SECTION TWO
RECEIPTS

EXECUTIVE SUMMARY

Introduction

The General Fund is the State's main fund. Receipts deposited into this fund are used to pay for the majority of the State's operations and local assistance. The following analysis includes Lottery receipts, since these receipts are also used together with the General Fund to supplement education spending. In a subsequent analysis, we will discuss taxes that are dedicated to special purposes.

Two Year Forecast Shows Modest Increase in Receipts

Over the next two fiscal years, the Assembly Ways and Means Committee Staff projects that there will be continued growth in General Fund and Lottery receipts. The strength of Wall Street, and continued moderate expansion of the rest of the economy is evident in the State's revenue structure through extraordinary growth in both Personal and Corporate Income Taxes. The Committee Staff projects that General Fund and Lottery receipts will total $35,066 million in State Fiscal Year 1996-97, an increase of $817 million or 2.4 percent over State Fiscal Year 1995-96. The Committee Staff estimate is $562 million higher than the Executive's estimate for State Fiscal Year 1996-97. This higher estimate is reflective of a belief that the economy has performed better than stated by the Executive and continued healthy growth in receipts in the time following the preparation of the Executive receipts projection.

The Committee Staff projects that General Fund and Lottery receipts will total $35,953 million in State Fiscal Year 1997-98, an increase of $887 million or 2.5 percent over State Fiscal Year 1996-97. The Committee Staff estimate is $1,462 million higher than the Executive's estimate for State Fiscal Year 1997-98. Again, the difference is largely a reflection of the stronger economic projection modeling of the Committee Staff and the strong pattern of collections in State Fiscal Year 1996-97.

For the first ten months of the current fiscal year, aggregate receipts have exceeded the annual expectations presented in the July Financial Plan and the Executive's Mid-Year Update. General Fund and Lottery receipts were projected to grow at a modest 2.5 percent when the Executive released the Mid-Year Update. Instead, year-to-date receipt growth exceeds 4.9 percent. However, two Executive policy decisions totaling $1.3 billion will dramatically lower the reported growth in State Fiscal Year 1996-97 receipts. In December, the Governor decided to implement the new withholding tables for the 1997 Personal Income Tax reduction on January 1, 1997, rather than on April 1, 1997, which will reduce current year Personal Income Tax receipts by $250 million. The Governor, as part of his Executive Budget, also decided to accelerate (or to create reserves for the payment of) $1,051 million in refunds on 1996 Personal Income Tax liability. The acceleration or creation of reserves for refunds used or set aside this current fiscal year will increase State Fiscal Year 1997-98 receipts by a like amount.

The overall two-year difference in the Committee Staff forecast of $2,024 million from the Executive is the result of more fully incorporating the financial gains of Wall Street activity and increasing bonus income. The Committee Staff also projects a stable economy, coupled with low inflation, which will continue to support strong wage and capital gains growth. In addition, the continuation of strong growth in corporate profits will lead to higher projections in the Business Tax receipts.

The Committee Staff forecast for State Fiscal Year 1997-98 also incorporates the Governor's proposed tax cut program.

Strong Economic Performance Drives Growth in Receipts

The New York State economy is unique in that it is home to the world's financial capital, New York City. Wall Street's performance in 1996 was remarkable. A year ago, few prognosticators expected Wall Street to out perform 1995, but it has. Since the New York economy is buoyed by strong growth in the financial markets, tax collections have grown in conjunction with strong growth in bonus income, corporate profits, and financial market activity.

Personal Income Tax collections receive the lion's share of the benefits from financial gains made on Wall Street, as they are disbursed through bonus payments and capital gains realization. So when Wall Street does well, New York receipts get a boost even if Main Street only shows moderate growth. Personal Income Tax collections which exceeded projections last year, are on target to exceed the enacted Financial Plan projections again this year. Underlying growth in Withholding and Estimated Payments has grown significantly as a result of increasing bonuses, capital gains, and stock market activity. Since forecasters often use past patterns to estimate receipts, years with extraordinary growth will typically have forecasts that understate underlying receipts.

As can be seen in Figure 19, bonus payments are an overwhelmingly and increasingly important component of withholding receipts in recent years. The growth in bonus payments contributed significantly to a $455 million surplus last year and an anticipated $1.3 billion surplus this year.

Bonus payments have historically been paid in the last quarter of the calendar year, and the first quarter of the following year. As a result, one can see seasonal spikes in withholding receipts during the months of December, January, and February. Figure 19 displays the Committee Staff estimate for quarterly bonus payments, and the corresponding relationship to withholding collections. Seasonal spikes are evident in withholding collections and display the strong correlation between bonuses and withholding.

Another component of the Personal Income Tax which is strongly affected by the economy is estimated payments. Under certain circumstances, taxpayers are required to make quarterly payments on their estimated tax liability. Traditionally, these taxpayers have been classified as high income earners, or people who realize significant capital gains during any given tax year.

As can be seen in Figure 20, years that produced strong growth in capital gains resulted in corresponding growth in estimated payments. In other words, as capital gains are realized, taxpayers will make installment payments on estimated tax liability associated with their income gain.

The Committee Staff forecast for capital gains growth in 1995 and 1996 is 21.0 percent and 29.0 percent, respectively. This growth has translated into higher than anticipated estimated payment collections over the last two fiscal years. In 1996 alone, the number of estimated payments made increased by over 7.0 percent. The Committee Staff forecast expects growth in capital gains to continue into 1997, albeit at the lower rate of 12.7 percent. This, in turn, will produce higher estimated payment collections in State Fiscal Year 1997-98.

Wall Street Performance Changes Receipt Outlook

The continued success of Wall Street in 1996 led to several revisions in the forecast of receipts for State Fiscal Year 1996-97. Previous forecasts have underestimated the magnitude of the impact that the financial sector has on tax receipts. Serious weight should be given to the State Fiscal Year 1996-97 experience, in order to avoid repeating this underestimation in future years.

This improving economic outlook, mostly due to the unanticipated Wall Street gain, caused the Executive to revise expectations of receipts upward several times in State Fiscal Year 1996-97. As can be seen in Table 14, the Executive's re-estimation of receipts total $2,176 million.

In December 1995, the Executive submitted a budget which called for a significant decline in General Fund receipts of 3.8 percent for State Fiscal Year 1996-97. Subsequently, in February 1996, the Ways and Means Committee Staff Report projected a modest amount of improvement over the Executive Budget forecast for State Fiscal Year 1996-97, calling for a decrease of 2.9 percent, rather than the 3.8 percent decline. The basis for the improvement was a brighter overall outlook for the economy.

From the time the Committee Staff released its revenue projections in February 1996, until final agreement on the 1996-97 Financial Plan was reached, many factors substantially altered the outlook for receipts in State Fiscal Year 1996-97.

Higher than Anticipated Receipts in Fiscal Year 1995-96

As State Fiscal Year 1995-96 came to a close, it was determined that the State would experience a surplus as a result of greater than anticipated receipts and reduced spending. This surplus was rolled into the next fiscal year, increasing State Fiscal Year 1996-97 receipts by $220 million.

Legislative Actions

In the process of negotiating the 1996-97 Executive Budget, various measures were enacted that both positively and negatively affected tax receipts. One action which increased receipts was a temporary three-month tax amnesty program which is estimated to raise $110 million. Several other actions which raised the projection for Miscellaneous Receipts by approximately $680 million included a one time transfer of surplus receipts in the Medical Malpractice Insurance pool, workers compensation reform, and transfers from certain special revenue funds. Partially offsetting these increases were various tax reductions totaling $83 million.

Economic Outlook

Growth in both the National and State economies also contributed to the upward revision in the State Fiscal Year 1996-97 receipts forecast. When the Committee Staff released its Revenue Report in February 1996, the report called for wage growth of 4.5 percent, growth in personal income of 4.7 percent and employment growth of 0.3 percent.

These economic factors are closely tied to receipts, and all were revised upward in the July 1996 Financial Plan. The July update was based on wage growth of 5.2 percent and personal income growth of 5.0 percent.

With the completion of the first six months of State Fiscal Year 1996-97, the Executive released its Mid-Year Update, which stated that the July 1996 Financial Plan receipts were underestimated by $420 million, and that State Fiscal Year 1996-97 receipts were expected to show growth of 2.5 percent over State Fiscal Year 1995-96. The bulk of this increase fell within the Personal Income Tax.

Strength in the financial markets was the main factor driving the upward revision. It is clear that 1996 is a banner year for the financial industry and Wall Street. Employment in the securities industry is at a record level. The record number of mergers and acquisitions completed last year and strong initial public offerings generated record levels of security industry profits. Since these employees earn high wages and receive strong bonuses, their contribution to Personal Income Tax collections is significant.

In January 1997, the Executive released its prediction for State Fiscal Year 1996-97 receipts. The Executive estimated that receipts would exceed the Mid-Year Update by an additional $566 million. This estimate was then increased to $688 million under the Executive's 30-Day Amendments. While the July Financial Plan receipts estimates were based on wage growth of 5.2 percent and personal income growth of 5.0 percent, the Executive significantly revised its economic outlook for New York, resulting in higher receipts projections. The Executive's now estimates fiscal year wage growth to reach 6.1 percent. A modest revision was also made increasing personal income growth to 5.1 percent.

Since receipts were exceeding expectations, the Executive administratively decided to take actions which will have the effect of reducing overall State Fiscal Year 1996-97 receipts. Therefore, the additional $688 million in receipts will not be attributed to State Fiscal Year 1996-97, but will be transferred to State Fiscal Year 1997-98 through the use of the refund reserve. These actions include:

Accelerating the Implementation of the 1997 Withholding Tables

The decision was made by the Executive to issue the new withholding tables for the 1997 Personal Income Tax reduction on January 1, 1997, rather than April 1, 1997. Accelerating the implementation had the effect of reducing State Fiscal Year 1996-97 receipts by $250 million.

Refunds

The Executive also decided to accelerate the payment of (or to create reserves for the payment of) $1,051 million in Personal Income Tax refunds associated with tax year 1996. This also had the effect of reducing overall receipts.

Absent these actions, the Executive's receipt growth for State Fiscal Year 1996-97 would have reached in excess of 4 percent over State Fiscal Year 1995-96.

Tax Reductions Mask Healthy Underlying Growth

The national economy continues to exhibit momentum and Wall Street activity continues at a very strong pace. The Committee Staff projects growth in 1996 will enable the General Fund to overcome the effect of over $2.5 billion in scheduled tax reductions in State Fiscal Year 1996-97, leading to a positive growth in collections of 2.4 percent.

As can be seen in Figure 22, State Fiscal Year 1997-98 will see tax cuts similar in magnitude to the current fiscal year. Another $2 billion in tax cuts in State Fiscal Year 1997-98 will cause receipts to increase by only 2.5 percent.

The Governor's proposed Executive Budget contains additional multi-year tax reductions that begin in State Fiscal Year 1997-98. At the center of the program is a property tax reduction proposal which includes an exemption from school district real property taxes. In order to hold the school districts harmless, the Governor's proposal would pick up the $1.8 billion cost over four years. The first year cost is estimated to total $118 million, which the Executive proposes to finance through a dedication of the Personal Income Tax.

Other tax reductions include a reduction in Estate Tax liability over a three-year period to the level of the maximum allowable federal credit (a "SOP" Tax). This is expected to reduce receipts by $10 million in State Fiscal Year 1997-98 and by $374 million when fully implemented.

As indicated in Figure 23, projected receipts show growth of 2.4 percent in State Fiscal Year 1996-97 and 2.5 percent in State Fiscal Year 1997-98. But tax law and administrative changes mask the underlying growth in receipts. Adjustments can be made to reveal the underlying growth, however. After adjusting for these factors, the responsiveness of receipts to the economy in the two-year estimating period can be seen. The Committee Staff estimates underlying growth in General Fund receipts for State Fiscal Year 1996-97 to be in excess of 9 percent. Underlying growth in State Fiscal Year 1997-98 General Fund receipts is estimated to be 6.2 percent. This reflects Committee Staff expectations for continued growth in New York's economy, especially those parts of the economy closely tied to Wall Street.

REVENUE ANALYSIS

State Fiscal Year 1996-97

General Fund and Lottery receipts are projected to total $35,066 million, which represents a growth of 2.4 percent, or $817 million, over State Fiscal Year 1995-96. The Committee Staff growth is found in the areas of Personal Income Tax, Sales Tax, Corporate Franchise Tax and Miscellaneous Receipts. The three areas of tax growth are a reflection of the economy and are partially reduced by the effects of tax cuts enacted over the past three years.

Strength in the financial markets and anticipated growth in bonus income are two of the main factors driving the growth in withholding. Strong capital gains growth, which is reflected in higher estimated payments, accounts for the remainder of the anticipated growth in the Personal Income Tax. The Committee Staff estimates that Personal Income Tax receipts will grow by $392 million, or 2.3 percent, over State Fiscal Year 1995-96.

Sales Tax receipts are expected to grow at a healthy 5.0 percent, or $250 million, over State Fiscal Year 1995-96. Strong consumer confidence levels and increased consumption of consumer durables have contributed substantially to this growth.

Growth in Business Tax receipts is significantly higher than expected through the first ten months of the current fiscal year. Strong growth in corporate earnings and stronger than anticipated growth in energy consumption have led the Committee Staff to estimate that overall Business Taxes will only decline slightly over last year's levels. This decline can mainly be attributed to scheduled tax reductions in the Business Tax Surcharge and increased dedication from the Petroleum Business Tax, which offset the underlying growth in Business Tax receipts.

The Committee Staff estimates that growth in Other Taxes will decline only slightly over last year, even after accounting for the repeal of the Real Property Gains Tax and additional dedication of the Real Estate Transfer Tax. Estate Tax receipts during the first ten months of the year were higher than expected, due to the receipt of large Estate Tax payments and the effects of a strong stock market.

The strong growth of 52.3 percent in Miscellaneous Receipts can be attributed to a number of one time revenue actions which will occur in State Fiscal Year 1996-97. These transactions include, among other things, a transfer of $481 million from the Medical Malpractice Insurance Association, $98 million from Workers' Compensation reform, and $100 million from funds previously deposited into certain special revenue accounts.

The Committee Staff estimate for State Fiscal Year 1996-97 is $562 million, or 1.6 percent, above the Executive. The largest difference is due to the Personal Income Tax, which in turn reflects very strong bonus payments and strong capital gains activity.

State Fiscal Year 1997-98

The Committee Staff forecasts that State Fiscal Year 1997-98 General Fund and Lottery receipts will total $35,953 million, an increase of $887 million, or 2.5 percent, over State Fiscal Year 1996-97. The projected increase is primarily due to the transfer of surplus funds from State Fiscal Year 1996-97 to State Fiscal Year 1997-98. This transaction, which occurs through the use of the refund reserve will have the effect of increasing receipts by $880 million. If the effects of the refund reserve are excluded, General Fund taxes are forecast to decline by 1.3 percent. This decline can be attributed to further tax reductions scheduled to occur in State Fiscal Year 1997-98, including the final phase of the Personal Income Tax reduction plan.

Personal Income Tax receipts are forecast to decline by 2.7 percent over State Fiscal Year 1996-97. This decline is largely the result of income tax reductions, which are expected to reduce receipts by $1.9 billion. Absent these tax law changes, Personal Income Tax receipts would be expected to grow in excess of 6.0 percent. This is consistent with estimated wage growth in New York and the Committee Staff forecast for moderate growth in bonus and capital gains income.

When the refund reserve transaction of $880 million is included within the Personal Income Tax, receipts are forecast to increase by over 8.2 percent.

Expectations for continued consumer confidence and growth in employment will allow for continued growth in the Sales Tax of 3.9 percent. In addition, the incorporation of the Governor's proposed increase in Department of Motor Vehicle fees will result in 3.9 percent overall growth in User Taxes and Fees. This growth is higher than the 2.7 percent growth anticipated for State Fiscal Year 1996-97, largely due to the Governor's proposed fee increases.

With the final phase of the 1994 Business Tax reductions completed, Business Tax receipts, with the exception of the Bank Tax and the Petroleum Business Tax, are expected to stabilize. Continued growth in corporate profits of 6.0 percent will result in a positive growth of 1.1 percent in the Corporate Franchise Tax. Extraordinarily large Bank Tax audits, which occurred in State Fiscal Year 1996-97, are not expected to reoccur in State Fiscal Year 1997-98. In addition, tax reductions and the diversion of receipts to special revenue funds will substantially reduce Petroleum Business Tax receipts.

Other Taxes are forecast to decline by 18.8 percent. This is mainly the result of the repeal of the Real Property Gains Tax and additional dedication of the Real Estate Transfer Tax to pay debt service on the 1996 Clean Air/Clean Water Bond Act.

Lottery receipts are projected to grow at a slower rate of 3.4 percent over State Fiscal Year 1996-97 estimated receipts. This slower growth is based on the maturity of existing games and decreasing sales of Lotto tickets at low jackpot levels.

The large decline in Miscellaneous Receipts is attributable to a number of one-time revenue actions which occurred in State Fiscal Year 1996-97 that are not anticipated to reoccur in State Fiscal Year 1997-98.

When receipts are adjusted for the effects of additional tax reductions, increased dedication to special revenue funds, and the rollover of funds from State Fiscal Year 1996-97, the underlying revenue growth associated with the economy is projected to be 5.6 percent in State Fiscal Year 1997-98.

ALL FUNDS FORECAST

New York State Tax Revenues

Chapter 309 of the Laws of 1996 established an annual revenue consensus forecasting process to be completed by March tenth of each year. The Executive and the Legislature agreed that the process would include an analysis based on All Funds taxes, Lottery and General Fund Miscellaneous Receipts. In past years, Staff reports were focused on a receipts analysis based only on the General Fund. Lottery was also included because its receipts are used to supplement education spending. This section will present the All Funds tax receipts forecasts, which will include Non-General Fund taxes, for purposes of participating in a consensus revenue forecast.

The concept of All Funds taxes, which is the basis for most of the Executive's Financial Plan, consists of four major fund types: the General Fund, Special Revenue Funds, Capital Project Funds, and Debt Service Funds. The General Fund is used to pay the majority of the State's day-to-day operations and disbursements to local governments. Debt Service, Capital Projects, and Special Revenue Funds are used to earmark funds for specific purposes.

In State Fiscal Year 1996-97, the Committee Staff projects General Fund and Lottery receipts to total $35,066 million, representing growth of 2.4 percent, or $817 million, over State Fiscal Year 1995-96. In State Fiscal Year 1997-98, the Committee Staff forecast that General Fund and Lottery receipts will total $35,953 million, representing growth of 2.5 percent, or $887 million over State Fiscal Year 1996-97.

On an All Funds basis, the Committee Staff projects State Fiscal Year 1996-97 tax receipts will grow by 2.3 percent to a total of $34,696 million. Non-General Fund taxes are projected to total $4,087 million, reflecting growth of 7.0 percent, or $269 million, over State Fiscal Year 1995-96. This growth is due, in part, to an additional $53 million being dedicated to the Environmental Protection Fund. Total receipt collections for the Consensus Revenue forecast is projected to total $37,523 million, reflecting 3.1 percent growth, or $1,136 million, over State Fiscal Year 1995-96.

In State Fiscal Year 1997-98, the Committee Staff forecasts All Funds taxes to total $34,689 million, which is $7 million less than State Fiscal Year 1996-97. However, Non-General Fund taxes are forecast to total $4,476 million, reflecting growth of 9.5 percent, or $389 million, over State Fiscal Year 1996-97. This apparent extraordinary growth is largely due to the proposed dedication of General Fund receipts to specific programmatic purposes. The Governor has proposed a Real Property Tax cut program to be funded by the State. To fund the first year of the program, $118 million of Personal Income Tax receipts are dedicated to the Special Revenue Fund to reimburse school districts for lost tax revenues. In addition, the General Fund will no longer receive funds from the Real Estate Transfer Tax, since $117 million will be transferred to the Debt Service fund pursuant to the Environmental Bond Act. Total receipts for the Consensus Revenue forecast are estimated to total $38,696 million, representing 3.1 percent growth. This growth is partially due to the use of $880 million from the refund reserve account.

Non-General Fund receipts have been steadily growing since State Fiscal Year 1991. Policy choices made in the early 1990's earmarked increased General Fund taxes for public expenditures in transportation. The Petroleum Business Tax, the Regional Business Surcharge, the Motor Fuel Tax and Motor Vehicle Fees and Taxes are amongst those so dedicated. Taxes were also dedicated in order to support the State's debt service payments. For example, portions of the Sales Tax are earmarked to pay debt service on the State's Local Government Assistance corporation bonds which permitted the elimination of the annual Spring borrowing. Beginning this year, all of the Real Estate Transfer Tax will be dedicated to either the Environmental Protection Fund or the Environmental Bond Act debt service payments. Revenues in excess of those needed to pay debt service will flow back to the General Fund.

Federal Grants and Non-General Fund Miscellaneous Receipts are not part of the Consensus Revenue process. Therefore, they are not included as part of this report.

EXECUTIVE REVENUE ACTIONS

Revenue Preservation Proposals

The Executive proposes to extend the temporary Metropolitan Transportation Authority (MTA) tax surcharge of 17 percent for four years. The temporary MTA surcharge is imposed on business activity in the New York Metropolitan Commuter Transportation District. Currently, the surcharge expired on December 31, 1996, except for Section 189-a which is due to expire June 30, 1997.

The Executive proposes to make permanent the assessments on health care providers.

The Executive proposes to extend for one year out-of-state simulcasting of harness races and thoroughbred racing when New York Racing Association (NYRA) is not running. In addition, it delays for one year any restrictions on the simulcasting of out-of-state races.

The Executive proposes to make permanent current enforcement provisions which provide for higher fines for the bootlegging of liquor. These enforcement provisions are due to expire in November, 1997.

The Executive proposes to extend the current Bank Tax provisions for the four year period ending on December 31, 2000.

The Executive proposes to make permanent the crime victims assistance fee, as well as the payment of mandatory vehicle and traffic surcharges. These revenues are deposited in the Criminal Justice Improvement Account, a Special Revenue Account which supports crime victims-related activities. These provisions of law are set to expire on November 1, 1997.

Fees/Revenue Increases

Department of Corrections (Statutorily)

The Executive proposes to impose a $50 fee on the filing of lawsuits by inmates. If the lawsuit is successful, the filing fee is returned.

Department of Civil Service (Administratively)

The Executive proposes to increase the candidate fee for open competitive civil service examinations. The fees were last adjusted in 1989 and would increase about 50 percent, although the revenues derived from the fees would increase about 40 percent. The fees would range between $16 and $31, depending on the level of the exam.

The revenues are used to offset the State's cost of developing and administering competitive examinations.

Department of Environmental Conservation (Statutorily)

The Executive proposes to double the current registration fees for petroleum storage tanks. Current fees have not been increased since 1985 and average $27 per tank; the national average is $62 per tank. Revenues are deposited into the Oil Spill Fund and, together with other revenues, support the State's costs in inspecting tanks and cleaning oil spills.

The Executive proposes to increase permit fees on stationary sources of air pollution. The revenues are deposited in the Clean Air Fund.

Department of Health (Statutorily)

The Executive proposes to increase various fees to permit improved oversight of the funeral industry and fully support licensing activities from a new Special Revenue account.

The Executive proposes to impose a fee of $80 on medical residents in training at New York hospitals. The fees support the monitoring of medical graduate education required by Federal law.

The Executive proposes to increase the overall rates for hospitals to 1 percent and home care facilities to 0.95 percent.

Department of Motor Vehicles (Statutorily)

The Executive proposes to replace the current weight-based passenger car registration fee with an annual flat fee of $30 dollars, and a one-time surcharge of $15 on new luxury cars with a manufacturer's suggested retail price of $34,000 or more. The revenue would be split between the General Fund ($21 million) and the Bridge and Highway Trust Fund ($5 million).

The Executive proposes to conform the period of original licenses to the five-year duration between renewals, which began in 1996. The annual fee does not increase, although customers will pay for five years instead of four at the time of application for a license.

The Executive proposes to cease the refund of all or part of the second year of registration. Under current law, in cases where a motorist no longer needs a registration after the first year of the two-year registration period, the motorist may receive a prorated refund during that second year. The benefit is $11.2 million to the General Fund and $2.8 million to the Bridge and Highway Trust Fund.

Department of Motor Vehicles (Administratively)

The Executive proposes to increase, on April 1, 1997, the photo image fee from $2.25 to $3.00, to cover the costs paid to the vendor who will provide better service through the use of new technology.

The Executive proposes to impose a charge of $5.50, starting October 1, 1997, for new license plates. The last license reissuance began in 1986; many of the existing license plates have exceeded their useful life.

The Executive proposes to centralize and automate the renewal process of licenses and vehicle registrations within the Department, from County Clerks.

Department of Parks, Recreation & Historic Preservation (Statutorily)

The Executive proposes to double boat registration fees; the current range of fees of $9 to $30 would increase from $20 to $60. The fees are triennial and were last increased in 1987. By law, 75 percent of boat registration fees are used to reimburse counties for up to 75 percent of the eligible costs of their navigation law enforcement.

Department of Parks, Recreation & Historic Preservation (Administratively)

The Executive proposes to increase golf fees at most downstate and Long Island courses and at selected upstate courses. The new fees, reflecting increases from 15 to 25 percent, are priced competitively with private courses.

Public Employment Relations Board (Statutorily)

The Executive proposes to impose a fee for the costs of providing impartial fact-finders to parties involved in a public sector labor dispute. PERB now provides this service gratis to public employers and unions.

Department of State (Statutorily)

The Executive proposes to expand the type and levels of expedited services available to businesses, with additional fees for the new services. The fees are set at $75 for "same day expedited handling" and $150 for "two hour priority handling".

Revenue Reduction Proposals

The Executive proposes to make permanent the current sales tax exemption on the purchase of alternative fuel motor vehicles. The current exemption is set to expire on August 31, 1997.

Article XV

The Executive proposes to repeal Article 15 of the Tax Law, which imposes a transfer tax on certain motor vehicle damage insurance awards. This tax is scheduled to become effective November 30, 1997.

The Executive proposes, over a three year period, to change the Estate Tax from a tax calculated pursuant to a statutory rate table to a tax equal to the Federal Credit for State Death Taxes paid (a "SOP" tax). In conjunction with this, the Executive proposes to repeal the Gift Tax, and eliminate the fees paid to the Surrogates Courts for filing a copy of the Estate Tax return with the Court. When the proposal is fully effective, the Executive projects a revenue loss from the repeal of the Gift Tax of $86 million, and a loss from the revisions to the Estate Tax of $275 million. In addition, the repeal of the current fee for filing a duplicate Estate Tax return with the Surrogate Court will reduce revenues by $13 million.

Life Insurance Tax Liability Cap and Rate Reduction

In the 30-Day Amendments, the Executive proposes to include a reduction of life insurance companies liability cap to 2.0 percent, a reduction in their premium tax rate to 0.7 percent, and an increase in their March estimate payment to 40 percent.

TAX ANALYSIS

Personal Income Tax

Article 22 of the Tax Law imposes a tax on New York income of individuals, estates and trusts. Tax collections are received through employee withholding, estimated tax payments, payments accompanying tax returns, late payments and assessments.

General Description

Personal Income Tax (PIT) receipts contribute over one-half of all receipts to the General Fund. Withholding is the single largest component, comprising roughly 80 percent of gross Personal Income Tax receipts.

New York's definition of income closely mirrors federal rules, which include wages, salaries, capital gains, unemployment compensation, interest and dividend income. The sum of these sources is Federal Adjusted Gross Income. New York Adjusted Gross Income (NYAGI) is calculated starting with this base, from which certain income is added or subtracted to arrive at New York adjusted gross income.

The New York standard deduction or itemized deductions, and a dependent exemption claimed are subtracted from NYAGI, which yields New York taxable income. Taxes are calculated based on this amount. Certain credits are then subtracted from the calculated tax to determine total tax liability.

General Fund

The Committee Staff estimates that State Fiscal Year 1996-97 receipts will total $16,914 million, which reflects a decrease of 0.5 percent from State Fiscal Year 1995-96. This comparison includes the Refund Reserve transaction, an administrative adjustment used to transfer General Fund surpluses from one fiscal year to the next.

The largest component of the Personal Income Tax is withholding. Employers withhold tax from wages based on the estimated liability of each employee. Receipts from withholding also include tax withheld on bonus payments paid to employees.

Withholding receipts are projected to total $14,955 million. This represents a decline of 2.1 percent over State Fiscal Year 1995-96 withholding receipts. This decline is attributable to the implementation of the second phase of the tax reduction plan. In addition, withholding receipts were artificially lowered this year by the decision of the Executive to implement the 1997 withholding tables three months earlier than initially planned. Absent these factors, withholding receipts would have grown by over 9.0 percent, which is consistent with the Committee Staff forecast for growth in wages of 6.5 percent.

Estimated payment collections are projected to total $3,857 million. This represents a large increase of 18.4 percent. Estimated payments consist of quarterly payments made by certain taxpayers on their estimated tax liability. These taxpayers historically have consisted of high income earners, or people who realize significant capital gains. The strong performance of the financial markets in 1996, leading to high capital gains growth, is primarily responsible for the increase in estimated payments. Consistent with this strong growth is the Committee Staff forecast for capital gains growth of 29.0 percent in 1996.

The Committee Staff estimates that Personal Income Tax collections, under current law, will total $18,304 million in State Fiscal Year 1997-98. This estimate is $1,100 million higher than the Executive.

Withholding receipts are projected to decline slightly to $14,865 million in State Fiscal Year 1997-98. The Committee Staff forecast for wage growth of 5.6 percent, coupled with a smaller impact of the tax reduction on withholding next fiscal year, will allow withholding to decline by only 0.6 percent. Excluding reductions due to law changes, the Committee Staff estimates a 6.8 percent increase in withholding. This underlying growth is consistent with estimated wage growth of 5.6 percent in State Fiscal Year 1997-98, and slower growth in bonus payments.

The Committee Staff forecasts modest growth of 4.0 percent in estimated payments. The performance of the financial markets is expected to remain favorable, resulting in modest increases in capital gains. The Committee Staff estimates growth in capital gains to exceed 12.0 percent in 1997.

All Funds

In the 1997-98 Executive Budget, the Governor proposes to dedicate $118 million of the Personal Income Tax receipt to the School Tax Relief (STAR) Fund.

Recent Administrative Actions Affecting Revenue Collections

The decision by the Executive to accelerate the withholding tables for the 1997 tax reduction on January 1, 1997, rather than April 1, 1997, will reduce the current Fiscal Year receipts by $250 million. State Fiscal Year 1996-97 receipts will also be reduced by the decision to accelerate the payment of (or to create reserves for the payment of) $1,051 million in Personal Income Tax refunds associated with tax year 1996.

Recent Legislative History

In 1996, the Legislature enhanced the Child Dependent Care Credit by increasing the credit to 30 percent of the Federal Credit in 1996, and to 60 percent in 1997, for taxpayers with income less than $10,000. The credit is phased down to 20 percent for taxpayers with income greater than $14,000. The credit was also made refundable.

A tax amnesty program was also established in 1996, which was provided to taxpayers with outstanding liability for tax years up to and including 1994. Penalties, but not interest, will be waived. The program, which applies to the three month period beginning November 1, 1996 through January 31, 1997, is expected by the Executive to increase revenues by $65 million.

In 1995, the Legislature enacted a 3-year Personal Income Tax reduction plan. This legislation:

• Reduced the top rate from 7.875 percent in 1994 to 6.85 percent in 1997;
• Accelerated the increase in the Earned Income Tax Credit (EITC) for 1996 to a fully phased-in level of 20 percent of the Federal credit;
• Reduced the EITC in 1996, and every year thereafter, by the amount of the Household Credit used by the taxpayer;
• Introduced an Excess Deductions Credit for 1995 only, to ensure that middle income itemizers will not experience a tax increase due to the change from the 5-bracket to the 4-bracket structure;
• Maintained the scheduled increases in the standard deduction from $9,500 for married couples filing jointly in 1994 to $13,000 in 1997.

Sales Tax

The Sales and Compensating Use Tax, Article 28 of the Tax Law, is a broad-based consumption tax levied on the sale of tangible personal property, excluding items such as food and products used in manufacturing. The tax is also imposed on a limited number of services. The State Sales Tax rate is 4.0 percent.

General Fund

The Committee Staff estimate for Sales Tax in State Fiscal Year 1996-97 is $5,245 million. This represents growth of $250 million, or 5.0 percent, over the State Fiscal Year 1995-96 General Fund collections. This estimate takes into account strong retail sales (including durable goods orders), employment and wage growth, and high levels of consumer confidence.

The Committee Staff forecast for State Fiscal Year 1997-98 is $5,448 million, which represents growth of $203 million, or 3.9 percent. This estimate is based on continued strength in the retail sector, including durable goods orders, moderate gains in employment, continued strong wage growth and the maintenance of high levels of consumer confidence. This estimate is $51 million higher than the Executive.

All Funds

The All Funds category is comprised of the General Fund, the Local Government Assistance Tax Fund, and the Metropolitan Transportation Operating Assistance Fund (MTOAF). The Committee Staff estimates for the All Funds for State Fiscal Year 1996-97 and State Fiscal Year 1997-98 are $7,282 and $7,563 million, respectively. One percent of the State Sales Tax is dedicated to pay for debt service of the Local Government Assistance Corporation, which was created to eliminate the annual Spring Borrowing. In 1981, MTOAF was created to help finance State public transportation. Part of its revenues are derived from the 0.25 percent Sales Tax that is imposed in the Metropolitan Commuter Transportation District. In State Fiscal Year 1996-97, the Committee Staff estimates that $289 million will be deposited in MTOAF and $299 million will be deposited in State Fiscal Year 1997-98.

Recent Legislative History

In 1996, the Legislature authorized a one-week period, from January 18, 1997 through January 24, 1997, in which items of clothing and footwear costing less than $500 per item were exempt from the State Sales Tax. A one-time revenue loss of $20 million is expected in the fourth quarter collections.

A tax amnesty program was also established in 1996, which was provided to taxpayers with outstanding liability for tax years up to and including 1994. Penalties, but not interest, will be waived. The program, which applies to the three month period beginning November 1, 1996 through January 31, 1997, is expected by the Executive to increases revenues by $20 million.

In addition, various Sales Tax exemptions and modifications were enacted. Among those exemptions were the following:

all promotional materials and related services;

shopping papers, provided the advertising does not exceed 90 percent of a page on average;

municipality owned and operated parking services; and

purchases of commercial vessels and aircraft used to transport property in the course of business.

In addition, lumber materialmen, who have an annual Sales Tax liability of less than $3 million, were exempted from mandatory enrollment in the Electronic Funds Transfer program.

The total estimated loss from these provisions in State Fiscal Year 1996-97 is $1.0 million. The total estimated loss for State Fiscal Year 1997-98 is $27.0 million.

Motor Fuel Tax

Article 12-A of the Tax Law imposes a tax upon motor fuel sold within the State. It applies to motor fuel imported, manufactured or sold within the state by a distributor. Beginning on September 1, 1988, the tax applies to the first sale or use of diesel. The current tax rate is 8 cents per gallon for both motor fuel and diesel motor fuel.

General Fund

The Committee Staff estimate for State Fiscal Year 1996-97 is $158 million, a decrease of 9.2 percent. The decline is mainly due to the diesel motor fuel rate reduction from 10 to 8 cents per gallon, which reduced receipts by $12 million. This estimate is $2 million below the Executive.

The Committee Staff forecast for State Fiscal Year 1997-98 is $158 million, representing zero growth over State Fiscal Year 1996-97. The Committee Staff forecast is $3 million below the Executive.

All Funds

The Committee staff estimates All Funds receipts of $472 million for State Fiscal Year 1996-97. The Emergency Highway Construction and Reconstruction Fund, the Emergency Highway Reconditioning and Preservation Fund and the Dedicated Highway and Bridge Trust Fund will receive $314 million. For State Fiscal Year 1997-98, the Highway Funds will receive $312 million, resulting in an All Funds forecast of $470 million.

Recent Legislative History

The tax on diesel motor fuel was reduced by 2 cents per gallon, effective January 1, 1996.

Cigarette Tax

The Cigarette Tax , Article 20 of the Tax Law, is levied at a rate of 56 cents per package of 20 cigarettes on the sale or use of cigarettes within the State.

The State levies a tax on all other tobacco products equal to 20 percent of the wholesale price of such products. In addition, there is an annual license fee of $100 for all retail establishments, and $25 for every vending machine that sells cigarette and/or tobacco products. Currently, there are 27,000 licensed retailers and over 8,000 vending machines in New York State.

General Fund

The Committee Staff projects Cigarette Tax receipts in State Fiscal Year 1996-97 to total $669 million, a decline of 3.5 percent. This decline is due, in part, to the decreased consumption as a result of increasing health concerns related to the use of tobacco products, and semi-annual price increases by manufacturers. This estimate is $4 million higher than the Executive.

The Committee Staff forecasts revenues of $658 million in State Fiscal Year 1997-98, which represents a 1.5 percent decline. Further State and Federal restrictions on cigarette advertising and expanded public health laws will aid the continuing decline. This forecast is $3 million higher than the Executive.

Recent Legislative History

Chapter 629 of the Laws of 1996 enacted strict Cigarette and Tobacco Tax enforcement measures, which are aimed at curbing the sale of bootlegged cigarettes in New York State. The increased enforcement provisions are estimated to increase State Fiscal Year 1996-97 revenues by $10 million.

For State Fiscal Year 1997-98, the Executive proposes to increase the fee for retail licenses from $100 to $200 per year to fund a new "Tobacco Enforcement and Education Account." This increase is expected to generate an additional $2.6 million in State Fiscal Year 1997-98.

Motor Vehicle Fees

Revenue from Motor Vehicle Fees comes from over 50 different license, registration, service, and penalty receipts. Passenger and commercial vehicle registrations, and licensing fees are the largest components.

General Fund

Committee Staff projects Motor Vehicle Fees receipts to total $459 million in State Fiscal Year 1996-97, representing a 1.1 percent decrease. This reflects the final phase of the increased dedication of registration receipts to the Dedicated Highway and Bridge Trust Fund.

The Committee Staff forecast for State Fiscal Year 1997-98 is $543 million, which represents an 18.3 percent increase. Administrative actions (re-issuance of license plates, assumption of workload performed by county clerks and photo id fee increases) are included in the proposed law forecast, for a total of $24.5 million.

Moreover, under proposed law, the forecast incorporates the following actions:

• flat registration fee of $30 dollars per passenger vehicle;
• surcharge of $15 dollars on new luxury vehicles;
• five-year term for original driver licenses; and
• cessation of registration refunds.

All Funds

The Dedicated Highway and Bridge Trust Fund is projected to receive $69 million in State Fiscal Year 1996-97 and $73 million in State Fiscal Year 1997-98, under current law, and $81 million in State Fiscal Year 1997-98 under proposed law. All Funds receipts total $528 million in State Fiscal Year 1996-97 and $582 million in State Fiscal Year 1997-98, under current law. Under proposed law, All Funds receipts in State Fiscal Year 1997-98 are estimated to total $624 million.

Recent Legislative Changes

Twenty percent of registration fees have been earmarked to the Dedicated Highway and Bridge Trust Fund since January 1, 1996. Prior to 1996, this dedication was 17 percent.

Alcoholic Beverage Tax

New York State, through Article 18 of the Tax Law, currently imposes a tax on various Alcoholic Beverages, including beer, wine and other spirits. The tax rate varies depending on the alcohol content.

General Fund

The Committee Staff estimate for State Fiscal Year 1996-97 is $194 million. This estimate, which represents a decline of 1.9 percent, is $4 million higher than the Executive.

The Committee Staff forecast for State Fiscal Year 1997-98 is $182 million, a decline of 6.2 percent. This is $5 million higher than the Executive. Legislation submitted with the Executive Budget will permanently extend certain enforcement measures, and will preserve $1 million in State Fiscal Year 1997-98 revenues.

Recent Legislative History

In 1996, legislation was enacted to require alcohol distributors with an annual tax liability of more than $5 million to remit payment by means of Electronic Funds Transfer. The program is estimated to generate $6 million in State Fiscal Year 1996-97.

On January 1, 1996, the State excise tax on beer was reduced from 21 cents to 16 cents per gallon.

Alcoholic Beverage Fees

Distillers, brewers, wholesalers, retailers and others who sell alcoholic beverages in New York State are required by Articles 4, 4-A, 5, and 6 of the Alcoholic Beverage Control Law to be licensed by the State Liquor Authority. Currently, 2,700 retail outlets and 20,100 bars and restaurants are licensed.

The fees vary, but most licenses are issued for a three-year period.

General Fund

The Committee Staff estimates receipts will total $28 million in State Fiscal Year 1996-97, a decline of 9.7 percent. This estimate is $1 million higher than the Executive.

The Committee Staff forecast for State Fiscal Year 1997-98 is $29 million, which represents an increase of 3.6 percent. This estimate is the same as the Executive.

Other Funds

A certain portion of Alcoholic Beverage Fees are dedicated to the Alcoholic Beverage Enhancement Account. For State Fiscal Years 1996-97 and 1997-98, $2.4 million will be deposited into this account.

Highway Use Tax

Article 21 of the Tax Law imposes a Highway Use Tax for the privilege of operating any vehicle upon the highways of New York State. Three taxes are imposed upon the operation of trucks, tractors, trailers and semi-trailers:

1. Highway Use Tax (Truck Mileage Tax),

2. Supplemental Highway Use Tax,

3. Additional Highway Use Tax (Fuel Use Tax).

General Fund

All Highway Use Tax receipts are dedicated to the Dedicated Highway and Bridge Trust Fund.

All Funds

The Committee Staff estimates that receipts in State Fiscal Year 1996-97 will total $146 million, a $24 million decline. An allowance for higher refunds, a reduction of the tax on diesel motor fuel and the full year impact of the elimination of the Truck Mileage Tax on miles traveled on the Thruway account for the reduction in receipts.

The Committee Staff forecasts Highway Use Tax receipts of $160 million in State Fiscal Year 1997-98, an increase of $14 million, resulting from continued economic growth and a decline in the number of anticipated refunds.

Recent Legislative History

New York State complied with Federal legislation requiring conformity with the International Fuel Tax Agreement (IFTA) with respect to the reporting and collection of taxes relating to fuel use by a single base state, and the proportional sharing of revenue among the states where a commercial motor vehicle is operated.

• The Truck Mileage Tax was reduced by one-half on miles traveled on the Thruway in 1995 and was eliminated in 1996.
• Taxpayers were authorized to claim refunds or credits for fuel use taxes paid (including the sales tax portion).
• The diesel motor fuel rate was reduced two cents from 10 to 8 cents per gallon.

Container Tax

New York State, under Article 18-A of the Tax Law, levies a tax on the sale of all nonrefillable soda containers at a rate of 1 cent per container.

General Fund

The Committee Staff estimates State Fiscal Year 1996-97 receipts to total $26 million, a decline of 43.5 percent. This decline is due to the reduction in the Container Tax and a flat level of soda consumption. This estimate is the same as the Executive.

The Committee Staff forecast for State Fiscal Year 1997-98 equals $26 million. This forecast is the same as the Executive.

Recent Legislative History

In 1995, the Container Tax was reduced from 2 cents to 1 cent per container.

Hotel/Motel Tax

On September 1, 1994, the State repealed the State Special Hotel Occupancy Tax, which was imposed at a rate of 5 percent of the daily charge for hotel or motel rooms and/or suites. Permanent residents and rooms for which the daily rate was less than $100 were exempt from the tax.

General Fund

The Committee Staff estimates that State Fiscal Year 1996-97 receipts will total $1 million, as a result of audits and residual payments. This estimate is the same as the Executive.

Auto Rental Tax

The Auto Rental Tax, Article 28-A of the Tax Law, applies to the rental of any passenger car with a gross vehicle weight of 9,000 pounds or less that can seat up to a maximum of nine passengers. The tax is imposed at a rate of 5 percent on the charges incurred for any rental or use in New York State. The tax does not apply to leases of one year or more.

General Fund

Based on historical collection patterns, the Committee Staff estimates State Fiscal Year 1996-97 receipts will total $31 million, a growth rate of 10.7 percent. There is no difference between the estimates of the Committee Staff and the Executive.

The Committee Staff forecast for State Fiscal Year 1997-98 is $32 million, which represents growth of 3.2 percent. There is no difference between the estimates of the Committee Staff and the Executive.

Corporate Income Tax

The Corporation Franchise Tax is comprised of Articles 9-A and 13 of the Tax Law. Article 9-A imposes a tax on corporations for the privilege of operating a business in a corporate form in New York State. The tax is assessed at a rate of 9 percent of Entire Net Income (ENI), allocated or distributed to New York, after credits. One of the three alternative bases, which are allocated capital, alternative minimum income, or fixed dollar minimum, must be used if any of the three results in a greater amount of tax owed. Article 13 authorizes the tax on unrelated business income. This is a tax on the business income of not-for-profit corporations and other organizations whose activities are otherwise tax-exempt.

General Fund

The Committee Staff projects receipts for State Fiscal Year 1996-97 will total $1,980 million. This estimate represents 8.7 percent growth, and takes into account strong profits from large securities firms, an unusually large amount from March 1997 audit collections and revenue related to the tax amnesty program. This is partially offset by scheduled tax cuts from past years, continued reduction of the Business Tax Surcharge and the S-Corp differential. This estimate is $36 million higher than the Executive.

The Committee Staff forecast for State Fiscal Year 1997-98 is $2,001 million, representing a growth rate of 1.1 percent. This forecast is the result of growth in corporate profits (pre-tax) of 6.0 percent. This is compensated by the loss of the Business Tax Surcharge and the tax reductions contained in 1996 legislation. The Committee Staff forecast is $137 million greater than the Executive.

Recent Legislative History

In 1996, three measures were enacted which impacted the Corporate Franchise Tax. The Farmer Protection and Farm Preservation Act provides a refundable credit equal to the amount of school property taxes attributable to qualified agricultural property. The revenue impact begins in the 1997 tax year and is minimal. Second, Historic Barns can receive an Investment Tax Credit and Economic Development Zone Credit equal to 25 percent of the taxpayer's qualified rehabilitation expenditures. This revenue impact also begins in the 1997 Tax Year and is minimal. In addition, the S-Corp differential was frozen at the 1994 Tax Year level of 7.875 percent for 1995. This results in a one-time revenue loss of $3.5 million and is effective for tax years beginning on January 1, 1995. Additionally, a tax amnesty was granted and includes the Corporate Franchise Tax, though corporations with more than 500 employees (nationwide) are excluded. The estimated revenue gain from the amnesty program is $15 million.

In 1994, the State gradually began to eliminate the Business Tax Surcharge. The incremental loss of revenue is approximately $150 million for State Fiscal Year 1996-97 and $75 million for State Fiscal Year 1997-98.

Utility Tax

The Corporations and Utilities Tax, Article 9 of the Tax Law, imposes a gross receipts and franchise tax on regulated utilities and industries. The major industries subject to this tax are utilities (gas, electric, water and steam), telecommunications (telephone and telegraph), and transportation industries (trucking and railroad). The combined effective tax rate, in most cases, is 4.25 percent.

General Fund

The Committee Staff projects receipts for State Fiscal Year 1996-97 to total $1,551 million, a decline of 1.0 percent. This estimate reflects growth in the consumption of utility services of over 5.0 percent, primarily derived from a strong demand for natural gas, combined with steady growth in telecommunications services. The Committee estimate has been adjusted to account for further reductions in the Business Tax Surcharge. This closeout is $21 million higher than the Executive.

The Committee Staff forecast for State Fiscal Year 1997-98 is $1,609 million, representing growth of 3.7 percent over the current fiscal year estimate. This forecast is based on modest growth in the consumption of utility services, especially in telecommunications services. This is compensated by the loss of the Business Tax Surcharge and the Transportation Reform Legislation of 1996. The Committee Staff forecast is $39 million greater than the Executive.

All Funds

Through a special revenue fund, The Metropolitan Transportation Authority receives a dedicated share of collections from Sections 183 and 184 of the Tax Law. For April 1, 1996 through December 31, 1996, 48 percent was dedicated and 49.5 percent is dedicated for Calendar Year 1997. These dedicated revenues, combined with the General Fund collections, yield an All Funds estimate of $1,603 million in State Fiscal Year 1996-97. The All Funds forecast for State Fiscal Year 1997-98 is $1,677 million.

Recent Legislative History

In 1996, the tax rate on trucking and railroad industries under Section 184 of Article 9 was reduced from 0.75 percent to 0.6 percent of gross receipts starting in tax year 1997. Further, these industries have the option of converting from taxation under Article 9 to Article 9-A beginning in Tax Year 1998 and thereafter. There is no fiscal impact for State Fiscal Year 1996-97, and a reduction of $6 million is estimated for State Fiscal Year 1997-98.

In 1995, Telecommunications Tax reform was enacted in response to a Court of Appeals decision. The major implications involved the moving of the access charge deduction from long distance companies to local telephone companies, updating the computation of the tax (Goldberg methodology) for providing telecommunication service, and the agreement that long distance companies would forgo refunds due to them.

In 1994, the dedicated portion of receipts to the Metropolitan Transportation Authority was temporarily reduced for two years. The "undedicated" revenues were deposited in the General Fund.

Insurance Tax

The Insurance Taxes are contained in Articles 33 and 33-a of the Tax Law and Articles 11 and 12 of the Insurance Law. Article 33 of the Tax Law imposes an income and premiums tax on insurance companies. Article 33-a imposes a tax on independently procured insurance. Articles 11 and 12 impose retaliatory taxes and a tax on excess line brokers (brokers authorized to procure insurance from out-of-state carriers not authorized to do business in New York). The Franchise Tax on insurance corporations consists of a tax measured by allocated Entire Net Income (ENI) (or one of three alternative bases, if a higher tax would result), plus a tax on subsidiary capital and an additional Franchise Tax based on gross premiums less certain deductions.

General Fund

The Committee Staff projects receipts for State Fiscal Year 1996-97 will total $600 million, a decline of 12.4 percent. This estimate reflects, other than a modest blip in the spring, interest rates remaining fairly flat, thus not allowing portfolios to be utilized for capital gains to cover underwriting losses. The estimate also assumes a flat growth rate in Property and Casualty premiums. In addition, the first 9 months of this year's insurance award payouts are the second highest in history. This past spring flooding was experienced in most of the Northeast. During the summer months the New England states and Long Island experienced two hurricanes and a Nor'easter. Also included in the estimate is an unusually large collection from retaliatory taxes. This estimate is $3 million higher than the Executive.

The Committee Staff forecast for State Fiscal Year 1997-98 is $607 million, representing growth of 1.2 percent above the current fiscal year estimate. This forecast is based on modest growth rates for net income in the Property and Casualty area and a return to "normal" insurance award payouts. The Committee Staff forecast is $4 million greater than the Executive.

In the 30-Day Amendments, the Executive proposes to include a reduction of life insurance companies liability cap to 2.0 percent, a reduction in their premium tax rate to 0.7 percent, and an increase in their March estimate payment to 40 percent. The Executive states that those actions are revenue neutral.

Recent Legislative History

In 1994 the State enacted a phase out and elimination of the Business Tax Surcharge. For State Fiscal Year 1996-97, the incremental loss of revenue is approximately $40 million. The estimated loss is $19 million for State Fiscal Year 1997-98.

Bank Tax

The Bank Tax, Article 32 of the Tax Law, imposes a tax on banking corporations for the privilege of operating a banking business in a corporate manner, employing capital, owning or leasing property or maintaining an office in New York State. The tax is assessed at a rate of 9 percent of Entire Net Income (ENI), allocated or attributable to New York, after credits. One of the three alternative bases, allocated capital, alternative minimum income, or fixed dollar minimum, must be used if it results in a greater amount of tax owed.

General Fund

The Committee Staff estimates that State Fiscal Year 1996-97 receipts will total $668 million, representing 5.2 percent growth. The Committee Staff estimate accounts for modest growth in bank profits and strong audit collections. These factors are partially offset by increased refunds and reduction of the business tax surcharge. This estimate is $33 million greater than the Executive.

The Committee Staff forecast for State Fiscal Year 1997-98 is $643 million, a decline of 3.7 percent. This forecast reflects a continued effort by banks to streamline operating costs and moderate tax liability growth. These positives are offset by a decline in audit collections, combined with the loss of the Business Tax Surcharge. The Committee Staff forecast is $24 million greater than the Executive.

Recent Legislative History

In 1995, the Bank Tax was extended for 2 years, with an expiration date of December 31, 1996. The Bank Tax underwent significant change as a result of the Reform of 1985 and the Business Tax Reform and Rate Reduction Act of 1987. These changes were not made permanent, but were given an expiration date so that the changes could be evaluated.

In 1994, the State enacted a phase out and elimination of the Business Tax Surcharge. For State Fiscal Year 1996-97, the incremental loss of revenue is approximately $40 million. The estimated loss is $18 million for State Fiscal Year 1997-98.

Petroleum Business Taxes

Article 13-A of the Tax Law imposes a tax on petroleum businesses (PBT) for the privilege of extracting, producing, refining, manufacturing or importing petroleum in New York State. Imposition of the tax occurs at different points in the distribution chain, depending upon the type of petroleum product.

General Fund

The Committee Staff projects receipts in State Fiscal Year 1996-97 will total $141 million, a decline of 48.2 percent. General Fund Petroleum Business Tax receipts reflect the end of the diversion of $55 million from the Mass Transportation Operating Assistance Fund (MTOAF) to the General Fund, and the impact of tax cuts which are financed entirely by the General Fund.

The Committee Staff forecasts receipts to total $103 million during State Fiscal Year 1997-98. The elimination of the Business Tax Surcharge, as well as additional tax cuts, more than offset the increased tax rates effective January 1, 1997.

The Executive has proposed legislation to amend the Tax Law (Article 13-A) regarding the constitutionality of the Petroleum Business Tax pursuant to Tug Buster Bouchard v. Wetzler.

All Funds

The General Fund, MTOAF, and other dedicated receipts comprise the All Funds estimate for Petroleum Business Tax. In State Fiscal Year 1996-97, All Funds receipts are estimated to total $970 million, a 3.5 percent decline due to tax reductions and milder weather during this fiscal year. Receipts for State Fiscal Year 1997-98 are projected at $957 million, a 1.3 percent decrease, reflecting the continuation of the tax cuts.

Recent Legislative History

In 1996, legislation was enacted that reduced the tax on "railroad diesel" by 7 cents per gallon, eliminated the PBT on non-automotive diesel motor fuel and residual used in manufacturing, increased the basic credit or reimbursement on residual petroleum products or diesel fuel for utility companies by 0.5 cents per gallon, reduced the automotive diesel motor fuel component by 1.75 cents per gallon, and changed the distribution of revenues from the PBT to hold the transportation funds and Mass Transportation Operating Assistance Fund (MTOAF) harmless from these reductions. Furthermore, other provisions included the reimbursement of the Petroleum Business Tax on aviation and kero-jet fuel purchased in-state but consumed out-of-state, and expanded the time for which taxpayers may claim a refund for taxes paid on fuel purchased in-state but consumed out-of-state, and allowed taxpayers to file for refunds for taxes paid up to four years after the tax was paid.

In 1995, the reduction of the PBT rate and the elimination of the supplemental tax for aviation gasoline and kero-jet fuel were enacted. In addition, fuel consumed by not-for-profit organizations was given a full exemption.

In 1994, legislative actions repealed the 10 cent tax on lubricating oil, provided for the refund of sales on accounts determined to be uncollectible, exempted manufacturers from the PBT supplemental tax, provided for a commercial heating oil credit against the PBT, exempted farm and greenhouse use of diesel and residual fuel from the PBT when the fuel is delivered to the farm, postponed potential downward indexing and set a cap of 5 percent, provided for refunds for commercial fishing vessels on diesel motor fuel and motor fuel, and granted a partial exemption for not-for-profit organizations for the supplemental PBT and the Business Surcharge Tax.

Real Estate Gains Tax

The Real Estate Gains Tax is imposed, pursuant to Article 31-B of the Tax Law, at a rate of 10 percent on the gain from certain large realty transfers, where the consideration is $1 million or more.

General Fund

The Committee Staff estimates that Gains Tax receipts will total $43 million in State Fiscal Year 1996-97, a decline of 59.4 percent over State Fiscal Year 1995-96. This reflects the repeal of the Gains Tax effective for transfers that take place after June 15, 1996. Receipts through January 1997 are $47 million and primarily reflect collections from transactions occurring prior to June 15th. The Committee Staff estimate for State Fiscal Year 1996-97 is $4 million higher than the Executive.

The Committee Staff forecasts total receipts of $7 million in State Fiscal Year 1997-98, a decline of 83.7 percent from State Fiscal Year 1996-97. Despite the repeal of the Gains Tax in 1996, revenues will continue to accrue due to audits and installment payments from prior year transfers.

Recent Legislative History

Chapter 309 of the Laws of 1996 repealed the Gains Tax, retroactive to all conveyances of property which took place after June 15, 1996.

Estate & Gift Tax

Articles 26 and 26-A of the Tax Law impose taxes on the transfer of property among individuals. Transfers of property upon death are taxed under the Estate Tax Law (Article 26), and transfers of property during an individual's lifetime are taxed under the Gift Tax Law (Article 26-A).

General Fund

The Committee Staff projects State Fiscal Year 1996-97 receipts totaling $870 million. This estimate is comprised of $775 million from Estate Tax and $95 million from the Gift Tax. This represents a growth rate of 8.9 percent. This estimate reflects the recent upward trend in the stock market, based on the Estate Tax being heavily influenced by the value of common stock, since stock represents the largest component of estates subject to the tax. This estimate is $9 million higher than the Executive.

The Committee Staff current law forecast for State Fiscal Year 1997-98 is $827 million, which represents a reduction in overall Estate and Gift Tax receipts of 4.9 percent. Estate Tax receipts are expected to decrease to $728 million, and Gift Tax receipts are forecast to total $99 million. This forecast accounts for exceptionally strong Estate Tax receipt growth in State Fiscal Year 1996-97. The Committee Staff forecast is $16 million above the Executive.

Legislation submitted with the Executive Budget proposes, over a three-year period, a reduction in Estate Tax liability to the level of the maximum federal credit allowable (a "SOP" Tax). The first phase would increase the maximum unified credit from $2,950 to $6,000 for decedents dying on or after July 1, 1997. The Executive also proposes, effective July 1, 1997, to increase the maximum unified credit to $6,000 for gifts made on or after January 1, 1997, and to increase the unified credit to $15,000 for gifts made on or after January 1, 1998. Based on these proposals, the Committee Staff proposed law forecast for State Fiscal Year 1997-98 is $817 million, $10 million below the current law forecast, which represents a reduction in overall Estate and Gift Tax receipts of 6.1 percent.

Recent Legislative History

In 1996, legislation corrected an anomaly in the existing law, and ensured that an increase in the Estate and Gift unified credit does not result in an increase in liability by modifying the calculation of such taxes (i.e., corrected unintended tax increases for certain taxpayers which resulted from a 1994 law change).

In 1995, legislation was adopted that provided a new deduction equal to a maximum of $250,000 of assets that represent equity in the decedent's principal residence. By reducing the tax on such assets, this legislation facilitates the transfer of homes from decedents to their heirs. In effect, when combined with the unified credit, as much as $365,000 of assets are now exempt from tax.

In 1994, legislation was enacted that increased the maximum unified credit from $2,750 to $2,950, thereby effectively increasing the exemption equivalent from $108,333 to $115,000. This legislation also established a new credit equal to five percent of the first $15 million of assets in a closely-held business (for estates where such assets constitute 35 percent or more of the estate), up to a maximum credit of $750,000. This reduces the tax burden on the transfer of small businesses to heirs upon an owner's death.

Real Estate Transfer Tax

The Real Estate Transfer Tax, Article 31 of the Tax Law, is levied on real property transfers where the value of the interest in the property exceeds $500. The rate is $2 for each $500, or a fraction thereof, of net consideration. An additional tax of 1 percent is levied on residential transfers where the consideration is over $1 million. The tax is paid by the party that sells the property.

General Fund

The Committee Staff estimates that General Fund collections from the Real Estate Transfer Tax will total $112 million in State Fiscal Year 1996-97. This represents a decline of $36 million, or 24.3 percent. The decline is due to the fact that $87 million is dedicated to the Environmental Protection Fund in State Fiscal Year 1996-97, as compared to only $33.5 million in the preceding fiscal year. This estimate is $5 million higher than the Executive.

The Committee Staff forecast for State Fiscal Year 1997-98 is $0, reflecting the dedication of the remaining Real Estate Transfer Tax collections to pay debt service on the 1996 Clean Air/Clean Water Bond Act.

All Funds

For State Fiscal Year 1996-97, All Funds Real Estate Transfer Tax revenues are estimated to total $199 million. Collections have been relatively strong to date, due in part to relatively stable mortgage interest rates and slow but steady economic growth. This estimate is $5 million above the Executive.

The Committee Staff estimates that Real Property Transfer Tax collections will total $205 million, on an All Funds basis, in State Fiscal Year 1997-98. This forecast is based on projections of stable mortgage interest rates and continued steady growth in the economy throughout 1997. This forecast is $1 million higher than the Executive.

Recent Legislative History

In 1996, legislation was enacted that extended the current New York State Real Estate Transfer and New York City Real Estate Transfer Tax reductions for Real Estate Investment Trusts (REITs). Further, it temporarily expanded the application of the REIT provisions to transfers to existing REITs, and changes the forty percent interest requirement to fifty percent for existing REITs, and eliminates the "seventy-five percent" rule for existing REITs until September 1, 1998. On the expiration date, the present REIT provisions again become effective permanently. This change is expected to have a minimal effect on overall collections.

Also in 1996, voters approved the Clean Air/Clean Water Bond Act. As part of the Act, revenues in excess of the $87 million already dedicated to the Environmental Protection Fund will be used to pay debt service on the Bond Act. Any funds in excess of that necessary to make debt service payments will be transferred back to the General Fund.

Pari Mutuel

The Racing, Pari-Mutuel Wagering and Breeding Law imposes a Pari-Mutuel Tax on bets placed at racetracks, simulcast theaters and Off-Track Betting (OTB) facilities. For-profit and not-for-profit racing associations, as well as OTB Corporations, are taxed a percentage of their total betting pools for the privilege of conducting pari-mutuel wagering. The New York State Racing Association (NYRA) also remits to New York State a franchise fee of 100 percent of its net income exceeding $1.85 million.

General Fund

The Committee Staff estimates that receipts will total $42 million in State Fiscal Year 1996-97. Adjustments have been made for Tax Law reductions. This estimate is equal to the Executive.

The Committee Staff current law forecast for State Fiscal Year 1997-98 is $40 million. This takes into account the current law sunset provisions of simulcasting and telephone wagering. Growth in handle is expected to be flat.

Legislation submitted with the Executive Budget proposes to extend the authority for simulcasting for an additional year. Extending these provisions will result in a proposed law forecast of $42 million in State Fiscal Year 1997-98.

Recent Legislative History

In 1996, expanded simulcasting for when NYRA is not running, in-home simulcasting, telephone wagering, out-of-state harness races, out-of-state thoroughbred track simulcasting, and NYRA winter meet simulcasting were extended for one additional year. This legislation also allowed any corporation or association to retain a portion of the fee, not to exceed 50 percent, for capital improvements to be used for advertising and promotional expenses, and altered the distribution formula to permit the sharing of commissions with regional thoroughbred tracks, in a limited way.

In 1995, expanded simulcasting, for when NYRA is not running, was extended for one year. The reduced tax rate of 4 percent on NYRA on-track regular bets, and the reduced tax rates at OTBs and NYRA wagers on regular, multiple (0.5 percent), and exotic bets (1.5 percent) were extended for three years. Taxes on NYRA on-track regular bets were reduced to 3 percent and multiple bets to 2.5 percent for three years.

Miscellaneous Receipts

Miscellaneous Receipts are different from the other taxes in that they are not collected pursuant to any specific Article in the New York State Tax Law. Miscellaneous Receipts are derived from a wide range of revenue sources. There are currently six categories comprising the collections of these receipts: Abandoned Property, Federal Grants, General Fund Refunds and Reimbursements, Investment Income, Licenses and Fees, and Other Transactions.

General Fund

The Committee Staff estimates that for State Fiscal Year 1996-97, Miscellaneous Receipts will total $2,163 million, which represents an increase of $743 million, or 52.3 percent over State Fiscal Year 1995-96 receipts. The increase can be attributed to one-time revenue actions in both the Licenses and Fees category and the Other Transactions category.

In the License and Fee category, roughly $50 million represents the first-year deposit in the General Fund of money previously distributed to four different Special Revenue-Other accounts that funded certain activities of the Division of State Police and the Division of Criminal Justice Services.

In the Other Transactions category, two unusually large non-recurring transactions account for a vast majority of the fiscal year growth: roughly $480 million from the Medical Malpractice Insurance Association, and roughly $100 million from a special assessment on worker's compensation insurance carriers. The Committee Staff estimate for State Fiscal Year 1996-97 is $31 million higher than the Executive.

The Committee Staff forecast for State Fiscal Year 1997-98 is $1,535 million, which represents a reduction in overall Miscellaneous Receipts of $628 million, or 29.0 percent, from State Fiscal Year 1996-97. This forecast assumes a return to normal transaction patterns, especially in the Other Transactions category, and also includes roughly $65 million from the proposed increase in the overall rate for hospital and home care facilities to one percent and ninety-five hundredths of one percent, respectively. The Committee Staff forecast for State Fiscal Year 1997-98 is $30 million higher than the Executive.

Other Taxes

Article 19 of the Tax Law allows for the levying of a 4 percent tax on the admissions charge to racetracks and simulcast theaters and a 5.5 percent tax on the gross receipts from boxing and wrestling exhibitions, including receipts from broadcast and motion picture rights.

General Fund

The Committee Staff estimates receipts from Other Taxes in State Fiscal Year 1996-97 will total $1 million. The Committee Staff forecast for State Fiscal Year 1997-98 is also $1 million. These estimates are the same as the Executive.

Lottery

The New York State Lottery is comprised of the following games: the Instant Game, the Daily Numbers Game, Win 4, Pick 10, Take 5, Quick Draw, and Lotto 54. A percentage of the revenue derived from the sale of each game, ranging from 30 to 45 percent depending on the game, is dedicated to fund education. In addition, 15 percent of Lottery sales are placed into a Special Revenue account to cover the administrative expenses of the Lottery. The remaining revenues from each game's sales are the prize payouts to Lottery players. The administrative expenses are appropriated by the Legislature each year as part of the State Operating Budget. Any revenue remaining, after paying the administrative costs of the Lottery, is then transferred back to the Lottery receipts account and dedicated to education. The total amount of anticipated Lottery receipts dedicated to education is referred to as the Lottery Aid Guarantee.

General Fund

The Committee Staff projects State Fiscal Year 1996-97 revenues of $1,540 million, a growth rate of 6.8 percent. This estimate reflects especially strong sales in the Lotto game and Quick Draw. The estimate takes into consideration the expansion of the Take 5 game and the introduction of the new Lotto game. This closeout is $16 million higher than the Executive.

The Committee Staff forecast for State Fiscal Year 1997-98 is $1,592 million, representing growth of 3.4 percent. This forecast is based on the introduction of new Instant Games and continued strength in Lotto sales for large jackpots, coupled with the expansion of the Take 5 game and the introduction of a new Lotto game. This forecast is $42 million higher than the Executive.

Recent Legislative History

In January 1997, the number of weekly Take 5 drawings was increased from two to four. This increase is anticipated to increase State Fiscal Year 1996-97 revenues by $10 million and by $27 million in State Fiscal Year 1997-98.

In February 1997, the Lottery introduced a new Lotto game, "Lucky Day." In this new weekly game, players can select any calendar date from January 1, 1900 to December 31, 1999, and an additional "lucky number" from 1 to 30. This new game is estimated to generate revenues of $4.5 million in State Fiscal Year 1996-97 and $23 million in State Fiscal Year 1997-98.

In 1996, the Executive and the Legislature took restrictive actions with respect to advertising for the Lottery, which may result in a negative fiscal impact. Also, the Division of the Lottery reverted back to the old method of collecting money from vendors. The previous method required payment in 90 days, or when 90 percent of the lower tier prizes were paid out. The new method requires payment in 60 days, regardless of when the tickets are sold. The Lottery estimates this as a one-time loss of $20 million. The rationale for this action was that the Division of the Lottery believed that the 90/90 method was too difficult to administer.

Regional Business Tax Surcharge

The Regional Business Tax Surcharge is comprised of a 17 percent surcharge applied on the portion of Article 9-A (Corporate Franchise), Article 9 (Corporations and Utilities), Article 33 (Insurance), and Article 32 (Bank) taxes attributable to business activity carried on within the Metropolitan Commuter Transportation District (MCTD). This district consists of seven counties (Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester) and the City of New York. This surcharge is set to expire after December 31, 1996.

All Funds

Collections from the surcharge are deposited into the Mass Transportation Operating Assistance Fund, associated with the Metropolitan Transportation Authority (MTA).

The Committee Staff estimates State Fiscal Year 1996-97 revenues will total $551 million, representing growth of 6.4 percent. The estimate is based on increased earnings for businesses, especially for the financial sector, which is a very significant element within the MCTD. This estimate is $28 million greater than the Executive.

The Committee Staff forecast for State Fiscal Year 1997-98 totals $558 million, representing growth of 1.3 percent. This reflects continued growth within the MCTD and assumes that the surcharge will be extended in a timely manner. The Executive proposes to extend the surcharge for an additional four years. This forecast is $41 million higher than the Executive forecast.

Recent Legislative History

In 1995, the state extended the surcharge for an additional 2 years to December 31, 1996.