NYC-WTC_000195490

NYC 9/11 Public Portal Document

I In July of 1997, the State’s Tax Appeals Tribunal issued a ruling changing the calculation of State r itemized deductions for certain high-income taxpayers subject to the Federal limitation on itemized Il deductions. The new calculation decreases the amount of State and City taxes subtracted from Federal ’ itemized deductions for these taxpayers, increasing State itemized deductions and lowering their taxable / income. This is estimated to reduce City liability by approximately $20 million per liability year. 1' ;

s / As part of New York State’s budget for fiscal year 1997-98, the State enacted the School Tax Relief program (STAR) to provide education aid and tax relief to localities. In addition to reductions in the property tax, the STAR program reduces City personal income tax liability through both a rate cut and a refundable I■ credit for resident filers. The top marginal rate for residents declines in steps from 4.46 percent in 1998 to 3.65 percent in fax year 2001. The State reimburses the Cltyifor the foregone personal income tax revenue. As part of New York State’s budget for fiscal year 1998-99, the State accelerated the STAR program credit against the City resident personal income tax for senior citizens. Beginning with tax year 1998, seniors receive a credit'of $125 if they file jointly and $62.50 if they use other filing statuses. Non-seniors received a credit of $12 ih tax year 1998, and the credit increases to $125 for joint filers and $62.50 for other filers by tax It year2001. ' / State Sponsored Personal Income Tax Reductions ($ Millions) ' \

1999 2000 2001 2002, 2003 2004 2005 STAR Program: Credit ($85) ($131) ($191) ($256) ($256) ($256) ($256) Rate Cut (69) (224) (304) (351) (380) (405)

f STAR Program Total ($85) ($200) ($415) ($560) ($607) ($636) ($661) ■ ! < \ :

Also in 1997, the State enacted legislation enabling the City to establish a credit against the resident personal income tax for owners of unincorporated businesses for a portion of their distributive share of unincorporated business tax liability, effective beginning with tax year 1997. The credit is based on a sliding scale, and ranges from 65 percent of unincorporated business tax liability for taxpayers with NYS AGI of $42,000 or less, down to 15 percent of liability for taxpayers with NYS AGI of $142,000 or more. / t Beginning in 1998, personal income tax cash flow to the City has changed with the introduction of the r i TransitionEil Finance Authority (TEA). The TEA gives the City an additional financing vehicle to meet capital f ' commitments beyond the constitutional debt limit, which is based on the market value of real property. The I new authority has first claim on personal income tax revenue to meet its debt service and administrative costs, I with the remaining personal income tax revenue to be distributed to the City by the end of each month. r I On May 17,; 1999, the State L,egislature passed, and on May 27, 1999 the Governor signed into law a selective repeal of the City ’s nonresident earnings tax, limiting the nonresident earnings tax to commuters who is live outside of New York State, effective July 1, 1999. Recognizing that this selective application of the City nonresident earnings tax posed possible constitutional problems, the legislation provided that if the exemption of State residents from the tax Was found unconstitutional, the entire tax would be repealed effective'July 1, f 1999. After passage, individuals from New Jersey and Connecticut, and the State of Connecticut filed b complaints against New York State, arguing that selective imposition of the nonresident earnings tax violated the Privileges and Immunities Clause, the Commerce Clause, and the Equal Protection Clause of the United 1'^ States Constitution. Additionally, the City filed a complaint against New York State seeking a declaration that the legislation violated the home rule provisions of the New York State Constitution. The New York Supreme

« 1

NYC-WTC_000195548