New York Governor Cuomo’s “New York State Tax Reform and Fairness Commission” has submitted its final report of recommendations for changes to the State’s tax system and administration. N.Y.S. Tax Reform & Fairness Comm’n, Final Report (Nov. 11, 2013). The recommendations – presented as a menu of options for the Governor to consider – are thoughtful and potentially far-reaching. Most of the reform options would require legislation. If substantially enacted, the reforms would represent the most significant overhaul of the New York tax system in decades.


The Commission was announced in early 2012, and the Governor appointed the ten members in late 2012, chaired by H. Carl McCall (formerly the New York State Comptroller and now chair of the State make “revenue-neutral” recommendations to improve the current State tax system. The Commission’s recommendations are divided into five “packages”:

  1. Sales Tax Reform

The Commission has concluded that the sales tax law is both outdated in its scope and regressive in its impact on New Yorkers. It proposes several sales tax “options,” some of which are driven by a large broadening of the sales tax base:

  • Under one option, the sales tax exemption for clothing and footwear costing less than $110 would be repealed. The resulting surplus revenues would permit what the report describes as “targeted tax relief” to low and middle income families through enhanced income tax credits or some form of real property tax relief.
  • Another option would be driven by an expansion of the sales tax base to include digital products not currently subject to New York sales tax (such as music streaming services, eBooks and video on demand services), along with the elimination of several sales tax exemptions that the Commission refers to as “outdated.”
  • Although not a “recommendation,” the Commission suggests that the various exemptions applicable at the State level, but not in certain localities, be studied and reconsidered. The Commission acknowledges that many of these options would be controversial because they would remove exemptions that have been in place since the State sales tax was enacted in 1965. This would include, for example, subjecting to sales tax certain personal services, dry cleaning and laundry services, and Broadway arts and movie admissions.
  1. Estate and Gift Tax Reform

The Commission proposes a “package of revenue neutral reforms” that includes:

  • Increasing the current New York State estate tax exemption from $1 million to $3 million, to provide less of an incentive for New York residents to move to states without an estate tax.
  • Reinstating the New York gift tax, which was repealed in 2000.
  1. Corporate Tax Reform

The Commission concludes that New York’s method for taxing corporations and banking institutions – which has not been significantly changed in more than 25 years – needs to be reformed. The Commission has used as a starting point a corporate tax reform proposal made by the Department as part of an ongoing working group initiative. With the benefits of the Department’s prior work, the Commission’s recommendations in this area are the most detailed, and include the following:

  • Merging the bank tax (Article 32) into the corporate franchise tax (Article 9-A).
  • Adopting customer sourcing rules for the single receipts factor.
  • Adopting full “Water’s Edge” unitary combined filing, and permitting a corporate taxpayer to make a binding 7-year election to include in its combined return all non-unitary members where a 50% ownership test is satisfied.
  • Adopting economic nexus.
  • Eliminating the long-standing concept of “subsidiary income” (which currently is not taxable) and limiting the scope of investment income treatment.
  • Scaling back the investment tax credit for manufacturing, completely repealing the investment tax credit for the financial services industry, and allowing the Brownfield Tax Credit program to sunset in 2015.
  1. Real Property Tax Administration

Focusing on improving the administration of the real property tax system outside New York City, the Commission concludes that there is a need for greater uniformity among the localities, including establishing “clear statutory assessment standards,” and standards for the frequency of assessments. The Commission’s recommendations in this area are the most general.

  1. Tax  Simplification

Finally, the Commission’s report contains a laundry list of options to simplify tax compliance and improve the efficiency of State tax administration. Among its many suggestions are the following:

  • Repeal of the stock transfer tax (which has been completely refundable since 1981, and has served no discernible purpose since 2008 when the New York City Municipal Assistance Corporation bonds that it secured were retired).
  • Repeal of the corporate organization tax (on New York corporations) and license fee (on out-of-State corporations).
  • Establish a 14-day “safe harbor” before a nonresident individual working in the State becomes subject to New York State personal income tax, other than for athletes and entertainers (there is currently a State audit policy containing 14-day safe harbor for employer withholding liability, but it does not relieve the employee from liability).
  • Repeal local gross receipts taxes and school district sales taxes (but not the New York City utility tax), to be replaced with an increased State gross receipts tax, the increased revenues from which would be distributed to the localities. Alternatively, local telecommunications gross receipts taxes would be repealed, but local gross receipts taxes on energy increased.

Additional Insights

The scope of the Commission’s recommendations is very extensive, and the recommendations do not lend themselves to quick analysis. It is reasonable to expect that at least some of the Commission’s recommendations will make their way into the Governor’s Budget Bill for FY 2014-15. Although presented as “revenue neutral,” the Commission cautions that its revenue estimates are “inevitably uncertain.” A New York State Tax Relief Commission, separately established by the Governor in October 2013 (and comprised of some of the same members that are on the Tax Reform Commission), will be making its own recommendations for reducing State property tax and business taxes by December 6, 2013.