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May 22, 2013


First thoughts on “Tax-Free NY”

E.J. McMahon

The one promising new wrinkle in the upstate economic development plan unveiled today by Governor Andrew Cuomo is the offer of full (if impermanent) exemptions from state business and personal income taxes, as well as sales taxes, to firms that expand into designated Tax Free Zones at colleges, universities and “strategically located state-owned” properties. That’s a broader and potentially more attractive incentive than the array of targeted tax credits the state offered in the past, while avoiding some of the more egregious abuses of the now-defunct Empire Zones program.

However, it’ll take much more than this plan to give upstate the jolt it needs.  In the final analysis, highly touted “economic development” programs built on a promise of significant tax relief ultimately beg the same question: if our taxes are such a hindrance to growth, why not reduce them for everyone?

A more daring approach, for example, would be to simply phase out the state corporate franchise tax entirely throughout the 50-county upstate region, for all businesses operating there, whether new or existing.  Cuomo could make a sizable down payment on such an approach by canceling the recent multi-year extension of an $440 million annual state tax subsidy giveaway to film and TV producers.  As things now stand, the governor and Legislature are still taking baby steps towards phasing out corporate income taxes solely for manufacturing firms–which, thanks to state investment credits, already tend to pay at a reduced rate. (Manufacturing “production inputs” already qualify for broad sales tax exemption in New York.)

The idea of the new initiative is to replicate the partnership between the private Sematech consortium and the College of Nanoscale Science and Engineering at the State University at Albany. But that project also was the recipient of massive and concentrated taxpayer subsidies, which are not part of this initiative–and should not be.

For now, we’re still talking about relatively small areas: 57 upstate SUNY campuses, plus up to 200,000 square feet of adjoining area (a little less than five acres) at each campus. Private universities could be eligible for designation as partners in tax-free zones totaling 3 million square feet, which equates to 68 acres for all of upstate New York.

Sure, the “tax free” promise should be enough to entice some firms into partnerships with some colleges and universities.  But given the reams of red tape that will necessarily apply to projects in one of these relatively small zones, including the requirement that each project be tied to the “mission” of the college or university involved, the initiative is highly unlikely to generate growth on a game-changing scale.

The program will be open to “companies with a relationship to the academic mission of the university, new businesses, out-of-state businesses that relocate to New York, startups and existing businesses that expand their New York operations while maintaining their existing jobs.” Existing, taxpaying New York competitors of such companies won’t be cheering.

In a press release, Cuomo’s office touts the initiatives as “continu[ing]  the Governor’s work to reverse New York State’s reputation as the “tax capital” of the nation.”  The release goes on:

Since taking office, the Governor has cut middle class tax rates to their lowest rates in 60 years, enacted the state’s first-ever property tax cap, eliminated or greatly reduced the MTA payroll tax for nearly 300,000 small businesses, and provided middle class families with a child tax credit.

Yes, you read that right: they actually implied that the $350 pre-election check-in-mailbox gimmick is going to help reverse New York’s high-tax reputation.

Unfortunately, as far as the state’s image is concerned, it’ll take a lot more than the white noise of today’s announcement to drown out the negative signal sent to entrepreneurs by the tax-hike extenders in New York’s recently enacted 2013-14 budget, not to mention the impending minimum wage increase.

Filed under: Economy, Uncategorized

7 Comments »

  1. Interesting read! I talked w/you @ Accelerate Upstate in Buffalo. Q: did the Manhattan Institute/Empire Center know about this beforehand? News was pretty much under wraps (more so than usual) prior to today’s press events, and I’m wondering if Cuomo worked with or reached out to anyone on this idea other than his tightly knit inner circle–? Do you think Bruce Katz/Brookings was involved in this?

    Comment by RaChaCha — May 22, 2013 @ 4:59 pm

  2. 2. Reply to previous comment: if you mean, was anyone I know asked for advice or consulted during the development of this idea, the answer is “no.” I have no idea who else they talked to.

    Comment by mcmahon — May 22, 2013 @ 5:08 pm

  3. So one of NY’s most prominent think tanks, particularly on tax issues, wasn’t asked — even once — for its views or input on this policy. Wow.

    Comment by RaChaCha — May 23, 2013 @ 8:42 am

  4. If I owned vacant industrial tax paying property near these campus’ I wouldn’t be too happy.

    Comment by nick ohnell — May 23, 2013 @ 1:23 pm

  5. We fabricate steel for manufacturing, buildings, bridges and rebar for highways.

    In the last 10 years, or so, we have had three new competitors appear in this area who were receiving all these tax exemptions while we were paying $hundreds of thousands of dollars in taxes.

    There is not one new building, one additional mile of highway, or one additonal pound of steel being purchased by our customers due to the appearance of these three new competitors. Same demand now shared by 8 suppliers instead of 5.

    We now have 25 fewer employees, and we are the only one paying taxes.

    Comment by Peter Hess — May 24, 2013 @ 10:03 am

  6. This announcement convinced me that this administration is really only interested in press, with minimal or no real progress. I have been a member of the WNY REDC for almost 2 years and resigned on Thursday. While the WNY strategic plan has a large component of regulatory reform and improvements in government efficiency, the council’s focus has been exclusively on awarding billions of dollars to select projects. Without fixing the structural issues within government and the many quasi government agencies and authorities, this approach is ineffective. What is needed to fix NY’s problems is hard work over many years and painful decisions must be made. In the short term this is a thankless job, and there is little positive press in this, but there is probably a place in the history books for those who are able to get it done.

    Atlas may need to shrug..

    Comment by Duncan Ross — May 25, 2013 @ 7:56 am

  7. A question: Is it allowable constitutionally or otherwise to exempt an employee of a business locating in these zones from paying income taxes when any similar employee outside the zones performing the same work must pay income taxes? This is not like a tax credit or other mechanism but a direct exemption from what should be a uniform state tax code.

    Comment by Rus Sykes — May 31, 2013 @ 10:09 am

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