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PR- 247-09
June 1, 2009


Proposals Require Albany Approval and would Eliminate or Reduce Unincorporated Business Tax on Small Businesses

Shift to Single Sales Factor would Encourage Companies to Locate or Remain in New York City

Changes would Reduce Tax Burden for 44,000 Local Businesses to Create Jobs and Grow the City's Economy

Mayor Michael R. Bloomberg and City Council Speaker Christine C. Quinn today announced an agreement on a package of proposed new revenue enhancements to help balance the Fiscal Year (FY) 2010 Budget. The changes in City tax policy, all of which need to be approved by the State legislature and signed into law by Governor, would produce approximately $887 million in new revenue for the FY 2010 budget.

The agreement proposes a series of revenue enhancements: an increase of 0.5% in the City Sales Tax, a repeal of the Clothing Tax Exemption for clothing items priced over $110, applying the full City Sales Tax to electric and natural gas customers that purchase energy from non-utility companies and a tax conformity package, which includes loophole closers, that will bring City tax policy more in line with State policy.  The conformity package will produce immediate new revenue but will also reduce taxes on 27,000 business headquartered in New York City by moving to a Single Sales Factor of taxation and eliminate or reduce the Unincorporated Business Tax for 17,000 unincorporated small businesses. The Mayor proposed the FY 2010 Executive Budget on May 1st and the Mayor's Office has been working with the City Council since then to finalize an on-time, balanced budget for the eighth consecutive year.

"With tax revenues down $5 billion, the economic crisis provided us with only a menu of onerous options to balance the City's budget," said Mayor Bloomberg. "We've aggressively cut spending while maintaining the core services needed to keep our City moving forward. And we've used billions prudently saved during the boom years to help balance this year's budget but unfortunately that is not enough and additional revenue has to be raised to help address a multi-billion dollar budget gap.  While we have been forced to make some unpopular choices, this package has a silver lining - significant tax relief for 44,000 local businesses that will help create and retain jobs for New Yorkers and grow the City's economy. After a lot of collaborative work with the City Council, we now need the State legislature to act quickly."

"Today's revenue package will both ensure that we can balance the budget in the short-term while making our City more competitive in the long-term," said Speaker Christine C. Quinn.  "Keeping the tax exemption on clothing and footwear for purchases under $110 dollars will make sure that families aren't taxed on necessities.  Switching to a Single Sales Factor will encourage more companies to create jobs here and lead to greater diversification of our economy.  And ending the unfair double taxation on freelancers and small businesses with incomes up to $150,000 will keep more money in the pockets of New Yorkers at a time when they really need it.  This year, there were no perfect options.  But this agreement will balance the budget and create job opportunities for New Yorkers."

"I understand these are tough times, but in order to avoid layoffs and cuts that would affect city services, we need to take action to raise additional funds," said Finance Committee Chair David Weprin.  "This agreement preserves the sales tax exemption on clothing under $110 and eliminates the fee on plastic bags - two proposals that will help New Yorkers through difficult financial times."

I. Tax Conformity Proposals
The full conformity proposal would generate $167 million in new revenue in FY 2010. Both Mayor Bloomberg and Speaker Quinn have championed reform to the City tax code. In his State of the City address, Mayor Bloomberg proposed a modernization and simplification of the City's business taxes to align City tax laws with those in other states, close loopholes, and end unnecessary tax burdens that can stifle the creation of new jobs. In October of 2008, Speaker Quinn proposed a new tax structure that would incorporate a Single Sales Factor in speech before the Citizens Budget Commission. The tax conformity package proposed in the agreement announced today meets those shared goals and mirrors action taken by the State two years ago.  The conformity package would provide near-term budget relief, but the proposal is revenue neutral over the course of approximately 12 years, as 44,000 local businesses will pay reduced taxes. In addition, the conformity package will reduce the administrative burden on taxpayers, lessening the need for some separate New York City calculations.

Single Sales Factor
Single Sales Factor is a tax policy change that will encourage companies to keep jobs and capital in New York City. Currently, New York City's General Corporation Tax uses a three-factor formula - property, payroll, and receipts/sales - for multi-jurisdictional companies to determine how much of a company's income is taxable in New York City.  This formula creates a tax disincentive for some businesses to locate or remain headquartered in New York City. The conformity package proposes to move to a Single Sales Factor, where only company sales are used to determine a company's taxable income in New York City, significantly reducing the tax burden on businesses headquartered locally. More than 27,000 New York City businesses will pay reduced taxes under the change, saving a combined $2.7 billion while the change is phased in over the next ten years.

Eliminate or Reduce the Unincorporated Business Tax
The Unincorporated Business Tax double-taxes thousands of businesses, and discourages recently laid-off New Yorkers from freelance work or starting their own businesses.  The conformity package proposes to eliminate the Unincorporated Business Tax for businesses with incomes of less than $100,000 and reduce the tax for businesses making up to $150,000.  The change would eliminate the tax for the approximately 11,000 unincorporated small businesses and reduce the tax for 6,000 other unincorporated small businesses, for a combined savings of $25 million annually for those small businesses.

Closing Loopholes
The conformity package will align New York City tax policy with New York State to close a series of tax loopholes that benefit primarily larger companies not headquartered in New York City.

II. Sales Tax Increase and Clothing Tax Exemption
An increase in the City's portion of the sales tax from 4.0% to 4.5% would generate $518 million in FY 2010. A repeal of the sales tax exemption on the purchase of clothing items priced at $110 or higher would generate $119 million in FY 2010.

III. Sales Tax on Energy Purchases from Non-Utility Companies
In 2000, a new state law allowed all energy customers to have the option of purchasing energy commodity supply from non-utility companies, apart from their energy delivery which is still provided by a local utility company - Con Edison or Keypsan/National Grid. The law created a sales tax exemption for a portion of the energy bill for customers that chose non-utility companies for energy commodity supply. The agreement proposes to apply full City sales tax to these energy customers, who are primarily large, commercial customers. The change would generate $83 million in new revenue in FY 2010.


Stu Loeser/ Marc La Vorgna   (212) 788-2958

Jamie McShane / Andrew Doba (Speaker)   (212) 788-7116

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