New York's $9 Million Tax Hikes for Banks

New York Sun reports:

Major financial services companies in New York City, already attempting to stem deepening losses fueled by the credit crisis and subprime slump, would have to pay millions of dollars more in taxes this year under a budget deal being worked out in Albany.



To help pay for increases in spending in this year's budget, state lawmakers and Governor Paterson were considering as of last night a change in the corporation franchise tax code that would significantly increase the liability of companies that aren't generating profits.

Under a tentative agreement, New York would increase the potential liability of corporations that fail to show a profit during a taxable year by raising the maximum amount the state can tax their assets to $10 million from $1 million.

"Everything is still under consideration," a spokesman for the Senate Republicans, John McArdle, said.

Because the capital base rate is less than 0.2%, large companies with substantial real estate and other assets in New York would feel an impact. Among the companies that would take the biggest hit are American International Group, Citigroup, and American Express, according to fiscal analysts.

The measure is one of several other tax changes likely to be included in the final budget that are targeted at New York City's financial services sector, which Albany already heavily relies on for revenue.

New York's former governor, Eliot Spitzer, proposed a similar adjustment in the tax code in his executive budget and labeled it a tax loophole closure.

Senate Republicans, who pledged to reverse Mr. Spitzer's tax increases, eliminated the cap hike in their own budget but have come under increasing pressure to support it during budget negotiations, as lawmaker have had to come up with hundreds of millions of dollars in revenue to pay for spending increases primarily in health care and education.

Another tax change that lawmakers are likely to send to Mr. Paterson's desk would redefine the nexus standard in New York by requiring out-of-state credit card companies to pay taxes if they have customers in New York. Assembly Democrats had preferred to recoup the money by increasing the income tax rates of residents earning more than $1 million by 12%. Mr. Paterson opposed the plan, telling legislative leaders he didn't want to sign on to a tax hike so soon after taking office.

Business group advocates and investment banks, an important base of financial support for Senate Republicans, have been lobbying aggressively against raising the liability cap. Some business advocates have said the Assembly tax hike would be less damaging than the assortment of loophole closures under discussion.

"In a year your profit is suffering, we're going to hike up your tax liability to New York. That's what they're doing," the senior director of government affairs at the Business Council of New York State, Kenneth Pokalsky, said. "It's certainly not good for a state worried about the future of its financial services industry."

The tax hike was one of a myriad of flashpoints in ongoing closed-door budget discussions between the Legislature and the Paterson administration.

Lawmakers are unlikely to pass the entire 2008-09 budget, which by law is due today, until tomorrow or even later in the week. They are expected to begin passing budget bills today.

Total spending in the budget is expected to approach $125 billion, with an increase in state-supported funding of around 6%, more than double the rate of inflation.

Yesterday, lawmakers said they had agreed on a health care budget that tabled Mr. Spitzer's plan to modernize inpatient reimbursement rates and restored tens of millions of dollars for Graduate Medical Education programs and hospital union employee subsidies that had been cut by Mr. Spitzer.