A Guide to New York City Taxes: History, Issues and Concerns

Business Real Estate Personal Income Sales and Use Excise

Marilyn M. Rubin December 2010

A GUIDE TO NEW YORK CITY TAXES: HISTORY, ISSUES AND CONCERNS

Marilyn Marks Rubin John Jay College December 2010

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 origin of the Guide was a report on New York City taxes prepared in 1979 by Dr. Marilyn Rubin, a consultant to me when I served as Deputy Mayor for Economic Policy and Development under Mayor Edward I. Koch. When I entered NYC government in the late 1970s, the City was deep in its financial crisis and tax policy and its effect on the Citys budget and economy were critical. I was surprised to learn that there was no comprehensive summary of all the taxes imposed by the City, and that the Mayor and other policy makers lacked basic information to make decisions. In the ensuing 31 years, no government office, public policy organization nor academic institution has, to our knowledge, provided a comprehensive and comprehensible report on taxes in New York City. Before embarking on this project, we confirmed that observation. I commissioned Dr. Rubin through the Peter J. Solomon Foundation and under the auspices of John Jay College, where she is a Professor of Public Administration and Economics, to prepare this Guide. She is a recognized expert on state and local taxes and is an elected fellow of the prestigious National Academy of Public Administration (NAPA), chartered by the U.S. Congress to help government leaders build accountable, efficient and transparent organizations that deliver results. I am indebted to Dr. Rubin for her usual thorough and thoughtful analysis. Her colleagues Dr. Catherine Collins at George Washington Institute of Public Policy and Dr. Yi Lu at John Jay College provided extensive input into the report as did current and former students in the Colleges MPA Program: Annemarie Eimicke, Dov Horwitz and Lauren McNerney. Dr. Rubin and I are grateful to the many professionals who have read and commented on the report including David Frankel, Commissioner of the New York City Department of Finance, and Michael Hyman, the Departments Assistant Commissioner for Tax Policy, and his staff. We thank John Grathwol, Assistant Director of the NYC Office of Management and Budget, and his staff, for providing us with the data we needed to produce the report, and Ronnie Lowenstein, Executive Director of the NYC Independent Budget Office (IBO), and her staff for their helpful comments, particularly Michael Jacobs, David Belkin, Ana Champeny and Alan Treffeisen. We also thank Steve Spinola, President of the NYC Real Estate Board, and Michael Slattery, the Boards Senior Vice President, for their valuable comments, Stephen Solomon and Kenneth Moore of Hutton & Solomon, LLP for their input on some of the more technical aspects of the Citys taxes and Diane Coffey, my partner at our firm, for her editing and publishing assistance. New York City and State are once again faced with severe budget issues. We hope that this Guide, clearly defining the history of NYC 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. As we completed the Guide, the State had passed its 2010 budget, which includes several changes to its tax structure and rates (see Exhibits 3 and 4 in Executive Summary). With the exception of the increased NYS tax on cigarettes, which was already in place before the Guide was completed, these changes are not reflected in the report, nor are any changes made to NYC taxes, including the elimination of Off-Track Betting. 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. December 2010

CONTENTS Executive Summary Real Property Tax ... Real Property Transfer Tax .. Mortgage Recording Tax ... Commercial Rent Tax Personal Income Tax .. Sales and Use Tax ... Cigarette Tax .. Hotel Tax . General Corporation Tax .. Unincorporated Business Tax ... Banking Corporation Tax . Utility Tax Other Taxes . i 1-1 2-1 3-1 4-1 5-1 6-1 7-1 8-1 9-1 10-1 11-1 12-1 13-1 !

Executive Summary

EXECUTIVE SUMMARY Introduction The purpose of the Guide to New York City Taxes is to provide information to a wide range of readers on New York City taxes in a format that is broad in scope and non-technical in its presentation. The information presented in the Guide can be found in several other sources.1 None, however, provides a broad non-technical picture of NYC taxes, showing their structural elements as well as other relevant details how they have evolved over time, how much revenue they generate and how they compare to similar taxes imposed in other U.S. cities. Nor do these other sources, with few exceptions, look at the extent to which NYC taxes are imposed in addition to New York State taxes on the same base. The Guide provides this information for all of NYCs major taxes as of FY2009. It also presents issues and concerns associated with each tax that need to be addressed as part of the Citys ongoing efforts to maintain its competitive position for businesses and its standing as one of the best places to live in the U.S. Overview New York City is home to more than 8.3 million people. It is the largest city in the U.S., more than twice the size of Los Angeles, the second-largest city in the nation, and close to three times the size of Chicago, the third most populous. If New York City were a state, it would rank as the 12th largest in the U.S. with respect to population size. This would place it behind New Jersey with its 8.7 million residents and ahead of Virginia with its 7.9 million residents. New York Citys tax structure also resembles that of a state but with two critical differences. The first is that states are sovereign with respect to taxation; cities are creatures of the state. The second is that the taxes paid by NYC residents and businesses to both the City and State are much higher than those in other localities in the nation. Cities as Creatures of the State Under the U.S. Constitution, states retain the power to impose any tax that does not violate the U.S. Constitution or their own state constitutions. This means that states are generally free to decide how, what and whom to tax. The U.S. Constitution, however, does not mention local governments. Instead, each state decides what types of local governments to allow and what powers they may exercise. Cities are thus creatures of the state unless specific state action alters this relationship by permitting home-rule for local governments. The creature of the state principle is based on what is known as Dillons Rule, which dictates that municipalities only have the powers explicitly given to them by the state. Established in 1872 in a treatise on municipal corporations authored by Iowa Supreme Court Judge John F. Dillon, the creature of the state principle remains the legal doctrine governing current city-state relationships throughout the U.S., as modified by individual state laws permitting home rule. Most states, including New York, have modified Dillons Rule by providing home-rule powers to certain or all local governments, either under their constitutions or by statute. Home rule municipalities are taken out from under Dillons 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, with few exceptions. The only tax-related action that NYC, a home rule jurisdiction, is permitted to take without NYS legislative and gubernatorial approval is the setting of its annual Real Property Tax rates and even this action is taken within NYS constitutional and statutory constraints. All other actions related !" "

to the NYC Real Property Tax and to any other tax are subject to initiation or approval by the NYS Governor and Legislature. NYC and NYS Taxes: A Double Burden The second factor that differentiates New York City from the 50 states is that City residents and businesses pay high taxes to both NYC and NYS, sometimes on the same base. Figure 1 shows that of the 19 taxes imposed by the City and included in its General Fund revenues, 11 are also levied by the State.2 NYS imposes more than 20 taxes that impact City residents and/or businesses, including the Estate and Gift Tax and the Insurance Tax (see Exhibit 2 for a list of NYS taxes). This taxing of the same base by NYC and NYS is one of the concerns associated with City taxes discussed later in the Executive Summary.
Figure 1: NYC and NYS: Taxing the Same Base Personal Income Tax Sales/Use Tax General Corporation Tax Banking Corporation Tax Utility Tax Cigarette Tax Mortgage Recording Tax Real Property Transfer Tax Alcoholic Beverage Tax Off-Track Betting Wireless Communications Surcharge

exceed the costs of service provision, they become part of the Citys General Fund.3
Figure 2: NYC Revenue Sources, FY 2009

Source: NYC Office of Management and Budget

"

Taxes. The Real Property Tax is the Citys largest revenue producer, accounting for 40% of total tax revenues and 24% of revenues from all sources in FY 2009. Together with the Citys three other real estate related taxes, more than 45% of tax revenues and 27% of City revenues from all sources were attributable to property owners and renters (see Exhibit 1). The three other real estate related taxes are: the Real Property Transfer Tax (RPTT), the Mortgage Recording Tax (MRT) and the Commercial Rent Tax (CRT). The second-largest NYC tax source is the Personal Income Tax (PIT). In FY 2009, the PIT yielded $6.5 billion, accounting for 18% of all NYC tax revenues and 10.6% of City revenues from all sources. The Sales/Use Tax, the third-largest NYC tax source, generated 12.8% of all City tax revenues and 7.6% of City revenues from all sources in FY 2009. The City also levies selective sales taxes, known as excise taxes, on cigarettes, hotels, beer/liquor and certain other items and transactions. NYC business taxes imposed on general corporations, banking corporations and utilities and its tax on unincorporated businesses together generated 15.7% of all NYC taxes and 9.2% of total City revenues in FY 2009.

Taxes and Other NYC Revenue Sources

Taxes are the primary source of NYC revenues. Figure

2 shows that in FY 2009, of the $60.6 billion total City revenues, $35.9 billion or 59.1% was attributable to taxes, almost three times the 20% attributable to State aid, the second-largest source of City revenues and almost six times the 10% from Federal aid. Fees for services, licenses, fines and similar charges, accounted for 7.4% of total City revenues in FY 2009. Generally, fees are equal to the cost of providing a service. To the extent that fees

!!" "

Trends in NYC Tax Revenues4 Total NYC tax revenues in 2009 were $35.8 billion, a decrease of 7.1% over the $38.6 billion in 2008. These revenues are, however, in current or nominal dollars which do not take inflation into account. Constant dollar values are adjusted for inflation and show real tax changes over time. For example, as shown in Figure 3, real tax revenues adjusted for inflation began to decline in 2008 rather than in 2009 as indicated by current dollar values. In real terms, FY2009 tax revenues
were slightly below FY2005 revenues.
Figure 3: NYC Total Tax Revenues in Current and Constant 2000 Dollars, 2000-2009

September 11th and the national recession. Real tax revenues resumed their positive growth trend in 2003 and continued to increase until 2007. In 2008, real revenues fell by 2% a year before the Citys economy went into decline and again in 2009.
Figure 4: Constant 2000 Dollar Total NYC Tax Revenues and Real Economic Growth, 1980-2009

Sources: Index of Coincident Economic Indicators, NY Federal Reserve Board; Moodys.com NY State & Local Government Product Deflator used to convert current dollar values into constant 2000 dollars. Sources: Current Dollars, NYC OMB; Moodys Economy.com NY State & Local Government Product Deflator used to convert current dollars into constant 2000 dollars.

"

Figure 4 shows how real dollar tax revenues over the last 30 years have generally tracked NYC economic conditions as measured by the NYC Index of Coincident Economic Indicators.
! The NYC Index of Coincident Economic Indicators was developed by the Federal Reserve Bank of New York.5 It combines individual indicators of economic activity, including employment, to measure overall changes in economic conditions in the City. The Index provides a broader measure of economic conditions than does a single indicator such as unemployment or income.

One of the reasons that the relationship between tax revenues and economic change differed in the 2008-09 period as opposed to the early 1990s is the Citys growing reliance on economically sensitive taxes, particularly personal and business income taxes. In 1990, personal and business income tax revenues comprised 26% of the NYC tax base; by 2009 they represented 33%. Common Issues and Concerns The following sections of the Guide to New York City Taxes describe the structural elements of each NYC 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 U.S. cities. Although the taxes differ with respect to structure and their contribution to City revenues, several issues and concerns are common among them. These issues and concerns shown in Table 1 are discussed briefly below and explained more fully in the descriptions of the individual taxes in the following sections of the Guide. !!!"

In the 1980s, real growth in tax revenues closely tracked economic conditions in the City. During the 1990s, tax revenues continued to grow with a dip only from 1994 to 1995 when economic conditions in the City declined. Tax revenues increased along with the economy until 2002 when they slumped in the wake of

"

Table 1: Common Issues and Concerns Related to Major NYC Taxes*

Tax

NYC/NYS Tax Same Base

Double Taxation

Electronic Commerce

Regulatory Reforms

Unique Tax

Real Property " Real Property Transfer " Mortgage Recording " Commercial Rent " " Personal Income " " Sales/Use " " " Hotel " " " Cigarette " " " General Corporation " " " Unincorporated Business " " Banking Corporation " " " Utilities " " " * Table does not show taxes that account for less than 0.1% of City tax revenues (see Exhibit 1).

NYC and NYS Taxing the Same Base. Of the 19 taxes levied by NYC and included in its General Fund, 11 are imposed by the State on the same base (see Figure 1, p.ii). Among U.S. cities, comparative tax burden studies always show NYC with the highest or close to the highest combined city/state burden.6
! NYC has the highest corporate tax rate of any local government in the U.S., and the highest combined state/local corporate income tax rate. Among local governments imposing some type of personal income-based tax, only Philadelphia has a higher tax rate than NYC but a lower combined state/local rate. The combined NYC/NYS Real Property Transfer Taxes and Mortgage Recording Taxes give NYC the highest real estate closing costs in the country.

Unincorporated Business Tax (UBT) and the PIT on the same income stream. Double taxation also occurs when commercial tenants occupying space below 96th Street in Manhattan pay the Commercial Rent Tax as well as increases in Real Property Taxes on their buildings. Electronic Commerce. The growth in e-commerce is a new challenge. NYC taxes were instituted when doing business required a physical presence and geographic borders generally defined the boundaries for purposes of taxation. Today, as a result of changing communications technologies, geographic borders for purposes of many types of taxation are rapidly disappearing. The growth in sales made over the Internet and the fact that most individuals pay no sales or use tax on many of these purchases has negatively impacted the Citys tax revenues. The combined New York City/New York State loss of revenues in FY 2009 resulting from untaxed e-commerce sales is estimated at $257 million.7 Cigarette Tax and Hotel Tax revenues are also adversely affected by Internet transactions. The increased use and reliability of telecommunications technology means that more !#"

Double Taxation. Many City taxpayers, especially City residents, pay more than one tax on the same income stream. For example, NYC residents who are S Corporation owners/ shareholders pay the NYC General Corporation Tax (GCT) or the NYC Bank Tax, and the NYC Personal Income Tax (PIT) on income derived from the corporation. Additionally, NYC business owners who are residents with more than $42,000 in taxable income for City PIT purposes pay the

"

business can be conducted electronically and that physical location is no longer as necessary as it once was. This, too, has an adverse impact on tax revenues as businesses act to reduce their tax liability through increased use of the Internet and other telecommunications technologies."" Government Regulatory Reforms Passage of the Federal"Gramm-Leach-Bliley Act (GLBA) in 1999 removed the demarcation between banks, securities firms and other financial institutions. Changes resulting from GLBA blurred the line between businesses that have to file under the NYC Bank Tax and those that have to file under the Citys General Corporation Tax. NYS has begun a study of the possibility of creating a single tax structure for financial institutions. Government deregulation of utilities also has tax implications. Before deregulation, utilities were permitted to operate only within specific service territories. Customers could purchase telecommunications services and electric power only from their local regulated utilities. Deregulation has changed the marketplace so that cheaper telecommunications services and power in other parts of the region and nation will be an increasingly important issue for the Citys competitive position. NYC/NYS utility taxes contribute to making the Citys utility costs among the highest in the country. Changes in the regulatory environment make the distinction between NYCs General Corporation Taxpayers and some Utility Taxpayers more problematic. NYC Real Property Tax revenues are also impacted since utility properties are taxed differently than other types of business properties.8 Unique Tax NYC is one of only two jurisdictions in the U.S. to impose a specific tax on unincorporated businesses (UBT) and to levy a Commercial Rent Tax (CRT). As discussed above, each of these

taxes is also imposed on the same base as another NYC tax. Conclusions NYC imposes a wide variety of taxes and has a tax burden exceeding that of all other U.S. cities. Most of the Citys taxes were enacted more than 50 years ago, long before dramatic technological advances changed the environment in which taxes are imposed. Over time, the Citys tax base has also become increasingly sensitive to changes in the Citys economy. The tax burden in NYC, the complexity and inequitable application of a number of taxes, the impact of technology and the increasing volatility of the Citys tax base are the impetus for the Guide to New York City Taxes. The information presented in the Guide can provide a baseline for any efforts undertaken to modernize the Citys revenue structure. Conclusions regarding taxes in New York City, their comparative burden and and their effect on taxpayer behavior obviously cannot be reached without considering the Citys expenditures and the relationship between City and State taxes. As we complete the Guide, the State has passed its 2010 budget which includes several changes to its tax structure and rates (see Exhibits 3 and 4). With the exception of the increased NYS tax on cigarettes which was already in place before the Guide was completed, these changes are not reflected in the report.

#" "

Endnotes
1

The 2007 New York City Independent Budget Office (IBO) publication Comparing State and Local Taxes in Large U.S. Cities provides information on taxes imposed in the nations 9 largest cities. The report is found at http://www.ibo.nyc.ny.us/iboreports/CSALTFINAL.pdf. The March 2010 NYC Office of Management and Budget Tax Revenue Forecasting Documentation, Financial Plan Fiscal Years 20092013 includes information used to forecast NYC taxes. It is available at http://www.nyc.gov/html/omb/downloads/pdf/methodology _2010_02.pdf. The NYC Department of Finance Webpage provides information on each of the Citys taxes. The information is available at http://www.nyc.gov/html/dof/html/business/business_tax_b usiness.shtml. 2 The General Fund is the primary City fund. Most taxes and expenditures are in the General Fund. Two additional taxes are imposed by the City and dedicated to the NYC Police and Fire Departments. Neither is included in General Fund revenues. 3 Letter from NYC Independent Budget Office to NYC Council advising that fees need not exactly reflect the cost of providing a service, so long as it is reasonably related to the provision of the service and is not a subterfuge for raising general revenue. October 2000. http://www.ibo.nyc.ny.us/iboreports/spignerletter.pdf. 4 Current dollar revenue data used in the Guide are based on tax collection data reported by the NYC Office of

Management and Budget (OMB). Constant 2000 dollar values for all taxes were calculated using the Moodys Economy.com NY State & Local Government Product Deflator provided to the author by IBO with permission from Moodys Economy.com. The legislative history of each tax is primarily based on information reported in the March 2010 OMB Tax Revenue Forecasting Documentation, Financial Plan, Fiscal Years 2009-2013. 5 James Orr, Robert Rich, and Rae Rosen. Current Issues in Economics and Finance. Federal Reserve Bank of NY. October 1999 Vol. # 5, no. 14. Can be found at http://www.newyorkfed.org/research/current_issues/ci514.pdf. 6 See, for example, Tax Rates and Tax Burdens in the District of ColumbiaA Nationwide Comparison 2008. Can be found at http://www.cfo.dc.gov/cfo/frames.asp?doc=/cfo/lib/cfo/cas h_reports/08study-final.pdf. Also see IBO report referenced in Endnote 1 above. 7 Bruce et al. State and Local Government Sales Tax Revenue Losses from Electronic Commerce. Can be found at http://cber.utk.edu/ecomm/ecom0409.pdf 8 !Utility properties are classified as either special franchise properties or Real Estate Utility Corporations. The valuation of special franchise properties is done by the NYS Office of Real Property Services.

#!" "

Exhibit 1: New York City Taxes and Other Revenue Sources, FY 2009
Revenue in Millions of $ $60,646 35,873 16,179 14,339 742 515 583 6,450 5,032 4,594 342 96 5,602 2,320 1,785 1,099 398 1,662 48 28 11 24 5 0.03 4 1,542 947 1,124 4,481 1,103 12,124 5,941 Real Property Tax Real Property Transfer Tax Mortgage Recording Tax Commercial Rent Tax Personal Income Tax
1

Revenue Type Total Revenues Taxes Real Estate Related Taxes

% of Total NYC Taxes Revenues 100.0% 45.1 40.0 2.1 1.4 1.6 18.0 14.0 12.8 1.0 0 .3 15.6 6.5 5.0 3.1 1.1 4.6 * * * * * * * 4.3 2.6 -

% of NYC Revenues from All Sources 100.0% 59.2 26.6 23.6 1.2 0.8 1.0 10.6 8.3 7.6 0.6 0.2 9.2 3.8 2.9 1.8 0 .7 2.7 * * * * * * * 2.5 1.6 1.9 7.4 1.8 20.0 9.8

Sales and Excise Taxes Sales/Use Tax Hotel Tax Cigarette Tax Business Taxes General Corporation Tax Unincorporated Business Tax Banking Corporation Tax Utility Tax Other Taxes Commercial Motor Vehicle Tax Auto Use Tax Taxi Medallion Transfer Tax Beer and Liquor Excise Tax Retail Beer, Wine and Liquor License Tax Horserace Admission Tax Off-Track Betting Surcharge Other Tax-related Revenues Audits Transfers Charges for Services, Fines, etc. Non-government grants State Categorical Aid Federal Categorical Aid
2

*Less than 0.1%. 1Does not include $138 million in PIT revenues dedicated to the Transitional Finance Authority (TFA). NYC did not begin including these revenues as part of its General Fund until FY 2010. In FY2009, inclusive of these revenues, PIT revenues were $6,588 million. 2 Includes tax waivers, PILOTS, interest payments. Total includes School Tax Relief (STAR) payments to the City from NYS, which were $1.2 million in FY 2009. Total is net of refunds and does not include revenues from the premiums tax on foreign and alien fire insurers that are dedicated to the Fire Department or the E-9/11 S and Wireless/Cellphone Surcharges, which are part of the Police Departments revenue budget. Source: NYC Office of Management and Budget

#!!" "

Exhibit 2: New York State Taxes, FY 2009

Revenue Type Total Revenues1 All Taxes2 Real Estate Related Taxes Real Estate Transfer Tax Mortgage Recording Tax3 Estate and Gift Taxes Personal Income Tax Sales and Excise Taxes Sales/Use Tax Motor Fuel Cigarette and Tobacco Products Alcoholic Beverage Highway Use Auto Rental Business Taxes General Corporation Tax Banks Insurance Petroleum Business Taxes Utility Taxes Other Taxes Pari-mutuel Total
4 4

Revenues in Millions of $ $117,256 58,921 1,371 701 670 1,165 36,840 12,613 10,374 504 1,338 206 141 50 6,614 2,729 1,062 1,005 1,107 711 318 10 18 1 24 191 74

% of Total NYS Taxes 100.0% 2.3 1.2 1.1 2.0 62.5 21.4 17.6 0.9 2.3 0.3 0.2 0.1 11.2 4.6 1.8 1.7 1.9 1.2 0.5 * * * * 0.3 0.1

% of NYS Revenues from All Sources 100.0% 50.2 1.2 0.6 0.6 1.0 31.4 10.8 8.9 0.4 1.1 0.2 0.1 * 5.6 2.3 0.9 0.9 0.9 0.5 0.3 * * * * 0.2 0.1

Off-Track Betting

Hazardous Waste Assessment Waste Tire Management Wireless Communication Other

1 2

Total revenue from NYS Financial Plan 2009-2010, p. T-25 plus estimated Mortgage Recording Tax. Tax data are from NYS Department of Taxation & Finance Annual Tax Collections and may differ slightly from other published data. Audit collections are not reported separately for each tax as reported for NYC taxes in Exhibit 1. 3 MRT is estimated by the author; it is not included in the Department of Taxation & Finance Table 2. The State MRT is collected by the local recording offices at the time the mortgage is recorded. 4 Includes uncashed tickets and racing fee. * Less than 0.1%

#!!!" "

Exhibit 3: NYS FY 2010 Budget: Major Actions with Specific Application to NYC Taxes Tax Personal Income Tax: Itemized Deductions for High-income Filers Action For Tax Years 2010 through 2012, for taxpayers with NYAGI over $10 million, the only itemized deduction allowable in calculating NYS Personal Income Tax liability is 25% of their charitable contributions claimed for Federal Income Tax purposes. NYC has the option to accept this change for purposes of calculating City PIT liability. Currently, for taxpayers with more than $1 million in NYAGI, the only itemized deduction permitted for NYC PIT purposes is 50% of charitable contributions claimed for Federal Income Tax purposes. Personal Income Tax: New York City Tax Rate For TY 2010, the maximum City PIT rate increased for all taxpayers with taxable income of $500,000 or over is increased to 3.4%. This 3.4% does not include the 14% additional tax imposed on all City PIT filers. Including the 14% increases, the top marginal PIT rate increased to 3.876%, up from the current 3.648% top marginal rate. The current NYS Sales Tax exemption for clothing and footwear up to $110 per item is suspended for one year. NYC and other localities have the option to exempt clothing and footwear up to $110 per item (or $55 per item) from local sales taxes. The current NYC Sales Tax exemption applies to clothing and footwear up to $110 per item. Currently, when a hotel room is booked over the Internet through a remarketer (sometimes referred to as an intermediary) such as Travelocity or Expedia, the hotel operator is responsible for collecting the tax on the price charged to the remarketer and remitting it to the NYC Department of Finance. The remarketer is responsible for collecting and remitting the tax on the mark-up (the difference between the price paid to the hotel and the price paid by the guest). Under the new law, the room remarketer will collect the Hotel Tax on the full charge to the customer and pay the hotel the portion of the tax on the room price charged by the hotel. The hotel will be responsible for remitting these tax payments to the NYC Department of Finance. The remarketer will receive a credit for the tax it has paid to the hotel and will remit that portion of the tax it collects on the mark-up to the Department of Finance. The 2010 NYS Budget treats remarketers as hotel operators, requiring them to also collect the NYS and NYC Sales Taxes based on the price paid by the hotel guest for the hotel room.

Sales Tax: Exemption on Clothing and Footwear

Hotel Tax: Responsibility for Tax Collection

Exhibit 4: Major Tax Actions Adopted in New York State 2010 Budget

!$" "

Exhibit 4: Major Tax Actions Adopted in New York State FY 2010 Budget1
Budget Section A B C N P Q Action

Modifies qualified emerging technology company and bio-fuels production tax credit for limited liability companies (LLCs) and partnerships. Makes compensation for past services taxable for non-residents who had NYS nexus at time of payment. Treats certain S Corporation income as NYS source income for non-resident shareholders. Narrows the definition of vendor for purposes of the Sales/Use Taxes. Provides a credit against State PIT for persons or entities investing in low income housing. Increases the cap on the film production tax credit by $420 million per year for 2010 through 2014; allows up to $7 million per year in post-production tax credits. Provides that Empire Zone de-certifications imposed in 2009 were applicable to tax years beginning on or after 1/1/08. Clarifies that businesses certified as qualified Enterprise Zone entities (QEZEs) or qualified investment projects prior to 6/30/2010 retain eligibility for Empire Zone investment and employment incentive tax credits. Extends the exclusion for Sales Tax exemptions for business aircraft and vehicles included in transactions between affiliated entities. Repeals provisions allowing private-label credit card lenders to take Sales Tax credit/refund on uncollectable accounts. Repeals the Sales Tax vendor credit for monthly filers (receipts of $300,000 or more in taxable sales/quarter). Defers most business tax credits over $2 million for tax years 2010, 2011 and 2012 until tax year 2013 or later. Conforms NY Bank Tax deductions for bad debts to Federal Internal Revenue Code (IRC) calculations. Codifies requirement for hotel room remarketers to collect NYS/NYC Hotel Taxes and Sales Taxes on hotel rooms. For TY 2010, increases the NYC Personal Income Tax base rate to 3.4% for taxable income over $500,000.2 Suspends NYS Sales Tax exemption on clothing and footwear priced at $110 and less from October 2010 through March 2011. Reinstated at $55 in April 2011 through March 2012; full reinstatement April 1, 2012. Gives local governments option to keep exemption of $55 or $110. For Tax Years 2010 through 2012, the only itemized deduction allowed for NYS taxpayers with NYAGI of $10 million or more is 25% of charitable contributions claimed on their Federal Income Tax returns. Local governments have the option of accepting this change for purposes of calculating local PIT liability. Makes permanent 2008 amendments related to closely held REITS for General Corporation and Bank Taxes. Clarifies that certain publicly traded REITS are not subject to provisions for closely held REITs. Relates to exclusion of transportation services provided by affiliated livery vehicles in NYC from City and State NYS Sales Taxes. Modifies the definition of little cigar for purposes of NYS Tobacco Tax.

R S W X Y Z AA EE

GG

HH M N W Y
1 2

Prepared August 5, 2011 based on NY State Senate S.6610-C and Assembly 9710-D. Does not include 14% additional tax, which increases NYC top marginal PIT rate to 3.876%.

Sources: Pokalsky, Ken. Summary of Business-Related Provisions of S.6610-C/A.9710-D. The Business Council of New York State, Inc; Albany, New York, August 4, 2010.

$" "

Real Property Tax

1.0 REAL PROPERTY TAX 1.1 Overview New York City has imposed the Real Property Tax (RPT) in its current format since 1983 under the NYS Real Property Tax Law, as amended by Chapter 1057 of the Laws of 1981 generally referred to as S.7000A.1 Some type of property tax has been levied in the City since the mid-17th century when a voluntary tax was imposed on certain types of property including land and houses. In FY 2009, the Citys RPT yielded $14.3 billion, accounting for 40% of NYC tax revenues and 23.6% of City revenues from all sources. The NYC Department of Finance administers and collects the tax. The RPT is imposed on the value of land and buildings located within the City with certain exceptions described in Section 1.3. Unlike all other NYC taxes whose rates are established by the State, the RPT rates are set annually by the NYC Council, within constraints established under the NYS Real Property Tax Law. The RPT statutory tax rates set for each of the Citys four classes of property are not, however, the real (effective) tax rates paid by taxpayers. The EFT, the tax paid on every $100 of market value, is discussed in Section 1.4. 1.2 Factoring in the State The State of New York does not impose its own tax on real property. 1.3 The New York City RPT Taxpayer As a result of changes made in S.7000A to the NYC property tax structure, the City has had a classified property tax system with four property classes in place since 1983.
!

! Class 1: Residential properties with up to !

3 units and certain vacant land for residential use2 Class 2: Residential properties not included in Class 1, including cooperative properties (co-ops) and condominiums (condos) Class 3: Regulated utility corporation properties and special franchise properties, excluding land and certain buildings Class 4: All other properties including office buildings, industrial facilities, retail establishments, and hotels/motels.

All properties in the 4 classes are subject to the RPT with certain exceptions. State law mandates that property owned by government entities and not-for-profit organizations be fully exempt from the RPT (see Exhibit 1.1). Properties owned by City residents in specific demographic categories, such as veterans, senior citizens and disabled persons are eligible for partial exemptions and/or abatements from the RPT. Certain residential, commercial and industrial properties are also eligible for partial property tax exemptions and/or abatements under several NYC tax relief programs.3
! Exemptions reduce a propertys taxable value and thus its RPT liability. In FY 2009, the tax dollar value of RPT exemptions was $11.4 billion (see Table 1.1). Abatements are subtracted directly from RPT liability, generally at a specified dollar amount. The total value of abatements in FY 2009 was $472.7 million.

Some taxpayers receiving exemptions and/or abatements provide the City with payments-inlieu-of-taxes (PILOTS). In FY 2009, the City collected $221 million in PILOTS.4

!"!# #

Table 1.1: Tax Dollar Value of NYC Real Property Tax Exemptions, FY 2009 Property Type Total Government Public Authorities Institutional Residential Commercial/ Industrial Individual Assistance # Exemptions 734,700 11,182 9,463 15,363 82,533 6,333 609,826 % of Total 100.0% 1.5 1.3 2.1 11.2 0.9 83.0 Tax Value* ($ in millions) $11,385.9 4,945.9 2,525.6 1,736.9 1,396.2 543.0 238.3 % of Total 100.0% 43.4 22.2 15.3 12.3 4.8 2.1

*Tax dollar value of exemption is calculated as the exempt property value multiplied by the tax rate. The exempt property value is actual assessed value (or, for partially exempt properties, a portion of actual assessed value). Actual assessed value is the product of the assessment ratio multiplied by market value. Source: NYC Department of Finance, Annual Report, NYC Property Tax FY2009, page 13.

1.4 The New York City RPT Base The Real Property Tax base is determined by the total taxable value of property in the City and the average Citywide tax rate set by the NYC Council when it establishes the total RPT levy needed for budget-balancing purposes. The average Citywide rate is not, however, used to calculate individual taxpayer liabilities which are determined by applying class-specific tax rates to each propertys market value. Class-specific tax rates are set by the Council based on the share of the total tax levy for which each class is
Figure 1.1: Calculating NYC Property Tax Liability Market value as determined by the NYC Department of Finance (DOF) Multiplied by Class-specific Assessment Ratio established by the DOF Minus RPT Tax Exemptions, if applicable Equals Assessed or Taxable Value Multiplied by Class-specific Tax Rates set by the NYC Council Equals NYC RPT Liability before Abatements Minus RPT Tax Abatements, if applicable Equals NYC RPT Liability

responsible and the total assessed value in each class (class shares are discussed below). Taxable Value of NYC Property. For purposes of the RPT, taxable value is equivalent to assessed value, the base for determining taxpayer liability. Each of the elements in the calculation of taxable value and tax liability for individual properties is shown in Figure 1.1 and explained below. Market Value. The starting point for calculating the taxable value of a property is its market value. Market value can be defined conceptually as the cash price a property would bring in a competitive and open market.5 The NYC Department of Finance determines market value for NYC properties using three approaches: (1) the comparable sales or market data approach, (2) the income approach, and (3) the cost or summation approach. All properties in the City are reassessed each year between June and January. Once the new market value of a property is determined, it is multiplied by the class-specific assessment ratio to determine the new assessed value. !
! An assessment ratio is the ratio of assessed value to market value. For example, a 10% assessment ratio means that a property with a $100,000 market value is assessed at 10% of this value or $10,000. The RPT statutory tax rate is applied to the $10,000 to calculate tax liability.

!"$# #

(1) In the Comparable Sales Approach, the market value of a property is determined based on sales prices of comparable properties that have recently been sold. Comparable properties are those with characteristics similar to the property being valued, such as location, lot size, square footage, architectural style, age of the home and property use, especially density of use. Dollar adjustments are made for differences between the property being valued and the comparable properties, based on periodic physical inspections by the City and a Computer Assisted Mass Appraisal (CAMA) model.6
! The Department of Finance uses the comparable sales approach to estimate the market value of Class 1 properties.

Under S.7000A, NYC is permitted to set assessment ratios for each of the 4 classes. The current target assessment ratio for Class 1 properties is 6% while the ratio for each of Class 2, 3 and 4 properties is 45%. For Classes 1, 2 and 4, when market values increase in any given year, class-specific restrictions, i.e., caps, imposed by S.7000A and subsequent legislation determine how assessment increases are to be phased in.
! ! Class 1: Assessment increases are capped at 6% annually and at 20% over any 5-year period. Classes 2 and 4: Assessment increases are phased in over a 5-year (transition) period with no annual caps except on 4-10 unit rental buildings and co-op and condo buildings with 10 units or less. For these properties, assessment increases are capped at 8% annually and at 30% over any 5-year period. Annual taxpayer liability is the lower of the transitional or actual values. Class 3: There are no caps on assessment increases or phase-in requirements.

(2) In the Income Approach, two techniques are generally applied to determine market value for purposes of the RPT. In the first, the estimated future net operating income (NOI) of the property being valued is divided by an appropriate capitalization (CAP) rate.7 In the second technique, a multiplier is applied to the gross income of the property being valued to estimate market value.8
! The Department of Finance uses the income approach to estimate the market value of Class 2 and Class 4 properties.

Real Property Tax Rates. As shown in Figure 1.1, tax liability is calculated by multiplying the assessed value of a property by its class-specific statutory tax rate established by the City Council annually. In 2009, these rates were:
! ! ! ! Class 1: Class 2: Class 3: Class 4: 16.787% 13.053% 12.577% 10.612%

(3) In the Cost Approach, property valuation is generally determined on the basis of the value of the land on which the property is sited plus reproduction/replacement costs minus depreciation.
! The Department of Finance uses the cost approach to estimate the market value of Class 3 properties.

The statutory rates are not, however, the real, i.e., effective tax rates (ETR), imposed on property owners.
! ! The ETR is calculated by dividing the Real Property Tax liability of a property by its market value and multiplying by 100. For a property with a $100,000 market value and a 10% assessment ratio, taxable value would be $10,000. If the statutory RPT rate is 5%, tax liability would be $500. The ETR would be 0.5% ($500/$100,000 x 100), far less than the statutory 5%.

Assessed Value. Assessment is the process by which a taxing jurisdiction establishes the assessed or taxable value of a property relative to its market value. The NYC Department of Finance (DOF) determines assessed values for City properties based on assessment ratios.

!"%# #

The RPT as the Budget Balancer. As mentioned earlier, the NYC Council sets the average Citywide RPT rate once expenditures and revenues from all other sources e.g., aid from NYS have been estimated. When revenues from all other sources are not sufficient to bring the budget into balance, RPT rates are usually increased. In 2008, the City-wide rate was reduced to $11.66; in 2009 it was increased slightly to $11.70. Class Shares of the Property Tax. The total City RPT levy is shared among its 4 property tax classes. Provisions in S.7000A ensured that each property class would continue to provide the same share of the Citys RPT levy that it contributed in 1981. S.7000A also restricted the ability of the City to shift taxes from one class to another by requiring that taxes be levied in accordance with base proportions, i.e., shares of the RPT pie in 1981. In 1989, State legislation reset the base year for calculating base proportions to 1991. This meant that for each of the Citys 4 property classes its base proportion share of the total tax levy must remain the same as it was in 1991, after adjustments for new construction, demolitions, alterations and changes in taxable status. NYS law also prohibits base proportions for each class in any one year from increasing more than 5% over its base proportion in the previous year. Any increase that would be in excess over the 5% in one class must be distributed to the other classes.
! The NYC Council has sole discretion to decide how the excess is apportioned among the remaining classes.

1.5 The RPT in Other Jurisdictions New York and most other states do not levy a tax on real property. It is, however, imposed at some level of government in all 50 states and in the District of Columbia. Because of different assessment practices, statutory property tax rates cannot be compared across jurisdictions. What can be compared, however, are property tax structures. State laws may require or permit local governments to structure their property taxes so that different assessment ratios and/or different tax rates are applied to different types of properties. Among the largest cities in each of the 50 states, 16 use market value as their taxable base in assessing residential properties (see Exhibit 1.2). The median assessment ratio for the 50 cities is 60%; 2 of the 50 cities have assessment ratios less than the 6% applied to Class 1 properties in NYC. Due to extreme fiscal stress and the need for additional revenues, many local governments have been re-evaluating their RPT incentive programs. Some have begun to charge non-profit institutions for essential services. For example, local governments in Indiana are imposing fees on them for police and fire services. Some jurisdictions are turning taxes into fees which can be levied against otherwise tax exempt organizations. 1.6 New York City RPT Revenue Trends In FY 2009, NYC Real Property Tax revenues stood at $14.3 billion, a 9.8% increase over the $13.1 billion in 2008. Figure 1.2 shows that in current dollars, property tax revenues have increased every year since 2000. In constant dollars, there has been more fluctuation, with revenues falling slightly in 2005, 2007, and 2008.

In several years, the NYS Legislature, at the request of the City, has lowered the 5% cap; in 2009, it was reduced to 0% for the third consecutive year. The impact of the base proportions requirement and the reducible cap on the inter-class share of the property tax burden has been to favor Class 1 properties over the other three classes.

!"&# #

Figure 1.2: NYC Property Tax Revenues, Current and Constant 2000 Dollars, 2000-2009

1.7 New York City RPT History Since the implementation of S.7000A in 1983, NYC has been operating under a Real Property Tax system in which different assessment ratios and tax rates are applied to 4 statutorily defined property classes. Several changes since 1981 have been made by the NYS Legislature to modify the RPT tax law. A description of these changes and actions taken under NYC local rule are described in Exhibit 1.3. 1.8 Issues and Concerns Preferential Treatment of Class 1 Properties. As shown in Table 1.2, in FY 2009, Class 1 properties accounted for 52% of the $811.1 billion market value of all properties in the City (excluding fully exempt properties), but for 10.5% of the Citys total billable assessed value. In contrast, Class 4 properties accounted for 22.2% of market value in the city, but for 47.3% of billable assessed value. Within Class 2, rental buildings accounted for 7.7% of market value compared with 15.4% of billable assessed value.
Table 1.2: NYC Billable Assessed Value,* by Tax Class, FY 2009 ($ in millions) Class Market Value (MV) % of Total Market Value 100.0 52.1 22.9 7.7 10.1 2.5 2.8 22.2 Billable Assessed Value % of Billable Assessed Value 100.0 10.5 35.0 15.4 9.7 4.8 7.2 47.3

Sources: Current Dollars, NYC OMB; Moodys Economy.com NY State & Local Government Product Deflator used to convert current dollars into constant 2000 dollars.

Figure 1.3 shows that constant dollar RPT revenues rise and fall within a narrow margin over relatively long periods of time, indicating that the RPT is a stable tax. Figure 1.3 also shows that RPT revenues are relatively insensitive to changing economic conditions, as measured by the NY Federal Reserve Board Index of Coincident Economic Indicators. This means that the tax does not fluctuate as dramatically as other taxes when the economy goes into recession. It also means that when the economy is growing, revenues are not as responsive as they are for other taxes.
Figure 1.3: Constant 2000 Dollar RPT Revenues and Real NYC Economic Growth, 1980-2009

Total Class 1 Class 2 Rentals

Sources: Index of Coincident Economic Indicators, NY Federal Reserve Board; Moodys.Com NY State & Local Government Product Deflator used to convert current $ values from NYC OMB to constant 2000 dollars.

$811.1 422.8 186.0 62.3 35.8 20.2 22.4 179.9

$133.0 14.0 46.5 20.5 12.9 6.4 9.6 62.9

Co-ops Condos Class 3 Class 4

*Billable assessed value is the assessed value on which tax liability is

based. For properties in Classes 2 and 4, it is the lower of the actual or transitional assessed value minus any exemptions. Source: NYC Department of Finance, Annual Report, NYC Property Tax FY2009, page 1.

The lower assessment ratios for Class 1 properties, along with the 6%/20% caps on their assessment !"'# #

increases, have resulted in their favorable property tax treatment relative to properties in the other three classes. For example, the caps made it difficult for the City to take full advantage of the run-up in residential property market values earlier in this decade. Annual State legislative amendments to the adjusted base proportion statutes to reduce the 5% cap on market value adjustments made at the Citys request have also contributed to the preferential treatment of Class 1 properties. Valuation of Co-ops and Condominiums. Under NYS Real Property Tax Law, the NYC Department of Finance is required to value residential condominiums and cooperatives in Class 2 as if they were rental apartments. This means that the actual sales prices of co-ops and condos cannot be used to determine market value as is the case with Class 1 residential properties. Instead, DOF must base its valuation on income Endnotes
1

data from comparable buildings, many of which contain rent-controlled or rent-stabilized units. As a result of applying the income approach using data from comparable rental buildings, co-ops and condos are assigned market valuations that may bear little relationship to their actual value. Tax Exemptions and Abatements. As discussed in Section 1.3, the total assessed value of exemptions and abatements in FY 2009 was almost $11.4 billion. Relief for some taxpayers will result in higher taxes for others if the City is to meet the revenue targets needed to balance the budget. Non-transparency of the RPT. The RPT is a difficult tax to understand with each of its four classes having its own assessment ratio, tax rate and specific caps on assessment increases. The City Councils discretion to adjust base proportions makes the RPT even less transparent.

For a summary of events leading up to the adoption of S.7000A see 2006 report issued by the NYC Independent Budget Office (IBO) http://www.ibo.nyc.ny.us/iboreports/propertytax120506.pdf 2 Outside Manhattan residentially zoned vacant land or land not residentially zoned but adjacent to a parcel improved with a 1-3 family residence is included in Class 1. If the vacant land is in Manhattan and meets certain other conditions, alternative requirements apply. 3 For industrial and commercial properties see http://www.nyc.gov/html/dof/html/property/property_tax_reduc_taxreductions.shtml#individual For residential property owners see http://www.nyc.gov/html/dof/html/property/property_tax_reduc_taxreductions.shtml#commercial 4 Information supplied by NYC OMB, May 2009 5 Joe Eckert, Property Appraisal and Assessment of Administration (Chicago, International Association of Assessing Officers, 1990, 35) 6 Computer Assisted Mass Appraisal (CAMA) is a term to describe software packages used to help taxing jurisdictions establish market values for property tax calculations. 7 The CAP rate is determined in several ways, including market extraction, band-of-investments or a built-up method. The NYC Department of Finance uses the band-of-investments approach, which is explained on http://www.nyc.gov/html/dof/html/pdf/10pdf/income_guidelines_fy11.pdf 8 Gross income multipliers are determined using income and expense statements for a sample of rental properties in each decile range and the CAP rate to estimate market value. The sample data are used to set the gross income multiplier for each income band. This approach is explained on http://www.nyc.gov/html/dof/html/pdf/10pdf/income_guidelines_fy11.pdf

!"(# #

Exhibit 1.1: New York City RPT: Exempt Properties by Type of Organization and Use of Property* 420(a) Charitable Moral/mental health of Educational men/women/children Hospital Religious 420(b) Bar Association Benevolent Bible Enforcement of Law relating to children or animals Historical Infirmary Cemetery Parsonage Library Medical Society Missionary Patriotic Public Playground Scientific Supervised Youth Sportsmanship

Manse *To be fully exempt from the NYRPT, properties must be in one of the exempt
categories described in Sections 420(a), 420(b), 446 or 462 of the NYS RPT Law. Source: NYC Department of Finance# Exhibit 1.2: Residential Property Tax Rates, Largest City in each U.S. State, 2008 State/City AK: Anchorage AL: Birmingham AR: Little Rock AZ: Phoenix CA: Los Angeles CO: Denver CT: Bridgeport DC: District of Col. DE: Wilmington FL: Jacksonville GA: Atlanta HI: Honolulu IA: Des Moines ID: Boise IL: Chicago KS: Wichita KY: Louisville LA: New Orleans MA: Boston MD: Baltimore ME: Portland MI: Detroit MN: Minneapolis MO: Kansas City MS: Jackson . Statutory Rate/$100 1.72 7.53 7.05 8.75 1.1 7.06 3.87 0.85 3.38 1.6 4.1 0.33 4.5 1.32 6.72 12.32 1.24 12.93 1.02 2.27 1.77 6.58 1.2 6.32 17.16 Assessment Ratio 100% 10 20 10 100 8 70 100 47.2 100 40 100 45 100.5 10 11.5 100 10 100 100 91 32.1 92.5 19 10 State/City MT: Billings NC: Charlotte ND: Fargo NE: Omaha NH: Manchester NJ: Newark NM: Albuquerque NV: Las Vegas NY: New York City* OH: Columbus OK: Oklahoma City OR: Portland PA: Philadelphia RI: Providence SC: Columbia SD: Sioux Falls TN: Memphis TX: Houston UT: Salt Lake City VA: Virginia Beach VT: Burlington WA: Seattle WI: Milwaukee WV: Charleston WY: Cheyenne Statutory Rate/$100 1.86 1.3 45.54 2.05 1.69 2.6 4.52 3.27 15.43 5.94 10.98 1.95 8.26 2.37 26.26 1.49 7.47 2.52 1.19 0.89 1.78 0.94 2.42 1.44 7.1 Assessment Ratio 34% 82.9 4.4 96 98.6 60 30 35 6 33.4 11 52.1 32 100 4 85 23.3 100 100 100 100 83.4 100 60 9.5

446 462

*NYC assessment ratio applies only to Class 1 properties. Source: Tax Rates and Tax Burdens in the District of Columbia - A Nationwide Comparison, 2008.

!")# #

Exhibit 1.3: Major NYS Legislative Actions Affecting the NYC Real Property Tax* Year Action 1788 New York State enacts law establishing full-value assessment as Property Tax standard. 1981 Chapter 1057 of the Laws of 1981, known more generally as S.7000A, adopted by State Legislature. Law significantly changes NYC Property Tax from a single class to a classified system with four classes of property: Class 1, Class 2, Class 3 and Class 4. Properties in each class to be taxed at different assessment ratios and at different rates. Assessment increases for Class 1 homeowners capped Condominiums of three stories or less reclassified from Class 2 to Class 1; Assessment increases for rental properties of 4-6 units capped at 8% annually and 30% over five years. Assessment increases for residential rental properties with 7-10 units capped at 8% annually and 30% over 5 years. Assessment increases for co-ops and condos with 2-10 units capped at 8% annually and 30% over 5 years; One family homes on cooperatively owned land reclassified from Class 2 to Class 1. Abatement program for co-op/condo owners enacted. For properties with assessment values less than $15,000 per unit, abatement set at 4%; for properties with assessment values at more than $15,000, abatement set at 2.75%. Co-op/Condo Abatement increased from 4% to 16% for properties with assessment less than $15,000 per unit and to 10.75% for properties with assessments greater than $15,000. NYC increases RPT rates for period covering January 1 - June 30, 2003 NYC enacts 3-year property tax rebate of $400 (or annual Property Tax liability whichever is less) for owners of Class 1 properties and co-ops/condos. Assessment increases attributable to additions to Class 2 properties with less than 11 residential units capped at 15% with one-third of the increase to be added immediately; the other two-thirds are subject to the 8%/30% caps. NYC reduces RPT rates by 7% starting July 1, 2007 and extends RPT rebate program until July 1, 2008. RPT rate increases for all classes. $400 homeowner rebate repealed.

1986 1990 1994 1996 1997 2003* 2005* 2006 2007* 2009*

*NYC changes; NYS legislative approval not required Source: New York City Office of Management and Budget. Tax Revenue Forecasting Documentation. Financial Plan, Fiscal Years 2009-2013.

!"*# #

Real Property Transfer Tax

2.0 REAL PROPERTY TRANSFER TAX 2.1 Overview New York City has levied a Real Property Transfer Tax (RPTT) since 1959. In FY 2009, the tax generated $742 million, accounting for 2% of NYC tax revenues and 1.2% of City revenues from all sources. The RPTT is administered by the NYC Department of Finance. The Citys RPTT is imposed on the transfer of all real property in the City, when the consideration for the transfer exceeds $25,000, with few exceptions (see Section 2.3). The tax is also imposed on the sale or transfer of at least a 50% ownership interest in a corporation, partnership, trust or other entity that owns or leases real property. The Citys RPTT rates differ by value and type of property being transferred. For purposes of the RPTT, there are two types of transfers: residential transfers and all other transfers.
! The tax rate on the transfer of residential properties is 1% when the consideration is $500,000 or less, and 1.425% when the consideration is greater than $500,000. The tax rate on the transfer of all other properties, including commercial and industrial properties, is 1.425% when the sales price is $500,000 or less, and 2.625% when the sales price is greater than $500,000. The 2.625% rate includes the 1% urban tax, which is dedicated to the MTA and is not included in tax collection numbers for the Citys RPTT.

The NYS Real Estate Transfer Tax rate of 0.4% is imposed on the consideration for real property transfers in the State. An additional 1% tax is levied on property transfers when the purchase price is $1 million or more for 1-3 family houses, individual residential co-operative apartments and residential condominium units. The 1% is referred to as the mansion tax.
! For all real property transfers with the exception of residential properties purchased for $1 million or more, the combined NYC/NYS tax rate on real property transfers is higher than the rate imposed in any place in the U.S. with the exception of certain jurisdictions in Pennsylvania. For residential property transfers with a purchase price of $1 million or more, the combined NYC/NYS rate is the highest in the U.S.

2.3 The NYC Taxpayer

Real

Property

Transfer

A joint tax return must be filed by the buyer and the seller but the entire NYC Real Property Transfer Tax is payable by the seller. In general, if the seller is exempt from the tax, or fails to pay the tax, the tax is payable by the buyer. Exemptions from the RPTT include:
! Property transfers to Federal, State and City agencies as well as transfers by or to the UN or any other international organization of which the U.S. is a member. ! Property transfers by or to non-profit institutions such as charitable, religious or educational organizations. ! Certain other property transfers such as those given solely as security for a debt.

2.2 Factoring in the State The New York City RPTT is levied in addition to the NYS Real Estate Transfer Tax (RETT). In FY 2009, the States RETT generated $701 million, accounting for 1.2% of NYS tax revenues and 0.6% of State revenues from all sources.

The 0.4% State tax on the transfer of property is also payable by the seller. The 1% mansion tax is payable by the buyer. 2.4 The New York City RPTT Base ! The Real Property Transfer Tax base is generated by transfers of residential and all other "#$!

properties. Residential properties include 1-3 family houses, individual cooperative apartments, individual residential condominium units or an individual unit in a dwelling occupied as a residence or home of four or more families living independently of each other. All other properties encompasses rental apartment buildings, real estate of traditionally regulated utility corporations and other nonresidential properties including office buildings, factories, retail establishments and hotels/ motels. 2.5 Real Property Transfer Taxes in Other Jurisdictions Thirty-eight states and/or one or more of their local jurisdictions impose some type of tax/fee on real property transfers. Combined state/local property transfer tax/fees range from a low of $2.00 per deed/contract in Arizona to a high of a 4% realty transfer tax in some Pennsylvania jurisdictions. 2.6 New York City RPTT Revenue Trends In FY 2009, the RPTT generated $742 million in current dollars, a decrease of 47% over the $1.4 billion in 2008. Figure 2.1 shows that in current and constant 2000 dollars, RPTT revenues have increased in all years since 2000 with the exception of 2002, 2008 and 2009.

Figure 2.2 shows that constant dollar changes in RPTT revenues tend to follow the same long term trend as do economic conditions in NYC. The dramatic fall-off in RPTT revenues in 2008 and 2009, for example, reflects the real estate driven nature of the most recent economic decline in the City, State and nation
Figure 2.2: Constant 2000 Dollar RPTT Revenues and Real NYC Economic Growth, 1980-2009

Sources: Index of Coincident Economic Indicators, NY Federal Reserve Board; Moodys.com NY State & Local Government Product Deflator used to convert current dollar values from NYC OMB to constant 2000 dollars.

2.7 History of the NYC Real Property Transfer Tax When NYC first imposed a tax on the transfer of real property in 1959, the tax rate was set at 1% on the net consideration paid on all transfers (exclusive of mortgages, liens/encumbrances remaining on the property). The relatively few changes that have been made to the rate and base since 1959 are shown in Exhibit 2.1. 2.8 Issues and Concerns

Figure 2.1: NYC Real Property Transfer Tax Revenues, Current and Constant 2000 Dollars, 2000-2009

Out-of-line 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. On all other properties, the combined rate is higher than the rate imposed in any place in the U.S. with the exception of certain jurisdictions in Pennsylvania.

Sources: Current Dollars, NYC OMB; Moodys Economy.com NY State & Local Government Product Deflator used to convert current dollars into constant 2000 dollars.

"#"!

Exhibit 2.1: Major NYS Legislative Actions Affecting the NYC Real Property Transfer Tax, 1959-2009
Year 1959 1982 1987 1989 1994 1997 Action Real Property Transfer Tax (RPTT) payable by the seller implemented on the sale or transfer of a property in NYC. Rate is set at 1% of the net consideration paid for the property. Rate increased to 2% for transfers valued at more than $500,000. Tax base expanded to include leasehold transfers. Deduction for continuing liens repealed. RPTT base expanded to include property that is part of a transfer of a majority interest in an entity which owns real property in NYC. Rate increased to 1.425% for commercial sales of $500,000 or less and residential sales over $500,000 and to 2.625% for commercial sales over $500,000. Temporary 50% percent reduction in RPTT rate for certain transfers to newly organized Real Estate Investment Trusts (REITs). This provision is now permanent. Deduction allowed for the amount of any mortgage assumed by the buyer on the transfer of a 1-3 family home, or an individual residential co-operative or condominium unit.

Source: New York City Office of Management and Budget. Tax Revenue Forecasting Documentation. Financial Plan Fiscal Years 2009-2013.

"#%!

Mortgage Recording Tax

3.0 MORTGAGE RECORDING TAX 3.1 Overview New York City has imposed the Mortgage Recording Tax (MRT) since 1971. In FY 2009, the tax yielded $515 million, accounting for 1.4% of NYC tax revenues and 0.8% of City revenues from all sources. The Citys MRT is collected by local recording offices in the City at the time the mortgage is recorded. MRT Revenues are initially deposited into a trust account. The NYC Department of Finance transfers appropriate funds to the Citys General Fund, the MTA and the State of New York Mortgage Agency (SONYMA). The City MRT is imposed on new mortgages recorded on real property located in NYC with certain exceptions (see Section 3.3 below). The tax rate varies with the type and size of the mortgage.$
! ! For all mortgages securing less than $500,000, the NYC tax rate is 1% of the mortgage amount. For mortgages securing $500,000 or more on 1-3 family dwellings or individual residential condominium units, the tax rate is 1.125%. For all other mortgages securing $500,000 or more including mortgages on commercial/industrial properties the NYC tax rate is 1.75%. There is no MRT liability on the purchase of a co-operative apartment since this financing is not considered to be a mortgage.

The State MRT rate applicable in NYC is $1.05/$100 on all mortgages regardless of their value.
! The combined NYS/NYC MRT rate is the highest imposed in the U.S.

The State MRT rate has three components: (1) the $0.50/$100 basic rate, which goes directly to NYC (and outside of NYC to the counties); (2) a special additional tax of $0.25/$100 earmarked for the MTA in NYC and the other seven counties comprising the MCTD;1 and (3) a $0.30/$100 additional tax with most proceeds earmarked for SONYMA.2 NYS tax law provides for an exemption from the special additional tax for non-profit organizations that are exempt from Federal income taxation. If the lender qualifies for this exemption, it is payable by the borrower. However, if the borrower is also exempt, neither party pays this portion of the tax.
! The combined NYS/NYC Mortgage Recording Tax is the highest imposed in any jurisdiction in the U.S.

3.3 The NYC Mortgage Recording Taxpayer The NYC Mortgage Recording Tax is usually payable by the borrower at the time a mortgage is recorded. Taxpayers generally pay the MRT each time they secure a new mortgage on real property in the City. For a credit-line mortgage, however, the MRT Tax is imposed on the maximum principal amount.3 No further tax is due on advances or re-advances by the lender unless the maximum principal amount is increased. Prior to 1996, this provision applied only to owner-occupied 1-6 family homes. Legislation was enacted in 1996 extending it to all residential and commercial credit-line mortgages with a credit limit below $3 million. When a mortgage is being refinanced, if the old mortgage can be assigned, which is easiest to do if the borrower refinances with the same bank, !"#$

3.2 Factoring in the State The New York City MRT is imposed in addition to the New York State MRT (see Exhibit 3.1). In FY 2009, the States revenues from the MRT were $670 million, accounting for 1.1% of NYS tax revenues and 0.6% of State revenues from all sources. The States MRT is collected by local recording offices at the time mortgages are recorded.

the loan can usually be arranged so that only new money is subject to the MRT. Unlike the State MRT, the NYC tax applies to certain wraparound mortgages and spreader agreements.
! A wraparound mortgage, generally referred to as a wrap, is a form of secondary financing for the purchase of real property. The seller extends to the buyer a secondary mortgage that wraps around and exists in addition to any superior mortgages already secured by the property&$ A spreader agreement is an agreement spreading the reach of a mortgage to other properties and sometimes even to other borrowers or lenders. At one time, it was common, especially in New York, to use spreading agreements rather than executing new mortgages to avoid paying large Mortgage Recording Taxes.

3.6 New York City MRT Revenue Trends In FY 2009, NYC Mortgage Recording Tax revenues stood at $515 million, a 55% decrease over the $1.1 billion in 2008. Figure 3.1 shows that in current dollars and constant 2000 dollars, mortgage recording tax revenues increased annually from 2000 until 2007 and then dropped in 2008 and again in 2009.
Figure 3.1: NYC Mortgage Recording Tax Revenues, Current and Constant 2000 Dollars, 2000-2009

Exemptions from the City MRT are available to the NYC, NYS and Federal governments and their agencies, instrumentalities and political subdivisions, public authorities, housing development fund companies and certain nonprofit organizations. 3.4 The NYC Mortgage Recording Tax Base NYC Mortgage Recording Tax revenue is based on the number of mortgages recorded in the City and the amount of the indebtedness secured by the mortgages. 3.5 The MRT in Other Jurisdictions New York is one of 11 states plus the District of Columbia to levy a specific Mortgage Recording Tax. Some states, such as New Jersey, do not impose a specific mortgage recording tax but charge a recording tax for all documents related to real estate transactions. In New York State, in addition to NYC, the City of Yonkers and several counties are authorized to impose an MRT. County rates generally range from $1.00/$100 to $1.30/$100.

Sources: Current Dollars, NYC OMB; Moodys Economy.com NY State & Local Government Product Deflator used to convert current dollars into constant 2000 dollars.

Figure 3.2 shows that constant dollar MRT revenues generally move in the same direction as economic conditions in NYC. This is especially true when the economy is growing. Since 2007, MRT revenues have declined more sharply than the economy, reflecting the real estate driven nature of the most recent economic decline in the City, State and nation. 3.7 History of the NYC Mortgage Recording Tax The NYC Mortgage Recording Tax was established in 1971 at a rate of 0.5% on the value of all mortgages. Changes since then are shown in Exhibit 3.2.

!"%$ $

Figure 3.2: Constant 2000 Dollar MRT Revenues and Real NYC Economic Growth, 1980-2009$

3.8 Issues and Concerns Out-of-line Taxes. As a result of the high NYC/NYS Real Property Transfer Tax and the NYC/NYS Mortgage Recording Tax, taxpayers purchasing property in NYC pay some of the highest closing costs in the nation. Endnotes

Sources: Index of Coincident Economic Indicators, NY Federal Reserve Board; Moodys.com NY State & Local Government Product Deflator used to convert current dollar values from NYC OMB to constant 2000 dollars.

The MCTD includes the 5 counties of NYC plus Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess and Westchester. 2 MRT proceeds from mortgages on 1-6 family homes within the MCTD are earmarked for the District. 3 A credit-line mortgage secures indebtedness under a financing agreement that allows the borrower to receive a series of advances or re-advances up to a stated amount.

Exhibit 3.1: Combined New York State and New York City Mortgage Recording Tax, 2009 Tax per $100 NYC Tax Type of Mortgage All mortgages securing less than $500,000 Residential mortgages securing $500,000 or more* All other mortgages securing $500,000 or more $1.00 $1.125 $1.75 NYS Tax Basic Tax $.50 $.50 $.50 Special Additional Tax $.25 $.25 $.25 Additional Tax $.30 $.30 $.30 $2.05 $2.175 $2.80 Combined City/State Tax

*For 1-3 family houses and individual residential condominium units Source: NYS Department of Taxation and Finance, Office of Tax Policy $

Exhibit 3.2: Major NYS Legislative Actions Affecting the NYC Mortgage Recording Tax 1971-2009
Year 1971 1982 Action City MRT established at a rate of 0.5% on the amount of the mortgage. Tax rate increases for mortgages of $500,000 or more. For 1-3 family homes, rate increases to 0.625%; on other large mortgages, to 1.25%. Half of the collections from large non-residential mortgages earmarked for the NYC Transit Authority, the City Para-transit system and certain private bus operators franchised by the City. Tax extended to certain supplemental (wraparound) mortgages and spreader agreements regardless of whether the indebtedness secured by the mortgage is increased.

2004

Source: New York City Office of Management and Budget. Tax Revenue Forecasting Documentation. Financial Plan Fiscal Years 2009-2013.$ $

!"!$ $

Commercial Rent Tax

4.0 COMMERCIAL RENT TAX 4.1 Overview NYC has levied the Commercial Rent Tax (CRT) since 1963. In Fiscal Year 2009, the tax yielded $583 million, accounting for 1.6% of NYC tax revenues and 1% of City revenues from all sources. The CRT is administered by the NYC Department of Finance. The CRT is imposed on tenants paying annualized base rents of $250,000 or more for premises south of 96th Street in Manhattan that are used for business/professional services and for commercial activities. The statutory tax rate is 6% of the base rent paid by tenants liable for the tax. NYC allows tenants an across-the-board 35% reduction in their computation of taxable base rent, reducing the effective tax rate (ETR) to 3.9%. 4.2 Factoring in the State NYS does not levy a tax on commercial renters of real property. ! The only other jurisdiction in the U.S.
besides NYC to impose a specific tax on commercial renters is the State of Florida.

! Governmental
!

! ! !

entities and non-profit religious, charitable and educational organizations; $ Non-profit organizations that do not use the premises for commercial purposes and receive a written exemption from the NYC Department of Finance; Renters using space for 14 days or less and tenants (other than operators of hotels) who use at least 75% of their floor space to rent to others for residential purposes; Tenants using space for theatrical productions for the first 52 weeks after their production begins; Tenants in commercial buildings in the World Trade Center Area in lower Manhattan; Tenants of premises used for retail sales purposes located in the Commercial Revitalization Program (CRP) Abatement zone in lower Manhattan;1 Certain other properties, including property used as a pier in interstate commerce and with premises used for air, railroad or omnibus transportation purposes.

4.4 The NYC Commercial Rent Tax Base The CRT base rent is the amount of rent paid by non-exempt tenants located in Manhattan south of 96th Street, minus the amount received or due them from any subtenants. Tenants with annual base rents between $250,000 and $300,000 are eligible for a slidingscale credit that reduces tax liability. When the rent is based on a percentage of gross receipts due the landlord, the taxable percentage may not exceed 15% of gross receipts. 4.5 The CRT in Other Jurisdictions In Florida, a 6% Sales Tax is imposed on the total rent paid for the right to use or occupy commercial real property, unless the rent is specifically exempt. Rental premises subject to the State of Florida Sales Tax are also subject to any locally imposed sales surtax on rentals.

4.3 The NYC Commercial Rent Taxpayer Tenants paying annual rents of $250,000 or more for premises in Manhattan south of 96th Street that are used to operate businesses, professions or commercial activities are liable for the CRT. A tenant is defined as a person or entity paying rent as a lessee, sub-lessee, licensee or concessionaire. Tenant-owners of offices used for commercial purposes in cooperative buildings are also liable for the tax. Tenants whose annualized base rents are below $250,000 calculated without regard to the 35% reduction allowed by NYC in computing taxable base rent are exempt from the CRT. Other tenants exempt from the CRT include:

!"#$ $

4.6 New York City CRT Revenue Trends In FY 2009, NYC Commercial Rent Tax revenues stood at $583 million, a 7% increase over the $545 million in 2008. Figure 4.1 shows that in current dollars, CRT revenues have increased every year since 2000. In constant dollars, CRT revenues showed small declines in 2002 and 2005.
Figure 4.1: NYC Commercial Rent Tax Revenues, Current and Constant 2000 Dollars, 2000-2009

4.7 History of the NYC Commercial Rent Tax The NYC Commercial Rent Tax was first imposed in 1963 on businesses renting space in all parts of NYC. In the early 1960s, before the City imposed the Personal Income Tax (PIT) and shifted from a gross receipts approach to a net income tax on businesses, NYC was facing limits on its Real Property Tax (RPT) levy due to the NYS constitutional cap on the amount of tax dollars that could be raised for operating purposes.2 The CRT offered a means for the City to tap some of the growth in property values that it was unable to fully capture under the constitutionally constrained RPT. Since 1963, many changes have been made to the tax rate and base, including total exemption from the tax of commercial tenants located outside of Manhattan and north of 96th Street in Manhattan. A fuller description of rate and base changes can be found in Exhibit 4.1. 4.8 Issues and Concerns Double Taxation. The CRT is imposed on businesses that do not own property and do not directly pay the NYC Real Property Tax. Most commercial leases, however, contain provisions requiring tenants to pay additional rent attributable to increases in the RPT on their buildings. Commercial tenants thus pay the CRT on the escalation amounts of the RPT, which essentially amounts to paying one tax on top of another tax. Unique Tax. With the exception of Florida, no other jurisdiction in the U.S. imposes a tax on commercial rents. The CRT presents a competitive disadvantage for NYC in its efforts to attract and retain businesses that rent space, especially with regard to nearby communities that do not impose a tax on commercial renters. $

Sources: Current Dollars, NYC OMB; Moodys Economy.com NY State & Local Government Product Deflator used to convert current dollars into constant 2000 dollars.

Figure 4.2 shows that changes in CRT revenues are not closely tied to fluctuations in NYC economic conditions as measured by the NY Federal Reserve Board Index of Coincident Economic Indicators. The dramatic decline in revenues in 1997 was a result of the change in the CRT law that exempted space used for commercial purposes located in the Bronx, Brooklyn, Queens and Staten Island and north of 96th Street in Manhattan.
Figure 4.2: Constant 2000 Dollar Commercial Rent Tax Revenues and Real NYC Economic Growth, 1980-2009

Sources: Index of Coincident Economic Indicators, NY Federal Reserve Board; Moodys.com NY State & Local Government Product Deflator used to convert current dollar values from NYC OMB to constant 2000 dollars.

!"%$ $

Endnotes
1

$ $

The CRP provides tax incentives through a property tax abatement and CRT special reduction for non-residential or mixed-use premises built before 1975 and located in designated abatement zones. Applicants are required to make certain minimum expenditures to improve the eligible premises.$ 2 The NYS Constitution (Article VIII, Section 10) limits the amount of Real Property Taxes that cities, villages and counties may raise each year for operating purposes. The limit for NYC is set at 2.5% of its 5-year average full valuation of taxable property.

Exhibit 4.1: Major NYS Legislative Actions Affecting the NYC Commercial Rent Tax 1963-2009 Year Action 1963 Tax imposed on tenants for rental space used for commercial/professional purposes. Rate set at 2.5% on annual base rents below $2,500 and 5% on rents of $2,500 and above. 1970 Graduated rate schedule adopted, with rates ranging from 2.5% on base rents below $2,500 to 7.5% on base rents of $11,000 or more. 1977 Maximum rate reduced to 6.375% as of 1980 and 6% as of 1981. 1981 Base rent less than $5,000 exempt from tax. 1984 Base rent exemption increased to $8,000 on June 1, 1984, and to $11,000 on December 1, 1984. 1985 Base rent in certain locations reduced by 10% starting 1986. 1994 25% tax credit granted to taxpayers in certain locations and expanded in 1995 to a full exemption for renters with base rent less than $21,000 in central and lower Manhattan and up to $30,000 elsewhere in the city. 1995 Renters of space for commercial purposes located in the Bronx, Brooklyn, Queens and Staten Island, and north of the centerline of 96th Street in Manhattan, exempt from the tax. 1997 Taxpayers with base rent less than $100,000 exempt from the tax; those with base rent between $100,000 and $140,000 allowed a sliding scale credit against tax liability. 2000 Base rent exemption increased to $150,000 and sliding scale credit increased on rents up to $190,000. 2001 Base rent exemption increased to $250,000 with a sliding scale credit for those with rents up to $300,000. 2005 The Commercial Revitalization Program expanded to provide greater CRT reductions. New or renewal leases in the World Trade Center area exempted from the tax. 2009 The enhanced special Commercial Revitalization Program extended over four more years.
Source: New York City Office of Management and Budget. Tax Revenue Forecasting Documentation. Financial Plan, Fiscal Years 2009-2013.

$ !"&$ $

Personal Income Tax

5.0 PERSONAL INCOME TAX 5.1 Overview New York City has imposed the Personal Income Tax (PIT) since 1966. In FY 2009, the tax generated $6.5 billion, accounting for 18% of NYC tax revenues and 10.6% of City revenues from all sources.1 The City PIT is administered by the NYS Department of Taxation and Finance and reported by NYC taxpayers in a separate section of their State Personal Income Tax returns. The New York City PIT is imposed on the taxable income of resident individuals, estates and trusts. Under City law, certain non-residents who are employed by the NYC government are required to sign a contract that requires them to pay an amount equivalent to the PIT they would pay if they were City residents.2 ! The PIT is levied based on the filing status and income of the taxpayer.
! NYC has three filing statuses: single (which includes married, filing separately), joint or head of household. There are currently four tax brackets for each status, with marginal tax rates ranging from 2.907% to 3.648% depending on the taxpayers income bracket (see Exhibit 5.1 for NYC rates and brackets).

As of 2008, the State had five filing statuses with seven tax brackets for each. For tax years 20092011, two new temporary brackets were added, with the highest rate set at 8.97% on taxable income in excess of $500,000 for all filers (see Exhibit 5.2 for NYS rates and brackets).
! The combined NYC/NYS top PIT tax rate is the highest imposed in any jurisdiction in the U.S.

Metropolitan Commuter Transportation Mobility Tax. Effective for tax years beginning on or after January 1, 2009, the State has imposed the Metropolitan Commuter Transportation Mobility Tax (MCTMT) on businesses and individuals including members of partnerships and limited liability corporations (LLCs) that are treated as partnerships. The tax was enacted to help finance mass transportation expenditures in the MCTD! " #he MCTMT is a payroll tax on employers and on individuals who earn more than $10,000 in selfemployment income in NYC and the other 7 counties in the MCTD.
! Income taxes, such as the NYC and NYS Personal Income Taxes, are paid by individuals. Payroll taxes can either be withheld from employees wages or, as is the case with the MCTMT, paid from the employers own funds.

5.2 Factoring in the State The New York City PIT is levied in addition to the NYS Personal Income Tax. In FY 2009, the State PIT generated $36.8 billion, accounting for 62.4 % of NYS tax revenues and 31.4% of State revenues from all sources. It is the largest source of State tax dollars. The New York State PIT is imposed on State residents and on non-residents who have income attributable to NYS sources. The tax is applied to all sources of income including wages and salaries, interest, dividends, business-related income and capital gains.

The MCTMT rate is 0.34% of an employers total payroll expense for employees within the MCTD. For sole proprietors and partners, the rate is 0.34% of net earnings from self-employment allocated to the MCTD during the tax year. 5.3 The NYC Personal Income Taxpayer The PIT is imposed on all income sources of NYC residents including wages and salaries, interest, dividends, business-related income and capital gains. Income passed through to NYC residents who are owners/shareholders of an elected Subchapter S Corporation is treated as taxable

"#$!

income for purposes of the PIT as is the income from City-based partnerships. ! Non-residents. Currently, non-residents are not subject to the PIT. From 1966 to 1999, however, every non-resident individual, estate or trust was taxed on earnings from NYC sources, i.e., wages and net earnings from self-employment within the City.3 Tax rates for the non-resident earnings tax, commonly referred to as the Commuter Tax, were last set at 0.45% of wages and 0.65% of selfemployment income from NYC sources. The liability for Tax Year 1998 the last full year in which the tax was imposed was $325 million. Periodically, City officials and others have called for reinstatement of the Commuter Tax, arguing that it helps to pay for public services provided to people who work in NYC but live elsewhere. Reinstatement of the tax requires approval from the NYS Legislature with its many members representing districts outside of NYC that house large numbers of voting constituents employed in the City. 5.4 The New York City PIT Tax Base The NYC Personal Income Tax is imposed on the taxable income of all NYC residents. Calculating Personal Income Tax Liability. As shown in Figure 5.1, the NYC Personal Income Tax base is derived from the NYS taxable base, with the same additions to, and subtractions from, Federal Adjusted Gross Income (FAGI). The starting point for calculating City and State PIT liability is NYS Adjusted Gross Income (NYAGI). NYAGI is equal to Federal Adjusted Gross Income (FAGI) as reported on taxpayer Federal individual income tax returns modified to account for differential treatment by the State of certain income sources. Some income items not taxed by the Federal government are taxed by NYC and NYS; these are added back to Federal AGI to arrive at NYAGI. Other items subject to Federal taxation are not taxed by NYS; these are subtracted from Federal AGI to calculate NYAGI. !

Figure 5.1: Calculating NYC 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 City Taxable Income Multiplied by NYC Tax Rates Equals NYC PIT Liability Before Credits Minus NYC Tax Credits Equals NYC PIT Liability!

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., certain 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. Once NYAGI is determined, taxpayers subtract NYS deductions and exemptions from this value to determine their NYC taxable income the base for determining NYC tax liability. Deductions. New York City PIT filers may deduct either the NYS-defined standard deduction or State-defined itemized deductions from their NYAGI to arrive at NYC taxable income.5 "#%!

Taxpayers taking the standard deduction for Federal purposes must use the NYS standard deduction in calculating their taxable income for NYC Personal Income Tax purposes. Standard deductions range from $7,000 for single filers to $15,000 for joint filers. ! ! Deductions for taxpayers who itemize are the same as those allowed for Federal income tax purposes with modifications including those for higher income filers.
! For single NYC PIT filers with NYAGI over $100,000, and for married filers with NYAGI over $200,000, deductions are 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 filers with more than $1 million of NYAGI, itemized deductions are limited to 50% percent of charitable deductions taken on the Federal return.

UBT Credit. NYC residents who pay the Unincorporated Business Tax (UBT) are permitted to take a credit against their PIT liability for UBT payments.
! For taxpayers whose City PIT taxable income is $42,000 or less, a credit against PIT liability for the full amount of the UBT paid is permitted. For taxpayers with NYC taxable incomes above $42,000 but below $142,000, the credit against PIT liability declines from 100% to 23% of UBT taxes paid. For residents whose City PIT taxable income is $142,000 or more, the credit is 23% of the UBT paid. The UBT credit cannot exceed the City PIT liability, and any unused credit cannot be refunded or carried over to another tax year.

! !

5.5 Personal Jurisdictions

Income

Taxes

in

Other

Exemptions. NYC Personal Income Taxpayers may take an exemption of $1,000 per dependent person to arrive at taxable income for City PIT purposes. Unlike the Federal government, the City does not permit an exemption for the taxpayer or spouse. Tax Liability. Figure 5.1 shows that City PIT liability is calculated by (1) multiplying NYC taxable income by the appropriate tax rates and (2) subtracting the dollar value of tax credits allowable by NYC, where applicable. NYS tax credits are not considered here, since they are not used in the calculation of NYC tax liability. The five credits allowed by the City are: the Unincorporated Business Income Tax (UBT) Credit and four credits related to family income. They are: the Earned Income Tax Credit, the Child Care Credit, the School Tax Relief Credit (STAR)6 and the Household Credit. All but the UBT and Household Credit are refundable, which means that if the value of the credit exceeds tax liability, the excess is refunded to the taxpayer.7

Forty-one states plus the District of Columbia impose some type of broad-based income tax. Of these, 15 give all or certain local governments the option to impose a similar tax. The use of the PIT by local governments is much more extensive in other states than in NYS where only two localities NYC and Yonkers are permitted to impose the tax. In Indiana, for example, all 92 counties impose the tax. In Ohio, 235 cities and 331 villages impose it. Local personal income taxes in other places are generally imposed at much lower rates than in NYC. For instance, in Indiana, county tax rates range from 0.01% to 0.255%; in Ohio, they range from 0.50% to 2.75%. Only Philadelphia has a higher tax rate than NYC but it has a lower combined City/State rate. 5.6 New York City PIT Revenue Trends In FY 2009, NYC Personal Income Tax revenues stood at $6.5 billion, a 25% decline over the $8.6 billion in 2008. Figure 5.2 shows that in current dollars, PIT revenues increased in six of the nine years from 2000 to 2009, and declined in three: 2002, 2003 and 2009. In constant dollars,

"#&!

revenues declined in 2007 as well as in 2002, 2003 and 2009.

Figure 5.2: NYC Personal Income Tax Revenues, Current and Constant 2000 Dollars, 2000-2009

base rate, a 12.5% surcharge and a 14% additional tax. 5.8 Issues and Concerns Double Taxation. Income passed through to owners/shareholders of elected Subchapter S Corporations is subject to the City PIT. These taxpayers are also liable for their share of the Citys GCT or Bank Tax payments and are thus taxed twice on the same income stream. No credit against PIT liability is given for GCT or Bank Tax taxes paid by New York City S Corporation owners/shareholders. A credit against PIT liability is, however, allowed for Unincorporated Business Taxpayers. High Tax Rates. The increased marginal PIT rates imposed by the State for tax years 2009-2011 bring the combined NYC/NYS top marginal rate to 12.62%. This is the highest combined rate imposed in any jurisdiction in the nation. Sensitivity to Economic Fluctuations. The increasing reliance by the City on the economically sensitive PIT makes City revenues much more vulnerable to business cycle fluctuations.

Sources: Current Dollars, NYC OMB; Moodys Economy.com NY State & Local Government Product Deflator used to convert current dollars into constant dollars.

Figure 5.3 shows that PIT revenues are economically sensitive. This means that tax revenues generally rise and fall with changing economic conditions. The increase in the Citys PIT rates to offset declining tax collections may have prevented even larger revenue fluctuations in several years including 2009.
Figure 5.3: Constant 2000 Dollar PIT Revenues and Real NYC Economic Growth, 1980-2009

Sources: Index of Coincident Economic Indicators, NY Federal Reserve Board; Moodys.com NY State & Local Government Product Deflator used to convert current dollar values from NYC OMB to constant 2000 dollars.

5.7 History of the NYC Personal Income Tax NYC has imposed a Personal Income Tax since 1966. Extensive changes made since then in the tax rates, surcharges, tax base and in deductions and exemptions are shown in Exhibit 5.3. These changes, at times, have resulted in as many as three separate components of the PIT rate: the ! "#'!

Endnotes
1

Does not include the $138 million in PIT revenues dedicated to the Transitional Finance Authority (TFA). The City did not begin including these revenues as part of its General Fund until FY 2010. Inclusive of these revenues, PIT revenues were $6,588 million in FY 2009. 2 Payments by non-residents, often referred to as Section 1127 revenues, are not reported as PIT revenues, but are included in Other Taxes. In 2009 they totaled $116.4 million.! 3 The law to repeal the commuter tax sought to eliminate the tax for NYS residents as of July 1, 1999. Because the selective repeal raised constitutional issues, the legislation provided for repeal for out-of-state residents upon decision by the Courts. The NYS Court of Appeals, the States highest court, overturned the selective repeal in April 2000, retroactive to July 1, 1999. 4 Because the calculation of NYS Adjusted Gross Income starts with Federal AGI, changes enacted at the Federal level to modify Federal AGI will also modify NYAGI. NYS must pass legislation if it does not want the Federal provisions to apply to NYS and NYC tax calculations. Such legislative action is referred to as decoupling. 5 The NYS Standard Deduction ranges from $7,500 to $15,000 depending on taxpayer filing status. 6 NYS reimburses NYC for revenues forgone as a result of the STAR credit. 7 For information on NYC tax credits see http://www.tax.state.ny.us/pit/income_tax/new_york_city_c redits.htm. Also see NYC Department of Finance Tax Expenditure Report, http://www.nyc.gov/html/dof/html/pdf/10pdf/ter_2010.final .pdf

"#"!

Exhibit 5.1: New York City PIT Tax Rates by Filing Status, Tax Year 2009* New York City Taxable Income 2009 Rates Single Filer* Head-of Household-Filer 2.907% $12,000 or less $14,400 or less 3.534% Over $12,000 to $25,000 Over $14,400 to $30,000 3.591% 3.648% Over $25,000 to $50,000 Over $50,000 Over $30,000 to $60,000 Over $60,000

Married Filing Jointly $21,600 or less Over $21,600 to $45,000 Over $45,000 to $90,000 Over $90,000

*Includes 14% additional tax (also referred to as the surcharge). For example, the 3.648% base rate without the 14% additional tax is 3.2%. **Also applies to Married Filing Separately taxpayers Source: New York State, Personal Income Tax Return IT150/201 2009

Exhibit 5.2: New York State PIT Tax Rates by Filing Status, Tax Year 2009 New York State Taxable Income Tax Single Filer* Head of Household Filer Married Filing Jointly Rates 4% $8,000 or less $11,000 or less $16,000 or less 4.5% Over $8,000 to $11,000 Over $11,000 to $15,000 Over $16,000 to $22,000 5.25% Over $11,000 to $13,000 Over $15,000 to $17,000 Over $22,000 to $26,000 5.9% Over $13,000 to $20,000 Over $17,000 to $30,00 Over $26,000 to $40,000 6.85% Over $20,000 to $200,000 Over $30,000 to $250,000 Over $40,000 to $250,000 7.85% Over $200,000 to $500,000 Over $250,000 to $500,000 Over $250,000 to $500,000 8.97% Over $500,000 Over $500,000 Over $500,000
*Also applies to Married Filing Separately taxpayers. Source: New York State, Personal Income Tax Return IT150/201 2009

"#(!

Exhibit 5.3: Major NYS Legislative Actions Affecting the NYC Personal Income Tax, 1966-2009 Year Action 1966 PIT imposed on NYC residents with top marginal rate set at 2%. Personal exemption set at $600. Standard deduction set at $1,000 for every filing status. Non-resident earnings tax (known as the Commuter Tax) imposed at 0.25% of wages and 0.375% on self-employed income from NYC sources. 1971 PIT rates increased with top marginal rate set at 3.5%. Commuter Tax rates increased to 0.45% on wages and 0.65% on self-employment income from NYC sources. Commuter Tax rates remain at this level until State repealed tax in 1999. 1976 PIT rates increased. Top marginal rate set at 4.3%. 1982 A temporary surcharge imposed at rates ranging from 2.5% to 5% of PIT liability. 1983 Surcharge imposed in 1983 doubled what it was in 1982. 1987 NYC 5-year Tax Reduction Program enacted to prevent windfall tax gains associated with Federal Tax Reform Act of 1986. Program modified definitions of taxable income, decoupled City PIT from Federal tax changes, reduced number of brackets, created 3 filing statuses and lowered maximum marginal rate to 4.1% for Tax Year 1987 to be reduced to 3.4% by 1991. Limitations placed on itemized deductions allowable for higher income filers. 1990 Last two years of tax reductions postponed. Top marginal rate set at 3.91%. A 12.5% temporary income tax surcharge imposed for TY 1990-1992. Surcharge subsequently extended through 2001 when it was rescinded. Surcharge reinstated for TY 2002. 1991 Itemized deductions for high income taxpayers reduced. Beginning TY 1991, a 3-year additional tax of 14% imposed across all PIT rates (including the 12.5% surcharge). Additional tax extended and still in effect as of 2009. 1997 Non-refundable credit permitted against PIT liability for sole proprietors and partners for UBT taxes paid. 1998 PIT rates to be reduced over 3 years beginning in TY 1999 with top marginal rate (including 14% additional tax) to be set at 3.83%. State School Tax Relief (STAR) program provides refundable tax credit for NYC Personal Income Taxpayers; State to reimburse City for forgone revenues. 1999 Commuter Tax repealed by State as of July 1, 1999. Repeal initially limited to NYS residents. After Court ruling in early 2000, repeal applied to all Commuter Taxpayers. 2001 Under local authority granted by State legislation, City reduced the 14% additional tax effective TY2001. Rate reduction and restructuring of the 14% additional tax resulted in top marginal rate reduction to 3.592%. For TY 2002, rates rolled back to pre-200l levels 2003 Two new brackets and rates added for higher income taxpayers. For TY2003-2005, existing tax rates (including 14% additional tax) replaced by a new rate schedule. 2006 2007 2002 base rates including 14% additional tax reinstated. Top marginal rate of 3.648% (including 14% additional tax) imposed. Non-refundable UBT credit against PIT increased to 100% for taxpayers with NYAGI of $42,000 or less with sliding scale to 23% for taxpayers with NYAGI of $142,000 or more. Refundable NYC low-income credit for child care provided, Itemized deductions for taxpayers with NYAGI over $1 million limited to 50% of Federal charitable deductions (or State standard deduction, whichever is larger). No other Federal itemized deductions are permitted.

2009

Sources: NYC Office of Management and Budget. PIT Legislative History, Appendix II. Tax Revenue Forecasting Documentation. Financial Plan Fiscal Years 2009-2013. NYC Personal Income Tax Webpage http://www.nyc.gov/html/dof/html/services/business_tax_nys_income.shtml, last accessed on June 8, 2010.

"#)!

Sales and Use Tax

6.0 SALES AND USE TAX 6.1 Overview NYC has levied a Sales/Use Tax since 1934 when it was imposed as a temporary tax to raise revenues during the Depression. In FY 2009, the tax generated $4.6 billion, accounting for 12.8% of total NYC tax revenues and 7.6% of City revenues from all sources. The NYC Sales/Use Tax has been collected and administered by the NYS Department of Taxation & Finance since 1965.$ The NYC Sales Tax is imposed on the sale of most commodities and enumerated services in the City. The Use Tax is imposed on purchases made outside of NYC but brought into it for use in the City. The Sales/Use Tax rate is 4.5% on most commodities and services.1 $ 6.2 Factoring in the State The NYC Sales/Use Tax is levied in addition to the NYS Sales/Use Tax. In FY 2009, the State tax generated $10.4 billion, accounting for 17.6 % of total NYS tax revenues and 8.9% of State revenues from all sources. The NYS 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 Metropolitan Commuter Transportation District (MCTD).2 6.3 The NYC Sales/Use Taxpayer The NYC Sales/Use Tax is generally collected by vendors who remit the tax to the NYS Department of Taxation and Finance.
! When a taxable purchase is made in person in NYC, the Sales Tax is collected by the vendor who is required to remit the taxes to the NYS Department of Taxation and Finance. NYC also imposes a Use Tax on purchases made outside of the City that would have been taxed had they been made in it.3 ! When a taxable purchase is made outside NYC, and the Sales Tax is less than the tax in the City, a Use Tax on the difference between the two rates must be paid by the customer to NYS. When the purchase of a taxable commodity is made remotely by mail, over the phone, from a catalog or online and the tax is not collected by the vendor, the customer is liable for remitting the entire Use Tax to the NYS Department of Taxation and Finance. When a purchase is made outside of the City and shipped to a NYC address, vendors are responsible for collecting the Use Tax if they have nexus the legal term for connection to the City. If the vendor does not have nexus, the customer is responsible for paying the Use Tax to the NYS Department of Taxation & Finance.

Nexus. For decades, state and local governments have been trying to define physical presence and the extent to which this presence establishes nexus.
! Nexus gives the taxing jurisdiction the right to collect taxes on out-of-jurisdiction sales.

The explosion of e-commerce sales, especially sales made over the Internet, has increased the complexity and urgency of addressing the nexus issue. The combined NYC/NYS loss of revenues in FY 2009 resulting from untaxed e-commerce sales to NYC residents has been estimated at $257 million.4 Defining Nexus. In NYS and elsewhere in the U.S., the determination of nexus is based on two U.S. Supreme Court decisions: National Bellas Hess v. Department of Revenue in 1967 and Quill v. North Dakota in 1992.5 The Court ruled in Bellas Hess and reaffirmed in Quill that a vendor is exempt from collecting the Sales/Use taxes in a jurisdiction in which it does not have an identifiable physical presence. In both cases, the Court acted on what it saw to be the potential adverse impact on interstate commerce if vendors were required to know the wide range of rates and taxable items in all taxing jurisdictions. !"#$

Although both Bellas Hess and Quill dealt with catalog mail orders, the Courts decisions have also been applied to sales made over the Internet.

In Quill, the Court acknowledged the power of Congress to overturn its decision. In the absence of any such congressional action, the states have tried to reconcile their Sales/Use tax differences the basis for the Quill decision primarily through the Streamlined Sales Tax Project (SSTP), organized in 2000 by representatives from state legislatures, local governments and the private sector. In 2002, the SSTP group approved the Uniform Sales and Use Tax Administration Act, known as the Streamlined Sales Tax and Use Agreement (SSUTA).6 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 processes and to make changes to their collection practices. The SSUTA streamlined sales tax system does not, however, give participating states the authority to require vendors to collect taxes on purchases made outside the taxing jurisdiction. Although NYS was party to the development of 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. Nexus in NYS. In 2008, NYS amended its Sales/Use Tax Law to address the issue of physical presence and nexus as it relates to Internet vendors. The amendment expands the States definition of nexus to include companies that have no physical presence other than in-State affiliates.

Referred to as the Amazon Law, the States 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 appealed the amendment to the NYS Supreme Court arguing that its affiliates are independent contractors that are advertisers and that Amazon.com does not have nexus in New York. The Court ruled that Amazons 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, including those in NYC. Amazon.com has appealed the decision to the NYS Court of Appeals NYSs highest court. No decision has yet been reached. 6.4 The NYC Sales/Use Tax Base The Sales/Use Tax base for NYC consists of all tangible personal property purchased in the City with some exemptions, and enumerated services. Exemptions from the NYC (and NYS) Sales/Use tax include:
! Most food for at-home consumption, except for some items such as soft drinks, candy and alcoholic beverages; ! Prescription drugs; ! Clothing and footwear costing less than $110 per item;$ ! Newspapers and periodicals;$ ! Textbooks for college students;$ ! Public transportation.

Purchases by Federal, NYS and local government agencies, and by non-profit institutions such as schools and hospitals are also exempt from the Sales/Use Tax, as are purchases by diplomats and employees of certain international organizations. Some business expenditures are also exempt. They are:

!"%$ $

! !

Retailer purchases 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 process.

! ! !

Sales of entertainment and/or information provided, for example over 800 or 900 phone numbers;! Hotel occupancy;! Social and athletic club dues.

Source of Sales/Use Tax Revenues. As shown in Table 6.1, sales by the retail trade sector are the primary source of NYC Sales/Use Tax revenues, accounting for 32.5% of all taxable sales in 20072008, almost 3 times the 12% generated by the accommodations/food services sector, the secondlargest source.
Table 6.1: Source of Taxable Sales by Major Economic Sector, 2007-2008 Retail Trade 32.5% Food Service 12.4 Wholesale 9.6 Information Service 9.2 Business Services 4.5 Utilities 4.1 Construction 2.8 Manufacturing 2.6 All Other Sales 22.4
Source: NYC Annual Sales of State Tax Base (3/072/08), NYS Department of Taxation and Finance

NYC also taxes other services not taxed by the State:

! ! ! Beauty, barbering, hair restoring, manicures, pedicures, electrolysis, massage, and other similar services; Services provided by, or use of, facilities of weight control salons, health salons, gymnasiums and similar establishments; Sales of credit rating and credit reporting services.

6.5 The Sales/Use Tax in Other Jurisdictions New York is one of 45 states plus the District of Columbia to impose a Sales/Use Tax. State tax rates range from a low of 2.9% in Colorado to a high of 7% in several states, including New Jersey. In 36 states, local governments are permitted to impose a Sales/Use Tax. The 10.25% combined state/local rate in Chicago is the highest in large cities in the U.S. followed by Los Angeles with its 9.75% combined rate (see Exhibit 6.1). Exemptions to the Sales/Use Tax permitted in NYC and NYS are similar to those permitted in other taxing jurisdictions. For example, all but one state exempts prescription drugs and more than half exempt food. 6.6 NYC Sales/Use Tax Revenue Trends In FY 2009, NYC Sales/Use Tax revenues stood at $4.59 billion, a 5.6% decrease over the $4.87 billion in 2008. Figure 6.1 shows that in current dollars, Sales/Use Tax revenues have increased every year since 2000 with the exception of 2002 and 2009. In constant 2000 dollars, tax revenue declined in 2006 as well as in 2002 and 2009.

Taxing Services. As mentioned earlier, the NYC/NYS Sales/Use Tax applies to most purchases of goods with certain exemptions. In contrast, services taxed are specifically enumerated. NYC imposes its Sales/Use Tax on almost all of the services taxed under the NYS Sales/Use Tax. They are:
! ! ! ! ! ! ! ! ! Sales of utility and telecommunication services; Protective and detective services; Maintenance, installation, service and repair of tangible personal property; Maintenance, service and repair of real property; Storage; Food and beverages sold by restaurants and caterers; Admission charges to places of amusement;! Receipts from the sales of the service of parking, garaging, or storing motor vehicles;! Interior decorating and design (NYC Sales Tax does not apply);!

!"&$ $

Figure 6.1: NYC Sales/Use Tax Revenues, Current and Constant 2000 Dollars, 2000-2009

the NYS takeover of the collection and administration of the NYC Tax and the pledging of NYC Sales Tax revenues as security for repayment of Municipal Assistance Corporation (MAC) bonds from 1975 to 2008.7 These and other legislative changes to the NYC Sales/Use Tax are shown in Exhibit 6.2. 6.8 Issues and Concerns Tax Administration

Sources: Current Dollars, NYC OMB; Moodys Economy.com NY State & Local Government Product Deflator used to convert current dollars into constant 2000 dollars.

Figure 6.2 shows that since 1980, NYC Sales/Use Tax revenues have generally moved in sync with fluctuations in economic conditions in the City. Annual changes in Sales/Use Tax revenues reflect the repeated elimination and restoration of the clothing tax exemption as well as increases and decreases in the tax rate. These changes confound the relationship between Sales Tax revenues and economic conditions.
Figure 6.2: Constant 2000 Dollar Sales/Use Tax Revenues and Real NYC Economic Growth, 1980-2009

The Use Tax. The Use Tax is inserted as its own line on the NYS Personal Income Tax form. The State also provides a table based on income to help taxpayers determine their Use Tax liability. Most individuals, however, do not pay the Use Tax when it is not collected at the time of purchase. Failure to collect the Use Tax is a nationwide problem, causing states to lose significant amounts of revenue annually. E-commerce. NY and several other states are adopting laws that enable them to capture Sales/Use taxes lost to online Internet sales. Vendors are, however, fighting back to keep states from forcing them to collect the tax on ecommerce transactions, specifically those made over the Internet. North Carolina, Rhode Island and most recently Colorado adopted laws requiring affiliates of online companies with no other physical presence in the state to collect the Sales/Use Tax. As a result, Amazon.com, a large Internet vendor, cancelled its affiliate programs in all three states.

Sources: Index of Coincident Economic Indicators, NY Federal Reserve Board; Moodys.com NY State & Local Government Product Deflator used to convert current dollar values from NYC OMB to constant 2000 dollars.

6.7 History of the NYC Sales/Use Tax The New York City Sales/Use Tax was established as a temporary tax in 1934 to enable the City to raise revenues during the Depression. Many changes have been made since then to the tax rate, base and administration. These include

Other online vendors have indicated that these laws would force them out of business. The governors of California and Hawaii have vetoed Amazon-type laws, but other states are moving ahead with similar laws to address the nexus issue. Tax Coverage Taxing Services. NYC and NYS tax some of the 168 services identified by the Federation of Tax Administrators (FTA) as potentially taxable.8 The !"'$

taxation of additional services would broaden the NYS and NYC tax bases, thus generating additional tax revenues. Taxing some services such as those of medical doctors, would, however, make the tax more regressive meaning that it would take a greater percentage of income from lower income taxpayers than higher income taxpayers. Taxing other types of services raises questions relating to the administration of the tax, e.g., the equal treatment of services performed internally and externally. For example, the services of accountants and lawyers working within a company would not be taxed; these same services supplied externally would be taxed. Endnotes
1

See Bruce et al. State and Local Government Sales Tax Revenue Losses from Electronic Commerce http://cber.utk.edu/ecomm/ecom0409.pdf 5 National Bellas Hess v Department of Revenue (386 U.S. 753) (1967); Quill v. North Dakota (504 U.S. 298 (1992). 6 http://www.streamlinedsalestax.org/index.php?page=faqs 7 The State suspended the Citys authority to impose its own Sales Tax from July 1, 1975, through July 1, 2008, and replaced it with an identical 4% Sales Tax dedicated to the repayment of MAC bonds. 8 See http://www.taxadmin.org/fta/pub/services/tan0505_ services.pdf

NYC imposes a 6% tax and an additional 8% surtax on parking, garaging or storing motor vehicles in Manhattan. Manhattan residents who own a motor vehicle registered in the County may be eligible for an exemption from the surtax. 2 The Metropolitan Commuter Transportation District (MCTD) is comprised of NYC, Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess and Westchester counties. 3 Not all Use Tax derives from sales transactions. There are some transactions internal to a company that can be subject to the Use Tax.

!"($ $

Exhibit 6.1: Sales Tax Rates, New York City and Other Large U.S. Cities, 2009* City City Tax Rate State Tax Rate Other Sales Taxes Total Sales Tax Rate in City 8.875% 9.75 10.25 8.25 9.0 8.0 6.0 6.0 6.25 6.52 8.0 8.75 9.25

New York City 4.5% 4.0% 0.375%*** Los Angeles 1.5 8.25 Chicago 1.25 6.25 2.75 *** Houston 1.0 6.25 1.0 *** Phoenix 2.0 6.3**** 0.7*** Philadelphia** 2.0 6.0 Detroit 6.0 Baltimore 6.0 Boston 6.25 Denver** 3.62 2.9 Atlanta 1.0 4.0 3.0 San Diego 8.25*** 0.50 San Jose 8.25*** 1. 0 *Includes 10 largest U.S. Cities plus Boston, Atlanta and Denver ** City coterminous with county. *** Includes tax for public transportation in area.****Rate increased to 6.6% June 1, 2010.

!"!$ $

Exhibit 6.2: Major NYS Legislative Actions Affecting the NYC Sales /Use Tax , 1934-2009 Year 1934 1959 1963 1965 1970 1974 1975 1976 1977 1980 1985 1989 1990 1991 1992 1995 1996 1997 1998 1999 2000 2003 2004 2005 2006 2007 2008 Action 2% tax imposed on the sales and use of tangible personal property and selected services in NYC. Tax rate increases to 3% for most sales and to 5% for restaurant meals and drinks. Tax rate increases to 4% for most sales. Tax rate decreases to 3%; NYS takes over administration of Sales/Use Tax in all State localities. 6% tax imposed on parking and garaging services. Overall rate increases to 4%. NYC Sales/Use Tax revenues 1975 level pledged to Municipal Assistance Corporation (MAC) to meet debt obligations. Revenues derived from future growth in tax to flow directly to City. Non-MAC Sales Tax extended to protective/detective services, credit reporting, collection services, barber and beauty shops and health salons. Credit for Sales Tax paid on machinery used in production can be claimed against NYC business taxes. 8% tax surcharge imposed on parking and garaging services in Manhattan, bringing the total Sales Tax on parking in Manhattan to 18.25%. Manhattan residents exempted from the parking/garaging tax surcharge of 8%. Tax applied to interior decorating, contract cleaning and maintenance services. Credit against business tax liability for sales taxes paid on machinery used in production changed to a sales tax exemption. Tax extended to cover entertainment services. Tax extended to cover shipping, transportation, postage and delivery charges, telephone answering services and sales of pre-written software. Tax exemption applied to the additional cost of a new alternative fuel vehicle above the sales price of a comparable gasoline or diesel powered vehicle. Interior decorating and design services exempted. Several types of transactions and services exempted from tax, including the shipment of papers to publishers, printed promotional materials delivered through shipping services and parking charges paid to municipality-owned and operated parking facilities. NYC (and NYS) sales tax removed from clothing purchases of individual items priced under $100. Additional sales and services exempted from Sales Tax including Internet access services. Additional goods/transactions exempted from Sales Tax, including textbooks, coin phone calls costing $0.25 or less and parking charges paid by members of homeowner associations to the association-owned or operated parking facilities. NYC (and NYS) sales taxes removed on clothing and footwear purchases under $500. Certain food items sold by vending machines that accept credit/debit cards exempted. Purchases of gas and electricity from out-of-state suppliers subject to Use Tax. Additional sales and services exempted from Sales Tax, including machinery used by Internet data centers that sell website services, and purchases of tangible personal property and services used by qualified enterprises located in Empire Zones. Tax rate temporarily increased to 4.125% from 6/2003 through 5/2005. Sales Tax exemption for clothing and footwear purchases under $110 suspended temporarily, with some exceptions. NYC excise tax on cigarettes added to the sales price of cigarettes on which NYC (and NYS) Sales Taxes are applied. Exemption for clothing and footwear purchases under $110 suspended temporarily. Exemption on additional costs of purchasing hybrid vehicles extended to 2005. Tax rate reduced to 4.0%. Exemptions for clothing and footwear purchases under $110 reinstated. Exemptions on clothing and footwear purchases under $110 made permanent. Clothing and footwear purchases costing $110 and more exempted from tax.

NYC fulfills all MAC obligations. Non-profit organizations required to collect Sales Tax on a wider range of retail sales. 2009 Tax rate increased to 4.5%. Tax reinstated on purchases of clothing and footwear costing $110 or more per item; purchases costing less than $110 are still fully exempt. Sources: NYC Office of Management and Budget Tax Revenue Forecasting Methodology. Financial Plan Fiscal Years 20082012. Sales Tax Law Changes in New York City - Effective August 1, 2009, obtained from: http://www.tax.state.ny.us/pdf/notices/n09_12.pdf, accessed on March 4, 2010.

!")$ $

Cigarette Tax

7.0 CIGARETTE TAX 7.1 Overview New York City imposed a temporary tax on cigarettes from 1938 to 1940. The tax was reinstated in 1952 and has been in place since then.1 In FY 2009, the NYC Cigarette Tax yielded $96 million, accounting for 0.3% of total City tax collections and 0.2% of City revenues from all sources.2 The administration and collection of Cigarette Tax revenues is assigned to the NYS Department of Taxation and Finance. The NYC Department of Finance shares this responsibility with the State.! The NYC Cigarette Tax is $1.50 for a pack of 20. It is imposed on agents or distributors and passed along to the NYC consumer in the cost of each pack of cigarettes.! 7.2 Factoring in the State The NYC Cigarette Tax is imposed in addition to the NYS tax on licensed agents who bring cigarettes into the State for sale or use in NYC. In FY 2009, the NYS Cigarette Tax generated $1.4 billion, accounting for 2.3 % of all NYS tax revenues and 1.1% of State revenues from all sources. Effective July 1, 2010, the NYS Cigarette Tax was increased to $4.35/pack of 20. NYC, NYS and MCTD sales taxes are imposed on the total price of the cigarettes, which includes Federal, State and City Cigarette Excise Taxes.!
! The NYC/NYS combined $5.85/pack Cigarette Tax is the highest in any U.S. jurisdiction.3

7.3 The NYC Cigarette Taxpayer NYC and NYS Cigarette Taxes must be paid at the time the cigarettes are brought into the State for sale/use in the City. 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. The color-coded tax stamps on the cigarette pack indicate that the NYC and NYS Cigarette Taxes have been paid. If the NYC tax has not been paid prior to final purchase by consumers, they are responsible for remitting it to the City Department of Finance. 7.4 The NYC Cigarette Tax Base Revenues from the NYC Cigarette Tax accrue to the City from taxes applied to cigarettes and, as of 2008, to little cigars. The NYC/NYS Cigarette Taxes are applied to each pack of 20 cigarettes and cigars with some exceptions including:
! ! ! ! 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 NYC, if the user brings the cigarettes into the City for use, not for sale; Cigarettes possessed by an agent or wholesale dealer for sale to an out-of-City dealer, or for sale and shipment to a person in another state for use there.

Cigarette and other tobacco product vendors are required to pay an annual registration fee for every location in the State where they sell their products. Vendors must also display valid State permits. Retailers who sell cigarettes to consumers must have a NYC Retail Cigarette Dealer License.

7.5 The Cigarette Tax in Other Jurisdictions All states plus D.C. impose some type of tax on cigarettes; 11 have given local governments the option to do so. NYC is the only jurisdiction in NYS permitted to tax cigarettes. Other states permit extensive use of the tax by local governments, most with relatively low tax rates.4 "#$!

7.6 NYC Cigarette Tax Revenue Trends In FY 2009, NYC Cigarette Tax revenues stood at $96 million, a 22% decrease over the $123 million in 2008. As shown in Figure 7.1, current dollars revenues have declined in all years since 2000 with the exception of 2003 following a jump in the tax rate from $0.08/pack to $1.50/pack and 2008 when there was an increase of less than 1%. In constant 2000 dollars, collections fell in every year with the exception of 2003, following the rate increase.
Figure 7.1: NYC Cigarette Tax Revenues, Current and Constant 2000 Dollars, 2000-2009

7.7 History of the NYC Cigarette Tax NYC imposed a temporary $0.01/pack tax on cigarettes from 1938 to 1940, when the price of cigarettes was $0.15 a pack. The tax was reinstated in 1952. Since then, it has been increased several times. In 2002, when the NYS Legislature, at the Citys request, increased the tax to $1.50 per pack, the State was concerned that the higher City tax would reduce cigarette sales, and thus NYS Cigarette Tax revenues. In a compromise allowing for the increased tax, 46% of NYCs revenue from the tax is redirected to the State. Additional information on the history of the NYC cigarette tax is presented in Exhibit 7.1. 7.8 Issues and Concerns Bootlegging. Bootlegging, i.e., bringing untaxed cigarettes into NYC has been a problem as far back as 1938 when the Citys temporary cigarette tax was imposed.5 Growing price differentials between NYC and other jurisdictions in the region and nation provide a greater incentive for bootlegging. Sales on Indian Reservations. A 1994 U.S. Supreme Court decision affirmed the right of the states to assess and collect taxes on sales made on Indian reservations to persons who are not members of the Indian nation. In 2009, stronger enforcement by the City of sales made on Indian reservations to New York City residents led to charges filed against eight Long Island reservations for failing to collect as much as $195 million in City taxes associated with over a $1 billion in cigarette sales to City residents.6 Compliance by Internet vendors. Internet purchases of cigarettes have enabled individuals to avoid paying state and local taxes. NYS enacted legislation, which took effect in 2003, banning Internet and mail-order cigarette sales directly to individual consumers in the State. Federal legislation signed into law in March 2010 (the Prevent All Cigarette Trafficking Act) prohibits the mailing of cigarettes through the U.S. Postal Service. While it would appear that "#%!

Sources: Current Dollars, NYC OMB; Moodys Economy.com NY State & Local Government Product Deflator used to convert current dollars into constant 2000 dollars.

Figure 7.2 shows that constant dollar Cigarette Tax revenues have experienced a long term decline, and have dropped in every year since 1982 with the exception of 2003, the year immediately following the jump in the NYC Cigarette Tax rate to $1.50/pack.
Figure 7.2: Constant 2000 Dollar Cigarette Tax Revenues and Real NYC Economic Growth, 1980-2009

Sources: Index of Coincident Economic Indicators, NY Federal Reserve Board; Moodys.com NY State & Local Government Product Deflator used to convert current dollar values from NYC OMB to constant 2000 dollars.

cigarettes can no longer be bought over the Internet for delivery to NYS consumers, ongoing surveillance is needed to ensure compliance. Endnotes
1

Since 2008, the NYC Cigarette Tax has also applied to little cigars, which are small cigarette-style cigars, with 20 in a pack. They resemble cigarettes in shape, packaging and filters but are cigars because of their tobacco wrapper. The Federal government recently changed the definition of cigarettes to include little cigars and now imposes the Federal excise tax on them at the same rate. 2 NYC revenues from the Cigarette Tax are net of the 46% percent of City Cigarette Tax collections redirected to the State in accordance with the 2002 legislation that raised the Citys tax rate to $1.50 a pack. 3 http://tobaccofreekids.org/research/factsheets/pdf/0267.pdf. 4 Ibid. 5 For a discussion of bootlegging associated with the Cigarette Tax, see Patrick Fleenor, Cigarette Taxes, Black Markets, and Crime: Lessons from New Yorks 50-Year Losing Battle. Policy Analysis, Cato Institute, February 6, 2003. http://www.cato.org/pubs/pas/pa468.pdf Also see Advisory Commission on Intergovernmental Relations, Cigarette Bootlegging: A State and Federal Responsibility, Washington, D.C., 1977. 6 NYC Office of the Mayor, Press Release, PR 385-8, September 29, 2008.

"#&!

!!
Exhibit 7.1: Major NYS Legislative Actions Affecting the NYC Cigarette Tax, 1938-2009* Year Action 1938 NYC imposes a temporary $0.01 tax per pack until 1940. 1952 NYC reinstates $0.01/pack tax 1959 Tax rate increases to $0.02/pack 1963 Tax rate increases to $0.04/pack 1971 Additional tax of $0.03-$0.04/pack depending on tar and nicotine content 1976 Tax rate of $0.08/pack imposed on all cigarettes; tar/nicotine tax repealed 2002 Tax rate increases to $1.50/pack 2008 Packs of small cigars now taxed at the same rate as cigarettes
Sources: New York City Office of Management and Budget. Tax Revenue Forecasting Documentation. Financial Plan Fiscal Years 20092013. Cato Institute http://www.cato.org/pubs/pas/pa468.pdf

"#'!

Hotel Tax

8.0 HOTEL TAX 8.1 Overview The New York City Hotel Room Occupancy Tax, known as the Hotel Tax, has been imposed by the City since 1970. In FY 2009, the tax yielded $342 million, accounting for 1.0% of total NYC tax collections and 0.6% of City revenues from all sources. The NYC Department of Finance collects and administers the Citys Hotel Tax. The NYC Hotel Tax is imposed on guests who occupy a hotel, motel, bed-and-breakfast, boardinghouse or transient club/apartment room. The Citys tax has two components: 5.875% of the room price plus $0.50-$2.00/day/room depending on the room price.1 8.2 Factoring in the State NYS levies a $1.50/day/fee on hotel room occupancy, which is earmarked for the Jacob K. Javitz Convention Center and administered as part of the State Sales Tax. The fee applies only to hotel rooms in NYC. The combined NYC/NYS Sales Tax rate of 8.875% is imposed on the price paid for a hotel room in NYC, exclusive of the NYC and NYS hotel excise taxes. 8.3 The NYC Hotel Taxpayer As mentioned above, the NYC Hotel Tax is imposed on the transient occupancy of a room in a hotel, motel, boardinghouse, bed-and-breakfast, bungalow or club. Rooms occupied by permanent residents, i.e., those who occupy a room for at least 180 consecutive days, are exempt from the tax.2 Other exemptions include:
! ! ! Federal, State and City government entities; The UN and similar organizations; Not-for-profit organizations including charitable, religious and educational institutions.

8.4 The NYC Hotel Tax Base NYCs Hotel Tax is levied on the total price of a room regardless of how it is booked.
! For rooms booked directly by customers or their agents at the full retail price, the Hotel Tax is collected and remitted by the hotel operator to the NYC Department of Finance. For bookings made on the Internet through room remarketers such as Expedia and Travelocity, the hotel operator is responsible for collecting and remitting the tax on the price it charges to the remarketer. The remarketer is responsible for the tax on the mark-up, i.e., the difference between the price paid to the hotel and the price paid by the guest.

8.5 The Hotel Tax in Other Jurisdictions Just about every jurisdiction in the U.S. with a hotel imposes a general retail sales tax, a separate excise tax, or both, on transient hotel room occupancies. The total tax rate on hotel rooms in NYC is at the higher end of those imposed in other large U.S. cities such as Los Angeles, Philadelphia and Atlanta. In some places, a portion of Hotel Tax revenues pays for regional transportation uses. Many local governments in NYS and elsewhere dedicate all or part of their revenues from the hotel tax to tourism-related activities. 8.6 NYC Hotel Tax Revenue Trends In FY 2009, NYC Hotel Tax revenues stood at $342 million, a 9.8% decrease over the $379 million in 2008. Figure 8.1 shows that in current and constant dollars, Hotel Tax revenues increased in every year from 2000 to 2009 with the exception of 2002 and 2009.

"#$!

Figure 8.1: NYC Hotel Tax Revenues, Current and Constant 2000 Dollars, 2000-2009

8.7 History of the NYC Hotel Tax NYC imposed an excise tax on hotel occupancies between 1946 and 1965 and has levied the current tax since 1970. The several changes to the tax rate and to the type(s) of taxes imposed can be found in Exhibit 8.1. 8.8 Issues and Concerns

Sources: Current Dollars, NYC OMB; Moodys Economy.com NY State & Local Government Product Deflator used to convert current dollars into constant 2000 dollars.

Figure 8.2 shows that constant dollar Hotel Tax revenues generally are in sync with the trend in economic conditions in the City. The 1987 spike, however, was due to a significant rate increase in the Hotel Tax in 1986 (see Exhibit 8.1)
Figure 8.2: Constant 2000 Dollar Hotel Tax Revenues and Real NYC Economic Growth, 1980-2009!

Online Bookings. NYC and other taxing jurisdictions maintain that OTCs should be liable for the Hotel Tax on the full retail price of the rooms that they book for customers, and not on the lesser wholesale price that they pay to the hotels. OTCs claim that they are intermediaries who should not have to collect the Hotel Tax on the difference between the wholesale and retail prices of the rooms they book online. In December 2009, a lawsuit was filed against NYC with respect to its 2009 law that holds intermediaries responsible for the Hotel Tax on the retail rate of rooms booked online. The U.S. Congress has been considering legislation that would prohibit governments from taxing the retail price of a hotel room booked online. Such a law would have a negative impact on NYC Tax revenues if hotels restructure their operations to take advantage of preferential treatment of online bookings. Endnotes
1

Sources: Index of Coincident Economic Indicators, NY Federal Reserve Board; Moodys.com NY State & Local Government Product Deflator used to convert current dollar values from NYC OMB to constant 2000 dollars.

The tax is $0.50/day on rooms rented at $10 up to $20; $1.00/day on rooms rented at $20 up to $30; $1.50/day on rooms rented at $30 up to $40; and $2.00/day on rooms rented at $40+/day. 2 An occupant cannot qualify as a permanent resident of any room for any days on which the room is sublet or resold to another occupant.

"#%!

Exhibit 8.1: Major NYS Legislative Actions Affecting the NYC Hotel Occupancy Tax, 1970-2009
Year 1970 1986 1990 1994 2009 Action NYC tax imposed on hotel rooms in the City at $0.50 to $2.00 per night based on room price. 5% tax imposed on hotel rooms in NYC in addition to $0.50-$2.00 room charge Tax rate increased to 6% with 25% of the increase in tax collections earmarked for tourism. Increase was rolled back in 1994. Proceeds from the NYC Hotel Tax have not been earmarked for visitor or tourism-related spending since then. Tax rate reduced from 6% of the room rate to 5%. Beginning March 1, 2009, tax rate increased from 5% of the room rate to 5.875%.

Source: NYC Office of Management and Budget Tax Revenue Forecasting Methodology. Financial Plan Fiscal Years 2008-2012.

"#&!

General Corporation Tax

9.0 GENERAL CORPORATION TAX 9.1 Overview ! New York City has levied the General Corporation Tax (GCT) since 1966. In FY 2009, the tax yielded $2.3 billion, accounting for 6.5% of total NYC tax collections and 3.8% of City revenues from all sources. The NYC Department of Finance collects and administers the GCT. The Citys GCT is imposed on corporations that have business activities, employ capital, own or lease property or maintain an office in the City, with certain exceptions (see Section 9.3). The GCT rate is 8.85% on income allocated to NYC. Corporations pay on one of three other bases if a higher tax will result (see Section 9.4). 9.2 Factoring in the State ! The New York City GCT is levied in addition to the NYS Corporation Franchise Tax, generally referred to as the 9A Franchise Tax. In FY 2009, the State 9A Franchise Tax yielded $2.7 billion, accounting for 4.6% of total NYS tax collections and 2.3% of total State revenues. The State tax is imposed on corporations for the privilege of exercising their corporate franchise in New York. It applies to general business corporations not taxed under another article of the States Tax Law. The tax rate is 7.1% of net income allocated to NYS unless a higher tax results on a different base (or 6.5% for qualified small business and manufacturers).1 Companies doing business in NYC and the other 7 counties in the Metropolitan Commuter Transportation District (MCTD) have two additional NYS tax liabilities. The first is a 17% surcharge calculated based on the 9% State Corporate Franchise Tax rate in effect in 1997. Although originally enacted in 1982 as a temporary tax to help finance mass transportation, the surcharge has been extended several times since then. The second additional State tax imposed on companies doing business in the MCTD is the Metropolitan Commuter Transportation Mobility Tax (MCTMT), effective for tax years beginning ! "#$! January 1, 2009. Known as the MTA Payroll Tax, the MCTMT rate is $0.34 for every $100 of payroll allocated to the District. Similar to the 17% surcharge, the MTA Payroll Tax was enacted to help finance mass transportation expenditures in the MCTD.
! The combined 15.95% NYC/NYS tax rate on corporate income exceeds that in any other U.S. city, with only Philadelphia coming close. The 17% surcharge and the MTA Payroll Tax widen the gap between NYC and other jurisdictions.

9.3 The NYC General Corporation Taxpayer As discussed above, the New York City GCT is imposed on all domestic and foreign corporations having business activities, employing capital, owning or leasing property or maintaining an office in the City, with certain exceptions. They include:
! ! Corporations subject to the NYC Banking Corporation Tax or regulated utilities subject to the Utility Tax; Corporations organized exclusively for the purpose of holding title to property and turning over net income from the property to an exempt organization; Insurance corporations; Certain limited profit housing and housing development fund companies ; Non-stock corporations organized and operated exclusively for non-profit purposes; Corporations exclusively engaged in operating vessels in interstate or foreign commerce; Certain corporations solely engaged in interstate sales solicitation activities in NYC.

! ! ! ! !

Treatment of Special Corporations S Corporations. NYC taxes corporations that make an S Corporation election as if they were regular corporations for purposes of both the GCT and the Bank Tax.2 This means that NYC residents who are elected S Corporation owners/ shareholders pay their share of the GCT or the Bank Tax, whichever is applicable, as well as the NYC Personal Income Tax on the same income stream. Following the Federal approach, NYS does not tax the business profits of S Corporations. The State does, however, tax the income received by all owners/shareholders of S Corporations through its Personal Income Tax (PIT), which is imposed regardless of place of residence of the taxpayer.
! Because the NYC Personal Income Tax applies only to residents, the City is not able to tax personal income received by nonresidents from S Corporations. NYC captures this income by taxing S Corporations in the same manner as C Corporations for purposes of the GCT, thereby subjecting its residents to double taxation.

Taxpayer Reporting Each corporation subject to the Citys GCT 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 NYC is required to file its own corporate income tax return. Under combined reporting, an affiliated group of taxpayers meeting certain capital stock ownership and unitary business tests3 could be permitted or required to file combined reports if filing on a separate basis would distort the activities, business, income or capital of the taxpayers. To determine the tax liability of the combined group, the incomes of its members are added together, i.e., combined.

Beginning in TY 2009, NYC related corporate taxpayers with substantial inter-corporate transactions must report income on a combined basis in calculating their GCT tax liability. NYC also requires combined reporting of captive REITs and RICs. Both are considered captive if they are not regularly traded on an established securities market and are more than 50% owned by a single corporation which is not exempt from the Federal Income Tax. 9.4 The New York City GCT Base In general, the NYC General Corporation Tax is computed by four (4) different methods and is paid on the one that produces the largest tax payment. For certain small corporations, the second and third methods do not apply.
(1) Entire net income base tax rate of 8.85% on net income allocated to NYC. (2) Alternative tax base tax rate of 8.85% of 15% on net income plus salaries/ compensation paid to certain shareholders minus $40,000. (3) Total capital base tax rate of 0.15% on business and investment capital allocated to NYC.4 4) A fixed dollar minimum tax which is calculated on a sliding scale ranging from $25

Limited Liability Corporations. Beginning TY 1994, the State allowed the formation of Limited Liability Corporations (LLCs). LLCs are unincorporated entities that are subject to the New York City UBT unless they elect for Federal Income Tax purposes to file as a corporation. If they do so, they must file under the City GCT. Regulated Investment Companies and Real Estate Investment Trusts. Both Regulated Investment Companies (RICs) and Real Estate Investment Trusts (REITS) are subject to the Citys GCT on the entire net income base (see Section 9.4). There is no tax on the capital of a REIT or RIC. Because the taxable income of both REITs and RICs is calculated for Federal tax purposes and for the City GCT after a deduction for dividends paid, they are generally taxed only on undistributed income. Thus, to the extent that a REIT or RIC passes through its income to its shareholders, the company pays no City GCT on that income. The dividend or distributed gains are taxed at the shareholder level. Any undistributed income is subject to the GCT. !

"#%!

to $5,000 based on taxpayer annual receipts allocated to NYC.

In addition to the tax paid under the highest of these four methods, a 0.075% tax on the taxpayers subsidiary capital allocated to NYC is also imposed. Net Income. The starting point for calculating entire net income for NYC General Corporation Tax purposes is U.S. corporate taxable income, subject to certain add-backs, subtractions and other modifications. Once these modifications are made, entire net income is divided into three categories, which are treated differently for purposes of the GCT: subsidiary5 income, business income and investment income. Subsidiary Income. Subsidiary income is not taxed by NYS or NYC for corporate income tax purposes. Other states fully tax subsidiary income if the corporate taxpayer has its headquarters in their state. New Yorks decision not to do so was made in an effort to retain and attract corporate headquarters.
! In 2008, with its 56 corporate headquarters, New York State was ranked second in the nation in the number of Fortune 500 companies headquartered in the State. With its 64 headquarters, Texas, which levies a corporate tax but no Personal Income Tax, ranked first.6

Business Income. Business income is defined as entire net income minus subsidiary and investment income. For a corporation doing business solely in NYC, business income constitutes its tax base, i.e., its taxable income. For a corporation doing business inside and outside the City, how much of its income may be taxed by the City can be determined in one of two ways: (1) by using the companys books and records7 if they accurately reflect the amount of business being done within or without NYC; or (2) by using what is called an allocation formula in NYC and NYS and an apportionment formula elsewhere.
! Until 2008, for purposes of the GCT, a corporations income was allocated based on a 3-factor formula that took into account the share of its total property, payroll and sales in the City. Each factor was equally weighted and accounted for one-third in determining the percentage of income attributable to the City. Manufacturers, however, have been permitted to double-weight the sales factor since 1996. Starting in TY 2009, the Citys 3-factor formula has been modified so that allocation for GCT taxpayers will only be based on the sales factor. The change to a 1-factor formula is being phased in over a 10-year period. Manufacturers will retain their current doubleweighted sales factor until 2011 when they will use the same allocation formula as all other taxpayers. A company will benefit or lose from the change in the formula depending on the extent of its payroll, property and sales in NYC relative to its national payroll, property and sales. Under a sales-only formula, a company with production facilities in NYC but no Citybased sales will apportion none of its corporate income to the City; a company with sales to NYC customers but no production facilities will apportion a part of its corporate income to the City.

Investment Income. Investment income is calculated as gains, losses and deductions from investment capital, i.e., investments in stocks, bonds and other securities, not held for sale in the regular course of business, excluding subsidiary capital and stock issued by the taxpayer. Regardless of whether the taxpayer is doing business within or outside NYC, it is permitted to allocate its investment income using its Investment Allocation Percentage.
! The Investment Allocation Percentage is not based on the taxpayers corporate activities but on the activities of the corporation(s) in which it has invested.

GCT Credits. Once taxable income is determined, GCT liability is calculated. Several credits are available that can be subtracted from taxable income to reduce GCT liability. These include: the Relocation and Employment Assistance Program (REAP), the Lower Manhattan Relocation and Employment Assistance Program (LMREAP), the Film Production Credit and the Biotechnology Credit.8 "#&!

9.5 The GCT in Other Jurisdictions A tax on corporate income is levied by 47 states and the District of Columbia. Nevada, Washington and Wyoming do not have state corporate income taxes. Five states give all or some local governments the option to impose a corporate income tax: New York, Kentucky, Michigan, Ohio and Pennsylvania. A few other states, such as Illinois and Colorado, permit local governments to impose alternative-based business taxes such as those on gross receipts. The few jurisdictions with local business taxes impose them at low rates. For example, in Michigan cities, the tax rate is 1%. 9.6 New York City GCT Revenue Trends In FY 2009, GCT revenues stood at $2.3 billion, a 21% decline from the $2.9 billion in 2008. Figure 9.1 shows that in current and constant dollars, GCT revenues declined in each year from 2001 through 2003 as well as in 2008 and 2009. As with all other revenue trends discussed in the Guide, audit revenues have not been included in the revenue trend analysis. Audit revenues for the GCT can, however, be substantial. For example, in 2009 GCT audit revenues stood at $486 million.
Figure 9.1: NYC General Corporation Tax Revenues, Current and Constant 2000 Dollars, 2000-2009

Figure 9.2: Constant 2000 Dollar GCT Revenues and Real NYC Economic Growth, 1980-2009

Sources: Index of Coincident Economic Indicators, NY Federal Reserve Board; Moodys.com NY State & Local Government Product Deflator used to convert current dollar values from NYC OMB to constant 2000 dollars.

9.7 History of the NYC General Corporation Tax In 1966, New York City established a General Corporation Tax to be imposed on the net income of corporations doing business in the city. Prior to 1966, the City had imposed a tax on the gross receipts of corporations. Because this tax was seen as unfair since it was not related to profitability, the City asked the State Legislature for the authority to impose a tax based on net income, rather than on gross receipts. Since 1966, many changes have been made to the GCT rate and base. These changes are shown in Exhibit 9.1. 9.8 Issues and Concerns Double Taxation. As discussed in Section 9.3, NYC treats S Corporations doing business in the City in the same manner as C Corporations for purposes of the GCT. This means that NYC residents who are owners/shareholders of S Corporations are being taxed twice on the same income stream once under the GCT and again under the NYC Personal Income Tax.
! In 2006, S Corporations accounted for 35% of total GCT liability.9 The City would thus experience a serious decline in GCT tax revenues if it were to conform to Federal and State tax treatment of S corporations. Such a change in treatment of S Corporations would also mean that non-residents would pay no NYC income taxes corporate or personal.

Sources: Current Dollars, NYC OMB; Moodys Economy.com NY State & Local Government Product Deflator used to convert current dollars into constant 2000 dollars.

Figure 9.2 shows that GCT revenues are sensitive to economic conditions in the City. This means that tax revenues generally rise and fall with fluctuations in the economy, frequently with larger changes especially when the economy is slowing down or in decline.

"#'!

Combined Reporting. In implementing the new rules related to combined reporting, the City will have to increase its efforts to address several difficult issues such as (1) defining which taxpayers comprise the unitary group for combined reporting; (2) deciding how to combine the groups income and how to treat intercompany transactions, net operating losses, credits and deductions as well as non-business income; and (3) how to apportion income.

Endnotes
1

NYS alternative bases for the 9A tax are: (1) Capital base, taxed at 0.15%, with a lower rate (0.04%) for qualified cooperative housing corporations; (2) Minimum taxable income, which is entire net income with Federal preferences added back and Federal adjustments subtracted, taxed at 1.5%; and (3) A minimum tax, ranging from $25 to $5,000, depending on NYS receipts. 2 An S Corporation is a regular corporation that has elected S Corporation status for Federal tax purposes. http://www.irs.gov/businesses/small/article/0,,id=98263,00.ht ml) 3 Unitary business means a business entity in which 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. 4 For co-operative housing corporations, the rate is .04%, not to exceed $1,000,000 for tax years beginning in or after 2009. 5 Subsidiary is defined as 50% or more of ownership by one company of another 6 http://money.cnn.com/magazines/fortune/fortune500/2009/ states/CA.html 7 Books and records refers to a separate set of books and records for the business including books of original entry and ledger accounts, both general and subsidiary, or similar records. 8 A discussion of GCT credits can be found at http://www.nycedc.com/FinancingIncentives/Financing/Docu ments/NYCEDC_BusinessIncentivesGuide.pdf 9 NYC Business Tax Report http://www.nyc.gov/html/dof/html/pdf/09pdf/bit

"#(!

Exhibit 9.1: Major NYS Legislative Changes Affecting the New York City General Corporation Tax, 1966-2009 Year 1966 1971 1973 1977 1978 1982 1987 1996 2003 Action NYC imposes GCT at a rate of 5.5% on net corporate earnings. Rate increased to 6.7%. Rate increased to 10.05%. Rate reduced to 9.5%. Rate reduced to 9.0%. NYC decouples from Federal Accelerated Cost Recovery System (ACRS). Rate reduced to 8.85%. The allocation formula for NYC manufacturers changed to double weight the sales factor. Federal legislation increased depreciation allowance. In conformity with NYS law, NYC to disallow deduction expenses for royalty and interest payments made by a firm to a related firm. The excluded payment deductions are related to expenses from the use of licenses, trademarks, copyrights, trade names and other intangible assets. Film production credit is established (in addition to credit on NYS 9A Franchise Tax). The film production credit is expanded. An Industrial Business Zone (IBZ) Relocation tax credit for eligible businesses is established. The alternative income-plus-shareholder compensation tax base and the capital tax base eliminated for certain small taxpayers. GCT minimum tax changed from $300 to a graduated minimum tax range of $25 to $5,000, based on the taxpayers annual receipts allocated to New York City. The maximum amount that can be owed under the alternative GCT measured by business and investment capital increased from $350,000 to $1 million. Taxpayers with substantial inter-corporate transactions required to file a combined return. Income allocation formula using single sales factor rather than three factors, being phased-in over 10 years, starting in 2009.

2004 2006 2007 2009

Source: NYC Office of Management and Budget Tax Revenue Forecasting Methodology. Financial Plan Fiscal Years 2008-2012

"#*!

Unincorporated Business Tax

10.0 UNINCORPORATED BUSINESS TAX 10.1 Overview ! New York City has imposed the Unincorporated Business Tax (UBT) since 1966. In FY 2009, the tax yielded $1.8 billion, accounting for 5% of NYC tax collections and 2.9% of total City revenues. The New York City Department of Finance collects and administers the UBT. NYC levies the UBT on the income of unincorporated businesses carried on wholly or partly in the City, with some exceptions (see Section 10.3). The UBT tax rate of 4% is imposed on taxable business and investment income. 10.2 Factoring in the State The State of New York does not levy a specific tax on unincorporated businesses. Effective for tax years beginning on or after January 1, 2009, however, individuals including members of partnerships and limited liability companies (LLCs) that are treated as partnerships who have annual net earnings from self-employment greater than $10,000 allocated to the Metropolitan Commuter Transportation District (MCTD) are subject to the MTA Payroll Tax. The tax rate is 0.34% of total net earnings from self-employment allocated to the MCTD for the tax year. 10.3 The NYC Unincorporated Business Taxpayer The NYC Unincorporated Business Tax is imposed on sole proprietors, partnerships and limited liability companies (LLCs) doing business in the City with certain exceptions. Exceptions include:
! ! Services performed by an individual as an employee or as an officer/director of a corporation or as a fiduciary; Persons or entities, other than dealers, who are only engaged in the purchase, holding, and sale of property for their own personal accounts (e.g., stocks, bonds or other securities);

Owners, lessees or fiduciaries who are engaged in holding, leasing or managing real property for their own accounts.

Businesses engaged primarily in qualifying investment activities are partially exempt from the UBT. Associations and publicly traded partnerships treated as corporations for Federal Corporate Income Tax purposes are subject to the NYC General Corporation Tax. 10.4 The New York City UBT Base The UBT tax is levied on business income and investment income. After taxable income is calculated for both, the tax rate of 4% is imposed on the sum of the two to determine tax liability before credits. Credits are then deducted to arrive at final tax liability. Business Income. The UBT business income calculation starts with the definition for Federal tax purposes of net profits from business operations and is modified to reflect differences between City and Federal rules. Thus modified, this income constitutes UBT business income for entities whose activities are conducted wholly in NYC. For entities whose business is conducted both inside and outside the City, business income is allocated for purposes of the UBT.
! In NYC, until 2008, income was allocated based on the taxpayers share of property, payroll and sales in the City. Each factor accounted for one-third in determining the percentage of income attributable to NYC. Manufacturers, however, have been permitted to double-weight the sales factor since 1996. Starting in Tax Year 2009, the Citys threefactor formula has been modified so that allocation for unincorporated business taxpayers will be based only on the sales factor. The change to a one-factor formula is being phased in over a 10-year period. Manufacturers will retain their current double-weighted sales factor until 2011 when they will begin to apply the same allocation formula as all other taxpayers.

"#$"!

All UBT taxpayers are permitted to exempt the first $5,000 of income from their calculation of taxable income. They are also permitted to take a deduction for the lesser of two values: (1) 20% of allocated income, or (2) $10,000 per individual/ active partner. ! Investment Income. Investment income is income derived from investment capital minus deductions allowable in computing entire net income directly or indirectly attributable to investment capital/income and a portion of the taxpayers net operating loss. Investment income for the Unincorporated Business Taxpayer is allocated to NYC using an Investment Allocation Percentage based on the allocation to NYC of the corporation(s) in which it has invested. Credits. A full credit against UBT liabilities up to $3,400 is available; the credit is phased down for UBT liabilities between $3,400 and $5,400. NYC residents may claim a credit against their City Personal Income Tax liability for a portion of UBT payments made as a sole proprietor or partner of an unincorporated business. !
! For residents with up to $42,000 in NYS taxable personal income, a 100% credit may be taken against PIT liability for the UBT payment that flows through to them. The credit against PIT liability for UBT payments phases down to 23% for taxpayers with more than $142,000 in taxable income. A corporation subject to the NYC General Corporation Tax, or a partnership subject to the UBT, is allowed a credit against tax liability for a portion of the UBT payments made as a partner of an unincorporated business.

10.5 The UBT in Other Jurisdictions New York City and Washington, D.C., are the only two jurisdictions in the U.S. to impose a specific tax on unincorporated businesses. Philadelphia does not impose a UBT, as such, but imposes a tax that explicitly targets sole proprietorships and partnerships as well as limited partnerships (LLPs) and limited liability companies (LLCs). Unincorporated businesses in Philadelphia are also subject to the Citys Business Privilege Tax. Local governments in a few other states, such as Michigan and Ohio, include the taxation of unincorporated businesses under their Business Privilege Tax. 10.6 New York City UBT Revenue Trends In FY 2009, NYC Unincorporated Business Tax revenues stood at $1.79 billion, a 3% decline over the $1.85 million in 2008. Figure 10.1 shows that in current dollars, UBT revenues increased in all but two years from 2000 to 2009. In constant 2000 dollars, revenues declined slightly in 2001, 2002 and in 2009.
Figure 10.1: NYC Unincorporated Business Tax Revenues, Current and Constant 2000 Dollars, 20002009

! !

Sources: Current Dollars, NYC OMB; Moodys Economy.com NY State & Local Government Product Deflator used to convert current dollars into constant 2000 dollars.

Other available credits against UBT liability include the Relocation and Employment Assistance Program (REAP) credit, the Lower Manhattan Relocation and Employment Assistance Program Credit (LMREAP), the Film Production Credit and the Biotechnology Credit.

Figure 10.2 shows that constant dollar UBT revenues generally follow the trend in NYC economic conditions with some lags especially when the economy is in decline.

"#$%!

Figure 10.2: Constant 2000 Dollar UBT Revenues and Real NYC Economic Growth, 1980-2009

Sources: Index of Coincident Economic Indicators, NY Federal Reserve Board; Moodys.com NY State & Local Government Product Deflator used to convert current dollar values from NYC OMB to constant 2000 dollars.

10.7 History of the NYC Unincorporated Business Tax In 1966, NYC established the UBT at a rate of 4% where it has remained. Since 1966, many legislative changes have been made to the UBT base and several credits and exemptions have been added. Many of these changes, especially those adopted in recent years, have eliminated or reduced the UBT for many unincorporated businesses. Major changes to the UBT base are shown in Exhibit 10.1.

10.8 Issues and Concerns Double Taxation. For City residents with more than $42,000 in taxable income for NYC Personal Income Tax purposes, the UBT constitutes double taxation since taxpayers pay the UBT and the PIT on the same stream of income. Uniqueness of UBT. NYC and Washington, D.C., are the only two jurisdictions in the U.S. to impose a specific tax on the income of unincorporated businesses. Philadelphia imposes a similar tax but does not call it a UBT. Non-transparency of the UBT. NYC allows for specific exemptions, deductions and credits in calculating UBT liability. While all reduce the burden of the tax, they also make it less transparent to the taxpayer.

"#$&!

Exhibit 10.1: Major NYS Legislative Actions Affecting the NYC Unincorporated Business Tax , 1966-2009
Year 1966 1971 1987 1996 Action Unincorporated Business Tax imposed at a rate of 4% on income of unincorporated businesses in the City. Attorneys, doctors, accountants and other professionals included in tax base. UBT credit increased to a maximum of $600; taxable income exemption threshold increased to $15,000 from $2,500. UBT credit increased to a maximum of $1,000 over 2 years and phase-out threshold raised to $1,000 in 1996 and to $2,000 in 1997; taxable income exemption threshold raised. Rules governing the allocation of business income revised, including the repeal of the regular place of business requirement. Broadcasters and publishers allowed income allocation based on audience location. UBT credit increased to a maximum of $1,800 and phase-out threshold raised to $3,200. Sole proprietors with net income $55,000 or less exempted from UBT. Income allocation formula of UBT amended, permitting income from management, administration or distribution services for mutual funds to be allocated based on shareholder locations. Film and television companies allowed a UBT tax credit equal to 5% of specified production costs. Several disincentives for establishing unincorporated businesses removed, including determining the location of service receipts based on the location where the service is performed instead of the office where the employee performing the service works. A $10,000 unincorporated business per partner or proprietor deduction allowed. UBT credit increased to $3,400 and phase-out threshold raised to between $3,400 and $5,400. Registered brokers and dealers required to source certain receipts based on their customers location.

1997 2000

2005

2007 2009

Source: NYC Office of Management and Budget, Tax Revenue Forecasting Methodology. Financial Plan, Fiscal Years 2008-2012.

! !

"#$'!

Banking Corporation Tax

11.0 BANKING CORPORATION TAX 11.1 Overview New York City has levied the Banking Corporation Tax, generally referred to as the Bank Tax, since 1966. In Fiscal Year 2009, the tax yielded $1.1 billion, accounting for 3.1% of total NYC tax revenues and 1.8% of City revenues from all sources. The Bank Tax is administered by the NYC Department of Finance.# The Bank Tax rate is 9% of entire net income allocated to NYC. The tax is to be paid on a different base if a higher tax liability occurs (see Section 11.4). The minimum tax to be paid is $125. 11.2 Factoring in the State The NYC Bank Tax is imposed in addition to the NYS Bank Franchise Tax. In Fiscal Year 2009, the New York State Bank Tax yielded $1.1 billion, accounting for 1.8% of total NYS tax collections and 0.9% of total State revenues. The NYS Bank Tax rate is 7.1% of entire net income allocated to the State. The tax is to be paid on a different base if a higher tax liability occurs.1 The minimum tax to be paid is $250. Similar to the General Corporation Tax, Bank Taxpayers doing business in NYC and the other 7 counties in the Metropolitan Commuter Transportation District (MCTD) have two additional tax liabilities. The first is the 17% surcharge2 calculated based on the 9% State Corporate Franchise Tax rate in effect in 1997. The second tax liability results from the Metropolitan Commuter Transportation Mobility Tax (MCTMT), effective for tax years beginning January 1, 2009. Known as the MTA Payroll Tax, the MCTMT rate is $0.34 for every $100 of payroll allocated to the District. Similar to the 17% surcharge, the MTA Payroll Tax was enacted to help finance mass transportation expenditures in the MCTD. 11.3 The NYC Bank Taxpayer The NYC Bank Tax is imposed on corporations for the privilege of doing banking business in the City.
! Banking business is generally defined as 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. ! Banking business does not apply to the occasional acquisition of a security interest in real estate or personal property located in the City, or to holding a board of directors meeting in the City.

Several types of corporations conduct banking business in NYC. They include: banking corporations, 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.
! Beginning in Tax Year 2011, credit card issuing companies with at least 1,000 customers having a mailing address in NYC will be subject to the Bank Tax, regardless of whether the banks have any physical presence in the City.

S Corporations. NYC taxes S Corporations as if they were regular C Corporations for purposes of both the NYC Bank Tax and the NYC General Corporation Tax. This means that NYC residents who are S Corporation owners/ shareholders pay their share of the Bank Tax or the GCT, whichever is applicable, as well as the NYC Personal Income Tax on the same income stream. The Federal government and New York State do not tax the business profits of S Corporations. Instead, all of its profits pass through to the owners/shareholders who report their share of profits as income for purposes of the Federal Individual Income Tax and the State Personal Income Tax. !!"!#

Taxpayer Reporting Each corporation subject to the City's Bank Tax must file an annual tax return with the NYC Department of Finance 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 legal term for connection with NYC is required to file its own Bank Tax return. Under the combined return basis, banking corporations that are members of an affiliated group of taxpayers meeting certain capital stock ownership and unitary business3 tests may be permitted or required to file on a combined reporting basis if filing on a separate basis would distort the activities, business, income or capital of the taxpayers. To determine the tax liability of the combined group, the incomes of its members are added together, i.e., combined.

(3) Taxable Assets on U.S. banks at 1/10 mills per dollar, or Capital stock base on non-U.S. banks at 2 and 6/10 mills per dollar; (4) $125 minimum tax.

(1) Entire Net Income Base. Entire net income is defined differently for U.S. banks and for foreign (non U.S.) banks. For U.S. banks, entire net income is equivalent to taxable income for Federal tax purposes with certain add-backs and subtractions. For taxable years beginning on and after January 1, 2009, banks are allowed a net operating loss (NOL) deduction, subject to certain restrictions:
! For taxpayers exempt from the Federal Corporate Income Tax but subject to the NYC Bank Tax, entire net income is what the taxpayer would have reported for Federal tax purposes but for the exemption. An example would be a Subchapter S corporation which is subject to the Bank Tax in NYC but not to the Federal Corporate Tax.

In NYC, a banking corporation may be required or permitted to file a combined return with other corporations under certain circumstances. 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 may not be included in a combined return with U.S. banks. Beginning with Tax Year 2009, captive real estate investment trusts (REIT) and captive regulated investment companies (RICs)4 must be included in a combined Bank Tax return if the business owning them is subject to the tax. 11.4 The NYC Bank Tax Base The NYC Bank Tax is computed by four different methods and is paid on whichever produces the largest tax payment.
(1) 9% on entire net income allocated to NYC; (2) 3% on alternative entire net income allocated to NYC adjusted to eliminate the effect of certain tax benefits allowed in the calculation of entire net income;

For foreign banks, entire net income is attributable to the conduct of trade or business within the U.S. subject to certain modifications. These include add-backs of dividends or interest income excluded from Federal taxable income as a result of tax treaties between the U.S. and the home country of the corporation. Defining the Bank Tax Base A banking corporation doing business inside and outside NYC is entitled to allocate its income to determine what part of its income the City may tax, i.e., its tax base. Similar to the GCT, there are two primary ways to establish how much of a Banking Corporations income the City may tax: (1) using the companys books and records if they accurately reflect the amount of business being done within or without NYC; or (2) allocation by formula. ! The allocation formula for purposes of the
Bank Tax double-weights receipts and deposits and includes 80% of the corporations payroll. Starting in Tax Year

!!"$#

2009 and phased in over the next 10 years, allocation for banking corporations that provide management, administrative or distribution services to regulated investment companies will be based on a single receipts factor. For all other Bank Taxpayers the existing formula will still be applied.#

Figure 11.1: NYC Bank Tax Revenues, Current and Constant 2000 Dollars, 2000-2009 #

(2) Alternative Net Income Base. Under the

alternative net income base, taxpayers add back certain deductions that were allowed in calculating net income. These deductions are:
! ! 17% of interest from subsidiary capital; 60% of dividend income, and gains/losses from subsidiary capital; ! 22.5% of the interest income earned from holding obligations of the U.S., NYS and localities within the State.
Sources: Current Dollars, NYC OMB; Moodys Economy.com NY State & Local Government Product Deflator used to convert current dollars into constant 2000 dollars.

(3) Taxable Assets/Capital Stock Base. For U.S. banks, the NYC Bank Tax is imposed on taxable assets allocated to the City. Taxpayer assets are defined as the average value of balance sheet assets during the tax year.
Beginning in Tax Year 2011, foreign banks will

Figure 11.2 shows that NYC Bank Tax revenues are extremely volatile, with year-over-year changes having little, if any, relationship to fluctuations in the Citys economy. This revenue volatility reflects the fact that NYC Bank Tax liabilities are as much a function of national and global conditions as local conditions. The revenue volatility also reflects the timing of bank losses and gains which is apparent in Bank Tax refunds which are more volatile than collections. The collection data shown in Figure 11.2 are net of refunds. The data also do not include collections resulting from audits which may produce substantial tax payments that occur several years after the tax year for which collections are reported.
Figure 11.2: Constant 2000 Dollar Bank Tax Revenues and Real NYC Economic Growth, 1980-2009

be taxed in the same manner as U.S. banks using assets as the tax base. They will no longer be required to compute their alternative tax based on the par value of issued common stock.# 11.5 The Bank Tax in Other Jurisdictions New York State is one of 20 states to levy a specific tax on banks instead of including them under their General Corporation Tax (GCT). Twenty-two states and the District of Columbia tax banks under their GCT. New York is one of a few states that permit one or more local governments to impose a tax on banks. 11.6 NYC Bank Tax Revenue Trends In FY 2009, NYC Bank Tax revenues stood at $1.1 billion, a 75% increase over the $628 million in 2008. Figure 11.1 shows that in current and constant dollars, NYC Bank Tax revenues increased in 6 of the 9 years between 2000 and 2009 and declined in 3 of these years: 2002, 2003 and 2008.

Sources: Index of Coincident Economic Indicators, NY Federal Reserve Board; Moodys.com NY State & Local Government Product Deflator used to convert current dollar values from NYC OMB to constant 2000 dollars.

!!"%#

11.7 History of the NYC Bank Tax The Bank Tax has been imposed since 1966. Major changes to the Bank Tax base and rate since 1966 are shown in Exhibit 11.1. 11.8 Issues and Concerns Double Taxation NYC treats S Corporations in the same manner as C Corporations for purposes of the Bank Tax and the GCT. This results in double taxation for NYC residents who are owners/shareholders of S Corporations who also are liable for the Citys Personal Income Tax (PIT). Tax Administration Credit Card Companies. Credit card companies located outside of NYC but with a large number of customers who have a NYC address will experience a substantial Bank Tax increase as a result of recent changes in the tax law. Credit card companies with a smaller proportion of card holders in NYC will have smaller increases. Taxing Financial Institutions. The difference between banks and other financial institutions has become blurred since the passage of the Federal Gramm-Leach-Bliley Act (GLBA) in 1999. GLBA repealed many of the restrictions in place since the 1930s separating banks, security firms and insurance companies. Under this legislation, financial conglomerates are now permitted, allowing banks, security firms and insurance companies to be organized in a holding company framework. A bank holding company is now permitted to be a financial holding company and to create or purchase affiliates to do security investment activities and provide insurance services. GLBA also permits bank subsidiaries to engage in some non-banking activities. For NYC 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 GCT.

The problems with the differential taxation of banks and non-bank financial services companies have led NYS to study the possibility of creating a single tax structure for financial institutions. However, no proposal has yet been put forward. Endnotes
1

Alternative tax bases for the NYS Bank Tax are (1) 3% of alternative minimum taxable income computed without regard to certain specified exclusions, (2) one-tenth of 1 mill for each dollar of taxable assets allocated to NY for institutions with a net worth exceeding 5% of total assets or (3) $250. 2 The 17% surcharge is calculated based on the 9% State Corporate Franchise Tax rate in effect in 1997. 3 The criteria used to determine whether a group of business entities are unitary generally include: unity of ownership, functional integration, centralization of management and economies of scale. 4 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.

!!"&#

Exhibit 11.1: Major NYS Legislative Actions Affecting the NYC Bank Tax, 1966-2009 !
Year 1966 1971 1974 1975 1985 Action Bank Tax imposed on commercial banks, savings banks, savings and loan associations, bank holding companies and foreign banks at 4.5% of net income. Tax rate increased to 5.63%. Tax rate increased to 6.756%. Tax rate increased to 13.823% for commercial banks and 12.124% for savings banks. Tax base broadened and separate accounting method for allocating income replaced by a three-factor formula. Tax rate reduced to 9% of net income for all banking institutions. Two new tax bases (alternative entire net income and taxable assets) established for U.S. banks. Changes made regarding the taxation of foreign banks. As a result of the Federal Gramm-Leach-Bliley Act of 1999, for purposes of NYC taxes, some banking corporations are to be taxed under the GCT and some under the Bank Tax, whichever applied to that corporation before the Act. NYC allows certain corporations that no longer meet the definition of a banking corporation to continue to pay the Banking Corporation Tax through 2010, instead of the General Corporation Tax. Beginning TY 2011, for foreign banks, assets rather than capital stock are to be used as an alternative base. Beginning in 2011, credit card companies with a specified number of customers having a NYC mailing address will be subject to the Bank Tax regardless of whether the company has any physical presence in the City. Beginning in TY2009, for banking corporations that substantially provide managerial, administrative or distributive services to investment companies, the three-factor formula (payroll, receipts and deposits) for allocating net income is changed to a single factor based on receipts, to be phased in over a 10-year period.

!!

1999 2008

2009

Source: New York City Office of Management and Budget. Tax Revenue Forecasting Documentation. Financial Plan Fiscal Years 2009-2013.

!!"'#

Utility Tax

12.0 UTILITY TAX 12.1 Overview The NYC Utility Tax (UTX) is imposed on all utilities and vendors of utility services doing business in NYC. In FY 2009, the tax yielded $398 million, accounting for 1.1% of total NYC tax collections and 0.7% of revenues from all sources. The UTX is administered by the NYC Department of Finance. The UTX is imposed on electric and natural gas utilities and on telecommunication companies whose services include wireless fiber optic and other types of transmissions. For most types of utility companies, the UTX 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. Companies doing business in NYC and the other 7 counties in the Metropolitan Commuter Transportation District (MCTD) are also liable for the Metropolitan Commuter Transportation Mobility Tax imposed at a rate of $0.34/$100 of payroll allocated to the District. 12.2 Factoring in the State The NYC Utility Tax is levied in addition to the NYS Corporation and Utilities Tax imposed on transportation and transmission companies exercising their corporate franchise in the State with certain exceptions. Most railroad and trucking companies are taxed under the NYS 9A Corporation Franchise Tax. Public utilities and waterworks, gas, electric, steam heating, lighting and power companies are subject to the 9A Corporation Franchise Tax as well as specific sections of the Corporation and Utilities Tax. Corporations conducting business in the Metropolitan Commuter Transportation District (MCTD) are subject to a 17% surcharge on the portion of the total tax liability allocable in the MCTD. In FY 2009, the NYS Corporation and Utilities Tax yielded $646 million, accounting for 1.1% of ! total State tax collections and 0.5% of revenue from all sources. Residential consumption of gas and electricity is exempt from the NYS Sales Tax and the MCTD Sales Tax surcharge. Sales of utility services to government and non-profit entities are exempt from all Sales Taxes. 12.3 The NYC Utility Taxpayer The NYC Utility Tax is imposed on utility companies subject to the supervision of the New York State Public Service Commission (PSC). Companies that derive 80% or more of their gross receipts from mobile telecommunication services but are not necessarily supervised by the PSC are also subject to the UTX. Utility service vendors are subject to the NYC Utility Tax and to the NYC General Corporation Tax (GCT) or the NYC Unincorporated Business Tax (UBT). Utility service vendors are permitted to reduce business income reported on their GCT and UBT returns by the ratio of gross operating income subject to the UTX to total gross operating income.
! Utility service vendors are not utilities themselves. They are companies that sell gas, electricity, steam, water, refrigeration or telecommunications services, or that operate omnibuses, whether or not these activities represent the vendors main business.

Utility taxes are passed along to consumers in their monthly bills. Taxes levied on telecommunications services are usually billed to, and paid by, individual consumers. For gas and electric power, in single-family homes and in most residential co-ops and condominiums, utility bills are paid by owners. In residential and non-residential rental buildings, gas and electric bills may be sent to individual tenants, but are usually sent to the landlord. Residential landlords are barred by law from making a profit on the resale of electricity and gas; commercial building owners are not. "#$"!

In residential buildings in which individual tenants do not contract directly with utility companies, landlords contract with them and resell to tenants based on usage measured by sub-meters. When utilities are sub-metered, their charges are paid in addition to the rent. Under rent inclusion, the tenant pays a fixed charge based on expected usage. In non-residential buildings, few offices are individually metered. Owners generally bill individual tenants based on their square footage and usage.

the tax is imposed on users of telephone, gas and electricity services and is used exclusively to fund the Police Department. 12.6 NYC Utility Tax Revenue Trends In FY 2009, NYC Utility Tax revenues stood at $398 million, a 1.5% increase over the $392 million in 2008. Figure 12.1 shows that in current dollars, revenues increased in 6 of the 9 years from 2000 to 2009, and declined in 3 years: 2002, 2004 and 2007. In constant dollars, they declined in the same 3 years and in 2009.
Figure 12.1: NYC Utility Tax Revenues, Current and Constant 2000 Dollars, 2000-2009

12.4 The NYC Utility Tax Base The NYC Utility Tax base derives from the tax imposed on all utilities and vendors of utility services doing business in the City. It is computed by applying the prescribed tax rate to the utility companys gross receipts from services provided in the City. Major NYC Utility Taxpayers are Consolidated Edison Company of N.Y., Inc. (Con Ed), NationalGrid USA, both suppliers of electric power, and Verizon New York, Inc., a telecommunications provider. 12.5 The Utility Tax in Other Jurisdictions Utility companies are taxed in just about every state by either the state government, by one or more local governments, or by both state and local government. Many states tax utility profits under their general corporation tax or franchise tax and may levy additional taxes based upon gross receipts. For electric utilities, a few states impose a tax based upon kilowatt hours of electricity generated. At the local level, utility taxes take more varied forms in structure and/or use. For example, in Kentucky, local school districts impose an Occupational License Tax, an Excise Tax and/or a Utility Gross Receipts License Tax on utilities providing services and/or cable and direct broadcast satellite services within the district. In California, cities are permitted to impose a Utility User Tax on the consumption of utility services either as a special tax or earmarked for a specific purpose determined by the city council. In Detroit, !

Sources: Current Dollars, NYC OMB; Moodys Economy.com NY State & Local Government Product Deflator used to convert current dollars into constant 2000 dollars.

Figure 12.2 shows that constant dollar UTX revenues generally follow long term trends in the NYC economy, but with some deviations specific to the tax. For example, the large decline in collections during the 1980s is due to the extensive credits allowed against UTX liability (see Exhibit 12.1).
Figure 12.2: Constant 2000 Dollar Utility Tax Revenues and Real NYC Economic Growth, 1980-2009

Sources: Index of Coincident Economic Indicators, NY Federal Reserve Board; Moodys.com NY State & Local Government Product Deflator used to convert current dollar values from NYC OMB to constant 2000 dollars.

"#$#!

12.7 History of the NYC Utility Tax A tax on utilities was first imposed by NYC in 1933. Major changes were made to the tax in 1965. Changes since then are shown in Exhibit 12.1. 12.8 Issues and Concerns ! Issues relating to the UTX generally stem from the deregulation of utilities, especially for companies supplying telecommunications services and electric power. Before deregulation, utilities were permitted to operate only within specific service territories, and customers could purchase telecommunications services and electric power only from their local regulated utilities. Deregulation has changed the marketplace so that government tax policies can have a major effect on economic development. Cheaper telecommunications services and power in other parts of the region and nation may become an increasingly important issue for the Citys competitive position, especially for industries dependent on telecommunications and/or electric power. Combined NYC/NYS utility taxes contribute to the Citys ranking at the top end of utility costs in the U.S. Because deregulation is blurring the lines between the traditionally regulated companies and other utility providers, the distinction between NYCs General Corporation Taxpayers and UTX payers may also become more problematic.

"#$%!

Exhibit 12.1: Major NYS Legislative Actions Affecting the NYC Utility Tax, 1965-2000 Year Action 1965 NYC imposes tax on utility companies subject to the supervision of NYS Public Service Commission and on vendors of utility services at a rate of 2% of gross receipts. 1966 Tax rate increased to 2.35% of gross receipts. 1985 Energy Cost Savings Program (ESCP) initiated, giving rebates on electric and natural gas charges to eligible nonresidential users located in Brooklyn, The Bronx, Queens, Staten Island and Manhattan north of 96th Street. Utility companies give the rebate and are compensated for forgone revenue through a credit against the Citys UTX. Full benefits are allowed for 8 years, followed by a 4-year phase-out. Initial rebates set at 30% of electric charges and 20% of natural gas charges. 1995 Lower Manhattan Energy Program (LMEP) grants rebates on electricity and gas charges to eligible commercial tenants south of Murray Street in Manhattan who have improved their buildings by at least 20% of assessed value. A full benefit is allowed for 8 years, followed by a 4-year phase-out. 1997 Effective January 1, 1998, the definition of telephone or telegraph services subject to the City Utility Tax broadened to include telecommunication services including directory information, call forwarding and call waiting. 2000 ESCP and LMEP programs revised, applying rebates solely on utility delivery charges, only.
Source: New York City Office of Management and Budget. Tax Revenue Forecasting Documentation. Financial Plan Fiscal Years 2009-2013.

"#$&!

Other Taxes

13.0 OTHER TAXES In addition to the 12 taxes previously described, NYC levies another 7 taxes/surcharges, which together generated $118 million in FY 2009, accounting for 0.3% of total NYC tax revenues and 0.2% of City revenues from all sources. Each of these taxes is briefly described below. Also described are the Fire Premiums Tax and the Telecommunications Surcharge, which are not included in the overall tax revenue totals used throughout the Guide. Revenues from these two sources are dedicated to either the Fire Department or the Police Department. 13.1 Auto-Related Taxes Commercial Motor Vehicle Tax. NYC has levied a Commercial Motor Vehicle Tax (CMVT) since 1960. In FY 2009, the tax generated $47.7 million, accounting for 0.1% of total NYC tax revenues and 0.08% of City revenues from all sources. The CMVT is administered by the NYC Department of Finance but is collected on certain types of vehicles by the State Department of Motor Vehicles. The Citys CMVT is imposed on vehicles used for passenger transportation and on all other commercial vehicles such as delivery trucks, earth-moving equipment and forklifts that travel on public highways in NYC. The tax is imposed at different annual rates, depending on the purpose for which the vehicle is used.
! ! ! $1,000 for medallion taxicabs $400 for other for-hire passenger vehicles including livery cabs and omnibuses $40-$300 for other commercial vehicles depending on weight.

The Auto Use Tax is imposed on NYC residents who own or lease a passenger motor vehicle in the City. Certain auto owners including disabled veterans, Federal, State and local governments, foreign consulates/ diplomats, the United Nations and non-profit organizations are exempt from the tax. Taxi Medallion Transfer Tax. NYC has imposed a tax on the Transfer of Taxi Medallions (Licenses) since 1980. In FY 2009, the tax generated $11.3 million, accounting for 0.03% of total NYC tax revenues and 0.02% of City revenues from all sources. The tax is collected by the NYC Taxi and Limousine Commission. The Taxi Medallion Transfer Tax is imposed at a rate of 5% of the transfer price of a taxi medallion or the transfer of a controlling economic interest in a taxi license. Buyers are liable for the tax, but if they do not pay it, the seller is liable. ! 13.2 Excise Taxes Beer and Liquor Excise Tax. NYC has imposed the Beer and Liquor Excise Tax since 1980. In FY 2009, the tax generated $23.5 million, accounting for 0.07% of total NYC tax revenues and 0.04% of City revenues from all sources. The tax is administered by the NYS Department of Taxation and Finance. The tax is imposed on the sale of beer and liquor by licensed distributors and non-commercial importers located in NYC. The tax rate is $0.12 per gallon of beer and $0.264 per liter of liquor with alcohol content greater than 24%. The City does not tax wine. Retail Beer, Wine and Liquor License Tax. NYC has imposed the Liquor License Surcharge since 1980. In FY 2009, it generated $4.8 million, accounting for 0.01% of total NYC tax revenues and less than 0.01% of City revenues from all sources. The tax is administered by the NYC Department of Finance. The Liquor License Surcharge is imposed for the privilege of selling liquor, wine or beer at retail in

Auto Use Tax. NYC has imposed a $15 Auto Use Tax since 1974. In FY 2009, the tax generated $27.7 million, accounting for 0.08% of total NYC tax revenues and 0.05% of City revenues from all sources. The tax is administered by the NYC Department of Finance but collected by the NYS Department of Motor Vehicles when a vehicle is registered.

"#$"!

NYC at a rate of 25% of the license fees payable under the State Alcoholic Beverage Control Law. Horse Race Admissions Tax. NYC has levied an admission tax on all patrons of horse races since 1952. In FY 2009, the tax generated $0.03 million, accounting for less than one-tenth of 1% of total NYC tax revenues and City revenues from all sources. The tax is administered by the NYC Department of Finance. The tax rate is 3% of the admission price for all admissions to horse races held wholly or partly in NYC. The tax is added to the admission price and collected from patrons when the ticket is purchased. Off-Track Betting Surcharge. NYC has imposed the Off-Track Betting (OTB) Surcharge since 1974. In FY 2009, the tax generated $3.6 million, accounting for 0.01% of total NYC tax revenues and less than 0.01% of City revenues from all sources. The tax is administered by the NYC OffTrack Betting Corporation (OTB), a public benefit corporation controlled by the State. The 5% OTB Surtax is levied on bets placed at NYC Off-Track Betting offices, and on most bets placed Statewide on races held in NYC. E-911 Surcharge for Telecommunications Providers. NYC has imposed a surcharge on telecommuni- cations providers since 1991 and on wireless devices since 2002. In FY 2009, the tax generated $37 million, which is included as part of the Citys Police Department budget. The NYC tax is imposed in addition to the $1.20 per device surcharge imposed by the State. The surcharge of $1.00/telephone access line per month is imposed on customers of every telephone service supplier in NYC. Wireless/Cell Phone Surcharge. A surcharge of $.30 per month is imposed on every wireless communication device whose place of primary use is within NYC. Users of wireless telecommunications service pay the surcharge to service providers who remit it to the City. In FY 2009, the surcharge generated $21 million, which !

is included as part of the Citys Police Department budget.! The surcharge is used to pay for the design, construction, operation, maintenance and administration of public safety communication networks serving NYC. Voice over Internet Protocol (VoIP) Surcharge.! Effective July 2010, Voice over Internet Protocol (VoIP) providers are required to collect a $1.00 monthly E-911 surcharge. ! Fire Premiums Tax. NYC has imposed a tax on fire insurance premiums on policies written by non-NYS (foreign) and non-U.S. (alien) insurers since 1968. In FY 2009, the tax generated $27.6 million. It is administered by the NYC Department of Finance and dedicated to the Fire Department.

"#$%!

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 Colleges 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 Moodys 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 Womens 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 countrys 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 Kochs principal advisor on economic matters as the City began its recovery from its financial crisis. In addition, Mr. Solomon served as Chairman of New Yorks 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 departments 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.