
Virginia
W. Virginia *
Washington
Wisconsin
Wyoming
Dist. of Columbia
Motor Fuel
Tax
0.32
0.23
0.27
0.23
0.18
0.11
0.17
0.08
0.28
0.16
0.24
0.12
0.32
0.16
0.22
0.20
0.20
0.25
0.19
0.19
0.21
0.38
0.31
0.13
0.24
Total Taxes
0.32
0.23
0.28
0.23
0.20
0.15
0.19
0.33
0.28
0.17
0.25
0.31
0.33
0.17
0.24
0.21
0.20
0.25
0.25
0.19
0.32
0.40
0.33
0.14
0.24
Note. Assumes a pump price of $3.00. May not include local taxes
* State sales tax applies on sales of gasoline.
**Includes petroleum gross tax – 7% of wholesale gasoline price.
Source: NYS Department of Taxation and Finance.
5-­‐3 Highway Use Tax
6.0 HIGHWAY USE TAX
6.1 Overview

New York State adopted the Highway Use Tax
(HUT) in 1951 under Article 21 of the State Tax
Law. In 1969, a Fuel Use component was added
under Article 21A. Highway Use Permits are the
third component of the Highway Use Tax.

In FY 2010, the three components of the HUT
generated $137 million, accounting for 0.24% of
total NYS tax revenues and 0.11% of total State
revenues. All Highway Use Tax revenues are
deposited in the Dedicated NYS Highway and
Bridge Trust Fund.1
6.2 The NYS Highway Use Taxpayer
The Truck Mileage Tax. The Truck Mileage
Tax is paid by motor carriers for the privilege of
using NYS public highways. The tax does not
apply to miles driven on the toll-paid portion of
the NYS Thruway or to the following vehicles:








Buses;
Power shovels and road-building machines;
Sand spreaders and snow plows;
Motor vehicles owned and operated by
governmental entities;
Fire company vehicles;
U.S. mail delivery vehicles;
Household goods-moving vehicles; and
Recreational vehicles for personal use.
Fuel Use Tax. The NYS Fuel Use Tax is paid
by most trucks/tractor-trailer vehicles traveling
the State highways for fuel purchased outside of
NYS.2 The tax does not apply when the taxpayer
operates vehicles solely on highways within the
State. The tax also does not apply to:







Buses providing local transit service in
NYS;
Power shovels, road building machines, road
rollers and well drillers;
Road sweepers, sand spreaders and snow
plows;
Tractor cranes and truck cranes;
Motor vehicles owned and operated by
governmental entities;
Fire company vehicles;
U.S. mail delivery vehicles;
Vehicles used to move household goods;
and
Recreational vehicles for personal use.
Fuel Use Tax Collections. NYS is a member of
the International Fuel Tax Agreement (IFTA)
among the 48 contiguous states and 10 Canadian
provinces. IFTA standardizes the reporting and
collection of Fuel Use taxes for motor carriers
operating in two or more states/provinces and
permits the carrier to report and pay all its fuel
use taxes to a single (home) jurisdiction, e.g.,
NYS. The home state distributes these fuel taxes
to all member states/provinces where the
carrier’s fuel purchases occur.
When interstate carriers purchase fuel in NYS,
they pay the State's Fuel Use Tax, the Petroleum
Business Carrier Tax (see Section 12) and
NYS/local sales taxes as part of the pump price.
Carriers with New York as their home state can
take a credit for taxes paid per gallon in the State
on their IFTA returns.
Highway Use Permits. Permits are mandatory
for owners of vehicles subject to the HUT. All
carriers must obtain a certificate of registration
from the State for each motor vehicle subject to
the tax.
6.3 The NYS Highway Use Tax Base
In FY 2010, the Truck Mileage Tax accounted
for more than 70% of HUT revenues; the Fuel
Use Tax for about 20% and permits, 10%.3
Truck Mileage Tax. The NYS Truck Mileage
Tax is a weight-distance tax with rates based on
vehicle weight and miles traveled on most NYS
highways.4 Separate rates apply to the truck and
to the trailer if applicable.
Fuel Use Tax. The NYS Fuel Use Tax has two
components: (1) a Motor Fuel Tax component
and (2) a Sales Tax component. The Motor Fuel
Tax component is a capped $0.08/gallon. The
Sales Tax component is the sum of the NYS
Sales Tax rate plus the lowest county Sales Tax
rate, currently 3%. An additional ¾ cent per
6-­‐1 gallon capped Sales Tax applies to motor fuel
sold in NYC and the other 7 counties in the
Metropolitan Commuter Transportation District. Highway Use Permits. The NYS registration
system is based on the license plate number of
each vehicle. The initial cost/annual renewal fee
for a certificate of registration is $15.
6.4 Trends in NYS Highway Use Tax
Revenues
Highway Use Tax revenues shown in Figure 6.1
declined by 9% in current dollars from FY2000
to FY2010; constant dollar were down by 29%
over the ten years.
6.5 History of the NYS Highway Use Tax
The Truck Mileage Tax was imposed in 1951;
the Fuel Use Tax in 1960. A summary of major
NYS legislative changes to the tax since 1980 is
presented in Exhibit 6.2.
6.6 The Highway Use Tax in NYS Local
Jurisdictions
No local jurisdiction in NYS has statutory
authority to impose a tax on highway use.
6.7 The Highway Use Tax in Other States
Figure 6.2 shows that constant dollar NYS
Highway Use Tax revenues have experienced a
general long-term decline since 1985 with a
spike in 1995 – the year after NYS became a
member of IFTA – reflecting the more accurate
reporting by IFTA of fuel use by vehicles
operating across state lines.
Three states other than NYS impose a truck
mileage tax: Oregon which does not have a Fuel
Use Tax, Kentucky and New Mexico. The
International Fuel Tax Agreement (IFTA)
discussed in Section 6.2 provides for common
reporting/collection of fuel taxes but rates are
set by each state/province for fuel purchased
within its borders (see Exhibit 6.1).
6-­‐2 6.8 Issues and Concerns
Endnotes
Tax Enforcement. State audit functions are
critical to monitor carrier reporting of mileage in
high fuel tax and/or weight-mileage tax states
such as NYS. Under IFTA, only the home state
audits Fuel Use Tax payments by its carriers.
1
Non-transparency. The Fuel Use Tax is a
complement to the Petroleum Carrier Tax
discussed in Section 12 and is collected with it.
This administrative procedure makes the tax
non-transparent for consumers.
Based on estimates published in 2010-11 NYS
Executive Budget Economic and Revenue Outlook,
p.223. http://publications.budget.state.ny.us/
eBudget1011/economicRevenueOutlook/economicRe
venueOutlook.pdf
2
The tax applies to vehicles with 2 axles and a gross
weight of more than 26,000 pounds or 3 or more
axles regardless of weight; or to vehicles used in
combination and the gross vehicle weight of the
combination is more than 26,000 pounds.
3
NYS Division of the Budget, Economic and
Revenue Outlook, p. 226.
4
Tax rates generally range from $0.04/mile to $0.35/
mile plus $0.02/ton for loaded trucks weighing in
excess of 74,000 pounds.
6-­‐3 Exhibit 6.1: State Fuel Use Taxes, 2010
State
Gasoline
Special Diesel
State
Alabama
0.16
0.19
Nevada
Arizona
0.26
New Hampshire
Arkansas
0.22
0.23
New Jersey
California
0.37
New Mexico
Colorado
0.22
0.21
New York
Connecticut
0.25
0.40
North Carolina
Delaware
0.23
0.22
North Dakota
Florida
0.30
0.32
Ohio
Georgia
0.15
0.16
Oklahoma
Idaho
0.25
Oregon
Illinois
0.31
0.35
Pennsylvania
Indiana
0.18
0.16
Rhode Island
Iowa
0.21
0.23
South Carolina
Kansas
0.24
0.26
South Dakota
Kentucky
0.25
0.22
Tennessee
Louisiana
0.20
0.20
Texas
Maine
0.31
Utah
Maryland
0.24
0.24
Vermont
Massachusetts
0.21
0.21
Virginia
Michigan
0.32
Washington
Minnesota
0.28
0.28
West Virginia
Mississippi
0.18
0.18
Wisconsin
Missouri
0.17
0.17
Wyoming
Montana
0.28
Nebraska
0.27
0.27
Source: International Fuel Tax Association, Inc. 4th Quarter 2010 Final Fuel Tax Rates
Gasoline
0.23
0.15
$0.40
0.32
0.23
0.28
0.16
0.31
0.32
0.16
0.20
0.20
0.25
0.18
0.38
0.32
0.33
0.14
Special Diesel
0.27
0.18
0.18
0.21
$0.39
0.32
0.23
0.28
0.13
0.38
0.32
0.16
0.22
0.17
0.20
0.25
0.29
0.18
0.38
0.32
0.33
0.14
Exhibit 6.2: Major NYS Legislative Actions Affecting the State Highway Use Tax, 1980-2010
Year
Action
Every automotive fuel carrier required to have a special Automotive Fuel Carrier permit and distinctively colored sticker for
1982
each motor vehicle required to be registered under the Highway Use Tax Law.
1990
Truck Mileage Tax applied to Thruway miles and a supplemental tax imposed equal to the base mileage tax.
Truck Mileage Tax rate imposed on Thruway miles reduced by one-half and eliminated effective 1996. Vehicles with gross
1994
loaded weights below 26,000 pounds and with fewer than 3 axles excluded from Fuel Use Tax. NYS signed on to the
International Fuel Tax Agreement (IFTA) effective January 1996.
1995
Fuel Tax rate on diesel reduced from $0.10 to $0.08/gallon.
1996
Truck Mileage Tax eliminated on miles driven on the toll-paid portion of the NYS Thruway.
1998
Truck Mileage Tax supplemental tax reduced by 50%.
2000
Truck mileage supplemental tax reduced by 20%.
2006
Fuel Use Tax on alternative fuels exempted.
2007
Permit system replaced with a registration system to comply with Federal law.
Sources: Unpublished information supplied to author by NYS Assembly Ways & Means Committee. 2010-11 NYS Executive
Budget, Economic and Revenue Outlook.
6-­‐4 Auto Rental Tax
7.0 AUTO RENTAL TAX
7.1 Overview
New York State adopted the Auto Rental Tax
in 1990 under Article 28-A of the State Tax
Law. In June 2009, a supplemental tax was
levied on the price of car rentals in the
Metropolitan Commuter Transit District
(MCTD). In FY 2010, the tax generated $76
million, accounting for 0.13% of NYS tax
revenues and 0.06% of all State revenues. Tax
receipts were deposited in the NYS Dedicated
Highway and Bridge Trust Fund and the MTA
Financial Assistance Fund.
As seen in Figure 7.2, Auto Rental Tax revenues are
sensitive to economic conditions in the State.
7.2 The NYS Auto Rental Taxpayer
The Auto Rental Tax applies to the price of
passenger vehicles with a gross weight of 9,000
or less rented by a resident/nonresident
regardless of where the vehicle is registered. The
tax does not apply to car leases covering a
period of one or more years.
7.3 The NYS Auto Rental Tax Base
The Auto Rental Tax is imposed at a rate of 6%
on vehicle rental charges; the supplemental
MCTD tax is 5%. Tax revenues are reduced by
exemptions given to vehicles rented by:
 Disabled veterans



Federal, State/ local government agencies
Foreign consulates/diplomats and the United
Nations
Certain non-profit organizations.
NYS, MCTD and local sales taxes are imposed
on the full auto rental price including the Auto
Rental Tax.
7.4 Trends in NYS Auto Rental Tax Revenues
FY2010 current dollar revenues pictured in
Figure 7.1 increased by 48% over FY 2000;
constant dollar revenues grew by 15%.
7.5 History of the NYS Auto Rental Tax
The one change to the tax was the addition of
the MCTD Supplemental Tax in 2009.
7.6 The Auto Rental Tax in NYS Local
Jurisdictions
No local government in NYS levies the tax.
7.7 The Auto Rental Tax in Other States
Auto rentals are taxed in all but 7 states (see
Exhibit 7.1).
7.8 Issues and Concerns
Dedicated Use of Tax. Tax receipts are used to
fund expenditures unrelated to auto rentals, i.e.
MTA Financial Assistance Fund expenditures.
7-­‐1 Exhibit 7.1: Auto Rental Taxes in the States, 2010
State
AL
AK
Government
Level
State
State
Anchorage
Tax Rate
State
3% of gross proceeds from the lease
10% per rental transaction
18% per rental transaction, including
10% Alaska Motor Vehicle Rental Tax
and 8% Motor Vehicle Rental Tax
10% per rental transaction (two 5% taxes
imposed)*
2% plus 3.25% or $2.50 per rental
transaction, whichever is greater*
2.5% per rental transaction*
$2 a day statewide*
MT
NE
ND
Government
Level
State
Omaha
State
Tax Rate
NH
State
8% per rental transaction
NM
State
$2 per day*
NV
State
Las Vegas and
Reno
State
6% per rental transaction*
8% per rental transaction, including 6%
Nevada Government Services Fee*
6% per rental transaction* plus 5% MCTD
tax**
Cleveland
Lane, Medford
and Multnomah
Counties
State
Philadelphia
County
and City
State
Horry County
State
$6 per rental transaction*
5% of the gross rent or 10%-17.5% per
rental transaction
Nashville and
Memphis
1% - 2% per rental transaction,*
State
5% per rental transaction plus motor
vehicle sales tax
5% per rental transaction plus motor vehicle
sales tax
4% per rental transaction
$6 per rental transaction*
1% per rental transaction*
AR
State
AZ
Phoenix
CA
CO
State
State
$2 a day statewide; 1% -3.75% per rental
transaction*
NY
CT
FL
Colorado
Springs and
Denver
State
State
$1 per day*
$2 per day*
OH
OR
GA
State
Atlanta
3% per rental transaction*
3% per rental transaction*
PA
HI
ID
IL
State
City of Hailey
Chicago
$3 per day*
3% per rental transaction*
6%/rental transaction plus rental motor
vehicle lease tax*
RI
SC
TN
IN
IA
Marion
County
(Indianapolis)
State
KY
State
3% per rental transaction*
LA
MA
State
State
3% per rental transaction*
$0.60 per rental transaction*
UT
Boston
VA
Dallas and
surrounding
counties
State
Salt Lake and
surrounding
counties
State
WA
State
5.9% per rental transaction*
Spokane, and
surrounding areas
State
Exposition
District
0.8%-1% per rental transaction plus 5.9%
state car rental excise tax*
5% per rental transaction
3% per rental transaction plus 5% state
rental vehicle fee and $2 per rental
transaction regional transit district tax *
10% per rental transaction
4% per rental transaction*
5% per rental transaction*
TX
MD
State
ME
State
$10.60 per rental transaction, including
$.60 t MA Parking Surcharge*
11.5% per rental transaction on
passenger vehicles
10% per rental transaction
MI
MN
State
State
2% per rental transaction*
6.2% per rental transaction*
WI
MO
Kansas City
$4 per day*
Dist. of
Columbia
$2 per day*
2% per rental transaction, plus $2 per day
public transportation fee*
6% per rental transaction*
1.5% per rental transaction*
1% per rental transaction*
2.5% per rental transaction*
3%-7% per rental transaction plus 2.5% per
rental motor vehicle rental tax*
10% per rental transaction
*General Sales Taxes imposed on car rental transaction.
** The NY Metropolitan Commuter Transportation District (MCTD) comprises NYC and 7 other counties: Dutchess, Nassau,
Orange, Putnam, Rockland, Suffolk, and Westchester.
Source: Data supplied to author by Enterprise Holdings, November 2010.
7-­‐2 Corporation Franchise Tax
8.0 CORPORATION FRANCHISE TAX
8.1 Overview
New York State adopted the Article 9A Corporation Franchise Tax in 1917 under the State Tax
Law. The tax is imposed on domestic/foreign
corporations for the privilege of exercising their
corporate franchise, doing business, employing
capital, owning or leasing property or maintaining an office in NYS, with some exceptions (see
Section 8.2). In 1982, NYS levied a temporary
18% surcharge on corporate taxpayers doing
business in the 12-county Metropolitan
Commuter Transportation District (MCTD). The
surcharge, reduced to 17% in 1983, is still in
place.
In FY2010, the 9A Corporation Franchise Tax
generated $2.5 billion, accounting for 4.4% of
NYS taxes and 2% of all State revenues. Of the
$2.5 billion, 84% was deposited in the State
General Fund and 16% in the Mass Transportation Operating Assistance Fund.1
Corporations doing business in the MCTD also
pay the Metropolitan Commuter Transportation
Mobility Tax at a rate of $0.34/$100 of payroll
for employees working in the 12-county District.
The State distributes all proceeds from the
Mobility Tax to the MTA.
8.2 The New York
Franchise Taxpayer
State
Corporation
NYS Article 9A Corporation Franchise
Taxpayers are either standard corporations –
referred to as C Corporations – or corporations
which have elected State S Corporation status.2
In 2005, of all 9A Corporation Franchise
taxpayers, 42% filed as C Corporations and 58%
as S Corporations.3
Companies in the Finance and Insurance Sector
pay the largest proportion of C Corporation
taxes accounting for 24% of the total. The Trade
Sector is second with 18% and the Manufacturing Sector third with 17%.4 Treatment of Special Corporations. Unlike C
Corporations, the income of S Corporations is
not taxed by the Federal and NYS governments
until it is distributed to owners/shareholders,
with the exception of a minimum tax described
in Section 8.3. For Limited Liability Companies
choosing to be treated as partnerships, income is
not taxed until it is distributed to owners.5
Similar to C Corporations, S Corporations and
LLCs offer limited liability protection. Unlike
sole proprietorships and partnerships, S Corporation and LLC owners cannot be held personally
responsible for company debts other than for
NYS sales and withholding taxes. Differences
between S Corporations and LLCs are summarized in Table 8.1.
Table 8.1: Comparison of S Corporations and Limited
Liability Corporations in NYS
Limited
Liability
S Corporation
Corporation
NYS Tax
NYS 9A Corporation
NYS Personal
Applied
Franchise Tax
Income Tax*
Profits/losses split
Flexibility in
Distribution
proportionate to the
splitting
of Profits
percent of shares
profits/losses
owned by each
owner/shareholder
Corporation may have No restrictions
Ownership
no more than 75
on ownership
shareholders – who
may not be other
corporations or LLCs
Board of Directors/
Operational
Officers manage the
Management
Control and
company; required to
responsibilities
Procedures
follow the same
may be delegated
formalities and record to non-owners
keeping procedures as
C corporations
Employment
Amounts paid to
Entire Net
Taxes
employees and
Income (ENI) of
owners as salaries are
business is
subject to Federal
subject to Federal
self-employment
self-employment
taxes (Social Security
taxes (Social
and Medicare taxes)
Security and
Medicare taxes)
*Unless the LLC chooses to be taxed as a corporation.
8-­‐1 Regulated Investment Companies and Real
Estate Investment Trusts. Regulated Investment
Companies (RICs) and Real Estate Investment
Trusts (REITS)6 are subject to the NYS 9A
Corporation Franchise Tax on their entire net
income base (see Section 8.3). Because the
taxable income of both REITs and RICs is
calculated for Federal and NYS corporate tax
purposes after a deduction for dividends paid,
they are generally taxed solely on undistributed
income.
To the extent that an REIT/RIC passes through
its income to shareholders, the company pays no
State 9A Corporation Franchise Tax other than
the fixed-dollar minimum tax or the minimum
alternative tax. Undistributed income is subject
to the 9A Corporation Franchise Tax and
shareholders pay the PIT for income received.
Exempt Corporations. Certain corporations
conducting business in the State are exempt
from the 9A Corporation Franchise Tax. They
are: 
Corporations subject to taxation under other
parts of the NYS Tax Law including banks,
insurance companies and petroleum
companies;
 Not-for-profit and religious, charitable and
educational corporations exempt from
Federal income taxation. Section 13 of the
NYS Tax Law imposes a 9% tax on business
income earned from activities not related to
the exempt purpose of certain non-profit
entities;
 Entities operating as trusts and exempt from
the Federal Income Tax.
Taxpayer Reporting. Each corporation subject
to the NYS Corporation Franchise Tax must file
an annual tax return reporting its income and
capital. An affiliated group of corporations may
file on a separate return basis or on a combined
return basis.
 Under
separate entity reporting, a
corporation with sufficient nexus – the legal
term for connection – with NYS is required
to file its own income tax return.
 Under combined reporting, an affiliated
group of taxpayers meeting certain capital
stock ownership and unitary business tests7
file combined reports if filing on a separate
basis would distort the activities, business,
income, or capital of the taxpayers.
Combined reporting requires that companies
combine profits and losses from all
companies in the combined return including
those located in other states.
Effective TY2007, NYS corporate taxpayers
with substantial inter-corporate transactions
must report income on a combined basis in
calculating their 9A Franchise Tax liability.
8.3 The NYS 9A Corporation Franchise Tax
Base
S Corporations are subject to a fixed dollar
minimum tax ranging from $25 to $4,500
depending on NYS-source gross income. C
Corporations pay the tax on one of four bases,
whichever produces the highest tax. They are:
 Entire net income (ENI) base – a tax rate of
7.1% is imposed on a corporation’s entire
net income (ENI) allocated to NYS. Certain
small businesses with an ENI of $290,000
or less and certain manufacturing/emerging
technology companies pay a 6.5% rate.
 Alternative minimum tax (AMT) base – a
tax rate of 1.5% is imposed on a
corporation’s ENI adjusted to reflect
certain Federal tax preference items and
adjustments
and
NYS-specific
net
operating loss modifications.
 Capital base – a 0.15% tax rate applies to
allocated capital, with the maximum tax
capped at $350,000 for manufacturing/
qualified emerging technology companies
and $10 million for all other taxpayers. The
$10 million cap reverts to $1 million for
tax years effective January 1, 2011.
 A fixed dollar minimum tax ranging from
$25 to $5,000 is imposed based on the
taxpayer’s NYS-source gross income.
In addition to the tax paid on the highest of the
four alternative bases, C Corporations pay a tax
of 0.9 mills/dollar of subsidiary capital allocated
to NYS.
Entire Net Income. Of all C Corporations, 90%
pay on the entire net income (EIN) base.8 The
8-­‐2 starting point for calculating State EIN is Federal corporate taxable income which is modified
to arrive at State ENI. Once modified, State ENI
is divided into three types of income which are
treated differently for purposes of the 9A
Corporation Franchise Tax: subsidiary income,
business income and investment income.
Subsidiary Income. Income from subsidiaries is
not taxed by NYS for corporate income tax
9
purposes. Other states tax subsidiary income if
the taxpayer has its headquarters in their state.
NYS’s decision not to do so was made in an
effort to retain and attract corporate headquarters.
The impact on individual companies of the
change to a one-factor allocation formula
depends on the location of its production
facilities, payroll and sales. A company with
production facilities and/or payroll in NYS but
no State-based sales will apportion no corporate
income to the State and thus pay no 9A
Franchise Tax.
A company with NYS nexus – the term for
connection in tax law – which makes sales to
NYS customers but has no production facilities
or payroll in the State must apportion corporate
income to it and is liable for the tax on that
income.
In 2008, NYS, with its 56 corporate
headquarters, was ranked second to Texas in
the number of Fortune 500 companies
headquartered in the State. Texas, with its
64 headquarters, has a corporate income tax
but no personal income tax.10
9A Corporation Franchise Tax Liability.
Once taxable income is determined, 9A
Corporation Franchise Tax liability is calculated.
More than 25 credits are available that can be
applied to GCT liability to reduce taxes on a
dollar-for-dollar basis.
Investment Income. Investment income is calculated as gains and losses from investment
capital. Regardless of whether its business is
conducted in or outside NYS, the taxpayer is
permitted to allocate investment income using
the Investment Allocation Percentage.
8.4 Trends in NYS 9A Corporation Franchise
Tax Revenues


The Investment Allocation Percentage is not
based on the taxpayer’s corporate activities
but on the activities of the corporation(s) in
which it has invested.
FY2010 current dollar revenues pictured in
Figure 8.1 increased 10.6% over FY2000. In
constant dollars, 2010 revenues were 13.9%
below those in FY2000 and 45% below the
revenues in the 2007 peak year.
Business Income. Business income is defined as
a taxpayer’s entire net income minus subsidiary
and investment income. How much of a
corporation’s income may be taxed by the State
is determined by using what is called an
allocation formula in NYS/NYC and an
apportionment formula elsewhere.
Until 2005, income was allocated based on a 3factor formula that took into account the share of
a corporation’s total property, payroll and sales
in NYS. From 1976 until 2006, the receipts
factor was double-weighted. Effective 2007, a
one-factor formula based solely on sales has
been used for purposes of allocation.
Figure 8.2 shows that 9A Corporation Franchise
Tax revenues generally rise and fall with
fluctuations in the economy, frequently with
larger changes especially on the downside of the
business cycle.
8-­‐3 levies a 0.075% tax on taxpayer subsidiary
capital allocated to NYC. NYC treats S
Corporations in the same manner as C
Corporations for purposes of the GCT.
8.7 Corporate Income Taxation in Other
States
A tax on corporate income is levied by all states
with the exception of Nevada, South Dakota,
Texas, Washington and Wyoming (see Exhibit
8.1). Ohio has replaced its tax on income with a
gross receipts taxes. Thirty-one states impose
significant taxes/fees on S Corporations and
LLCs; 19 impose minimal taxes/fees on them.13
8.5 History of the NYS 9A Corporation
Franchise Tax
The current 9A Corporation Franchise Tax was
established in 1944 when it was linked to the
Federal Corporate Income Tax. Structural
reforms that change the definition of Federal
taxable
income
(e.g.,
deductions
for
depreciation) have a direct impact on the NYS
definition of taxable income unless the State
makes modifications to its tax law. Many
legislative changes to the tax have been made
since 1944, including the authorization of S
Corporation election for NYS tax purposes in
1980. Significant legislative changes to the 9A
Corporation Franchise Tax since 1980 are
summarized in Exhibit 8.2.
8.6 Taxing Corporate Income in NYS Local
Jurisdictions
NYC is the only local government in the State
with statutory authority to levy its own tax on
corporations. The City imposes its General
Corporation Tax (GCT) on most corporations
that have business activities, employ capital,
own/lease property or maintain an office in the
City, with certain exceptions.11
Corporations liable for the GCT compute their
tax liability using four different methods and pay
on the one that produces the largest tax payment.
Under the entire net income (ENI) base, an
8.85% tax rate is imposed on entire net income
allocated to NYC.12 In addition to the tax paid
under the highest of these four methods, the City
Five states give all or some local governments
the option to impose a corporate income tax. A
few other states permit local governments to
impose alternative-based business taxes such as
gross receipts taxes.
8.8 Issues and Concerns
High Tax Rates. Most 9A Corporation
Franchise Tax payments are generated by
companies doing business in NYC. The
combined 15.95% NYS/NYC tax rate on
corporate income is the highest imposed in any
jurisdiction in the nation. The MCTD Mobility
Tax levied in addition to the NYS/NYC
corporate income taxes increases the gap
between NYC and other areas.
Tax Expenditures. The revenue loss attributable to tax expenditures related to the 9A
Corporation Franchise Tax is estimated at $3.0
billion in FY2010 – 20% more than the $2.5
billion total 9A Tax collections.13 Of the $3.0
billion in tax expenditures, an estimated $608
million was attributable to credits subtracted
directly from tax liability – almost 25% of 9A
Corporation Franchise Tax revenues in FY2010.
Credits with an estimated value of more than
$100 million in FY2010 were:



Qualified Empire Zone Enterprise Tax
Credits ($160 million);
Brownfields Tax Credits ($158 million);
Empire State Film Production Credit ($115
million).
8-­‐4 Each of these three credits and several others
taken against 9A Corporation Franchise Tax
liability are refundable. This means that if the
value of the credit exceeds tax liability, the State
refunds the remainder to the taxpayer. Some
credits can be carried forward for as many as 15
years creating uncertainty as to their revenue
impact in any one year.
Combined Reporting. NYS requires certain
corporate taxpayers to file on a combined basis
which requires that they combine profits from all
related subsidiaries including those in other
states to determine what portion of corporate
profits are taxable by NYS. In implementing the
rules related to combined reporting, the State has
to address several issues such as: (1) defining
which members comprise the group for
combined reporting, (2) deciding how to
combine the group’s income and (3) how to treat
inter-company transactions, net operating losses,
credits and deductions as well as non-business
income.
Not-for-Profit Corporations. Income from
activities not attributable to the primary purpose
of not-for-profit corporations is important to
identify and is potentially taxable.
Double Taxation of Income. A major issue
regarding corporate taxation in NYS and in other
jurisdictions is the double taxation of dividends.
In NYS, C Corporation income is taxed prior to
distribution under the 9A Corporation Franchise
Tax. The distributed income, either as shares or
dividends, is taxed again under the Personal
Income Tax paid by individual shareholders. For
S Corporations and LLCs, profits are not taxed
until they are distributed to owners/shareholders.
Endnotes
3
Based on 2005 NYS Corporation Tax Statistical
Report as cited in the Economic and Revenue
Outlook, Op.cit., p.280.
4
Ibid. p. 282.
5
An LLC is an unincorporated organization of one or
more members with limited liability for the
contractual and other liabilities of the company.
LLCs are generally taxed as partnerships but may
choose to be taxed as corporations.
6
A REIT is a corporate entity investing in real estate
that is required to distribute 90% of its income to
investors. A RIC is an investment company eligible
to pass capital gains, dividends and earned interest
directly to shareholders to be taxed at the individual
level.
7
In a unitary business there is a sharing or exchange
of value between the members of the group as
demonstrated by: (1) centralized management or a
common
executive
force;
(2)
centralized
administrative services or functions resulting in
economies of scale; or (3) flow of goods, capital
resources or services demonstrating functional
integration.
8
Economic and Revenue Outlook, Op.cit. p.281
9
A subsidiary is defined as 50% or more of ownership by one company of another company.
10
Money Magazine
http://money.cnn.com/magazines/fortune/fortune500/
2010/states/TX.html
11
Major exceptions include insurance companies and
corporations subject to the NYC Banking
Corporation Tax or regulated utilities subject to the
Utility Tax and certain other corporations such as
those organized exclusively for the purpose of
holding title to property and turning over net income
from the property to an exempt organization.
12
The other three bases are the alternative tax base,
the total capital base and a minimum tax which is
calculated on a sliding scale, ranging from $25 to
$5,000 based on taxpayer annual receipts allocated to
NYC.
13
NYS 20th Annual Report on Tax Expenditures,
p.66. http://publications.budget.state.ny.us/eBudget1011/fy
1011ter/TaxExpenditure10-11.pdf
1
Based on estimates for 2010 published in 2010-11
NYS Executive Budget, Economic and Revenue
Outlook, p. 273.
http://publications.budget.state.
ny.us/eBudget1011/economicRevenueOutlook/econo
mic RevenueOutlook.pdf
2
An S Corporation is a regular corporation that has
elected S Corporation status for Federal tax purposes.
It must also elect State S Corporation status to be
treated as such for NYS Tax purposes.
8-­‐5 Exhibit 8.1: State Corporate Income Tax Rates, 2010
Tax Rates
State
State
Tax Rates
State
Tax Rates
Alabama
6.5%
Kentucky
4.0-6.0%
North Dakota
2.1-6.4%
Alaska
1.0-9.4
Louisiana
4.0-8.0
Oklahoma
6.0
Arizona
6.968
Maine
3.5-8.9
Oregon
6.6-7.9
Arkansas
1.0-6.5
Maryland
8.25
Pennsylvania
9.99
California
8.84
Massachusetts
8.75
Rhode Island
9.0
Colorado
4.63
Michigan
4.95
South Carolina
5.0
Connecticut
7.5
Minnesota
9.8
Tennessee
6.5
Delaware
8.7
Mississippi
3.0-5.0
Utah
5.0
Florida
5.5
Missouri
6.25
Vermont
6.0-8.5
Georgia
6.0
Montana
6.75
Virginia
6.0
Hawaii
4.4-6.4
Nebraska
5.58-7.81
West Virginia
8.5
Idaho
7.6
New Hampshire
8.5
Wisconsin
7.9
Illinois
7.3
New Jersey
9.0
Dist. of Columbia
9.975
Indiana
8.5
New Mexico
4.8-7.6
Iowa
6.0-12.0
New York
7.1
Kansas
4.0
North Carolina
6.9
Note: Nevada, South Dakota, Washington and Wyoming do not impose a corporate income tax. Texas imposes a Franchise Tax,
known as margin tax, on certain entities. Ohio has replaced its tax based on income with a gross receipts tax. State data do not
include local government rates. Sources: Federation of Tax Administrators, Range of State Corporate Income Tax Rates. Tax
Foundation, State Corporate Income Tax Rates as of February 1. 2010.
Exhibit 8.2: Major NYS Legislative Actions Affecting the 9A Corporation Franchise Taxe, 1980-2010
Year
Action
Temporary 18% surcharge imposed on tax liability attributable to business activity in the Metropolitan
1981
Commuter Transportation District (MCTD). Reduced to 17% in 1982.
Changed depreciation rules to conform to Federal Tax Reform Act of 1986. Provided for the formation of
Limited Liability Companies (LLCs) and Limited Liability Partnerships (LLPs). Reduced Alternate Minimum
1994
Tax (AMT) rate from 5.0% to 3.5%.Provided that the sales factor in calculation of the business allocation of
the AMT base be double-weighed.
1995
Extended 17% surcharge until 1997.
Conformed treatment of State S Corporations to their treatment at the Federal level. Extended 17% surcharge
1997
for 4 years.
Reduced AMT rate from 3.5% to 3.0%. Reduced tax rate on Entire Net Income (ENI) from 9.0% to 7.5%;
reduced small business rate reduction from 8% to 7.5%. Reduced minimum tax from $325 to $100 for
1998
corporations with payroll below $250,000 and from $325 to $225 for corporations with payroll between
$250,000 and $500,000.
Reduced AMT rate from 3.0% to 2.5%.Reduced tax on airlines by changing formula used to apportion income
1999
to NYS.
Reduced the tax rate from 7.5% to 6.85% for business with net income less than $200,000 and provided for
2000
rates ranging up to 7.5% for businesses with net income less than $290,000.
2003
Provided that S corporations would be taxed at a fixed dollar minimum for 2003, 2004 and 2005.
2004
Provided a temporary adjustment to the fixed dollar minimum tax schedule for 2004 and 2005.
Reduced tax rate on businesses with net income less than $200,000 from 6.85% to 6.5%. Enacted phase-in of
2005
single sales factor allocation.
Provided the State code regarding treatment of S corporations to the Federal code. Provided a tax credit for
2006
manufacturers of qualified bio-fuel products.
Reduced rate on the ENI base from 7.5% to 7.1%. Reduced rate on the ENI base from 7.5% to 6.5% for
2007
qualifying manufacturing/emerging technology companies. Reduced AMT rate from 2.5% to 1.5%.
Changed minimum tax from a tax based on gross payroll to one based on gross income. Increased capital base
cap for non-manufacturers from $1 million to $10 million for three-year period. Reduced capital base tax rate
2008
from 0.178% to 0.15% and limited the tax $350,000 for manufacturers and $10,000,000 for all other taxpayers.
Extended 17% surcharge for four more years.
Sources: Unpublished information supplied to author by NYS Assembly Ways & Means Committee. 2010-11 NYS Executive
Budget, Economic and Revenue Outlook.
8-­‐6 Corporation and Utility Tax
9.0 CORPORATION AND UTILITY TAX
9.1 Overview
Article 9 of the NYS Tax Law imposes taxes
and fees on several entities including public
utilities.1 It is generally referred to as the Utility
Tax. In FY2010, Article 9 taxpayers, including
utilities, generated $954 million, accounting for
1.7% of NYS tax revenues and 0.8% of total
State revenues. Of the $954 million, 76% was
deposited in the NYS General Fund, 22% in the
Mass Transportation Operating Assistance Fund
(MTOAF) and 2% in the Dedicated Highway
and Bridge Trust Fund (DHBTF).2
Utilities and other corporations doing business
in the MCTD are liable for the Metropolitan
Commuter Transportation Mobility Tax imposed
at a rate of $0.34/$100 of payroll allocated to the
District. The Petroleum Business Tax (see
Section 12) is paid by some utilities on
purchases of oil used in the production of
electricity and steam.
NYS/MCTD and local sales taxes apply to sales
of intra-state telecommunications services and
certain other utility services. Additional local
government taxes apply (see Section 9.6).
Fees. Section 18-a of the Public Service Law
authorizes NYS to impose a fee on public
utilities, referred to as the 18-a Assessment.
Since 2009, the fee has been set at 2%. It is
passed along to customers in their energy bills.
Franchise Tax as well as specific sections of
Article 9 discussed in Section 9.3
9.3 The NYS Utility Tax Base
Sections 183 and 184. Under Section 183 of
Article 9, transportation and transmission
companies calculate the tax on their capital stock
using three methods and pay on the method
producing the highest tax.3 Under Section 184, a
0.375% tax on gross receipts generated within
NYS is imposed on transportation and
transmission companies taxed under Section
183.


Section 186. Section 186-a imposes a 2% gross
receipts tax on the delivery of residential electric
and gas utility services. Section 186-e imposes a
2.5% gross receipts tax on the sale of
telecommunication services.

9.2 The NYS Utility Taxpayer
Transportation and transmission companies
exercising their corporate franchise in NYS are
subject to Article 9 of the State Tax Law with
certain exceptions.


Most railroad and trucking companies are
taxed under the Article 9A Corporation
Franchise Tax but may elect to be taxed
under Article 9.
Public utilities and waterworks, gas, electric,
steam heating, lighting and power
companies are subject to the 9A Corporation
Corporations principally engaged in the
transportation/transmission/distribution of
gas, electricity or steam are not subject to
Sections 183 or 184.
The tax on telecommunications companies
under Section 184 applies to telecommunications companies principally engaged in
local telephone business.

Telecommunications services include those
provided by wire, cable, satellites, fiberoptics, lasers, microwaves, radio-waves and
similar media. This tax also applies to
services that are ancillary to the provision of
telephone service such as directory
information, call waiting/forwarding, and
caller identification.
Telecommunications companies generate
about 75% of all Article 9 tax receipts.4
9.4 Trends in Utility Tax Revenues
As pictured in Figure 9.1, current and constant
dollar revenues fluctuated over the decade but
have been increasing since 2008. FY2010
constant dollar revenues were 31% above their
FY2008 level.
9-­‐1 $ In Millions Figure 9.1: NYS Utility Tax Revenues, Current and
Constant 2000 Dollars, 2000-2010
1,600
1,400
Current $
1,200
Constant 2000 $
1,000
800
600
400
200
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Sources: NYS Department of Taxa:on & Finance Annual Sta)s)cal Report, Ic)er 2010. NYCPI used to convert series to constant 2000 $. Figure 9.2 shows that constant dollar tax
revenues increased from the early to the mid1990s when a temporary surcharge on utility
companies was imposed. Revenues generally
declined after the surcharge was removed and
again after the 2000 restructuring of the tax, but
have been growing in the past few years.
9.6 Taxes on Utilities in NYS Local
Jurisdictions
Utilities are subject to several local government
taxes in addition to those imposed by NYS.
Business Taxes. NYC imposes a utility tax
measured by gross income or gross operating income on utility companies and vendors of utility
services.5 Sixty other NYS cities and 365
villages impose either a 1% or 3% gross receipts
tax on utilities.6
Property Taxes. Utility companies calculate tax
liability by multiplying the assessed value of
their property – determined either by the state or
local government – by rates set by local taxing
jurisdictions. NYS establishes the assessed (taxable) value for special franchises given to utilities for property placed on/under/over the
public way, e.g. telephone lines. All other utility
property is locally assessed. For many utilities,
property taxes represent the largest part of their
tax bills. The three largest individual property
taxpayers in NYS are utility companies.
Sales Taxes. Certain cities and counties impose
a selective Sales Tax on utility services. School
districts in cities with fewer than 125,000
inhabitants are permitted to impose a Sales Tax
on utility services – including intrastate
telephone and telegraph services – at a rate of up
to 3%. More than 20 city school districts do so,
some at rates higher than the local Sales Taxes
on other goods/services.
9.5 History of NYS Utility Taxation
NYS has taxed utility corporations since the
beginning of the 20th century with extensive
modifications made during the 1930s.
Substantial revisions with respect to telecommunication providers occurred in 1995 and with
respect to electric, gas and other utility service
providers in 2000. Major changes to the tax
since 1980 are summarized in Exhibit 9.1.
Surcharges. A surcharge of $0.30 per month is
imposed by NYC on every wireless
communication device whose place of primary
use is within the City. The NYC tax is imposed
in addition to the $1.20 surcharge per device
imposed by the State. A surcharge of $1.00/
telephone access line per month is imposed on
customers of every telephone service supplier
in NYC.
9-­‐2 9.7 Taxes on Utilities in Other States
Utility corporations are taxed in all states by
either the state government, by one or more local
governments, or by both state and local
governments.
cooperatives. This makes the tax non-transparent
to taxpayers.
Endnotes
1
9.8 Issues and Concerns
Deregulation. Many issues pertaining to the
taxation of utilities relate to deregulation,
particularly of companies supplying electricity,
natural gas and telecommunications services.
Prior to deregulation, utilities were regulated by
government and were generally permitted to
service specific geographic territories. Deregulation has changed the marketplace so that
regulated utility companies now compete with
other providers in delivering electricity, natural
gas and telephonic services in a wider
geographic area.
Because deregulation has blurred the lines
between regulated companies and other
providers of utility services, the rationale for
differentiating
between
9A
Corporation
Franchise Taxpayers and Article 9 Taxpayers is
becoming less apparent. Most NYS corporations
pay taxes based on their net income or profits.
Regulated utility companies, however, pay taxes
based on net income and on gross receipts.
Other entities taxed under Article 9 include newly
organized or reorganized corporations, out-of-State
corporations doing business in NYS and agricultural
cooperatives.
2
Based on estimates for 2010 published in 2010-11
NYS Executive Budget. Economic and Revenue
Outlook, p. 289. http://publications.budget.state.
ny.us/eBudget1011/economicRevenueOutlook/econo
mic RevenueOutlook.pdf
3
The three bases are: Capital stock - 1.5 mills/dollar
of net value of issued capital stock; Dividends - If
dividends paid on the par value of any stock during a
calendar year are 6% or more, a tax of 0.375 mills for
each 1% of dividends paid, computed at par value of
the stock; Flat rate - $75.
4
2010-11 NYS Executive Budget, Economic and
Revenue Outlook Op.Cit. p.290.
5
For most types of utility companies, the City’s tax
rate is 2.35% of gross income or gross operating
income. Different rates apply to bus companies and
railroads, ranging from 0.10% on the gross income of
commuter services to 3.52% on the gross income of
railroads.
6
2010 Handbook of New York State and Local Taxes,
p.35.http://www.tax.ny.gov/pdf/stats/policy_special/h
andbook_of_new_york_state_and_local_taxes_octob
er_2010.pdf
High Taxes. Electricity and telecommunications
costs in NYS are higher than those in most other
states (see Exhibits 9.2 and 9.3) primarily due to
State and local taxes. NYS taxes imposed on
utilities include the 9A Corporate Franchise Tax,
the Gross Receipts Tax and the Sales/Use Tax.
Local taxes include business income/gross
receipts taxes, sales taxes and property taxes.
State and local surcharges and fees also
contribute to high utility costs in NYS. More
expensive electricity and telecommunications
services give NYS a competitive disadvantage in
job attraction and economic development
efforts.
Non-transparency. Although Article 9 is generally referred to as the Utilities Tax, it applies to
several unrelated entities such as agricultural
9-­‐3 Exhibit 9.1: Major NYS Legislative Actions Affecting the NYS Corporation and Utilities Tax, 1980-2010
Year
Action
1981
Sections 183 and 184 expanded to cover portion of gross receipts from interstate activities allocated to NYS.
Temporary 18% surcharge imposed on the portions of Sections 183,184,186-a and 186-e tax liability
1982
attributable to business activity in the Metropolitan Commuter Transportation District (MCTD).
Sections 186-a and 186-e expanded to cover portion of gross receipts from interstate activities allocated to
1983
NYS; surcharge reduced to 17%. Oil companies no long taxed under this section, subject to PBT.
1989
Airlines/other companies principally engaged in aviation activities transferred to 9A Corporate Franchise Tax.
Section 186-a tax on telephone carrier access transferred from long distance companies to local telephone
companies. Section 184 Tax on telephone/telegraph companies increased from 0.3% to 0.75% of gross
1990
receipts. Imposed a temporary 15% surcharge on taxpayers liable for tax under Sections 183, 184, 186 and
186-a . Surcharge was phased-out over a three-year period starting 1994.
In response to NYS Court of Appeal decision, access charge deduction transferred from long distance
1995
telephone companies to local companies. Long distance companies removed from Section 184.
Telecommunication service providers moved from Section 186-a to Section 186-e of Article 9.
Reduced tax on trucking and railroad industries from 0.75% to 0.6% of gross receipts. Trucking and railroad
1996
companies permitted to be taxed under Article 9-A (net income basis) rather than under Article 9.
Reduced rate for Sections 184, 186-a and 186-e taxpayers. For the purpose of computing the 17% surcharge on
1997
Section 184, 186-a and 186-e taxpayers, tax shall be computed as if the rate reduction had not occurred.
Energy companies, previously taxed under Section 186 of Article 9, to pay tax under the Article 9-A corporate
franchise tax. Eliminated Gross Receipts Tax (GRT) passed along to manufacturing consumers effective
2000
1/2000. Eliminated GRT passed along to commercial consumers and phased-out gross income component of
the tax over a five-year period. GRT on gas and electricity to be reduced from 2.5% to 2.0% over a five-year
period for residential customers.
Amended Section 186-e excise tax on telecommunication services to conform to Federal sourcing rules. The
2002
tax is imposed on gross receipts of services provided by a home service provider if the customer’s primary use
is within NYS regardless of where the service originates, terminates or passes through.
Extended 17% surcharge for four years. Amended Section 186-e tax on telecommunication services to conform
2008
to the sourcing rules of the Federal Mobile Telecommunications Sourcing Act relating to sales occurring on or
after August 2, 2002.
Note: Legislative actions related to non-utility components of Article 9 not included. Sources: Unpublished information supplied
to author by NYS Assembly Ways & Means Committee. 2010-11 NYS Executive Budget, Economic and Revenue Outlook.
Exhibit 9.2: State Taxes and Fees on Wireless Telecommunications Services, July 2007 State
State-Local Rate
State
State-Local Rate
State
State-Local Rate
Alaska
6.76 Louisiana
6.16 Ohio
7.88
Alabama
7.4 Maine
7.27 Oklahoma
9.75
Arizona
9.95 Maryland
10.51 Oregon
1.66
Arkansas
10.08 Massachusetts
5.6 Pennsylvania
13.5
California
12.67 Michigan
6.58 Rhode Island
14.52
Colorado
10.89 Minnesota
8.5 South Carolina
9.45
Connecticut
6.8 Mississippi
9 South Dakota
11.91
Delaware
5.45 Missouri
15.73 Tennessee
11.5
Florida
16.23 Montana
5.95 Texas
14.27
Georgia
8.26 Nebraska
18.35% Utah
12.2
Hawaii
7.7 Nevada
2 Vermont
7.75
Idaho
2.12 New Hampshire
7.84 Virginia
6.5
Illinois
12.75 New Jersey
8.8 Washington
16.43
Indiana
8.55 New Mexico
11.01 West Virginia
6.01
Iowa
7.36 New York
15.94 Wisconsin
7.39
Kansas
11.12 North Carolina
8.37 Wyoming
8.17
Kentucky
10.36 North Dakota
10.58 Dist. of Columbia
11.52
Note: For flat monthly taxes and fees, average monthly consumer bill is estimated at $49.94 per month per the International
Association of Wireless Telecommunications (CTIA). Source: State Tax Notes, February 18, 2008 Special Report
9-­‐4 Exhibit 9.3: Average Retail Price of Electricity to Customers by State, September 2010 (Cents per kilowatt-hour)
State
Residential
Commercial
Industrial
Transportation
All Sectors
Alabama
10.85
10.27
6.04
-8.99
Alaska
16.41
14.07
13.99
-14.82
Arizona
11.10
9.57
6.81
-9.85
Arkansas
8.81
7.27
5.47
11.12
7.27
California
15.24
14.33
11.12
8.62
14.05
Colorado
11.19
9.16
7.02
9.46
9.30
Connecticut
19.33
16.50
14.43
11.77
17.43
Delaware
13.80
11.38
9.66
8.86
12.00
Florida
11.47
9.74
8.82
8.49
10.60
Georgia
10.29
9.09
6.23
7.50
8.98
Hawaii
27.91
25.79
21.80
-25.96
Idaho
8.00
6.71
5.23
-6.55
Illinois
11.57
8.13
7.53
6.85
9.20
Indiana
9.55
8.33
5.92
9.10
7.69
Iowa
10.45
7.94
5.43
-7.74
Kansas
9.97
8.16
6.14
-8.27
Kentucky
8.55
7.82
5.05
-6.72
Louisiana
8.98
8.53
5.94
9.63
7.87
Maine
15.72
12.40
8.78
-12.67
Maryland
14.63
11.65
9.49
10.17
12.78
Massachusetts
15.22
15.42
13.18
664
14.60
Michigan
12.54
10.16
7.20
10.33
10.10
Minnesota
10.44
8.36
6.31
7.76
8.42
Mississippi
9.95
9.35
6.37
-8.65
Missouri
9.23
7.58
5.59
6.37
7.91
Montana
9.15
8.47
5.59
-7.79
Nebraska
9.03
7.69
6.02
-7.57
Nevada
12.41
9.96
7.75
9.64
9.96
New Hampshire
16.26
14.19
12.76
-14.79
New Jersey
16.64
14.06
11.72
11.80
14.81
New Mexico
10.69
8.77
6.13
-8.58
New York
18.70
16.13
9.64
14.95
16.41
North Carolina
10.29
8.21
6.19
7.16
8.77
North Dakota
8.15
7.19
5.68
-7..04
Ohio
11.34
9.78
6.31
8.96
9.14
Oklahoma
9.16
7.48
5.23
-7.59
Oregon
8.85
7.65
5.46
6.98
7.58
Pennsylvania
12.85
10.26
7.60
7.92
10.39
Rhode Island
15.94
12.89
13.06
13.57
14.14
South Carolina
10.52
8.85
5.68
-8.47
South Dakota
8.92
7.58
5.91
-7.78
Tennessee
9.23
9.58
6.62
11.23
8.62
Texas
11.63
9.22
6.34
9.90
9.41
Utah
8.82
7.28
5.08
8.75
7.09
Vermont
15.54
13.39
9.45
-13.20
Virginia
10.56
7.68
6.75
7.74
8.76
Washington
7.95
7.29
3.95
7.32
6.55
West Virginia
8.75
7.61
5.81
8.34
7.38
Wisconsin
12.56
9.96
6.81
-9.74
Wyoming
8.78
7.48
4.98
-6.21
Dist. of Columbia
13.79
14.14
8.47
11.02
13.85
Source: U.S. Energy Information Administration Monthly Electric Sales and Revenue Report with State Distributions Report,
January 2011. http://www.eia.doe.gov/electricity/epm/table5_6_b.html
9-­‐5 Insurance Tax
10.0 INSURANCE TAX
10.1 Overview
New York State adopted its current tax on
insurance companies in 1974 under Article 33 of
the State Tax Law. In 1983, the State imposed a
temporary 17% surcharge on insurance companies and other corporate taxpayers doing
business in the 12-county Metropolitan
Commuter Transportation District (MCTD). The
surcharge is still in place.
Article 33-A of the NYS Tax Law imposes the
Direct Writings Tax on insurance purchased
from an unauthorized insurer, which is
permissible under certain circumstances.

Non-profit property/casualty companies;
 Cooperative insurance companies in
operation prior to January 1, 1974.
Retaliatory Taxes. Under retaliatory taxation, a
state taxes a non-domiciled insurance company
at the same level that its own insurance
companies are taxed in the state of that
company. The concept of retaliation is unique to
the insurance industry and is intended to
promote equal treatment of insurers across
states.
 NYS collects a retaliatory tax from insurance corporations domiciled in other states
that impose retaliatory taxes on – or do not
grant exemptions on a reciprocal basis to–
NYS-domiciled insurance companies;
NYS-domiciled insurance companies are
permitted to take a 90% credit against their
NYS Insurance Tax liability for retaliatory
taxes paid to other states.
In FY2010, the Insurance Tax (Articles 33 plus
33-A) generated $1.5 billion, accounting for
3.6% of NYS tax revenues and 2.6% of total
State revenues. Of the $1.5 billion, 90% was
deposited in the State’s General Fund and 10%
in the Mass Transportation Operating Assistance
Fund.1
10.3 The NYS Insurance Tax Base
Insurance Companies doing business in the
MCTD must also pay the Metropolitan
Commuter Transportation Mobility Tax imposed
at a rate of $0.34/$100 of payroll allocated to the
District. The State distributes all proceeds from
the Mobility Tax to the MTA.
Property/casualty insurance companies generate
the largest proportion of NYS Insurance Tax
revenues. In 2006, they accounted for 55% of
the total. Accident and health insurers were
second with 23% and life insurers third with
21%.3
10.2 The NYS Insurance Taxpayers
Life insurance and non-life insurance companies
are taxed differently under the NYS Insurance
Tax Law. Life insurers are subject to an income
tax component and a 0.08% tax on subsidiary
capital allocated to NYS plus a tax on
premiums4 written. Non-life insurers are subject
solely to a tax on premiums written.
NYS imposes the Insurance Tax on domestic
and foreign/alien2 insurance corporations, for the
privilege of conducting business or otherwise
exercising a corporate franchise in the State with
some exceptions. Exceptions are:


Certain annuity contracts, reinsurance
premiums and health insurance contracts for
persons 65 years of age and older;
Non-profit medical expense indemnity
corporations and certain other health service
corporations;

Life Insurers. Companies calculate the income
component using four methods and pay on the
method that produces the highest tax. The four
methods are:

Allocated entire net income (ENI) base – a
tax of 7.1% applied to the portion of ENI
allocated to NYS according to the ratio of
10-­‐1 


NYS premiums and payroll to total
premiums and payroll nationwide;5
Allocated business and investment capital
base – a tax of 0.16% applied to allocated
business and investment capital;
Allocated net income plus compensation
alternative base – a tax of 9% applied to
allocated ENI plus officers’ salaries basis.
The basis is 30% of the sum of EIN plus
officers’ salaries and other compensation
minus $15,000 and any net loss for the
reported year.
Minimum $250 tax.
The second component paid by life insurers is
the 0.7% tax on gross premiums – minus
returned premiums – written on risks located in
NYS.


Title 33-A Insurers. A direct writings tax of
3.6% is imposed on premiums. It is paid by
persons who buy or renew insurance policies
from companies not authorized to do
business in NYS except under certain
circumstances.
Fire Insurance Companies. NYS imposes a
tax on foreign/alien fire insurance companies at the rate of 2% of premiums.
10.4 Trends in NYS Insurance Tax Revenues
In current dollars, Insurance Tax revenues
pictured in Figure 10.1 more than doubled
from FY 2000 to FY2010. In constant dollars,
FY2010 revenues were more than 67% above
FY2000 revenues.
The total tax on a life insurance company cannot
exceed 2% of taxable premiums and cannot be
less than 1.5% of taxable premiums prior to the
application of credits.
Non-life Insurers. Non-life insurance companies pay the Insurance Tax based on gross direct
premiums – minus return premiums– written on
risks located in NYS. The tax rate is 2% with the
exception of accident and health premiums
which are taxed at the rate of 1.75%. The
minimum tax, before the application of credits,
is $250.
Special Insurers. Certain types of insurance
companies receive differential treatment under
the NYS Insurance Tax law.


Changes over time in tax revenues shown in
Figure 10.2 generally reflect tax law revisions to
the rate and/or base and/or increases in insurance
premiums rather than changes in economic
conditions.
Captive Insurers. A captive insurer is
generally a company that insures the risks of
its parent or the parent’s affiliated companies.
NYS imposes a tax on gross premiums
written by captive insurers on risks located
in the State. The maximum rate is 0.4% on
direct premiums and 0.225% on reinsurance
premiums. A minimum tax of $5,000
applies.
Excess Line Insurance Brokers. Excess
Line brokers generally insure unique or
large risks not covered by the standard lines
market. NYS imposes a tax of 3.6% on
premiums written by licensed excess lines
insurance brokers.
10-­‐2 10.5 History of the NYS Insurance Tax
Prior to the adoption of Article 33 in 1974,
insurance companies were taxed under Article 9
of the NYS Tax Code. The State made
substantial changes to the tax in 1987 to prevent
large increases in the base that would have
occurred due to the broadening of the Federal
insurance tax base to which it is linked. Major
changes to the Insurance Tax since 1980 are
summarized in Exhibit 10.1.
10.6 The Insurance Tax in NYS Local
Jurisdictions
Self-Insurance Programs. The increase in selfinsurance programs is providing competition to
conventional insurance companies that are regulated by the NYS Department of Insurance. An
example of self-insurance is an employee
insurance program offered through a captive
insurance company formed primarily to cover
the assets/risks of its parent company. The taxes
paid by captive insurance companies are
generally lower than taxes paid by regulated
insurance companies.
No local government in NYS has legislative
authority to tax insurance companies with the
exception of NYC and Buffalo. Both cities
impose a 2% premium tax on foreign and alien
fire insurance companies.
Retaliation. The intent of retaliation is to
provide an incentive for states to keep their tax
burden on insurance companies in line with
those of other states. Determining what taxes
should be included in considering retaliatory
actions, e.g., state income taxes, has an impact
on NYS companies doing business in other
states.
10.7 The Insurance Tax in Other States
Endnotes
All 50 states impose premium taxes on insurance
companies for insuring risks or property in the
state (see Exhibit 10.1). Eight states besides
NYS also impose corporate income/franchise
taxes on insurance companies: Alabama, Arkansas, Delaware, Florida, Illinois, Louisiana, Mississippi and Nebraska. Hawaii is the only state
that does not have a retaliatory tax policy.
1
10.8 Issues and Concerns
Insurance Industry Regulation. Passage of the
Federal Gramm-Leach-Bliley Act (GLBA) in
1999 removed the regulatory demarcation
between banks, securities firms, and other
financial institutions including insurance
companies. Although GLBA confirmed the
intent of Congress that insurance companies
continue to be regulated by the 50 individual
states, the Dodd–Frank Wall Street Reform and
Consumer Protection Act – signed into law in
July 2010 – is giving the Federal government an
increasing role in the industry. It provides for
the creation of the first office in the Federal
government focused on insurance. One of the
functions of the office is to monitor the
insurance industry for systematic risk purposes.
Based on estimates for 2010 published in 2010-11
NYS Executive Budget, Economic and Revenue
Outlook, p. 301.
http://publications.budget.state.
ny.us/eBudget1011/economicRevenueOutlook/econo
mic RevenueOutlook.pdf
2
Alien insurers are incorporated/organized under the
laws of a foreign nation; foreign insurers under the
laws of any state other than NYS.
3
Distribution of tax revenue is for 2006, the latest
year for which data are available.
4
Premiums include all amounts received as
consideration for insurance or reinsurance contracts,
other than for annuity contracts. They also include
premium deposits, assessments, policy fees,
membership fees, and separate costs by carriers
assessed upon their policyholders; and every other
compensation, minus the return of dividends, and
reinsurance executed.
5
In the formula, premiums have a weight of 9 and
wages a weight of 1.
10-­‐3 Exhibit 10.1: Insurance Premium Tax Rates in the States, 2010
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Accident/
Health
Life
Property/
Casualty
1.60%
2.30%
3.60%
State
Nebraska
1.50
1.40
2.10
2.10
2.35
New Mexico
3.00
3.00
3.00
1.75
0.70
2.00
1.90
1.90
1.90
1.75
2.00
1.75
1% or 1.4%
1.40
1.40
2.25
2.25
2.25
2.35
2.35
2.00
2.00
2.00
1.75
1.75
1.75
1.75
1.75
1.75
1.75
1.75
1.75
New York
North
Carolina
North
Dakota
Ohio
2.25
Oklahoma
4.27
Oregon
2.00
2.00
2.00
2.00
2.00
2.00
1.25
0.75
1.25
2.50
2.50
2.50
1.75
1.75
2.50
1.75
1.60
2.25
4.27
2.25
2.75
1.00
1.00
1.00
Kansas
2.00
2.00
2.00
Kentucky
2.00
1.50
2.00
Texas
Missouri
1.50
2.50
1.30
Mississippi
2.00
2.50
1.30
Minnesota
3.50
2.50
1.30
Michigan
3.50
2.00
0.50
Massachusetts
3.50
2.00
0.50
Maryland
1.00%
2.00
0.40
Maine
1.00%
2.70
1.70
Louisiana
1.00%
2.70
1.70
Iowa
Property/
Casualty
2.70
1.70
Indiana
Life
Nevada
New
Hampshire
New Jersey
Pennsylvania
Rhode
Island
South
Carolina
South
Dakota
Tennessee
Illinois
Accident/
Health
0.00
1.75
2.25% of first
$100,000; 0.08%
in excess of
$1,000,000
2.00
Vermont
2.00
2.00
2.00
2.00
Virginia
2.25
2.25
2.25
2.28
Washington
2.00
2.00
2.00
West
Virginia
3.00
3.00
3.00
0.00
2% or Income Tax
2.00
0.75
0.75
0.75
1.70
1.70
$140 for $7,000 or less in premiums
received; $225 for each additional
$10,000
2.00
2.00
2.28
2.00
2.00
2.00
Corporate excise tax and retaliatory taxes
Greater of Single Business Tax/
Retaliatory Tax
2.00
1.50
2.00
3.00
3.00
3.00
Utah
Wisconsin
Wyoming
Dist. of
Columbia
2.00
2.00
2.00
1.70
Montana
2.75
2.75
2.75
Source: Provided to author by the National Association of Insurance Commissioners ©
2.25
10-­‐4 Exhibit 10.2: Major NYS Legislative Actions Affecting the NYS Insurance Tax, 1980-2010
Year
Action
17% surcharge imposed on insurance companies doing business in the Metropolitan Commuter Transportation District
1983
(MCTD).
Business Tax Reform and Rate Reduction Act adopted. The Act restored pre-Federal tax reform rules to property and
1987
casualty companies and reduced tax rate on life insurance premiums. Property/casualty companies required to make several
adjustments to ENI to decouple from Federal changes.
Direct Writings Tax imposed on independently procured insurance under Article 33-A of the State Tax Law. Temporary
1990
surcharge imposed at 15%. Subsequent legislation eliminated the surcharge over a three-year period starting in 1994.
1991
Decoupled provisions for property/casualty taxpayers made permanent and tax rate increased on these insurers.
1993
17% surcharge extended through the end of 1995.
Reformed taxes on insurers. For life insurance companies, tax liability will be the highest of four alternative bases plus 0.7%
of premiums written on risks assigned to NYS or 1.5% of premiums written on risks assigned to NY State. The total amount
2003
of tax cannot exceed 2.0% of taxable premiums. For others, Non-Life Insurers: 1.75% of premiums written on risks assigned
to NY State for accident and health insurers and 2.0% of premiums written on risks assigned to NY State for property and
casualty insurers.
2008
Extended 17% surcharge through 2013.
Sources: Unpublished information supplied to author by NYS Assembly Ways & Means Committee. 2010-11 NYS Executive
Budget, Economic and Revenue Outlook.
10-­‐5 Bank Franchise Tax
11.0 BANK FRANCHISE TAX
11.1 Overview
New York State imposed its current tax on
banking corporations in 1973 under Article 32 of
the State Tax Law. In 1982, NYS levied a
temporary 18% surcharge on banking and other
corporate taxpayers doing business in the 12county Metropolitan Commuter Transportation
District (MCTD). The surcharge, reduced to
17% in 1983, is still in place.
In FY2010, the Bank Franchise Tax generated
$1.4 billion, accounting for 2.4% of NYS tax
collections and 1.1% of all State revenues. Of
the $1.36 billion, 86% was deposited in the State
General Fund and the 14% from the surcharge
was deposited in the Mass Transportation
Operating Assistance Fund.1
Banking Corporations doing business in the
MCTD also pay the Metropolitan Commuter
Transportation Mobility Tax imposed at a rate of
$0.34 for every $100 of payroll allocated to the
District. The State distributes all proceeds from
the Mobility Tax to the MTA.
11.2 The NYS Bank Franchise Taxpayer
The NYS Bank Tax is imposed on domestic
commercial banks, savings banks, savings and
loan associations and foreign/alien banks2 for
the privilege of doing banking business in the
State.3

Banking business is defined as the business
activity which a corporation or association
may be created to do under various
provision of NYS or Federal banking laws
and generally includes making loans and
obtaining funds, primarily by accepting
deposits. Banking business may also include
activities carried on in offices that are not
banks or branches, such as loan production
offices.
Effective TY2008, the Bank Tax is also imposed
on banks with credit card operations in NYS that
exceed 1,000 customers/merchants or $1 million
in receipts from customers/merchants.
Fewer than 800 taxpayers file Bank Tax
returns.4 Clearinghouse5 and commercial banking institutions accounted for 66.3% of total
Bank Tax liability in 2006, alien banking
institutions for 23.7% and foreign banking
institutions, savings banks and savings/loan
institutions, 10%.6
Taxpayer Reporting. Every corporation subject
to the NYS Bank Tax must file an annual tax
return reporting its income and capital. A
banking corporation that is a member of an
affiliated group of corporations may file on a
separate return basis or on a combined return
basis.


Under separate entity reporting, a
corporation with sufficient nexus – the tax
law term for connection – with NYC is
required to file its own Bank Tax return
Under combined reporting, an affiliated
group of taxpayers meeting certain capital
stock ownership and unitary business tests7
file combined reports if filing on a separate
basis would distort the activities, business,
income or capital of the taxpayers.
Combined reporting requires that companies
combine profits and losses from all related
subsidiaries including those located in other
states.
A banking corporation may be required to file a
combined return with other corporations under
certain circumstance. The factors determining
which companies are to be included in a
combined return are ownership, inter-corporate
transactions, and the extent of related activities.
Foreign banks organized outside the United
States may not be included in a combined return
with U.S. banks.
Effective TY2008, income from Captive Real
Estate Investment Trusts (REITs) and Captive
Regulated Investment Companies (RICs)8 must be
included in a combined Bank Tax return if the
business owning them is subject to the tax.
11-­‐1 11.3 The NYS Bank Franchise Tax Base
The Bank Tax is calculated by the taxpayer
using four methods and is paid on the method
which produces the highest tax.




Entire net income (ENI) base – a tax rate of
7.1% is imposed on net income allocated to
NYS.
Alternative tax base – a 3% minimum tax is
imposed on entire net income adjusted to
reflect certain tax preference items.
Assets base – a tax is imposed at the rate of
1/10, 1/25, or 1/50 of a mill of taxable assets
allocated to NYS depending on the size of
net worth relative to assets and mortgages as
a percent of total assets.
A fixed dollar minimum tax of $250 is
imposed.

executive officers’ salaries and doubled
weighted the receipts factor. From 2006 to 2008, NYS phased in a
new single-factor allocation formula
based solely on receipts for banking
corporations that provided management,
administrative or distribution services to
regulated investment companies. For all
other banking corporations, the threefactor formula, with its double weighted
receipts factor, still applies. 11.4 Trends in NYS Bank Franchise Tax
Revenues
Current dollar Bank Tax revenues pictured in
Figure 11.1 more than doubled from FY2000 to
FY2010. In constant dollars, they increased by
74%.
Entire Net Income. Entire net income (ENI) is
defined differently for U.S. banks and for non-U.S.
(alien) banks.


For U.S. banks, ENI is equivalent to taxable
income for Federal tax purposes with certain
NYS add-backs and subtractions. Banks are
allowed a net operating loss (NOL)
deduction, subject to certain restrictions.
For alien banks, entire net income is
income effectively connected with the
conduct of trade or business within the
U.S. subject to certain modifications.
These include add-backs of dividends or
interest income and income excluded
from Federal taxable income resulting
from tax treaties between the U.S. and
the home country of the corporation.
Allocating Income. Multistate banking corporations earning their income in several states must
allocate their income using what is called in
NYS an allocation formula and elsewhere an
apportionment formula.

In NYS, prior to 2006 all banking
corporations used a 3-factor formula to
allocate income. The allocation was based
on the share of total bank receipts, total bank
deposits and total bank payroll located in
NYS. The allocation formula included 80%
of the corporation’s payroll, excluded
Figure 11.2 shows that Bank Tax revenues are
extremely volatile, with annual changes having
little, if any, relationship to fluctuations in the
State economy. Bank Tax revenues may have
little relationship to bank tax liabilities in any
given year due to the timing of tax payments, the
carry forward of prior year credits/losses and the
reconciliation of prior year liabilities.
11.5 History of the NYS Bank Franchise Tax
Prior to 1973, NYS and nationally chartered
banks were taxed under different parts of the
State Tax Law (9B and 9C). In 1973, the State
consolidated both types of banks under Article
32. The new tax brought the NYS Bank Tax in
conformity with the Federal tax code, with some
modifications. Major legislative changes to the
tax since 1980 are summarized in Exhibit 11.1.
11-­‐2 Bliley Act (GLBA) which was signed into law
in 1999. GLBA repealed the core provisions of
the Glass-Steagall Act and the Bank Holding
Company Act that restricted bank holding
companies from affiliating with securities firms
and insurance companies. GLBA also permits
bank subsidiaries to engage in some nonbanking activities.
11.6 The Bank Franchise Tax in NYS Local
Jurisdictions
NYC is the only local government in the State
with statutory authority to levy a tax on banking
corporations. The NYC Bank Tax is imposed on
corporations for the privilege of doing a banking
business in the City.
Several types of corporations conduct a banking
business in NYC including commercial and
savings banks, savings and loan associations,
bank holding companies, trust companies and
certain subsidiaries of banks owned by a
bank/bank holding company.
Effective Tax Year 2011, credit card issuing
companies with at least 1,000 customers
/merchants having a mailing address in NYC
will be subject to the Bank Tax, regardless of
whether the banks have a physical presence in
the City.
11.7 Bank Taxes in Other States
Some states levy a specific tax on banks; others
tax banks as part of their general corporation tax
(see Exhibit 11.1). NYS is one of a few states
that permits certain local governments to impose
a tax on banks.
11.8 Issues and Concerns
Differential Taxation of Banks and Other
Financial Institutions. The difference between
banks and other financial institutions is less
distinct as a result of the Federal Gramm-Leach-
For NYS tax purposes, these changes have
blurred the line between businesses that have to
file under the Bank Tax and those that have to
file under the 9A Corporate Franchise Tax. As a
result, NYS is considering the creation of a
single tax structure for financial institutions. A
proposal prepared by the State has been
forwarded to the industry for review and
comment. The recently enacted Federal DoddFrank Wall Street Reform and Consumer
Protection Act changes the regulatory
environment for financial institutions and reinforces the importance of restructuring the
State’s taxation of banks and other financial
institutions.
Credit Card Company Taxation. Credit card
companies sited outside of NYS but with a large
clientele with NYS addresses will experience a
substantial increase in their Bank Tax liability as
a result of recent changes to the tax law. The
imposition by NYC of a similar law makes it
even more expensive for credit card companies
with a large NYC resident clientele.
Combined Reporting. Certain bank taxpayers
must file on a combined basis which requires
that they combine profits and losses from all
related subsidiaries before determining what
portion of their profits are taxable by NYS. In
implementing the rules related to combined
reporting, the State has to address several
complicated issues such as (1) defining which
members comprise the group for combined
reporting; (2) deciding how to combine the
group’s income and how to treat inter-company
transactions, net operating losses, credits and
deductions as well as non-business income; and
3) how to apportion income among the
combined entities.
11-­‐3 Endnotes
1
Based on estimates for 2010 published in 2010-11
NYS Executive Budget, Economic and Revenue
Outlook, p. 261. http://publications.budget.state.
ny.us/eBudget1011/economicRevenueOutlook/econo
mic RevenueOutlook.pdf
2
Foreign banks are chartered in a state other than
NYS; alien banks outside the U.S.
3
Banks subject to the tax include national banks and
production credit associations located in New York
and on the following corporations organized under
the laws of New York: banks, savings banks, savings
and loan associations, trust companies, subsidiary
trust companies and other financial corporations
including foreign banking corporations and other
foreign financial corporations, federal savings banks
and federal loan associations
4
Economic and Revenue Outlook, Op.cit, p.267
5
The term clearing house refers to a bank or other
financial institution that helps to transfer funds from
one bank to another.
6
Economic and Revenue Outlook, Op. cit. p.269
7
A unitary business is one in which there is a sharing
or exchange of value between members of the group
as demonstrated by: (1) centralized management/
common
executive
force;
(2)
centralized
administrative services/functions resulting in
economies of scale; or (3) flow of goods, capital
resources or services demonstrating functional
integration.
8
A captive REIT/RIC is not regularly traded on an
established securities market and more than 50% of
its voting stock is owned or controlled by a single
corporation that is not exempt from Federal income
taxation and is not a REIT.
11-­‐4 Exhibit 11.1: State Income Tax Rates on Financial Institutions , 2010
State
Rate
State
Rate
Alabama
6.5% *
Kentucky
4.0-6.0 *
Alaska
1.0-9.4 *
Louisiana
4.0-8.0 *
Arizona
6.968 *
Maine
1.0
Arkansas
1.0 - 6.5 *
Maryland
8.25 *
California
10.84
Massachusetts
10.0
Colorado
4.63*
Michigan
4.95 *
Connecticut
7.5 *
Minnesota
9.8 *
Delaware
8.7 - 1.7
Mississippi
3.0- 5.0 *
Florida
5.5 *
Missouri
7.0
Georgia
6.0 *
Montana
6.75 *
Hawaii
7.92
Nebraska
5.58-7.81*
Idaho
7.6 *
New Hampshire
8.5 *
Illinois
7.3 *
New Jersey
9.0 *
Indiana
8.5 *
New Mexico
4.8 - 7.6 *
Iowa
5.0
New York
7.1*
Kansas
2.25%
North Carolina
6.9 %*
Note: Local government taxes not included.
* Same as State Corporate Income tax
a Ohio has replaced its corporate tax with a gross receipts tax.
b Texas imposes a Franchise Tax
Source: Federation of Tax Administrators, Range of State Corporate Income Tax Rates.
State
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
West Virginia
Wisconsin
Dist. of Columbia
Rate
7.0
a
6.0 *
6.6-7.9
9.99*
9.0 *
4.5
6.0 - 0.25
6.5 *
b
5.0 *
6.0-8.5 *
6.0 *
8.5 *
7.9 *
9.975*
Exhibit 11.2: Major NYS Legislative Actions Affecting the NYS Bank Tax, 1980-2010
Year
Action
Temporary 18% surcharge imposed on tax liability attributable to business activity in the Metropolitan Commuter
1981
Transportation District (MCTD). Rate reduced to 17% in 1982.
Bank Tax Reform of 1985 enacted. Tax rates reduced for EIN basis from 12% to 9%. Uniform treatment of thrifts and
1985
commercial banks provided for.
Business Tax Reform and Rate Reduction Act of 1987 reduced tax rates and restructured alternative basis to include a
1987
broader range of taxable income items.
17% surcharge extended for 4 years. Banks permitted to claim a net operating loss deduction (NOLD) for losses occurred
after 1/1/2001 to be carried forward for 15 years. Conformed the treatment of New York S corporations to the treatment of
1997
federal Subchapter S corporations and allowed certain banks to elect New York S corporation status. Authorized the formation
of limited liability trust companies subject to certain restrictions. Limited liability trust companies to be taxed as partnerships.
1999
Reduced the Earned Net Income (ENI) tax rate from 9% to 7.5% over three years.
1985 and 1987 Bank Tax reforms extended until 2005. Graham-Leach-Bliley provisions allowing combined reporting for bank
2003
and financial holding companies extended until 2004.
Changed the computation used to allocate income and assets by Article 32 banking corporations from a three-factor formula
2005
to a single receipts factor for certain banks.
Extended provisions relating to 1985 Bank Tax Reform through 2008. Extended transitional provisions with respect to
2006
Gramm-Leach Bliley Act through January 1, 2008.
2007
Lowered the rate imposed on the ENI base from 7.5% to 7.1%.
Imposed the bank tax on banks with credit card operations in NY State that exceed 1,000 customers or $1 million in receipts.
2008
Decoupled NY State from the Internal Revenue Code and required taxpayers to add back the qualified production activities
income deduction when computing NY taxable income. Extended the 17% surcharge another four years to 2013.
Extended major provisions of the 1985 and 1987 bank tax reforms for another year. Extended transitional provisions in NYS
2010
bank tax enacted in response to the Gramm-Leach-Bliley Act.
Sources: Unpublished information supplied to author by NYS Assembly Ways & Means Committee. 2010-11 NYS Executive
Budget, Economic and Revenue Outlook.
11-­‐5 Petroleum Business Tax
12.0 PETROLEUM BUSINESS TAX
12.1 Overview
New York State adopted the Petroleum Business
Tax (PBT) under Article 13-A of the State Tax
Law in 1983 imposing the tax on petroleum
businesses for the privilege of operating in the
State. The PBT, which under NYS law must be
passed along to the final consumer, is imposed
on petroleum companies in addition to the 9A
Corporate Franchise Tax.
Article 13-A also imposes the Petroleum
Business Carrier Tax on motor carriers for fuel
purchased outside NYS but use within it. It is a
complement to the NYS Fuel Use Tax discussed
in Section 6 and collected from motor carriers
with it. For collection purposes, no distinction is
made between the two taxes.
In FY2010, the PBT generated $1.1 billion,
accounting for 1.9% of NYS tax revenues and
0.9% of all State revenues. Of the $1.1 billion,
50.6% was deposited in the Dedicated Highway
and Bridge Trust Fund, 29.7% in the Dedicated
Mass Transportation Trust Fund and 19.7% in
the Metropolitan Transportation Operating
Assistance Fund.1
12.2 The NYS Petroleum Business Taxpayer
The PBT is paid at different points in the
distribution chain depending on the product.




Motor fuel (gasoline) is subject to tax upon
importation into or production in NYS – the
initial point in the distribution chain;
Automotive diesel motor fuel is taxed at the
point of the first non-exempt sale/use of the
product in NYS;
Non-automotive diesel fuel and residual
petroleum products are taxed at the point of
final sale/use of the product in NYS; and
Jet fuel is taxed on the quantity of fuel
burned during take-off from a NYS airport.
Major exemptions to the PBT include:







Kerosene other than certain jet fuel,
crude oil, liquefied petroleum gas (LPG)
and bunker fuel;
Unenhanced diesel motor fuel/residual
petroleum products used/consumed in the
production of tangible personal property;
Fuel used for residential and not-for-profit
organization heating purposes;
Fuel sold to governments;
Diesel motor fuel and residual petroleum
product for farm use;
Sales for export from NYS; and
Compressed Natural Gas
12.3 The NYS Petroleum Business Tax Base
The PBT has two components: a base tax with
rates that vary by product type plus a fixed
supplemental tax. For example, in 2010, the 16.3
cents/gallon tax was the sum of the 9.8
cents/gallon basic tax and the 6.5 cents/gallon
supplemental tax.2
The Petroleum Business Carrier Tax. The
Carrier Tax rate is equal to the prevailing PBT
rate for motor fuel/diesel fuel.
12.4 Trends in NYS Petroleum Business Tax
Revenues
In FY2010, current dollar Petroleum Business
Tax revenues pictured in Figure 12.1 were up
almost 10% over FY 2000; in constant dollars,
revenues were down by 15%.
12-­‐1 12.6 The Petroleum Business Tax in NYS
Local Jurisdictions
No local government in NYS has legislative
authority to impose a Petroleum Business Tax.
12.7 Taxes on Petroleum Companies in Other
States
The revenue increases in the early 1990s shown
in Figure 12.2 reflect the change to a fixed
cents/gallon tax in 1990 and the introduction of
both the supplemental tax on petroleum
businesses and the Petroleum Business Carrier
Tax in 1991. Since then, constant dollar
revenues from the tax have remained relatively
stable.
Three states in addition to NYS currently impose
either a gross receipts tax or a business tax
specifically on petroleum companies: New
Jersey, Connecticut and Pennsylvania. The State
of Washington suspended its Petroleum
Products Tax effective April 2010.
12.8 Issues and Concerns
Unique Tax. New York is one of four states to
impose a specific tax on petroleum companies.
Tax Transparency. The Petroleum Business
Tax is a complement to other NYS taxes and
collected with them. This administrative
procedure makes the tax non-transparent for
consumers.
Endnotes
1
12.5 History of the NYS Petroleum Business
Tax
Based on estimates for 2010 published in 2010-11
NYS Executive Budget, Economic and Revenue
Outlook, p. 313 http://publications.budget.state.
ny.us/eBudget1011/economicRevenueOutlook/econo
mic RevenueOutlook.pdf
2
The base tax and the supplemental tax are indexed
on the first day of January each year to reflect the
change in the producer price index (PPI) for refined
petroleum products for the preceding year ending
August 31. The change is capped at 5%/year. State
rate-rounding rules do not allow the rates to exceed
the 5% cap limits.
Article 13-A was adopted in 1983 to replace the
Article 9 tax on oil companies. Major changes to
the Petroleum Business Tax since then are
summarized in Exhibit 12.1.
12-­‐2 Exhibit 12.1: Major NYS Legislative Actions Affecting the NYS Petroleum Business Tax, 1980-2010
Year
Action
Article 9 taxes on oil companies repealed and replaced by Article 13-A tax on petroleum businesses. Tax imposed on gross
1983
receipts at a rate of 3.25%.
Tax changed from gross receipts basis to cents/per/gallon basis to vary with type of product. Provided for annual indexation
1990
of tax rate and for joint administration of the tax with the Motor Fuel Excise Tax.
Added supplemental tax of 4.5 cents/gallon applicable to most products. Added Petroleum Business Carrier Tax, a use tax on
1991
fuel purchased outside NYS for use within it.
1994
Provided for tax rate indexing.
Eliminated tax on non-automotive diesel motor fuel used in manufacturing. Increased basic credit on residual petroleum
1996
products or diesel fuel for utility companies. Reduced tax on automotive diesel fuel component.
1999
Reduced tax on oil used for space heating. Reimbursement provided for the PBT on fuels used for mining and extraction.
Minimum taxes on petroleum business and aviation fuel businesses under the PBT eliminated. Tax on fuel for space heating
2000
reduced.
2005
Required collection of taxes on sales made on NYS reservations to non-Native Americans.
Full tax exemption provided for diesel motor fuel and residual petroleum products used for heating purposes. Full
2006
exemption provided from excise tax, PBT and State and local sales taxes for alternative fuels for motor vehicles.
Sources: Unpublished information supplied to author by NYS Assembly Ways & Means Committee. 2010-11 NYS Executive
Budget. Economic and Revenue Outlook.
12-­‐3 Real Estate Transfer Tax
13.0 REAL ESTATE TRANSFER TAX
13.1 Overview
New York State adopted the Real Estate
Transfer Tax (RETT) in 1968 under Article 31
of the State Tax Law. In FY2010, the tax
generated $493 million, accounting for 0.85% of
NYS tax revenues and 0.39% of total State
revenues. Of the $493 million, 44% was
deposited in the Environmental Protection Fund
and 56% in the Clean Water/Clean Air Bond
Debt Service Fund.1
13.2 The
Taxpayer
NYS
Real
Estate
Transfer
The NYS Real Estate Transfer Tax (RETT)
applies to the transfer of any interest in real
property, including a deed, where the consideraation is greater than $500 with few exceptions.
Transactions excluded from the RETT are:



Property transfers to NYS
agencies,
subdivisions, and public corporations;
Property transfers to Federal agencies as
well as transfers to the UN or any other
international organization of which the U.S.
is a member;
Certain other property transfers such as
those given solely as security for a debt.2
the buyer must pay it. The 1% mansion tax is
payable by the buyer. If the buyer is exempt, the
seller is liable for the tax. 13.3 The NYS Real Estate Transfer Tax Base
The RETT tax is imposed on real property
transfers in NYS at a rate of $2.00/$500 of the
consideration paid/required to be paid for the
real property.3 The tax rate is reduced by 50%
for qualifying transfers of real property to, or
acquisition of, real property by a real estate
investment trust (REIT) upon its initial
formation or to an existing REIT formed before
September 1, 2011.
13.4 Trends in New York State RETT
Revenues
In current dollars, RETT revenues pictured in
Figure 13.1 increased by 38% from FY 2000 to
FY2010. In constant dollars, FY2010 revenues
were 8% below those in FY2000 and more than
50% below the peak reached in FY2007.
The RETT also applies to (1) transfers of
economic interests such as shares in co-op
apartments; (2) long-term leaseholds and (3) the
sale or transfer of at least a 50% ownership
interest in a corporation, partnership, trust or
other entity that owns/leases real property.
An additional 1% tax – referred to as the
mansion tax – is levied on transfers of 1-3
family houses and individual residential coops/condo units with a purchase price of $1
million or more.
The RETT is generally payable by the seller. If
the seller does not pay or is exempt from the tax,
The acceleration in RETT revenue between
2002 and 2007 shown in Figure 13.2 reflects the
increase in housing prices and the large number
of commercial property sales during the fiveyears, especially in NYC.
13-­‐1 Endnotes
1
13.5 History of the NYS Real Estate Transfer
Tax
When NYS initially imposed the RETT in 1968,
the tax rate was set at $0.55/$500 on
considerations greater than $100. Major
legislative changes since 1980 are shown in
Exhibit 13.1.
Based on estimates for 2010 published in 2010-11
NYS Executive Budget, Economic and Revenue
Outlook,
p.329
http://publications.budget.state.
ny.us/eBudget1011/economicRevenueOutlook/econo
mic RevenueOutlook.pdf
2
Also includes transfers without consideration,
transfers in connection with a tax sale, transfers to
effect a change of identity or form of ownership
where there is no change of beneficial ownership,
conveyances under the Federal bankruptcy act, and
certain options and contracts to purchase the real
property.
3
For one/two/three-family houses and individual
residential condominium units, or where the
consideration is less than $500,000, the consideration
for the interest conveyed excludes the value of any
lien/encumbrance remaining on the property at the
time of conveyance.
13.6 Taxes on Real Estate Transfers in NYS
Local Jurisdictions
The NYS Real Estate Transfer Tax is levied in
addition to real estate transfer taxes imposed by
NYC and 8 other jurisdictions in the State (see
Exhibit 13.2).
13.7 Real Property Transfer Taxes in Other
States
Thirty-eight states and/or one or more of their
local jurisdictions impose some type of tax/fee
on real property transfers (see Exhibit 13.3).
13.8 Issues and Concerns
High Taxes. The combined NYC/NYS property
transfer tax rate on properties sold at $1 million
or more is the highest imposed in the U.S. For
all other properties, the combined rate is higher
than the rate imposed anywhere in the U.S. with
the exception of a few jurisdictions in
Pennsylvania.
13-­‐2 Exhibit 13.1: Major NYS Legislative Actions Affecting the NYS Real Estate Transfer Tax, 1980-2010
Year
Action
Tax rate increased from $0.55/$500 to $2.00/$500. Definition of consideration changed to include mortgages/liens/encumbrances
which existed before and remained after the delivery of the deed. Remaining liens/encumbrances for one, two/three family homes,
1983
residential condominiums or interests/transfers where the value of the consideration is below $500,000 exempted from the definition
of consideration.
Scope of tax broadened to capture the sale of an economic interest in real property including the sale or acquisition of a controlling
interest in real property. Tax expanded to treat the transfer of a residential cooperative apartment in the same manner as residential
1989
homes or condominiums. A 1% Mansion Tax imposed requiring that the buyer pay the tax on the sale of residential property over
$1 million in value unlike the base tax which is paid by the seller.
1993 A portion of the Transfer Tax dedicated to the newly created Environmental Protection Fund.
1994 Tax rate reduced by 50% on transfers made by REITs pursuant to the formation of the trust.
1999 Extended the 50% tax rate reduction on REIT transfers.
2000 Extended the 50% tax rate reduction on REIT transfers until 9/1/05.
2006 Extended the 50% tax rate reduction on REIT transfers until 9/1/08.
2008 Extended the 50% tax rate reduction on REIT transfers until 9/1/11.
2009 Reduced the proportion of tax receipts dedicated to the Environmental Protection Fund.
Sources: Unpublished information supplied to author by NYS Assembly Ways & Means Committee. 2010-11 NYS Executive
Budget, Economic and Revenue Outlook.
Exhibit 13.2: Real Estate Transfer Taxes in NYS Local Jurisdictions, 2010
Jurisdiction
Tax
Payer
Erie County
$ 5/ $1,000 of consideration
Seller
Broome County
$ 0.50/ $500 of consideration
Seller
Columbia County
$1/$500 of consideration
Seller
Essex County
$1/$500 of consideration
Seller
Tompkins County
$1/ $500 of consideration
Seller
Towns in the Peconic Bay Region (Suffolk County)
2.0% of consideration
Buyer
Town of Red Hook (Dutchess County)
2.0% of consideration
Buyer
Town of Warwick (Orange County)
0.75% of consideration
Buyer
Source: NYS Department of Taxation and Finance, Handbook of New York State and Local Taxes, October 2010, p. 38.
13-­‐3 Exhibit 13.3: State Real Estate Transfer Taxes , 2010*
State
Tax Description
Alabama
Deeds
$0.50/$500
Mortgages $0.15/$100
Alaska
None
Arizona
$2 fee/deed or contract
State
Montana
Nebraska
Nevada
Arkansas
$3.30/$1,000
California
$0.55/$500 local option
Colorado
Connecticut
$0.01/$100
Residential 0.5% or 1.0%; Nonresidential 1.0%;
Municipal tax 0.11%-0.36%
New Mexico
New York
Delaware
2% tax if no local transfer tax; 1.5% max if local
transfer tax
$0.70/$100 (0.6% if county surtax)
North
Carolina
North
Dakota
Ohio
Florida
New
Hampshire
New Jersey
Tax Description
None
$2.25/$1,000
$0.65-$1.25/$500
$1.30/$500 county tax
$0.75/$100
State: 0.4% - 1.21% + $5/$500 surtax on
residences over $1 million; 1% fee on
commercial sales over $1 million.
Counties: Up to 0.1% additional tax
None
State:
$2/$500 up to $1 million;
1% additional over $1
million
Counties: Varying rates
NYC:
1% -2.625%
$1/$500
Local option to increase by up to 0.4%
None
Georgia
Hawaii
$0.1/$100
$0.1 to $1/$100 based on property value.
$0.15 to $1.25/$100 without homeowner exemption.
Oklahoma
Oregon
$0.10/$100
Local option $0.30/$100
Deed stamp tax $0.75/$500
None
Idaho
None
Pennsylvania
State:
Illinois
Indiana
State
Counties
Chicago
None
Iowa
$0.80/$500
Kansas
$0.26/$100 mortgage fee
South
Carolina
South
Dakota
Tennessee
Kentucky
Louisiana
Maine
$0.50/$500
None
$2.20/$500
Texas
Utah
Vermont
Maryland
0.25% - 0.5%
Variable county tax
$4.56/$1,000
$10-$20 document fee
State $3.75/$500
County $0.55/$500-$0.75/$500
$1.65/$500 Deed Tax
None
None
Virginia
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
$0.50/$500
$0.25/$500
$5.25/$500
Rhode
Island
Washington
West
Virginia
Wisconsin
Wyoming
District of
Columbia
Documentary Stamp
Tax 1.0%
Phila.
3.0%
Pitts.
1.5%-2.0%
Counties Varying rates
Realty conveyance tax $2.00/$500
$1.85/$500 Deed recording fee
($1.30 State, $0.55 county)
$0.50/$500
$0.37/$100
Mortgage tax $0.115 /$100
None
None
1.25% + capital gains tax on land sales, based
on time of ownership
$0.50/$500
Real property sale excise tax 1.28% of sales
price + 0.25%-0.75% local option tax
$1.65/$500 + $0.55 local option. Plus $20 flat
fee.
$0.30/$100
None
1.1%
Source: National Conference of State Legislators, August 2010.
13-­‐4 Estate Tax
14.0 ESTATE TAX
14.1 Overview
New York State has imposed the Estate Tax
under Article 26 of the State Tax Law since
1963 on the transfer of the taxable estates of
deceased persons; it has imposed some type of
similar tax since 1885. In FY2010, the Estate
Tax generated $866 million, accounting for
1.5% of NYS tax collections and 0.7% of total
State revenues.1 All revenue collected from the
Estate Tax is deposited in the NYS General
Fund.
14.2 The NYS Estate Taxpayer
If the estate is passing to someone other than the
surviving spouse or a charitable trust, the Estate
Tax is imposed depending upon the last residence of the deceased.



If the deceased was a NYS resident, the
estate is subject to the State Estate Tax if the
total of the Federal Gross Estate (described
below) plus Federal adjusted taxable gifts
and the value of the specific exemption is
greater than $1 million. The specific
exemption is the amount of the estate
excluded from calculating estate taxes owed
at the Federal level. It is currently set at $5
million per person.
If the deceased was a non-resident U.S.
citizen, the estate is subject to the NYS
Estate Tax if it includes real estate or
tangible personal property located in NYS
and the Federal Gross Estate plus Federal
adjusted taxable gifts and the specific
exemption exceeds $1 million. There is
reciprocity with other states with respect to
the collection of non-resident estate taxes.
If the deceased was a non-resident, non-U.S.
citizen, the estate is subject to the NYS
Estate Tax if it includes real or tangible
personal property located in NYS and a
Federal Estate Tax return must be filed.
Distribution of Estate Tax Payments. A sizeable component of NYS Estate Tax payments
comes from relatively few large estates. In 20012002, the 21 estates paying $4 million or more
accounted for 32% of total Estate Tax payments;
in 2007-2008, the 31 largest estates accounted
for 37% of total payments (see Exhibit 14.3).
14.3 The NYS Estate Tax Base
The starting point for calculating the NYS Estate
Tax is the value of the gross estate of the deceased using Federal Estate Tax provisions. The
Federal Gross Estate is the sum of the cash, real
estate, stocks/bonds, life insurance and other
assets owned by the deceased.
The Federal Gross Estate is reduced by several
deductions including bequests to the surviving
spouse, charitable contributions and similar
gifts. For certain estates, it is also reduced by the
Qualified Conservation Easement Exclusion.2
For estates liable for the NYS Estate Tax, the
Federal Gross Estate may be further reduced by
the Qualified Family Owned Business Interest
deduction.3
NYS Estate Tax. NYS tax liability is equal to
the lesser of (1) the net Federal Estate Tax or
(2) the value of the Credit for State Death Taxes
that existed in Federal law on July 22, 1998.
Net Federal Estate Tax. Adjusted taxable gifts
are added to the Federal Gross Estate – reduced
by the deductions described above – to yield the
base for determining the tentative Federal tax
for purposes of the NYS Estate Tax. The tax
rates for calculating the tentative Federal Tax are
provided in the Unified Rate Schedule in the
NYS Estate Tax form4 (see Exhibit 14.1).
Once the tentative Federal Tax is calculated, the
Federal gift tax payable and the maximum NYS
Unified Credit – which cannot be more than
$345,800 – are subtracted to derive the net
Federal Estate Tax.

The maximum NYS Unified Credit of
$345,800 effectively eliminates the NYS
Estate Tax on estates valued at under $1
million.
14-­‐1 Credit for State Death Tax. Effective February
2000, the NYS Estate Tax was limited to the
maximum amount allowed as a credit for state
death taxes on the Federal Estate Tax return.

ces in taxpayer mortality and changes in asset
valuations across years.
This kind of estate tax is known as a pickup
tax because it picks up the portion of the
Federal estate tax that would otherwise be
paid to the Federal government if the state
tax were not imposed.
In 2001, the Federal Economic Growth and Tax
Relief Reconciliation Act repealed the credit for
state estate taxes that could be taken on the
Federal Estate Tax return. NYS was not affected
by this change, however, since it had amended
the State Estate Tax law to conform to Federal
Estate Tax laws in effect on July 22, 1998.
The current NYS Credit for State Death Taxes is
calculated using a graduated schedule provided
in the NYS Estate Tax return.5 Rates range from
0.8% up to 16% depending on the taxable value
of the estate (see Exhibit 14.2).
If estate property is located outside of NYS, an
allocation percentage is applied to prorate the
tax.
14.4 Trends in NYS Estate Tax Revenues
From FY2000 to FY2010, Estate Tax revenues
pictured in Figure 14.1 declined by 18.1% in
current dollars and by 38.3% in constant dollars.
14.5 History of the NYS Estate Tax
NYS inheritance taxation began in 1885 as a tax
on certain heirs. It was extended in 1891 and
superseded in 1930 by an Estate Tax imposed
under Article 10-C of the NYS Tax Law. In
1963, the State adopted its current tax, which is
based on Estate Tax provisions of the Federal
Internal
Revenue
Code,
with
certain
modifications for NYS tax purposes. Major
changes to the NYS Estate Tax since 1980 are
summarized in Exhibit 14.4.
14.6 The Estate Tax in New York State Local
Jurisdictions
No local jurisdiction in NYS has the authority to
impose an estate tax.
14.7 The Estate Tax in Other States
The annual fluctuations in Estate Tax revenues
shown in Figure 14.2 are mainly due to differen-
In 2010, 17 states and the District of Columbia
imposed a state estate tax (see Exhibit 14.5).
Seven more states impose an inheritance tax on
individual beneficiaries rather than on the value
of the entire estate.6 In all states, transfers of
assets to a surviving spouse are exempt from
estate and inheritance taxes. In some states,
transfers to children and other close relatives are
also exempt.
14-­‐2 14.8 Issues and Concerns
Endnotes
High Tax Rates. High Estate Tax rates in NYS
may be a reason for older high-income persons
to relocate to states with no estate taxes.
1
Transparency. The NYS Estate Tax is complicated and difficult to understand. Language in
the instructions and on the tax form is opaque
and confusing.
Conformity with Federal Law. As discussed in
Section 14.3, the current NYS Estate Tax is
based on the Federal death tax credit for states as
it existed on July 22, 1998. The reduction of the
Federal Estate Tax to zero in 2010 and the recent
reinstatement of the tax did not impact the NYS
Estate Tax since it conforms to Federal Estate
Tax laws in effect on July 22, 1998.
These revenues include a small portion of receipts
from NYS Gift Tax payments. Although the Gift Tax
was repealed in 2000, some money is still collected
for periods prior to the repeal.
2
The gross estate of a decedent can exclude from the
Federal Estate Tax return the value of a conservation
easement granted by a decedent on real property
(e.g., open space easement) to the Federal, state or
local governments up to a maximum of $500,000.
3
This allows for the deduction of the value of a
Qualified Family Owned Business Interest. The
maximum amount of this deduction is $675,000. This
credit has been eliminated from Federal Tax calculation but is still allowed in NYS.
4
See NYS Estate Tax Return ET 706, 2010, p. 4.
5
Ibid.
6
Indiana, Iowa, Kentucky, Maryland, Nebraska, New
Jersey, and Pennsylvania.
14-­‐3 Exhibit 14.1: Unified Rate Schedule for Calculation of the NYS Estate Tax, 2010
If the Taxable Amount Is:
The Tax Is:
Over
But Not Over
$0
$10,000
18% of the taxable amount
10,000
20,000
$1,800 plus 20% of the amount over $10,000
20,000
40,000
3,800 plus 22% of the amount over 20,000
40,000
60,000
8,200 plus 24% of the amount over 40,000
60,000
80,000
1,300 plus 26% of the amount over 60,000
80,000
100,000
18,200 plus 28% of the amount over 80,000
100,000
150,000
23,800 plus 30% of the amount over 100,000
150,000
250,000
38,800 plus 32% of the amount over 150,000
250,000
500,000
70,800 plus 34% of the amount over 250,000
500,000
750,000
155,800 plus 37% of the amount over 500,000
750,000
1,000,000
248,300 plus 39% of the amount over 750,000
1,000,000
1,250,000
345,800 plus 41% of the amount over 1,000,000
1,250,000
1,500,000
448,300 plus 43% of the amount over 1,250,000
1,500,000
2,000,000
555,800 plus 45% of the amount over 1,500,000
2,000,000
2,500,000
780,880 plus 49% of the amount over 2,000,000
2,500,000
3,000,000
1,025,800 plus 53% of the amount over 2,500,000
3,000,000
10,000,000
1,290,800 plus 55% of the amount over 3,000,000
10,000,000
17,184,000
5,140,800 plus 60% of the amount over 10,000,000
17,184,000
-----9,451,200 plus 55% of the amount over 17,184,000
Source: New York State Estate Tax Return ET 706, 2010, p. 4.
Exhibit 14.2: Rates for Computation of the Maximum Unified Credit for the NYS Estate Tax, 2010
Tax Base
Over
$40,000
90,000
140,000
240,000
440,000
640,000
840,000
1,040,000
1,540,000
2,040,000
2,540,000
3,040,000
3,540,000
4,040,000
5,040,000
6,040,000
7,040,000
8,040,000
9,040,000
10,040,000
But Not Over
$90,000
140,000
240,000
440,000
640,000
840,000
1,040,000
1,540,000
2,040,000
2,540,000
3,040,000
3,540,000
4,040,000
5,040,000
6,040,000
7,040,000
8,040,000
9,040,000
10,040,000
--------
Credit
0.8% of amount over $40,000
1.6% of amount over 90,000
2.4% of amount over 140,000
3.2% of amount over 240,000
4.0% of amount over 440,000
4.8% of amount over 640,000
5.6% of amount over 840,000
6.4% of amount over 1,040,000
7.2% of amount over 1,540,000
8.0% of amount over 2,040,000
8.8% of amount over 2,540,000
9.6% of amount over 3,040,000
10.4% of amount over 3,540,000
11.2% of amount over 4,040,000
12.0% of amount over 5,040,000
12.8% of amount over 6,040,000
13.6% of amount over 7,040,000
14.4% of amount over 8,040,000
15.2% of amount over 9,040,000
16.0% of amount over 10,040,000
Source: New York State Estate Tax Return ET 706, 2010, p. 4.
14-­‐4 Exhibit 14.3: NYS Estate Tax Receipts by Size of Estate, 2001-2010 ($ in millions)
Super-Large1&Extra Large2
Large Estates3
Small Estates4
Year
Estates
Number
Taxes
Number
Taxes
Taxes
2001-02
21
$240.1
167
$208.8
$312.5
2002-03
16
190.5
200
247.6
262.8
2003-04
26
259.1
169
209.1
264.1
2004-05
25
377.9
191
212.9
304.5
2005-06
25
289.7
173
223.1
342.1
2006-07
28
389.5
217
267.8
406.0
2007-08
31
280.9
264
318.3
437.5
2008-09
30
418.9
246
297.4
445.9
2009-10
23
220.2
197
236.4
407.4
1 - Payment of at least $25.0 million
2 - Payment of at least $4.0 million, but less than $25.0 million
3 - Payment of at least $.05 million, but less than $4.0 million
4 - Payment less than $.05 million
Source: Excerpted from 2010-11 NYS Executive Budget, Economic and Revenue Outlook, p. 314.
Total Taxes
Taxes
$761.4
700.9
732.3
895.3
854.9
1063.3
1036.7
1162.2
864.0
Exhibit 14.4: Major NYS Legislative Actions Affecting the Estate & Gift Tax, 1980-2010
Year
Action
1982
Unified the Estate Tax and Gift Tax rates and credit.
Increased the unified credit for Estate and Gift Tax from $2,750 to $2,950 effectively eliminating the
1994
tax on estates or gifts up to $115,000.
1995
Authorized principal residence deduction of $250,000.
Set the State’s unified credit to equal the Federal credit, but capped the maximum credit to exempt the
1997
first $1,000,000 of the estate. Repealed Gift Tax effective 2000.
Family-owned business exclusion repealed and replaced by family-owned business deduction. NYS
1999
Estate Tax (except for unified credit provisions) conformed to Federal law.
2010
NYS unified credit set to provide a $1,000,000 exemption level independent of the Federal Credit.
Sources: Unpublished information supplied to author by NYS Assembly Ways & Means Committee. 2010-11 NYS Executive
Budget, Economic and Revenue Outlook.
Exhibit 14.5: State Estate Taxes and Exemptions, 2010
State
Exemption*
Connecticut
$3,500,000
Delaware
$3,500,000
Hawaii
$3,600,000
Illinois**
$2,000,000
Maine
$1,000,000
Maryland
$1,000,000
Massachusetts
$1,000,000
Minnesota
$1,000,000
New Jersey
$675,000
New York
$1,000,000
North Carolina
$5,000,000
Ohio
$338,333
Oregon
$1,000,000
Rhode Island
$850,000
Tennessee
$1,000,000
Vermont
$2,750,000
Washington
$2,000,000
Dist. of Columbia
$1,000,000
*Value below which estates are effectively exempt. **Illinois estate tax expired on January 1, 2010, but has been reinstated for
the 2011 tax year with a $2 million exemption.
Source: State Tax and Exemption Chart, 2009-2011 http://wills.about.com/od/stateestatetaxes/a/stateestatetaxchart.htm
14-­‐5 Biographies
BIOGRAPHIES
Dr. Marilyn Marks Rubin is a Professor of Public Administration and Economics at John Jay College of
the City of New York where she teaches courses in Fiscal Policy, Economics and Research Methods and is
Director of the College’s MPA Program. She has served as a consultant on fiscal policy, revenue forecasting,
economic development and strategic planning for municipal, state and federal entities as well as Moody’s
Investors Service, the United Nations and the Port Authority of New York and New Jersey.
Dr. Rubin is currently a member of the Economic Advisory Board to the New York State Assembly Ways and
Means Committee and the Property Tax Advisory Board to the New York City Department of Finance. She has
authored several publications on fiscal policy and budget-related issues and has served as advisor to the Korean
Women’s Development Institute on gender budgeting; the government of Thailand on performance evaluation;
and in Ecuador under the Fulbright Senior Specialist Program where she worked to establish the country’s first
MPA program. She has also been a visiting professor at a number of universities outside the U.S.
A former Chairperson of The Association for Budgeting and Financial Management of the American Society
for Public Administration, Dr. Rubin is a member of the editorial board of Public Budgeting and Finance. She
is a fellow in the National Academy of Public Administration (NAPA) and winner of a Distinguished Research
Award from the American Society for Public Administration.
A graduate of Douglass College of Rutgers University with a B.A. in Economics, Dr. Rubin received both her
M.A. in Economics and her Ph.D. in Public Administration from New York University.
Peter J. Solomon is the Founder and Chairman of Peter J. Solomon Company, L.P. (PJSC). Established in 1989,
the Firm provides investment banking services to corporations, including advice on mergers, acquisitions and
divestitures, recapitalizations, refinancings, restructurings and private placements of debt. Previously, he was at
Lehman Brothers and became a Managing Director in 1970. He left Lehman Brothers as Vice Chairman in 1989.
From 1978 to 1980, Mr. Solomon was Deputy Mayor of Economic Policy and Development in New York City under
Mayor Edward I. Koch. He was responsible for matters within New York City relating to taxes, energy, ports and
foreign trade and investment as well as economic development. He was Mayor Koch’s principal advisor on economic
matters as the City began its recovery from its financial crisis. In addition, Mr. Solomon served as Chairman of New
York’s Health and Hospitals Corporation, managing 17 municipal hospitals.
In 1980, under President Jimmy Carter, he was Counselor to the United States Treasury where he was responsible for
formalization of the department’s industrial policy. He also had extensive involvement in economic policy matters
ranging from tax policy to automobile trade.
Mr. Solomon is currently a director and the principal shareholder of Monro Muffler/Brake Inc., a director of Zagat
Survey LLC and has served on the boards of many public companies. He is a director and Chairman Emeritus of the
Manhattan Theatre Club; a member of the Board of Overseers of Memorial Sloan-Kettering Cancer Center, a Trustee
of the Federation of Jewish Philanthropies of New York City and the Lucius N. Littauer Foundation and a Director-atLarge of the Montana Land Reliance. He is also a Lifetime Honorary Trustee of the American Museum of Natural
History. In addition, he serves on a number of advisory committees at Harvard University.
Mr. Solomon writes extensively on public policy issues and conflicts on Wall Street and appears frequently on
television.
Mr. Solomon received his B.A. degree cum laude from Harvard College and a Masters degree in Business
Administration from Harvard Business School.
Notes
Copyright © 2011 by Peter J. Solomon Family Foundation. All rights reserved, including the right to reproduce this guide or portions
thereof in any form whatsoever.