Joint Legislative Public Hearing on 2017-2018 Executive Budget Proposal: Topic "Taxes" - Testimonies

Hearing Event Notice:

Archived Video:



 2  ------------------------------------------------------


 4             In the Matter of the
            2017-2018 EXECUTIVE BUDGET
 5                   ON TAXES 
 6  ------------------------------------------------------

 7                           Hearing Room B                                                   
                             Legislative Office Building
 8                           Albany, New York
 9                           February 7, 2017
                             9:41 a.m.  


12           Senator Catharine M. Young 
             Chair, Senate Finance Committee
             Assemblyman Herman D. Farrell, Jr.
14           Chair, Assembly Ways & Means Committee

16           Senator Liz Krueger 
             Senate Finance Committee (RM)
             Assemblyman Robert C. Oaks
18           Assembly Ways & Means Committee (RM)
19           Assemblywoman Sandy Galef
             Chair, Committee on Real Property Taxation
             Senator Diane Savino
21           Vice Chair, Senate Finance Committee
22           Senator John J. Bonacic
23           Assemblyman Michael Cusick
24           Assemblyman John T. McDonald III


 1  2017-2018 Executive Budget
 2  2-6-17
 3  PRESENT:  (Continued)
 4           Assemblyman Steven F. McLaughlin
 5           Senator James N. Tedisco
 6           Assemblyman Edward P. Ra
 7           Senator Leroy Comrie 
 8           Assemblywoman Inez Dickens
 9           Assemblyman Daniel Stec
12                   LIST OF SPEAKERS
13                                    STATEMENT   QUESTIONS
14  Nonie Manion 
    Acting Commissioner
15  NYS Department of Taxation
     and Finance                            5         11
    Edmund J. McMahon
17  Research Director
    Empire Center for Public Policy        99        111
    Kenneth J. Pokalsky
19  Vice President
    The Business Council of NYS           129        137
    Ron Deutsch
21  Executive Director
    Fiscal Policy Institute               143        150
    Michael Kink, Esq. 
23  Executive Director
    Strong Economy for All 
24   Coalition                            155        160


 1  2017-2018 Executive Budget
 2  2-7-17
 3                   LIST OF SPEAKERS, Cont. 
 4                                    STATEMENT   QUESTIONS
 5  Teri L. Ross
 6  NYS Assessors' Association           162         168
 7  John Olsen
    New York Executive Director 
 8  The Internet Association             174         178

















 1                 CHAIRMAN FARRELL:  Good morning.  

 2                 Today we begin the seventh in a series 

 3          of hearings conducted by the joint fiscal 

 4          committees of the Legislature regarding the 

 5          Governor's proposed budget for fiscal year 

 6          2017-2018.  The hearings are conducted 

 7          pursuant to Article 7, Section 3 of the 

 8          Constitution and Article 2, Sections 31 and 

 9          32A of the Legislative Law.

10                 Today the Assembly Ways and Means 

11          Committee and the Senate Finance Committee 

12          will hear testimony concerning the budget's 

13          proposal for taxes.  

14                 I will now introduce members from the 

15          Assembly, and Senator Young, the chair of the 

16          Senate Finance Committee, will introduce 

17          members from the Senate.

18                 We have been joined by Assemblyman 

19          Cusick and Mr. Oaks.  And Mr. Oaks will tell 

20          us who his people are.  

21                 ASSEMBLYMAN OAKS:  Thank you, 

22          Chairman.  We've also been joined by 

23          Assemblyman Ra and Assemblyman McLaughlin.

24                 CHAIRMAN FARRELL:  Senator Young.


 1                 CHAIRWOMAN YOUNG:  Thank you, 

 2          Chairman.  

 3                 Joining us on the Senate side is 

 4          Senator Diane Savino, Senator Liz Krueger, 

 5          Senator James Tedisco, and Senator John 

 6          Bonacic.

 7                 CHAIRMAN FARRELL:  Before I introduce 

 8          the first witness, I would like to remind all 

 9          of the witnesses testifying today to keep 

10          your statement within your allotted time.  

11          That's what the clocks are out here for, to 

12          limit it so that everyone can be afforded the 

13          opportunity to speak.

14                 Our first witness will be Nonie 

15          Manion, executive deputy commissioner, 

16          New York State Department of Taxation and 

17          Finance.  

18                 Good morning.  Welcome.

19                 ACTING COMMISSIONER MANION:  Good 

20          morning.  Good morning, Chairwoman Young and 

21          Chairman Farrell and all the members of the 

22          Senate Finance and Assembly Ways and Means 

23          Committees.  My name is Nonie Manion, and I'm 

24          the acting commissioner of the Department of 


 1          Taxation and Finance.  

 2                 It is my pleasure to appear before you 

 3          today to discuss Governor Cuomo's 2018 

 4          Executive Budget, and more specifically, how 

 5          the budget relates to the work that we do at 

 6          the Tax Department.

 7                 At the Department of Taxation and 

 8          Finance, our mission is to efficiently 

 9          collect tax revenues in support of state 

10          services and programs while acting with 

11          integrity and fairness in the administration 

12          of the tax laws of New York.

13                 We process over 24 million tax returns 

14          annually and administer over 40 state and 

15          local sales taxes.  In addition to the 

16          millions of income tax refunds we issue 

17          annually, we have also issued nearly 

18          7 million property tax relief checks to 

19          2.6 million households over the past three 

20          years, providing New York homeowners with 

21          over $1.3 billion in much-needed real 

22          property tax relief.  Through the end of 

23          2020, we will have provided over $4.3 billion 

24          in relief.


 1                 Governor Cuomo's Executive Budget 

 2          continues the progress we have made over the 

 3          past six years to change the direction of 

 4          this state.  The state's prudent fiscal 

 5          practices have limited the annual growth in 

 6          the state's operating budget to less than 

 7          2 percent, eliminated structural deficits, 

 8          and resulted in an upgrade of the state's 

 9          credit rating to its highest level since 

10          1972.  This fiscal restraint has provided us 

11          with the means to provide much-needed tax 

12          relief.  

13                 Today, every New Yorker's tax rate is 

14          lower than when Governor Cuomo first took 

15          office.  Over the course of the Governor's 

16          time in office, we have enacted personal 

17          income tax cuts that will save taxpayers 

18          $23.6 billion, and those tax cuts have been 

19          focused primarily on the middle class.  The 

20          middle-class tax cut will save middle-class 

21          taxpayers $6.6 billion over the first four 

22          years.  By 2025, annual savings will be 

23          $4.2 billion, saving more than 6 million 

24          taxpayers an average of $700 a year.  


 1                 To provide relief to middle-class 

 2          families who struggle with the costs of 

 3          providing childcare, the Governor proposes to 

 4          supplement the Child and Dependent Care 

 5          Credit, which is already the most generous in 

 6          the nation, by more than doubling the benefit 

 7          for families earning between $60,000 and 

 8          $150,000.  For example, a family with an 

 9          income of $60,000 and childcare costs of 

10          $3,000 will receive a combined federal and 

11          state tax credit of $1,257.  

12                 To support these and other important 

13          initiatives, the Governor is proposing an 

14          extension of the top personal income tax 

15          bracket for an additional three years.  

16                 The Governor has also transformed the 

17          business climate in New York State over the 

18          last six years.  New York now has the lowest 

19          corporate tax rate since 1968 and the lowest 

20          manufacturers' tax rate since 1917.  The MTA 

21          payroll tax has been eliminated for more than 

22          700,000 small businesses and the 

23          self-employed.  The Governor's tax cuts will 

24          save businesses $7.6 billion over his first 


 1          two terms.  

 2                 Building on this success, the Governor 

 3          is proposing a bold new initiative to 

 4          capitalize on New York's standing as a leader 

 5          in cutting-edge research in the life 

 6          sciences.  As part of a $650 million 

 7          multipronged strategy, the Executive Budget 

 8          provides three new tax incentives, worth 

 9          $250 million over 10 years.  Existing life 

10          sciences businesses would be eligible for 

11          $10 million in Excelsior tax credits.  New 

12          life science businesses would be eligible for 

13          a 15 percent refundable tax credit on new 

14          research and development, with small 

15          businesses eligible for a 20 percent credit.  

16          Angel investors would be eligible for a 

17          credit worth 25 percent of their investment, 

18          up to $250,000 per investor.  

19                 While the budget builds on 

20          tax-reduction actions taken over the past six 

21          years, it is also important to recognize the 

22          need for the tax law to evolve with changing 

23          times.  In this regard, the Executive Budget 

24          contains several tax reforms to ensure that 


 1          existing programs are working as intended and 

 2          modernizes the tax law to reflect the 

 3          high-tech economy.  

 4                 The rapid advance of technology has 

 5          brought with it many societal and economic 

 6          benefits, changing the way we live and work.  

 7          However, technological advances have also 

 8          provided more sophisticated tools for use by 

 9          cybercriminals.  At the Tax Department, we 

10          work diligently to prevent refund fraud and 

11          identity theft on a daily basis.  We have 

12          made major investments in data analytics and 

13          cybersecurity, placing us at the forefront of 

14          fraud detection in tax administration 

15          worldwide.  In the last year alone, our 

16          systems identified almost 382,000 suspect 

17          refund claims, saving the state and taxpayers 

18          over $554 million. 

19                 However, while our infrastructure 

20          investments help us detect identity theft, we 

21          have discovered that our cybercrime laws are 

22          severely outdated and are not a deterrent to 

23          this type of criminal activity.  

24                 To combat this new vulnerability, the 


 1          Governor has proposed a complete package of 

 2          cybersecurity initiatives.  The package 

 3          strengthens and modernizes New York's 

 4          cybercrime and identity theft laws, and 

 5          establishes a new Cyber Incident Response 

 6          Team to provide cybersecurity support to 

 7          state entities, local governments, critical 

 8          infrastructure and schools.  This initiative 

 9          will help deter cybercriminals from 

10          victimizing New York State taxpayers and also 

11          give us the means to punish those who try.  

12                 Again, I want to thank all of you for 

13          allowing me to appear before you today to 

14          discuss the Governor's important initiatives, 

15          and I am happy to answer any questions that 

16          you may have.

17                 CHAIRMAN FARRELL:  Thank you.

18                 We've been joined by Assemblywoman 

19          Inez Dickens.  

20                 And Assemblywoman Galef, chair, first 

21          to ask questions.

22                 ASSEMBLYWOMAN GALEF:  Thank you very 

23          much.  

24                 I'm glad you're here.  I'm sorry you 


 1          were not at the hearing that we had for real 

 2          property on what is happening --

 3                 ACTING COMMISSIONER MANION:  I'm sorry 

 4          I couldn't be there.

 5                 ASSEMBLYWOMAN GALEF:  So I have a lot 

 6          of questions.  

 7                 I think everybody sitting up here has 

 8          probably gotten many phone calls from their 

 9          constituents about the STAR program, the STAR 

10          credit, the tax freeze program, and the lack 

11          of checks going out to our constituents.  

12                 I recently got a call from somebody 

13          who had had a check made out to their name 

14          with the wrong address.  And fortunately the 

15          mail services knew where the person lived, 

16          and it indicated that there were hundreds of 

17          people like this in this complex that were 

18          getting the wrong checks to the wrong 

19          address.  So it is very frustrating for us.

20                 So some of my questions -- you're 

21          going to have more people into this program 

22          with the STAR credit.  Every time somebody 

23          buys a new house, there's going to be another 

24          group of people that are going to be getting 


 1          a check, and probably a check late and a 

 2          check not on time to be able to pay their 

 3          school taxes.  And that's what we're very 

 4          concerned about.  

 5                 What modifications are you making to 

 6          the program so that none of us here will have 

 7          those frustrations next year?

 8                 ACTING COMMISSIONER MANION:  Okay.  

 9          This year we were administering the last year 

10          of the freeze check, the first year of the 

11          relief check, and the first year of the STAR 

12          credit check.  All of those programs rely on 

13          us receiving information from the 1,000 

14          assessors across the state and also the 

15          school and local taxing entities.

16                 CHAIRWOMAN YOUNG:  Can you get closer 

17          to the mic, please?  

18                 ACTING COMMISSIONER MANION:  Sure.  

19          Yes.  

20                 So to answer your question as to what 

21          we'll be doing in order to get those checks 

22          out quicker, one of the biggest challenges 

23          that we have is the quality of the data we 

24          receive from the locals.  So from the 


 1          assessors we receive the tax rolls, and that 

 2          has the property information and it has the 

 3          assessment amount.  And then that has to be 

 4          combined with -- if we stay with talking 

 5          about the STAR credit check, it has to be 

 6          looked at with the school information.  

 7                 Again, that information is coming in 

 8          from so many different sources, and it comes 

 9          in in different forms and formats.  And 

10          because it has not been used in a 

11          standardized way in the past, we get very 

12          different information from all of the 

13          different localities.  Which has led us to 

14          have to do a lot of work on our end to 

15          combine that information, to interpret that 

16          information, and to clean that information 

17          up.

18                 So given the short time frame that we 

19          had to institute the program, we were not 

20          able to develop an integrated system that has 

21          a lot of automated checks and balances to 

22          check these things out.  So we've had to rely 

23          on our people doing those checks.  

24                 Whenever you have manual intervention, 


 1          there's also -- there's a risk for some 

 2          errors.  But the biggest problem is the 

 3          inconsistency of the data that we get from 

 4          the locals, because we have not been in a 

 5          situation where we've been able to mandate 

 6          the form and format and the codes that are 

 7          required on the data.  

 8                 For instance, the code to identify 

 9          that somebody is eligible for an Enhanced 

10          STAR credit check, it's different depending 

11          on the different assessors and the different 

12          schools.  So we've had to do a lot of 

13          outreach back to the locals to try to figure 

14          that out.

15                 So to sum it up, the more we use the 

16          data, the more back-and-forth interaction we 

17          have with the locals, with the assessors, and 

18          with the schools, the better quality our data 

19          will be.  The more time we have to put 

20          together a system to gather the information 

21          that's required in order for us to do the 

22          validation, we'll be in a better place.

23                 ASSEMBLYWOMAN GALEF:  So what you're 

24          saying most likely is people will not get 


 1          their STAR credit checks in time to pay their 

 2          school bills in September, it probably will 

 3          never happen.

 4                 ACTING COMMISSIONER MANION:  Well, if 

 5          you look at the time frame for the tax bills 

 6          by September, there are 538 school districts 

 7          that levy on September 1st.  So we would have 

 8          received information from the assessors in 

 9          July.  We would have had to notify the 

10          schools in August.  Short time frame to get 

11          information from 1,000 people, and especially 

12          if it's not of the same form and format, and 

13          then to feedback to the schools.  

14                 Then the schools are issuing their 

15          levy data by September 1st.  So our ability 

16          to do that calculation and the validation to 

17          have those checks out by September 15th is 

18          really -- it's not practicable until we have 

19          a common form and format and we have 

20          validation checks put in at the front end 

21          with the locals so that we can receive 

22          accurate data at our end.

23                 ASSEMBLYWOMAN GALEF:  I'll just ask 

24          one more and then I'll get back later on.  


 1                 You had mentioned to have a different 

 2          system in place, and in your budget you're 

 3          asking everybody to verify their tax 

 4          information for Enhanced STAR through your 

 5          department.  Now, some people pay taxes; 

 6          that's an easy thing to do.  Many seniors 

 7          have participated already in the income 

 8          verification system.  

 9                 But you're asking people who don't 

10          file, and that are seniors, to be able to 

11          send documents up to the state without ever 

12          having any knowledge of whether it gets 

13          there.  Because I don't think -- people have 

14          not been able to communicate with your 

15          office.  They can't find out where the check 

16          is.  They don't know when it's coming.  They 

17          don't know what it's for, and they don't know 

18          how much it's about.  

19                 So now you're asking seniors to 

20          produce all this information.  And, you know, 

21          I can understand why you may be doing it, but 

22          it is a tremendous burden on them.  And is 

23          there a way that through the tax assessor's 

24          office they could fax up information?  


 1          Because these seniors are used to going to 

 2          the assessor's office to do verification on 

 3          their forms, instead of having to send 

 4          everything to Albany.  You're getting all 

 5          these pieces of paper, and I don't know when 

 6          they'll ever get their money.

 7                 ACTING COMMISSIONER MANION:  Well, a 

 8          problem we'd encounter with that is when we 

 9          received information from the assessors, when 

10          we looked at the first group of 1800 and we 

11          did some validation against the tax 

12          information that we have on our systems, we 

13          found that 20 percent of the people that they 

14          had validated for the enhanced were not 

15          entitled to it.

16                 And I think part of that is people are 

17          not as willing to bring their tax information 

18          into their assessor's office, and we have 

19          that information available to us.  We not 

20          only have the information from a tax 

21          return -- because there are definitely 

22          seniors who do not have to file tax returns.  

23          And we believe that we could put something up 

24          that would be a one-page that would provide 


 1          us information and we could check against it.  

 2          Because we are able, not only with the tax 

 3          returns, we also get wage reporting from 

 4          employers.  So the seniors could have a small 

 5          job where they make a couple of thousand 

 6          dollars a year, and they're not required to 

 7          file a tax return.  But we have that 

 8          information in the wage reporting from the 

 9          employer.

10                 So we have a lot of different sources 

11          of information to check against.  And based 

12          on what we have seen with the data coming in 

13          from the assessors, it's really our due 

14          diligence to do that.  

15                 And then also going back to what we 

16          had found when we did the reregistration, and 

17          we then had to do the recoupment, with the 

18          recoupment, we had $100 million that we had 

19          to recoup that was paid to people that were 

20          not entitled to it.  So this is really our 

21          fiduciary responsibility to make sure that 

22          the state's money is being paid to those that 

23          are entitled to it.

24                 CHAIRMAN FARRELL:  Thank you.  


 1                 Senator?  

 2                 CHAIRWOMAN YOUNG:  Thank you.  And 

 3          good morning, I'm glad that you're here.

 4                 ACTING COMMISSIONER MANION:  Good 

 5          morning.

 6                 CHAIRWOMAN YOUNG:  I, like my 

 7          colleagues, have a lot of upset, frustrated 

 8          constituents who are homeowners who haven't 

 9          gotten their credit checks.  And you seem to 

10          be blaming the local assessors for this 

11          debacle.  My question is, why didn't you have 

12          a system in place up-front?  And if you 

13          needed to have some kind of unified format, 

14          why wasn't that articulated to the local 

15          assessors?

16                 ACTING COMMISSIONER MANION:  The 

17          timing is a big issue here.  And --

18                 CHAIRWOMAN YOUNG:  But, you know, this 

19          was changed in the budget last year, based on 

20          your recommendation.  So if it was based on 

21          your recommendation, why wasn't it thought 

22          out ahead of time?  

23                 ACTING COMMISSIONER MANION:  Well, the 

24          assumption at the time that it was passed was 


 1          that we would be able to receive the 

 2          information from the assessors identifying 

 3          who was entitled to receive the enhanced and 

 4          the basic STAR for the STAR credit check.  

 5          Unfortunately, when we received the 

 6          information is when we found that there were 

 7          problems with it.  

 8                 I'm not blaming it on the assessors.  

 9          I think -- we do have different forms and 

10          formats.  We have been working with them in 

11          trying to get the standard form and format 

12          for the freeze checks and for the relief.  

13          However, many of these offices only have a 

14          couple of people working there, and some of 

15          them are only part-time.  

16                 So we've done a lot of outreach to try 

17          to get standard form and format, but it's not 

18          something that they've been able to supply to 

19          us in this time period.

20                 CHAIRWOMAN YOUNG:  How many 

21          outstanding checks are there right now?

22                 ACTING COMMISSIONER MANION:  We've 

23          sent over 107,000 of the STAR credit checks, 

24          and we've sent over 2.1 million for the 


 1          freeze relief checks.

 2                 CHAIRWOMAN YOUNG:  When my office 

 3          calls your office, we're told that "We're not 

 4          going to look into individual homeowners' 

 5          cases" and that "There's just so many that 

 6          we're just not going to do it."  And so I 

 7          have upset constituents who are saying to us, 

 8          "We can't get an answer."  

 9                 So when will they have an answer?

10                 ACTING COMMISSIONER MANION:  I'm sorry 

11          that you heard that.  And that's not the way 

12          that we would do business.  If we had a list 

13          of people that were looking to see the status 

14          of their check, we would definitely look into 

15          it.

16                 What we've found is many of the people 

17          that registered for the STAR check actually 

18          had received the exemption on their tax bill 

19          already.  So we were expecting 120,000 to be 

20          registering, based on what we heard from the 

21          assessors; we actually got 210,000 people 

22          registering.  Many people registered because 

23          they heard, okay, you have to register in 

24          order to get your STAR.  They had already 


 1          received the exemption.  

 2                 So that was another piece of work that 

 3          we hadn't anticipated.  And what that 

 4          required us to do was to find those people by 

 5          going to the individual tax bills that the 

 6          schools had, identifying whether they 

 7          received the exemption, and then letting them 

 8          know.  

 9                 A number of the referrals that have 

10          come from the legislative offices, the people 

11          have already received their exemption.  We 

12          know we need to do better in informing people 

13          of what their expectations are.  I think this 

14          really comes down to expectations.  We've 

15          sent over 30,000 letters to people telling 

16          them, You've already received your exemption, 

17          you're not going to be getting the STAR 

18          credit check.  

19                 So we need to do a better job of 

20          informing people when they are not getting 

21          something that they may have expected they 

22          were going to get.

23                 CHAIRWOMAN YOUNG:  So statutorily, the 

24          checks were supposed to be received by 


 1          September 30th, just to follow up with what 

 2          Assemblywoman Galef was saying, and they 

 3          needed that money to be able to pay their 

 4          taxes.  

 5                 Do you think that homeowners deserve 

 6          to have some kind of interest paid by the 

 7          state if the checks are late?

 8                 ACTING COMMISSIONER MANION:  Okay, the 

 9          statute actually states that September 15th 

10          or as soon thereafter as practicable.  

11                 And we do not have any authority to 

12          pay interest.

13                 CHAIRWOMAN YOUNG:  So obviously this 

14          is an unworkable system, because it hurts the 

15          homeowners.  If they don't have the rebate 

16          money back from the state, then they have to 

17          put that money up themselves.  And it's 

18          February 7th today, and there are so many 

19          people around the state that still haven't 

20          received their money.

21                 So, you know, it just seems to me that 

22          it's an unworkable system.  And I guess 

23          you're working on fixing it, but it just is 

24          really a debacle for so many people.  As I 


 1          said, people are upset about this.

 2                 ACTING COMMISSIONER MANION:  And I 

 3          understand.  I mean, we hear from many of 

 4          those people too.  

 5                 It needs to be understood that these 

 6          are people that are just buying their home.  

 7          So it's not for people that have had the 

 8          credit in the past and now all of a sudden 

 9          don't have it on their bill and are waiting 

10          for this check.  So it's the first time that 

11          they're paying their taxes.

12                 The other thing to keep in mind is we 

13          have to get it right.  We have to get it 

14          right.  This is state money, and we have to 

15          make sure that the money is paid in an 

16          accurate way, that we're not sending money 

17          out to people that aren't entitled to it.

18                 CHAIRWOMAN YOUNG:  But I also think 

19          that the state should keep its promise to 

20          people.  And there's a statutory deadline.  

21          And, you know, people should -- and the 

22          agency should adhere to that to keep their 

23          promise to the people who are supposed to get 

24          these rebates.


 1                 ACTING COMMISSIONER MANION:  As I 

 2          stated, the statute --

 3                 CHAIRWOMAN YOUNG:  The other thing 

 4          that I wanted to ask you about is that you 

 5          said that seniors are not willing to bring 

 6          their tax information to assessors' offices.  

 7          You said -- did you say that earlier?  

 8                 ACTING COMMISSIONER MANION:  I'm 

 9          sorry, can you --  

10                 CHAIRWOMAN YOUNG:  You said 

11          seniors are hesitant to bring their tax 

12          information to assessors' offices.

13                 ACTING COMMISSIONER MANION:  From my 

14          experience, people are hesitant to provide 

15          their tax information beyond the Tax 

16          Department.  We have very strong tax secrecy 

17          rules.  And from what I've heard from some of 

18          the assessors, they'll bring in a lot of 

19          different information into their office.  I 

20          don't know exactly what they bring into the 

21          office, but based on what we've seen, where 

22          when we see the tax return and they are not 

23          eligible, yet the assessor's office had 

24          information that made them think they were 


 1          eligible, I have to believe that -- you know, 

 2          there's a gap there somewhere.

 3                 I also wanted to point out, you know, 

 4          as I mentioned, the statute says September 

 5          15th or as soon thereafter as practicable.  

 6          It needs to be noted that 53 school districts 

 7          don't actually levy their taxes until 

 8          October, and 68 school districts don't 

 9          actually levy their taxes until December.

10                 CHAIRWOMAN YOUNG:  So the system -- 

11          what you're saying, then, is the system that 

12          was set up last year is not workable.

13                 ACTING COMMISSIONER MANION:  I think 

14          the expectations that all the checks would be 

15          out by September -- by the end of September 

16          is not reasonable.

17                 CHAIRWOMAN YOUNG:  So I want to switch 

18          a little bit to tax checkoffs.  Taxpayers are 

19          able to donate to a number of tax checkoffs 

20          on their income tax forms that fund worthy 

21          causes.  What is the percentage of donations 

22          that the department retains for administering 

23          the tax checkoffs?

24                 ACTING COMMISSIONER MANION:  We don't 


 1          retain any of it for the administration of 

 2          that.

 3                 CHAIRWOMAN YOUNG:  You don't?

 4                 ACTING COMMISSIONER MANION:  No.  It's 

 5          done under our appropriation.  It's part of 

 6          administering to the tax laws.

 7                 CHAIRWOMAN YOUNG:  Are the tax 

 8          checkoffs tax-deductible?

 9                 ACTING COMMISSIONER MANION:  I believe 

10          it comes above the line, yes.

11                 CHAIRWOMAN YOUNG:  What's that?

12                 ACTING COMMISSIONER MANION:  I'm 

13          thinking through where it is on the tax 

14          return.  I believe it is a reduction in your 

15          tax -- taxable income.

16                 CHAIRWOMAN YOUNG:  I can give you the 

17          answer to that.  No, it's not.

18                 ACTING COMMISSIONER MANION:  It's not?  

19          Okay.  

20                 CHAIRWOMAN YOUNG:  It's not.

21                 ACTING COMMISSIONER MANION:  I'm 

22          sorry.  

23                 CHAIRWOMAN YOUNG:  Okay.

24                 ASSEMBLYWOMAN GALEF:  Can you just do 


 1          your microphone closer?  Just somehow your 

 2          voice is --

 3                 CHAIRWOMAN YOUNG:  Has the department 

 4          ever thought about putting the information on 

 5          the tax form or the tax form instructions, 

 6          that their tax checkoff money is not 

 7          tax-deductible?

 8                 ACTING COMMISSIONER MANION:  I've not 

 9          looked into it.  So it's something that we 

10          can look into.

11                 CHAIRWOMAN YOUNG:  Okay.  And just to 

12          your previous answer, it's my understanding 

13          that the department does retain 

14          administrative costs from the tax checkoff, 

15          and it could be as high as 20 percent.  So 

16          could you look into that?  

17                 ACTING COMMISSIONER MANION:  I will 

18          validate it, yes.

19                 CHAIRWOMAN YOUNG:  Okay, that would be 

20          helpful.  Good.

21                 The other thing that I wanted to ask 

22          you about is the income verification program, 

23          the IVP.  And the Governor has proposed 

24          requiring Enhanced STAR applicants, which are 


 1          senior citizens, as you know, to enroll in 

 2          the IVP.  And this program would allow Tax 

 3          and Finance to determine annual income 

 4          eligibility for STAR benefits from income tax 

 5          filings.  And Enhanced STAR applicants would 

 6          no longer be required to apply annually, 

 7          provided that they file a New York State 

 8          income tax return every year.  And so this 

 9          would place a mandate on seniors.  

10                 The Senate has asked the department if 

11          they have ever done any direct mailings to 

12          Enhanced STAR recipients to let them know 

13          that they can enroll in the IVP.  And so I'm 

14          just wondering, have you done any direct 

15          outreach to seniors?  And if you haven't, why 

16          not?  

17                 ACTING COMMISSIONER MANION:  We have 

18          not.  We've provided information to the 

19          assessor's office, but we have not done the 

20          mailings.  And it's something that we could 

21          do.

22                 CHAIRWOMAN YOUNG:  Well, I think that 

23          would be great.  Because I think if you did 

24          that kind of outreach, you have the database 


 1          as to who is eligible.  And I think it would 

 2          be a great service to seniors if you were 

 3          able to do that.

 4                 ACTING COMMISSIONER MANION:  

 5          Understood.

 6                 CHAIRWOMAN YOUNG:  So thank you very 

 7          much.

 8                 ACTING COMMISSIONER MANION:  Yes.

 9                 CHAIRMAN FARRELL:  Thank you.

10                 Assemblywoman Inez Dickens.

11                 ASSEMBLYWOMAN DICKENS:  Thank you, 

12          Chairs, and good morning.  

13                 And thank you, Deputy Commissioner, 

14          for your testimony.

15                 ACTING COMMISSIONER MANION:  Good 

16          morning.

17                 ASSEMBLYWOMAN DICKENS:  I just have a 

18          very short question.  In terms of 

19          percentages, what's the tax burden on 

20          property owners by capping the STAR benefit's 

21          growth?

22                 ACTING COMMISSIONER MANION:  The tax 

23          burden percentage?

24                 ASSEMBLYWOMAN DICKENS:  How would 


 1          capping the growth of STAR benefits address 

 2          the burden, the growing burden on property 

 3          owners?  

 4                 ACTING COMMISSIONER MANION:  Okay, 

 5          capping the STAR benefit, the burden -- 

 6          there's been a lot of progress that's been 

 7          made over the last several years on reducing 

 8          the amount of property taxes, with the freeze 

 9          and the relief.  So I don't have the specific 

10          percentage, but the capping, it's -- it's not 

11          as big -- the STAR credit is not as big of a 

12          part with the other relief and with people 

13          keeping the property taxes at a more level -- 

14          without the big increases, it's not as 

15          important that the STAR credit be increased.

16                 ASSEMBLYWOMAN DICKENS:  And what is 

17          your success rate in getting homeowners 

18          signed up for the STAR program, particularly 

19          in the five boroughs of the City of New York?

20                 ACTING COMMISSIONER MANION:  I don't 

21          have the figures for the success rate.  I 

22          would have to get back to you, yeah.

23                 ASSEMBLYWOMAN DICKENS:  Would you, 

24          please?  


 1                 ACTING COMMISSIONER MANION:  Yes.

 2                 ASSEMBLYWOMAN DICKENS:  Okay, thank 

 3          you.

 4                 CHAIRWOMAN YOUNG:  Thank you.

 5                 Our next speaker is Senator Jim 

 6          Tedisco.

 7                 SENATOR TEDISCO:  Thank you, Acting 

 8          Commissioner, for being here today and for 

 9          your testimony.  You seem like a very nice 

10          person for someone who collects taxes.  

11                 (Laughter.)

12                 SENATOR TEDISCO:  But I have to tell 

13          you, throngs of my constituents have called 

14          me, they've called your department -- I'm 

15          sure they haven't directly talked to you.  My 

16          staff, several of my staff have called your 

17          department over the last three or four 

18          months.  I've called your department over the 

19          last three or four months.  And all of us get 

20          three words.  It's not "I love you."  It's 

21          "We don't know."

22                 We've asked them over and over again:  

23          When are they coming?  We don't know.  Why 

24          are they so late?  We don't know.  


 1                 Now, you've kind of attempted to 

 2          explain why that's all happening.  But just 

 3          like us as representatives, you're a 

 4          representative public servant also.  And the 

 5          buck stops with you and the Tax Department.

 6                 ACTING COMMISSIONER MANION:  It does.

 7                 SENATOR TEDISCO:  And we cannot 

 8          continue to allow this to happen.  

 9                 Now, I believe April 15th is the 

10          deadline for my constituents and all of us to 

11          pay our taxes, is that right, for the State 

12          of New York?

13                 ACTING COMMISSIONER MANION:  I'm 

14          sorry, what was --

15                 SENATOR TEDISCO:  April 15th, is that 

16          right --

17                 ACTING COMMISSIONER MANION:  April 

18          15th is to pay your personal income taxes.

19                 SENATOR TEDISCO:  And I'm pretty sure 

20          if one of my constituents calls up and says, 

21          you know, I'm 30 days late, but my dog ate my 

22          application and my tax filing, or I 

23          accidentally put it in the fireplace to start 

24          a fire, that's not going to work.  What's 


 1          going to happen?

 2                 ACTING COMMISSIONER MANION:  If I can 

 3          take --

 4                 SENATOR TEDISCO:  They're going to pay 

 5          interest, aren't they?

 6                 ACTING COMMISSIONER MANION:  Yes.

 7                 SENATOR TEDISCO:  Yes.

 8                 ACTING COMMISSIONER MANION:  If I can 

 9          take a minute to explain the difference.

10                 With our personal income tax systems, 

11          they're very mature.  You know, we have the 

12          IT systems that are able to do validations, 

13          we have checks, thousands of checks as the 

14          return comes in.  And as you can imagine, 

15          your personal income tax return has a lot 

16          more data points that need to be checked.  

17                 We're able to do that, and we're able 

18          to do it immediately, and then we run through 

19          these fraud checks to identify the 

20          questionable.  And we stopped 354,000 of it.  

21          So we have a lot of success in that area.  

22          And that's why I'm confident that, given some 

23          time and given experience with the data, we 

24          can set up a system where it will be 


 1          automated and we will be able to do that 

 2          just-in-time check, so that we're getting 

 3          accurate data and we're able to provide 

 4          information.  

 5                 We feel the pain of not being able to 

 6          answer questions.  We actually take a lot of 

 7          pride in our customer service, and I think we 

 8          do pretty well with our personal income tax 

 9          and the other taxes.  Our call center takes 

10          3.4 million calls a year.  And when people 

11          call about their income tax refund, we're 

12          able to give them information.  The reason 

13          we're able to give them information is 

14          because we have an integrated system that, as 

15          it goes through the process, it populates the 

16          system with the status of where that refund 

17          is.  We don't have that system built for this 

18          yet.  This is the first year.

19                 SENATOR TEDISCO:  Well, all that's 

20          good, but it's cold comfort to a senior 

21          citizen who's just trying to make ends meet.  

22          You know, this is one of the highest property 

23          tax states in the nation.  And we've got 

24          seniors now who have paid their mortgages off 


 1          for 30 years -- but guess what, they can't 

 2          afford to pay their mortgages anymore, and 

 3          their taxes after that.  So they've paid for 

 4          their house, they own it, now they can't 

 5          afford the taxes to stay in their house.  And 

 6          I think  a lot of our kids who are graduating 

 7          colleges see that, and there's a tremendous 

 8          brain drain in New York State.  

 9                 So, you know, I understand there's 

10          some excuses.  You're utilizing those 

11          excuses.  And we've given some time here.  

12          It's November, December, it's January, it's 

13          into February now, and still many of my 

14          constituents have not got those checks.

15                 So my colleague, I believe, our 

16          Senator, our good Senator, our chair here, 

17          she's got a bill.  I've put in a bill.  And I 

18          think there's such a saying as what's good 

19          for the goose is good for the gander.  We're 

20          going to give you some time.  I put in a bill 

21          that says for every day that you and the Tax 

22          Department and the State of New York -- I'll 

23          call you the goose, because what's good for 

24          you, you're not paying a penalty for being 


 1          late for every day -- you would pay the same 

 2          financial penalty of interest for every day 

 3          you're late with giving these rebate checks 

 4          to the homes of the individuals who, as has 

 5          been mentioned, counted on these to help pay 

 6          for their taxes.  And you've put many of them 

 7          in a difficult situation.  Not you 

 8          personally, but I guess the process has been 

 9          difficult, as you said.

10                 So I think one more year, the rest of 

11          this year, is a long enough time for you to 

12          fulfill our fiduciary obligations to get 

13          those checks to our seniors, to everybody who 

14          owns a home who wants to keep that American 

15          dream, to have that household.  

16                 And I hope I can get some support for 

17          that bill in the Senate and the Assembly, 

18          because I think that will expedite the 

19          process and it won't be just talking the 

20          talk, we'll walk the walk and we'll make sure 

21          that if we don't fulfill that, just like you 

22          won't accept excuses and the State of New 

23          York won't accept excuses -- because this 

24          isn't one day, it's not two days, it's not a 


 1          month, it's not two months, it's not three 

 2          months, it's going into four or five months 

 3          right now.  And they're going to expect this 

 4          to be solved.  

 5                 And as their representative, the 

 6          representative of the people of the 

 7          49th Senatorial District, and all of my other 

 8          colleagues here, we expect that of ourselves, 

 9          we expect that of our leadership like you and 

10          the Governor.

11                 And so fair warning now.  You've given 

12          us a promise that this will be all 

13          straightened out by September of this year 

14          and everybody's going to get those checks in 

15          the mail by then.  Think that's going to 

16          happen?

17                 ACTING COMMISSIONER MANION:  The 

18          unknown is the quality of the data that we 

19          get from the locals.  So --

20                 SENATOR TEDISCO:  If we can't get that 

21          quality of data, then we have to change the 

22          system somehow, so we don't depend upon that 

23          quality of data.  And I don't --

24                 ACTING COMMISSIONER MANION:  We agree.  


 1          We agree.  If we had one standard system and 

 2          one standard way of reporting the 

 3          information.  

 4                 However, we've done extensive 

 5          outreaches to the locals, and we've actually 

 6          sent people out to sit and work with them.  

 7          But in the end, they don't have the resources 

 8          to get it done, and so we accept it and we 

 9          take some of the burden ourselves to try to 

10          interpret it.

11                 SENATOR TEDISCO:  Thank you.

12                 ACTING COMMISSIONER MANION:  Thank 

13          you.

14                 CHAIRMAN FARRELL:  Thank you.

15                 Assemblyman Ra.

16                 ASSEMBLYMAN RA:  Thank you, Chairman.  

17          Just on that same topic of the STAR checks, 

18          quickly, is there any thought to, you know, 

19          doing something similar to what we have with 

20          rebates for income tax, so that people could, 

21          maybe through the website or wherever, get 

22          specific information as to the status?  

23          Because if there's an issue going on, say -- 

24          you know, you're saying you may have gotten 


 1          information late from a certain county's 

 2          assessor or what have you, then it seems that 

 3          there should be at least, you know, some more 

 4          specific information specific to that 

 5          homeowner as to what the status is and how 

 6          long it's going to take.  

 7                 Has there been any thought of 

 8          implementing something like that?  

 9                 ACTING COMMISSIONER MANION:  That's 

10          the objective of having the system that 

11          provides information to people about their 

12          specific -- the problem we ran into this year 

13          is we didn't have the specific information 

14          for the individuals to provide to the people 

15          on the call center to answer the questions.

16                 ASSEMBLYMAN RA:  Okay.  And so I'm 

17          going to move over to a completely different 

18          topic.  

19                 Two -- almost two years ago now, the 

20          Legislature adopted a couple of changes 

21          regarding the property tax cap and the way 

22          PILOTS are computed, as well as BOCES capital 

23          projects.  And to my knowledge, these still 

24          have not been implemented.  I know many of us 


 1          continue to hear from both our local 

 2          districts and some of the statewide 

 3          organizations regarding this issue.  Where is 

 4          the department on that, and when can we 

 5          expect something with that?  Obviously we're 

 6          going on another year that these things are 

 7          being computed without those changes being 

 8          implemented.

 9                 ACTING COMMISSIONER MANION:  In 

10          looking at that, it's -- you know, the 

11          municipalities have an impact, the school 

12          districts have an impact, and the taxpayers 

13          have an impact too.  So that's something that 

14          we're looking at, to make sure that the 

15          taxpayers continue to have their say.

16                 ASSEMBLYMAN RA:  Well, I think in 

17          particular, you know, if you look at, say, 

18          the PILOTS, if we're not computing -- you 

19          know, the purpose of these programs, and you 

20          know, we can go on for hours about some of 

21          the issues with some of those types of 

22          economic programs and the way the PILOTS are 

23          used.  But in a lot of ways they're supposed 

24          to be used to maybe expand the tax base.  So 


 1          there's money coming in now that isn't, you 

 2          know, coming in from property taxes, it's 

 3          coming in through the PILOT, so that the 

 4          taxpayer and that local tax base benefits 

 5          from that.

 6                 So I think, you know, that particular 

 7          change, especially, is more -- you know, when 

 8          that's implemented, it will be more 

 9          reflective to those local governments, 

10          whether it's a school district or a town, a 

11          village, a county, of what the actual tax 

12          base is coming in.

13                 So, you know, I would just reiterate, 

14          you know, a lot of people continue to ask 

15          about this issue.  Like I said, we're going 

16          on almost two years since the Legislature 

17          adopted those changes.  So I would hope that 

18          if there are issues related to it that maybe 

19          the Legislature needs to address, I hope that 

20          those lines of communication are open.  

21                 But a lot of people are asking what's 

22          going on, because we said, Well, we adopted 

23          these changes.  You know, I have some school 

24          districts that have a lot of PILOTS coming 


 1          through with different development, and they 

 2          continue to ask what's going on, and I really 

 3          haven't ever had a really good answer for 

 4          them.

 5                 ACTING COMMISSIONER MANION:  Okay.  

 6          Thank you.

 7                 ASSEMBLYMAN RA:  Thank you.

 8                 CHAIRMAN FARRELL:  Thank you.

 9                 Senator?  

10                 CHAIRWOMAN YOUNG:  Thank you.  

11                 Senator Bonacic.

12                 SENATOR BONACIC:  Good morning.

13                 ACTING COMMISSIONER MANION:  Good 

14          morning.

15                 SENATOR BONACIC:  Thank you for being 

16          here.  

17                 The problems have all occurred because 

18          we've changed the system from what we've done 

19          in the past three years prior?  Is that why 

20          all of these distribution problems of getting 

21          the STAR checks out in a timely manner are 

22          happening?

23                 ACTING COMMISSIONER MANION:  The 

24          change --


 1                 SENATOR BONACIC:  In other words, tax 

 2          credits as opposed to getting a rebate check.  

 3          We had a system in place for three years.  We 

 4          changed everything last year.  It was put in 

 5          your lap to implement it.  Is that the reason 

 6          why there's been delays in the 

 7          implementation?  

 8                 ACTING COMMISSIONER MANION:  The 

 9          change definitely is -- the change was the 

10          start of the delays.  I think the -- one of 

11          the reasons that it's been more delayed that 

12          we expected is when we found some of the 

13          inaccuracies of the information that came 

14          from the locals.  

15                 So if it was to remain out there, 

16          those inaccuracies might not be uncovered.  

17          So the benefit of moving it in with us is we 

18          have the information to do the validation, 

19          and we can avoid having payments be made to 

20          people that are not entitled to it.

21                 SENATOR BONACIC:  Back in late 

22          January, the 28th, for our widely distributed 

23          local newspaper that goes to five counties, 

24          they had four pages with pictures of seniors 


 1          who haven't gotten their checks.  Okay?  

 2          That, in turn, created more phone calls.  And 

 3          you created a nightmare for many of our 

 4          elected officials, because if you fail, the 

 5          perception is we fail in helping them.  Okay?

 6                 Now, can I ask you how many employees 

 7          you have in your Department of Taxation?  

 8                 ACTING COMMISSIONER MANION:  In the 

 9          department we have 3900.

10                 SENATOR BONACIC:  Yeah, how many do 

11          you have?  

12                 ACTING COMMISSIONER MANION:  

13          Thirty-nine hundred people.

14                 SENATOR BONACIC:  Thirty-nine hundred?

15                 ACTING COMMISSIONER MANION:  Yeah, 

16          3,900.

17                 SENATOR BONACIC:  Okay.  In this 

18          transition to this new system, is it a matter 

19          of simply you have sufficient labor and it's 

20          the system that you're having problem 

21          implementing?  Or do you need more bodies to 

22          do it more efficiently, in your judgment?  

23                 ACTING COMMISSIONER MANION:  Sure.  In 

24          the transition, we had to find out -- what we 


 1          had thought needed to be done was very 

 2          different from what actually had to be done.  

 3                 So we do have 3900 people, and we can 

 4          train them up to do a lot of this manual -- a 

 5          lot of manual work, if required.  

 6                 We didn't expect to get twice as many 

 7          people registering for the STAR credit check 

 8          than were entitled to it.  But because we 

 9          did, we had to have people looking at it.  

10          But before you can train up 120 people that 

11          are used to doing personal income tax type of 

12          work, you have to figure out what it is 

13          they're looking at and what you need to get 

14          from them.

15                 So we did a lot of that this year.  We 

16          were able to move additional people onto the 

17          phones to take some of these calls.  We're 

18          able to move people from our income tax 

19          processing to do some of the real property 

20          tax processing.  So we've been able to make 

21          some of those changes.  So besides getting 

22          the system in place, we've also learned a lot 

23          of what needs to be done manually so that we 

24          will be better prepared to do it next year 


 1          with the staff that we have.

 2                 SENATOR BONACIC:  Okay.  There are 

 3          seniors that have gone to a bank to borrow 

 4          money to pay for their taxes.  With the 

 5          penalty -- you know, with interest.  So other 

 6          members have spoken about actual pain and 

 7          loss of money because of delay.  

 8                 And the perception is that when people 

 9          try to communicate with your department, 

10          basically you're not in a public relations 

11          business and you're not really communicating 

12          well in getting your message out.  You have a 

13          spokesperson that talks about all the 

14          successful STAR checks you got out.  But 

15          there's a loud vocal minority that are still 

16          hurting, and we're trying to help them.

17                 So my last question to you, if I were 

18          to get you a list of the people in my office 

19          -- excuse me, in my district that are having 

20          these serious problems, is it possible that 

21          you could address this list in a prompt way 

22          and take care of these people?  

23                 ACTING COMMISSIONER MANION:  

24          Definitely.


 1                 SENATOR BONACIC:  Rather than, you 

 2          know, talk about the micro picture, you could 

 3          respond quickly -- assuming everything is 

 4          verified, of course.

 5                 ACTING COMMISSIONER MANION:  Correct.

 6                 SENATOR BONACIC:  And how quickly do 

 7          you think they could get their checks if I 

 8          could get you a list of constituents that are 

 9          out there hanging, waiting for their checks 

10          and perhaps paying interest to a bank?

11                 ACTING COMMISSIONER MANION:  Over the 

12          past several weeks, anyway, as we've received 

13          lists, I've been looking at the lists and 

14          we've found that there is a decent percentage 

15          of these people that have already received 

16          the STAR credit.  So they're not necessarily 

17          people that bought a house this year that 

18          would be getting a check.  They already got 

19          the exemption.  

20                 And that's where I think that a lot of 

21          your constituents have some confusion as to 

22          whether they're getting a check or whether 

23          they already received the check.  

24                 We will definitely do that outreach to 


 1          let them know why they're not getting a 

 2          check.  We did just send another group of 

 3          about 12,000 letters out to people telling 

 4          them they had already received the exemption 

 5          so they wouldn't be getting the check, and 

 6          please check their tax bill, and if they find 

 7          that it's different, send that in to us and 

 8          we will make sure that we remedy it.

 9                 But yes, we will work through any 

10          lists that you have.

11                 SENATOR BONACIC:  Okay.  And would it 

12          be all right if I gave you personally the 

13          lists, so I know?  

14                 ACTING COMMISSIONER MANION:  Please 

15          do.  And I will try.

16                 SENATOR BONACIC:  Okay, thank you very 

17          much.

18                 ACTING COMMISSIONER MANION:  Thank 

19          you.  

20                 ASSEMBLYMAN OAKS:  Assemblyman 

21          McLaughlin.

22                 ASSEMBLYMAN McLAUGHLIN:  Thank you, 

23          Chairman.  

24                 And thank you for being here.  I'm 


 1          going to hit on the same topic that my 

 2          colleagues are, because I can't tell my 

 3          constituents that are frustrated and angry 

 4          about not receiving a check that somehow 

 5          their municipality is not sending it in the 

 6          right format.

 7                 ACTING COMMISSIONER MANION:  

 8          Understood.

 9                 ASSEMBLYMAN McLAUGHLIN:  So my 

10          question for you is, what's changed?  What 

11          format-wise changed from what the old system 

12          was to what the new system is?  What data are 

13          they supposed to send that they somehow 

14          apparently are not?  

15                 ACTING COMMISSIONER MANION:  Sure. The 

16          old system did not require them sending 

17          information to us to use.  The old system had 

18          them telling the school districts that are 

19          doing the tax levy whether to put the 

20          exemption on the tax bill or not.

21                 So they had that relationship with the 

22          school districts.  So that relationship, they 

23          probably worked through that interpretation 

24          in the past.  But when we're receiving it 


 1          from a thousand assessors in almost 800 

 2          schools, we don't have those interpretations 

 3          right now.

 4                 ASSEMBLYMAN McLAUGHLIN:  Correct.  

 5          Okay.  So knowing that and knowing that we're 

 6          implementing a change, why was this change 

 7          implemented in fairly rapid fashion rather 

 8          than maybe do it this year and keep the old 

 9          system in place for another year and be able 

10          to proactively communicate to these 

11          municipalities, many of whom you have 

12          mentioned are part-timers, there may be one 

13          or two people working in these small villages 

14          or hamlets.  I don't understand why we did 

15          this.  It's a "ready, fire, aim, then blame" 

16          mentality around here.  So why didn't we take 

17          our time and do it right and roll it out 

18          correctly, rather than do it as quickly as we 

19          can?  And we're seeing the results of moving 

20          too quickly.

21                 ACTING COMMISSIONER MANION:  The 

22          assumption was that when we received the 

23          information from the assessors as to who 

24          purchased the homes, you know, after March of 


 1          2015 -- so when we found out what that 

 2          universe was, and it was 120,000, the 

 3          assumption was that we would then have them 

 4          come in and register and we'd be able to use 

 5          that information that we received.

 6                 Unfortunately, when we looked at it, 

 7          we found it was not as accurate, and so we 

 8          couldn't just be sending checks out based on 

 9          that.

10                 ASSEMBLYMAN McLAUGHLIN:  Okay.  Was it 

11          modeled before we rolled it out?  Did we 

12          model this, did we test this at all before we 

13          did it?

14                 ACTING COMMISSIONER MANION:  The -- 

15          the timing did not allow that.

16                 ASSEMBLYMAN McLAUGHLIN:  Right, 

17          because we moved too quickly.

18                 ACTING COMMISSIONER MANION:  Correct.  

19          Yes.

20                 ASSEMBLYMAN McLAUGHLIN:  Right, 

21          exactly.  That's my point, we moved too 

22          quickly rather than model it and test the 

23          waters before we jumped into this mess.

24                 ACTING COMMISSIONER MANION:  It was a 


 1          fast implementation, yes.

 2                 ASSEMBLYMAN McLAUGHLIN:  We certainly 

 3          know how to collect them on time, though.  

 4          That we can do.  But getting the taxes back 

 5          to the folks who need it to pay their school 

 6          taxes is proving a challenge.  And given 

 7          that, that it's clearly a challenge and we 

 8          have a lot of frustrated constituents out 

 9          there, which frustrates us -- and I know 

10          you're frustrated.  I know you don't want 

11          these checks to be late --

12                 ACTING COMMISSIONER MANION:  Correct.

13                 ASSEMBLYMAN McLAUGHLIN:  -- do you 

14          think that the taxpayers of New York that are 

15          not receiving the checks to which they're 

16          entitled, should they receive a grace period 

17          from the State of New York and not have to 

18          pay interest or not have to pay a penalty?

19                 ACTING COMMISSIONER MANION:  So 

20          associated with real property, there isn't 

21          any interest or penalty.

22                 ASSEMBLYMAN McLAUGHLIN:  Okay.  So 

23          it's okay if they're late, there's no problem 

24          with them being late with their taxes to the 


 1          State of New York?  

 2                 ACTING COMMISSIONER MANION:  You know, 

 3          we administer to the tax laws as they're 

 4          written.

 5                 ASSEMBLYMAN McLAUGHLIN:  Okay.  The 

 6          STAR freeze, I just want to hit on that for a 

 7          second.  The Governor is proposing that we 

 8          freeze this at 2016-2017 levels.  The 

 9          department, I assume, is noncommittal or 

10          supportive of that proposal?  Probably 

11          noncommittal; right?

12                 ACTING COMMISSIONER MANION:  Well, 

13          supportive, because we've seen how the freeze 

14          has really worked on maintaining the property 

15          tax levels.

16                 ASSEMBLYMAN McLAUGHLIN:  Well, the 

17          property tax freeze still -- we don't have a 

18          property tax freeze completely, we're still 

19          seeing some increases; right?  

20                 ACTING COMMISSIONER MANION:  Mm-hmm.

21                 ASSEMBLYMAN McLAUGHLIN:  Okay.  So 

22          given that property taxes continue to creep 

23          up -- and I'll give the Governor credit for 

24          that property tax cap, it was necessary and 


 1          needed -- is freezing the STAR exemption at 

 2          current levels, is that not, in effect, a tax 

 3          increase going forward for the homeowners, 

 4          since they are now frozen but yet their 

 5          property taxes will continue to creep?  

 6                 ACTING COMMISSIONER MANION:  If the 

 7          property taxes stay within the freeze, it 

 8          won't be as much of an impact.

 9                 ASSEMBLYMAN McLAUGHLIN:  A little 

10          louder, please? 

11                 ACTING COMMISSIONER MANION:  If the 

12          property taxes stay within the freeze amount, 

13          within the cap, it won't be that much of an 

14          impact.

15                 ASSEMBLYMAN McLAUGHLIN:  But it's an 

16          increase.

17                 ACTING COMMISSIONER MANION:  Yes.

18                 ASSEMBLYMAN McLAUGHLIN:  It is a tax 

19          increase.

20                 ACTING COMMISSIONER MANION:  Yes.

21                 ASSEMBLYMAN McLAUGHLIN:  Okay.  With 

22          this change to the checks being cut, what's 

23          the cost to the state on postage and 

24          printing?


 1                 ACTING COMMISSIONER MANION:  We're 

 2          doing it within our administrative budget.

 3                 ASSEMBLYMAN McLAUGHLIN:  There still 

 4          has to be a cost.

 5                 ACTING COMMISSIONER MANION:  There is 

 6          a cost.  There is a cost.  We've not done the 

 7          calculation of what the cost is.

 8                 ASSEMBLYMAN McLAUGHLIN:  You haven't 

 9          calculated the cost of postage or printing or 

10          envelopes or anything else, labor involved?  

11          You haven't calculated that?  

12                 ACTING COMMISSIONER MANION:  Not 

13          individually.  We consider it part of our 

14          business, what we have to do to administer to 

15          the tax laws.

16                 ASSEMBLYMAN McLAUGHLIN:  But yet you 

17          didn't -- did you get a budget increase?  Did 

18          you get an increase in your budget in last 

19          year's budget?  

20                 ACTING COMMISSIONER MANION:  No, we've 

21          been flat.

22                 ASSEMBLYMAN McLAUGHLIN:  But yet you 

23          incurred additional expenses, but we don't 

24          know what those are.


 1                 ACTING COMMISSIONER MANION:  Correct.

 2                 ASSEMBLYMAN McLAUGHLIN:  Okay.  Okay.  

 3          All right, thank you very much.

 4                 ACTING COMMISSIONER MANION:  Thank 

 5          you.  

 6                 CHAIRMAN FARRELL:  Thank you.  

 7                 Senator?  

 8                 CHAIRWOMAN YOUNG:  Senator Comrie.

 9                 SENATOR COMRIE:  Yes, good morning, 

10          Commissioner.  

11                 I just wanted to join my voice to the 

12          folks that are asking about the quick 

13          resolution of getting the STAR checks out to 

14          people.  Clearly there are a lot of people in 

15          need for that as well.

16                 I really just wanted to thank your 

17          office for helping with a couple of cases 

18          that we've had for businesspeople and for 

19          people that have made mistakes in the filing 

20          of their taxes, and I appreciate your 

21          response to that.  And I would hope that we 

22          could get your office to help by doing a 

23          forum downstate with a lot of my businesses 

24          that have filed their papers incorrectly.  


 1                 And hopefully we can set that up as 

 2          quickly as possible, because it seems that 

 3          when there's a paper error made in a filing, 

 4          it just takes forever to get it fixed.  And I 

 5          hope that we can get that.  But I really just 

 6          wanted to take this time to thank you for the 

 7          responsiveness of the office, even though it 

 8          sometimes is strange that a person would file 

 9          status incorrectly and then have to take 

10          three years to get it fixed.  We need to work 

11          on making that paperwork easier.

12                 So I'm really just wanting to take the 

13          time to thank you today, and it's interesting 

14          that we had democracy in the house, but I 

15          hope that the rest of the day goes a little 

16          bit smoother for you.  Thank you.  

17                 Thank you, Madam Chair.

18                 ACTING COMMISSIONER MANION:  Thank you 

19          for recognizing it.  And we will definitely 

20          work with you, because the more we can work 

21          with taxpayers and getting their returns 

22          right, the more efficient we are.

23                 SENATOR COMRIE:  Thank you.

24                 CHAIRWOMAN YOUNG:  Thank you, Senator.


 1                 CHAIRMAN FARRELL:  Assemblyman Oaks.

 2                 ASSEMBLYMAN OAKS:  Yes, thank you very 

 3          much.  

 4                 A few questions off the rebates and 

 5          the checks, which have been obviously a main 

 6          focus, and I share a lot of the concerns that 

 7          have been shared today as well.

 8                 But in the proposal and in the budget, 

 9          the financial data match system is being 

10          changed by Tax and Finance, where they would 

11          no longer have to file a warrant to receive 

12          information about a tax debtor from a 

13          financial institution.  So just wondering why 

14          we're doing this, and are there going to be 

15          measures that would protect taxpayer privacy 

16          with that?

17                 ACTING COMMISSIONER MANION:  What 

18          we're looking to do there is to be able to 

19          get the information from the banks as to 

20          whether the individuals have accounts there, 

21          prior to issuing the warrant.  So it's an 

22          efficiency.  It's making sure that we're 

23          efficient and looking at the information, and 

24          without the additional burden on the 


 1          taxpayer.

 2                 ASSEMBLYMAN OAKS:  Is there concern -- 

 3          you know, the privacy issue just -- you know, 

 4          that's opening up government, being able to 

 5          look, I guess, more without getting that 

 6          information.  

 7                 Are there protection things, from your 

 8          perspective, that we are going to be doing so 

 9          that, you know, privacy will be maintained?

10                 ACTING COMMISSIONER MANION:  Well, we 

11          currently receive information from the banks 

12          for our warranted debt.  And this would just 

13          open it up so that we would receive the 

14          information for debt prior to it being 

15          warranted.

16                 We have security in place.  Taxpayer 

17          information is made very secure.  Many of you 

18          have asked for information, and we've had to 

19          -- we're very limited in what we can tell you 

20          because tax secrecy is critical.

21                 ASSEMBLYMAN OAKS:  Thank you.  With 

22          the public safety communication surcharge, I 

23          know there's a proposal to extend that fee 

24          that we do now to prepaid phones.  And I know 


 1          some of that money is supposed to go to local 

 2          governments and whatever.  I'm just wondering 

 3          if the amounts -- if we're going to collect 

 4          that, if those amounts are going to be 

 5          reallocated to the counties to reflect, you 

 6          know, that new revenue that we're going to be 

 7          taking in.

 8                 ACTING COMMISSIONER MANION:  The 

 9          revenue will increase.  As you know, we 

10          currently collect that for, you know, for 

11          landlines and for the monthly pay.  You know, 

12          if you have a subscription for a cellphone.

13                 This is just for the prepaid, and 

14          really just to balance it.  And the 

15          distribution will be the same.

16                 ASSEMBLYMAN OAKS:  And so are counties 

17          -- if this passes and we make this change, 

18          our counties can anticipate some increased 

19          revenue from those?

20                 ACTING COMMISSIONER MANION:  If they 

21          currently receive it, then they should have 

22          increased, yeah.

23                 ASSEMBLYMAN OAKS:  Last week during 

24          the Local Government hearing, NYCOM discussed 


 1          that some of the ESCOs, the energy service 

 2          companies, were not collecting -- or not 

 3          paying, I should say, the gross receipts tax.  

 4          And I know that your department had put out 

 5          an advisory opinion saying that they should 

 6          be paying that.  Has the department done 

 7          anything to enforce that or to help that 

 8          happen?  I know there was concern that those 

 9          resources were not being collected that would 

10          ultimately end up with those local 

11          governments.

12                 ACTING COMMISSIONER MANION:  I don't 

13          have the specifics on that.  I'd have to look 

14          into it.

15                 But generally speaking, if we do an 

16          advisory opinion and it's deemed to be 

17          taxable, it's something that our audit 

18          division looks at and we take a look at the 

19          people that are filing the tax to determine 

20          if they're filing accurately.

21                 ASSEMBLYMAN OAKS:  Perhaps that ought 

22          to be something that we negotiate as a part 

23          of this budget, maybe with a change to 

24          clarify that.


 1                 In the budget there are a few 

 2          enforcement initiatives that have been 

 3          proposed.  They're projected to, I think, 

 4          bring in $12 million.  Are these the result 

 5          of fraud cases or a few specific cases that 

 6          we see out there, or just focused at, you 

 7          know, a revenue increase for the state?

 8                 ACTING COMMISSIONER MANION:  No, it's 

 9          really to collect the revenue as intended by 

10          the law.  And we find that sometimes our 

11          ability to enforce has some loopholes 

12          associated with it, or has some gaps for our 

13          enforcement.  And so these are to close those 

14          so we can really modernize and collect the 

15          tax that was due when the law was passed, and 

16          the intention of the law.

17                 ASSEMBLYMAN OAKS:  Thank you.

18                 CHAIRMAN FARRELL:  Senator?

19                 CHAIRWOMAN YOUNG:  Senator Krueger.

20                 SENATOR KRUEGER:  Good morning.

21                 ACTING COMMISSIONER MANION:  Good 

22          morning.

23                 SENATOR KRUEGER:  So I've heard from 

24          many of my colleagues how concerned they are 


 1          about the tax checks not going out.  We used 

 2          to have an exemption system instead of 

 3          sending checks out in the mail, and somebody 

 4          thought it was a really good idea to 

 5          taxpayers before Election Day.  I was never 

 6          so wild about that.

 7                 What if we just go back to the old 

 8          system?  Will all these problems go away?

 9                 ACTING COMMISSIONER MANION:  The 

10          problem of the accuracy will not go away.  If 

11          we go back to the old exemption, the -- we 

12          wouldn't be getting the information to check 

13          to make sure that it's accurate, to check on 

14          the income -- whether they fall under the 

15          income requirements.

16                 SENATOR KRUEGER:  So you'd have a new 

17          assignment of collecting the data, but you 

18          wouldn't actually have people waiting around 

19          for checks to come.

20                 ACTING COMMISSIONER MANION:  It would 

21          be more of a matter of -- if the locals were 

22          giving the exemption and we determined that 

23          it's not -- that the person wasn't eligible 

24          for it, then we would be billing them.  And 


 1          that's never a good idea.

 2                 And this is really only for the people 

 3          that purchased homes after March of 2015.  So 

 4          it's a slow roll-in, as compared to the 

 5          entire universe that receives the STAR 

 6          benefits.

 7                 SENATOR KRUEGER:  So the only people 

 8          being affected are people who bought homes in 

 9          the last year?

10                 ACTING COMMISSIONER MANION:  Correct.  

11          However, I think part of the expectation 

12          problem that we have is other people think 

13          that they should be getting this check, and 

14          they've already received the exemption.

15                 SENATOR KRUEGER:  Thank you.

16                 So you answered one question that you 

17          can't discuss criminal activity for 

18          individuals, obviously.  But what's the 

19          department's estimate of how many New Yorkers 

20          fail to pay correct taxes and how much we're 

21          losing because people are not in fact 

22          intentionally paying their taxes correctly?

23                 ACTING COMMISSIONER MANION:  Okay.  

24          Each year we collect about $3 billion in our 


 1          enforcement money.  Prior to --

 2                 SENATOR KRUEGER:  Three billion or 

 3          3 million?

 4                 ACTING COMMISSIONER MANION:  Three 

 5          billion of just state money, through our 

 6          enforcement efforts.

 7                 Before we select a taxpayer to audit, 

 8          to spend our audit resources on, they've 

 9          already gone through a strict interrogation 

10          using all of our data.  So we compare the 

11          data that comes in on the tax return to 

12          third-party sources.  So for sales tax we 

13          look at like the beer, wine and liquor sales, 

14          we look at cigarette sales, we look -- we 

15          have a lot of third-party information.  We 

16          also have information from their corporation 

17          tax returns.  

18                 All of that information goes into our 

19          data warehouse, and we use our analytics to 

20          determine those that are more likely to have 

21          compliance issues than not.  Because if 

22          somebody is trying hard to get it right, we 

23          want to leave them alone.  We want to spend 

24          our time on those that are not getting it 


 1          right.

 2                 So our efforts at doing that, not only 

 3          with our field audits, where we do about 

 4          13,000 a year, we've really increased what 

 5          we've been able to do through our desk audit 

 6          program, where we have over half a million 

 7          desk audit programs that go out every year, 

 8          where it's more of a single issue, where 

 9          we're looking at a personal income tax return 

10          and the itemized deductions seem larger than 

11          normal, and we don't have anything to 

12          validate it, so we will send something out to 

13          those individuals.

14                 And I think through those efforts what 

15          we've done is we've really put a message out 

16          to the taxpayers of New York that we're 

17          looking at the return and we're looking to 

18          make sure that it's accurate.

19                 So I can't really say what we don't 

20          get.  I can tell you what we do get, and our 

21          efforts to make sure that people are 

22          complying.

23                 SENATOR KRUEGER:  Switching to 

24          internet sales, there's a proposal to expand 


 1          collection of sales tax on larger marketplace 

 2          providers through the internet.

 3                 ACTING COMMISSIONER MANION:  Correct.

 4                 SENATOR KRUEGER:  We live in a world 

 5          where there are fewer and fewer 

 6          bricks-and-mortar stores selling things and 

 7          more and more products being sold through 

 8          large online marketplaces, so warehouses and 

 9          delivery companies are growing, but retail 

10          stores are shrinking.

11                 This proposal would increase our sales 

12          tax revenue by about $68 million in the 

13          implementation year, $136 million annually.  

14          As I understand the proposal, we're only 

15          applying this tax to marketplace online sales 

16          companies that sell more than $100 million a 

17          year.

18                 ACTING COMMISSIONER MANION:  Correct.

19                 SENATOR KRUEGER:  In the current 

20          system of sales tax, whether you're a tiny 

21          store or Walmart, you pay the same level of 

22          sales tax.  

23                 Under this system -- that would be 

24          larger and larger going forward, because this 


 1          is how the economy is going -- you would 

 2          actually be having two different standards 

 3          for the collection of sales tax depending on 

 4          the size of the company -- and I'm not sure I 

 5          think $99 million a year is a small company.

 6                 Explain the policy justification for 

 7          not having equal treatment across the board 

 8          of sales tax collection on internet sales.

 9                 ACTING COMMISSIONER MANION:  Okay, let 

10          me give a little clarification.  

11                 These marketplace providers, besides 

12          having their own business that they 

13          provide for, they also provide the 

14          marketplace for all of those thousands of 

15          small businesses.  So when they are doing the 

16          collection, when they're collecting the 

17          money, doing the money transaction for all of 

18          those individual small businesses, they will 

19          be remitting to the state that sales tax.

20                 The individuals, all of those small 

21          individuals, will not have to do that 

22          bookkeeping.  So it really eases the burden 

23          on those, on the small businesses.  The 

24          marketplace are really acting as an agent for 


 1          us, to assist us in collecting the taxes 

 2          already due.

 3                 SENATOR KRUEGER:  But is there 

 4          anything then that prevents the marketplace 

 5          models from stopping at $99 million and just 

 6          becoming a set of one company, 42 subsidiary 

 7          different companies, to avoid taxes?

 8                 ACTING COMMISSIONER MANION:  I think 

 9          the marketplace business is just thriving.  

10          In 2015, $100 billion worth of business was 

11          done through internet sales, and it's 

12          increasing by 20 percent.  So it's just 

13          increasing so much, I believe that if they 

14          were to do that just to avoid having to 

15          administer the tax, really collect and pay 

16          the tax, they would really be compromising 

17          their business model.

18                 SENATOR KRUEGER:  And because it is 

19          thriving -- we both agree on that --

20                 ACTING COMMISSIONER MANION:  Yes.

21                 SENATOR KRUEGER:  -- this doesn't seem 

22          that much sales tax revenue for a sector of 

23          the economy that is doing such an enormous 

24          amount of business.


 1                 ACTING COMMISSIONER MANION:  And 

 2          that's because a lot of them are already 

 3          collecting and paying.  So many of the bigs 

 4          are already collecting and paying.  You know, 

 5          we've audited them, and we've got them 

 6          compliant.

 7                 What this touches on are those 

 8          third-party businesses.  So if you were to go 

 9          on to one of these marketplaces and you were 

10          purchasing 10 items, seven of them might come 

11          from the big business that's already paying, 

12          but three of them might come from some of 

13          these third-party vendors that are selling 

14          through the marketplace.

15                 What this captures is the tax 

16          associated with those three items.

17                 SENATOR KRUEGER:  So we know Amazon 

18          already participates.

19                 ACTING COMMISSIONER MANION:  I'm 

20          sorry, what was that?

21                 SENATOR KRUEGER:  Amazon already 

22          participates.

23                 ACTING COMMISSIONER MANION:  Correct.

24                 SENATOR KRUEGER:  Does Alibaba?


 1                 ACTING COMMISSIONER MANION:  I can't 

 2          speak to that.

 3                 SENATOR KRUEGER:  Does Wayfair?

 4                 ACTING COMMISSIONER MANION:  I can't 

 5          speak to that.

 6                 SENATOR KRUEGER:  Can you get me a 

 7          list of the companies that are participating 

 8          and the companies you think will be captured 

 9          by this change of law?

10                 ACTING COMMISSIONER MANION:  We'll 

11          have to look into it, because some of it is 

12          taxpayer information.

13                 SENATOR KRUEGER:  Thank you.

14                 Shifting to the film tax credit, it's 

15          an enormous tax credit.  It's being extended 

16          for multiple years fairly early in its time 

17          frame.  Do you think we ought to be doing an 

18          independent cost-benefit study of the value 

19          that it's generating for New York State?

20                 ACTING COMMISSIONER MANION:  The cost 

21          estimate study is best done by Empire State 

22          Development, because they're really looking 

23          at what the benefit of it is.  We really 

24          administer to the payment of the credit.  So 


 1          it would have to be something done by the 

 2          other agencies.

 3                 SENATOR KRUEGER:  So when Empire State 

 4          Development testified the other day -- and 

 5          I'm sorry, I didn't bring that folder with me 

 6          -- they estimated a job creation number that 

 7          was impossible, except that when you went 

 8          back and looked at the calculation, it wasn't 

 9          full-time equivalent.  So if you get a job 

10          for three weeks, that counted as a job.  So 

11          you conceivably might get 10 three-week jobs 

12          in the industry over the course of a year, 

13          but you're getting counted as 10.

14                 So do you do any kind of evaluation 

15          like that, or you just take at face value 

16          whatever the other agency tells you?

17                 ACTING COMMISSIONER MANION:  We work 

18          with the other agencies.  We don't do 

19          anything independently.

20                 SENATOR KRUEGER:  On other tax 

21          credits, I have raised concern over the years 

22          that you have a not very strong or robust 

23          model for evaluating the value of different 

24          tax credits and rebates in our tax structure, 


 1          but we give out billions of dollars a year 

 2          through those tax credits and rebates and 

 3          exemptions.

 4                 Is there anybody in your department 

 5          who is reevaluating the system you use to 

 6          evaluate the effectiveness of all of these?  

 7          And is there something that we could look at 

 8          that helps us understand better the modeling 

 9          you're using to make the calculations of the 

10          effectiveness of different tax expenditures?

11                 ACTING COMMISSIONER MANION:  Well, we 

12          have the dollars associated with the credits, 

13          but the benefits really have to be provided 

14          by the subject matter experts of the other 

15          agencies.  So we don't have the complete 

16          picture.

17                 SENATOR KRUEGER:  And you never talk 

18          to them or review anything?

19                 ACTING COMMISSIONER MANION:  We 

20          provide information.  A lot of our 

21          information is public that they could use.

22                 SENATOR KRUEGER:  And that impacts a 

23          very large number of different agencies.  And 

24          sometimes it's not agencies, it's actually 


 1          authorities.  In fact, a disproportionate 

 2          amount ends up with authorities.  

 3                 So nobody in the state government is 

 4          systemically looking at the effectiveness of 

 5          any of these tax expenditures, you just print 

 6          them up in a book every year as the tax 

 7          expenditure report showing us how much each 

 8          of these line items is costing us?

 9                 ACTING COMMISSIONER MANION:  I can't 

10          speak to anybody within state government.  I 

11          can speak to within the Tax Department, we're 

12          not looking at it.

13                 SENATOR KRUEGER:  I'll have more 

14          questions in another round.  Thank you.

15                 ACTING COMMISSIONER MANION:  Okay.

16                 CHAIRMAN FARRELL:  Thank you.

17                 Mr. McDonald.  

18                 And, Mr. Oaks, you have someone?

19                 ASSEMBLYMAN OAKS:  Yes, Mr. Stec has 

20          joined us.

21                 ASSEMBLYMAN McDONALD:  Thank you, 

22          Mr. Chairman.

23                 Commissioner, thank you for being 

24          here.  I'm sorry the department wasn't here 


 1          last week when we had a hearing with -- 

 2          actually, I think only the Assessors 

 3          Association was here.  So my comments are 

 4          going to be focused on STAR.  

 5                 And although I wasn't here earlier, I 

 6          had understood that there were a couple of 

 7          other comments made about it.  And I want to 

 8          express my concern and disappointment about 

 9          the program and how it's rolled out.  

10          Candidly, I've maybe gotten 10 or 15 calls.  

11          It doesn't sound like a lot, but once again, 

12          these are new owners.  So it is a lot, 

13          because it's only going to continue to grow 

14          unless we see some major improvement.

15                 And I guess part of my concern is why 

16          are we doing this?  I don't -- you know, from 

17          my perspective we suffer from a terrible 

18          perception, which is a reality, that we have 

19          a very heavy tax burden.  It's in the 

20          business community, but it's also at every 

21          single home.  

22                 And at the same token, what we've done 

23          now is we shine a brighter light on the 

24          school tax.  You know, before, you'd get your 


 1          250 or whatever it would be off of it -- you 

 2          would see it, it would be demonstrable, you'd 

 3          see it, people would say, okay, good.  Those 

 4          would get factored into their mortgage or 

 5          whatever their -- the mortgage component.

 6                 So now we're basically saying, yeah, 

 7          our taxes are pretty high -- and by the way, 

 8          if you wait long enough, we'll send you a 

 9          rebate check.

10                 I still -- I asked our chair last year 

11          during the budget process -- yes, the 

12          Legislature approved it as part of the 

13          overall budget package, so we share some of 

14          the responsibility.  But I'm trying to figure 

15          out why we did this.  Why did we subject 

16          ourselves to this?  Because I don't know if 

17          I've seen anything productive yet at this 

18          stage of the game.

19                 ACTING COMMISSIONER MANION:  Well, a 

20          couple of positives that come from it is the 

21          schools do receive their money sooner, 

22          because they receive it from the individual 

23          taxpayers.

24                 The other is the accuracy of who's 


 1          actually receiving the credit check.

 2                 ASSEMBLYMAN McDONALD:  So, yeah, to 

 3          that point -- it was about two years ago, and 

 4          I don't know if you were here at the time -- 

 5          or three years ago, we went through this 

 6          exercise to clean up what had happened.  And 

 7          I thought, this is great, we're done, we've 

 8          got a newer process.  I'm assuming, since all 

 9          the assessors work with software provided by 

10          the state, that this would be a seamless 

11          process and we wouldn't have to be going 

12          through any extra efforts.  

13                 And sure enough, we changed the 

14          program.  Why?  I mean, you know, I can only 

15          speak for the assessors I know.  The ones I 

16          know are pretty darn good.  They provide 

17          great customer service, they make sure that 

18          people get exemptions that they're entitled 

19          to, not that they're not.

20                 Are we saying in that short one-year 

21          period that there was problems in regards to 

22          exemptions being granted?

23                 ACTING COMMISSIONER MANION:  I believe 

24          you're referring to the registration that we 


 1          did a few years ago, where --

 2                 ASSEMBLYMAN McDONALD:  The 

 3          registration process.  Which was a good 

 4          thing.  It cut out a lot of, you know, 

 5          inaccurates and accidents that happened, no 

 6          doubt about that.

 7                 ACTING COMMISSIONER MANION:  We did.  

 8          And we were able to recoup $100 million.

 9                 ASSEMBLYMAN McDONALD:  Right.  Which 

10          is good.

11                 ACTING COMMISSIONER MANION:  And then 

12          in order to administer for this, what we did 

13          is we received information from the 

14          assessors.  And some of the assessors' rolls 

15          were perfect, and we were able to use the 

16          information they provided, it checked out, it 

17          validated.  But then there were others that 

18          were not as good.

19                 And so we had to -- we have to do our 

20          own validation, our own income verification.  

21          And the income verification could come from 

22          those that file tax returns -- or it could be 

23          for some that don't file tax returns, and we 

24          have to look to other sources.  So it's when 


 1          we're doing that other validation that we're 

 2          finding that some of the people that were 

 3          identified as entitled to the enhanced, the 

 4          income of $84,550, might have actually been 

 5          making like $95,000 or $110,000.  

 6                 We actually did find some people that 

 7          didn't qualify for the relief, so the income 

 8          verification there is $275,000.  And they 

 9          were not filing tax returns, so they're 

10          actually part of our nonfile program.  So 

11          they're not even filing a tax return for 

12          their income, much less -- so therefore, we 

13          can't send them that relief check.

14                 ASSEMBLYMAN McDONALD:  Well, that's my 

15          -- well, part of my concern is at the lower 

16          end of the income level.  I know, from my own 

17          experience as a mayor, we used to literally 

18          send the assessor to their house to get them 

19          to fill out the form, because we know they 

20          don't file.  

21                 So are we going to be able to catch 

22          those people going forward?  Because I don't 

23          think you know who they are going to be yet, 

24          because you don't know what house they're 


 1          going to buy.  Unless I'm missing something.  

 2                 ACTING COMMISSIONER MANION:  We do -- 

 3          we do it through our data matches.  You know, 

 4          and we do have a lot of information.  

 5                 You know, the personal income tax 

 6          file, we get information from the employers.  

 7          So every employer needs to report to us what 

 8          the earnings were and what the withholdings 

 9          were.  So if you have a senior that is making 

10          $2,000 working at a small job, you know, they 

11          may not consider that income.  You know, 

12          they're not really thinking about that.  And 

13          they didn't have to file a tax return.  But 

14          we do have a record of it.  

15                 And what we've found is some of them 

16          have $2,000 here and $2,000 there, and they 

17          have investment income of another group 

18          there.  Yet I'm sure when they're talking to 

19          the assessors, they're not thinking that 

20          they're making that much money.

21                 ASSEMBLYMAN McDONALD:  Thank you.

22                 ACTING COMMISSIONER MANION:  Thank 

23          you.

24                 CHAIRMAN FARRELL:  Thank you.


 1                 Senator?

 2                 CHAIRWOMAN YOUNG:  Senator Savino.

 3                 SENATOR SAVINO:  Thank you.  Thank 

 4          you, Senator Young.

 5                 I just actually have one question.  I 

 6          know there's been extensive discussion about 

 7          the failures to deliver the STAR rebate 

 8          check.  I'm not going to reiterate those 

 9          questions.  

10                 But I do have a question about the 

11          head count and the size of your agency.  Can 

12          you give me the number of full-time 

13          equivalents that you currently have?

14                 ACTING COMMISSIONER MANION:  Okay, our 

15          budget has 4,276 in it.  Right now we're at 

16          about 3900.  So our staffing does fluctuate.

17                 SENATOR SAVINO:  So it has shrunk.  

18          Are there any plans to hire?

19                 ACTING COMMISSIONER MANION:  What we 

20          do, we hire a lot of people for our peak 

21          seasons.  So right now we're in the middle of 

22          our personal income tax season, and we're 

23          running two shifts to process the returns.  

24          And so we hire hourlies.  And we tell them 


 1          when they're hired for how long they're going 

 2          to work, and then at the end of the season 

 3          they're let go.

 4                 SENATOR SAVINO:  In the in-between, 

 5          there's no -- is there a feeling that there's 

 6          no need for these workers?  With all these 

 7          complex new tax programs that the state has 

 8          adopted, whether it's the film tax credit or 

 9          the STAR rebate or converting the New York 

10          City PIT -- I mean, I would think that 

11          there's sufficient work to maintain this 

12          workforce, because I think part of the 

13          problem might be that we've been starving 

14          these agencies and we're also -- you know, 

15          you've heard -- if you've heard me speak at 

16          these budget hearings, I have a tremendous 

17          concern about the fact that we have an aging 

18          workforce that is retiring far too 

19          frequently, and we're losing experienced 

20          staff that is able to do these things, these 

21          very complex programs, far more efficiently.

22                 So I would hope that there's some 

23          succession planning going on in your 

24          agency --


 1                 ACTING COMMISSIONER MANION:  There is.

 2                 SENATOR SAVINO:  -- especially 

 3          because, you know, taxes are a very 

 4          complicated thing.  And when people don't get 

 5          their taxes back, they get very angry.  And 

 6          when they pay their taxes and they're not 

 7          credited correctly, they get very angry.  And 

 8          we hear from those people, and then we get 

 9          very angry.  And we just don't want to see 

10          angry people.

11                 ACTING COMMISSIONER MANION:  There's 

12          not a shortage of work.  However, we've been 

13          very successful with our automation.  Our 

14          electronic filing is up over 90 percent for 

15          almost all of our taxes.  And what that 

16          allows us to do is the system interrogates 

17          it.  The system does a lot of work.  And it 

18          only kicks out the exceptions for our staff 

19          to work with.

20                 And as I've mentioned before, with the 

21          real property we don't have that system in 

22          place right now.  But that's the objective, 

23          where we're building the same type of system.

24                 We also do a lot of data analytics to 


 1          determine where we should be having our staff 

 2          spend their time.  

 3                 And we reassign people, too.  So for 

 4          an example, when sales tax filing is due, 

 5          it's due on the 20th of every third month.  

 6          And we know that we're going to get a lot of 

 7          phone calls during that time.  So we have a 

 8          web filing that we put up with the assistance 

 9          -- we work very closely with ITS.  We put up 

10          a web filing system.  And over 90 percent of 

11          the people use it.

12                 When it's the time for them to file, 

13          we know we're going to get a lot of phone 

14          calls and people are going to have questions 

15          with it.  We move people from doing other 

16          work to handling those phone calls to manage 

17          that peak.  And we know how to do that 

18          because we've been doing it for a lot of 

19          years.  We know what to expect.

20                 With a new system, it's difficult to 

21          understand what to expect, but we get better 

22          with it every year.

23                 SENATOR SAVINO:  I hope you're right.  

24          I just think you really should begin thinking 


 1          about succession planning, because the tax 

 2          laws are only getting more complicated in 

 3          this state, partly because of people like me, 

 4          and I think we need to have more staff as 

 5          opposed to less staff.

 6                 So I want to thank you for your 

 7          patience today.  And on that note, I am 

 8          finished, Senator Young.

 9                 CHAIRWOMAN YOUNG:  Thank you.

10                 CHAIRMAN FARRELL:  Thank you.

11                 CHAIRWOMAN YOUNG:  Still us?  Okay.

12                 Just a couple of follow-ups, 

13          Commissioner.  

14                 The Governor proposes to implement a 

15          vapor product excise tax of 10 cents per 

16          fluid milliliter on vapor products, and 

17          regulate vapor products similar to cigarette 

18          and other tobacco products, such as minimum 

19          age to purchase and so on.  I'm just curious 

20          about this.  Are there any other states that 

21          impose an excise tax on vapor products, do 

22          you know?

23                 ACTING COMMISSIONER MANION:  Yes, I 

24          believe there are a couple of states that are 


 1          doing the same.

 2                 CHAIRWOMAN YOUNG:  Okay.  And how did 

 3          you arrive at the rate 10 cents per fluid 

 4          milliliter?  I'm just curious about that.

 5                 ACTING COMMISSIONER MANION:  The vapor 

 6          products, they really don't have a lot of 

 7          consistency to them.  So it's not like we 

 8          could say for, you know, a milliliter of 

 9          nicotine it needs to be this much.  So the 

10          only real practical way is to go with the 

11          milliliter of liquid.

12                 CHAIRWOMAN YOUNG:  Okay.  So I heard 

13          you just say that there's a lot of 

14          inconsistency.  But does it roughly work out 

15          to the same as on a pack of cigarettes, or 

16          no?

17                 ACTING COMMISSIONER MANION:  It's all 

18          over the board.  You know, depending on where 

19          you purchase it from, to that amount.

20                 CHAIRWOMAN YOUNG:  Okay.  One of the 

21          things that happened in 2016 is that the 

22          Governor announced the opening of 85 free tax 

23          filing assistance sites across the state, 

24          which I think is really great, because you're 


 1          bringing government to the people and people 

 2          who may have questions about filing their 

 3          taxes.

 4                 Can you report the number of taxpayers 

 5          who used these sites in 2016?

 6                 ACTING COMMISSIONER MANION:  I don't 

 7          have those numbers with me.  The number was 

 8          not huge.  

 9                 However, I feel that we did address a 

10          population that needed our assistance.  So if 

11          you're looking at it based on the 11 million 

12          taxpayers we have filing, the numbers would 

13          be very small.  But if you're looking at our 

14          ability to reach out to people that need us, 

15          I think it was very successful.

16                 CHAIRWOMAN YOUNG:  Good.

17                 So how do you get the information or 

18          the word out to people that these sites are 

19          available?

20                 ACTING COMMISSIONER MANION:  We do 

21          press releases.  We have information on our 

22          web.  So on our web it will show where these 

23          sites are.

24                 What we've done this year is we've 


 1          focused it more where the need was.  So we 

 2          reduce the number -- you know, if we had 

 3          sites where nobody was coming in, we're not 

 4          using our staff for that.  We're putting it 

 5          where they're needed.

 6                 And so based on the experience that 

 7          we've had, we've really fine-tuned to provide 

 8          the services to those that need us.

 9                 CHAIRWOMAN YOUNG:  Do you provide 

10          services through a mobile unit in rural 

11          areas?

12                 ACTING COMMISSIONER MANION:  We have 

13          used the mobile system to go to the rural 

14          areas, yes.

15                 CHAIRWOMAN YOUNG:  And how has the 

16          reception there been?  Has it been pretty 

17          good or --

18                 ACTING COMMISSIONER MANION:  We got a 

19          few.  We think that with each year it will 

20          increase.  And with your assistance in 

21          getting word out to the constituents, I think 

22          it will increase and be more beneficial.

23                 CHAIRWOMAN YOUNG:  So you plan on 

24          continuing to service rural areas?  


 1                 ACTING COMMISSIONER MANION:  We 

 2          certainly do.

 3                 CHAIRWOMAN YOUNG:  Good.  Thank you.

 4                 Senator Krueger.  

 5                 SENATOR KRUEGER:  Thank you again.

 6                 Since Senator Young just asked you 

 7          about the vapor products, that would only 

 8          apply to tobacco-related vapor products, not 

 9          marijuana-related vapor products?

10                 ACTING COMMISSIONER MANION:  Correct.  

11          Marijuana is separate, yeah.

12                 SENATOR KRUEGER:  Thank you.  

13                 Senator Savino reminds me that medical 

14          marijuana is already taxed.  But this would 

15          be the equipment that is used for people, so 

16          I just wanted to double-check we weren't 

17          going to be double-hitting them, so to speak.  

18          Thank you.

19                 The Governor puts a proposal for 

20          upstate transportation network companies into 

21          the budget, with a 5.5 percent tax.

22                 ACTING COMMISSIONER MANION:  Correct.

23                 SENATOR KRUEGER:  How does that 

24          compare to the taxes we apply to existing 


 1          recognized liveries, such as taxis and black 

 2          cars and other things that may be defined as 

 3          liveries in the State of New York?

 4                 ACTING COMMISSIONER MANION:  Okay, 

 5          those existing liveries are subject to sales 

 6          tax.  And across the state, sales tax is 

 7          higher than 5.5 percent.  So it's actually a 

 8          reduction in tax.  

 9                 So the cars in New York City that are 

10          used for this, they're subject to sales tax.  

11          So the upstate would actually be a lower.

12                 SENATOR KRUEGER:  And what's the 

13          justification to have a lower tax rate for 

14          these vehicles versus other existing cabs in 

15          upstate New York?

16                 ACTING COMMISSIONER MANION:  Part of 

17          this is when you've got people -- when you've 

18          got cars going from county to county and 

19          jurisdiction to jurisdiction, how do you 

20          figure out where the sales tax goes?  So by 

21          having one flat rate, that covers it all 

22          across all of upstate.  It's easier to 

23          administer.

24                 SENATOR KRUEGER:  And is it shared 


 1          with the localities?

 2                 ACTING COMMISSIONER MANION:  The 

 3          localities receive 27.7 percent of it to go 

 4          to a local transit fund.

 5                 SENATOR KRUEGER:  Can you repeat the 

 6          second sentence?

 7                 ACTING COMMISSIONER MANION:  The 

 8          localities receive 27.7 percent of what is 

 9          collected to go to a local transit fund.

10                 SENATOR KRUEGER:  And the 5.5 percent 

11          would be collected per ride?  I mean, how do 

12          they report this to you?

13                 ACTING COMMISSIONER MANION:  Per ride, 

14          yes.

15                 SENATOR KRUEGER:  But it's collected 

16          from the app company per se, not the 

17          individual drivers.

18                 ACTING COMMISSIONER MANION:  Correct.  

19          Correct, not individual drivers.

20                 SENATOR KRUEGER:  And under the sales 

21          tax system, it tends to be more of a close to 

22          a 50/50 model between the state and the 

23          counties.

24                 ACTING COMMISSIONER MANION:  Correct.


 1                 SENATOR KRUEGER:  So how was it 

 2          concluded that this system, as opposed to the 

 3          other livery systems, should be only 

 4          27 percent to the counties versus closer to 

 5          the formula if it was a sales tax model?

 6                 ACTING COMMISSIONER MANION:  I wasn't 

 7          involved in the discussion around that, so 

 8          I'm not sure.

 9                 SENATOR KRUEGER:  And what's the 

10          estimated revenue, annually?

11                 ACTING COMMISSIONER MANION:  Sixteen 

12          million this year, and 32 million in 

13          outyears.

14                 SENATOR KRUEGER:  And again, this 

15          would not apply to the City of New York, just 

16          everywhere else in the state?

17                 ACTING COMMISSIONER MANION:  Correct.

18                 SENATOR KRUEGER:  Okay.  The 

19          Governor's plan proposes expanding the law we 

20          already changed in 2007 to require that 

21          corporations who file federally as S 

22          corporations have to do their state taxes as 

23          S corporations.

24                 ACTING COMMISSIONER MANION:  Correct.


 1                 SENATOR KRUEGER:  And it only projects 

 2          $5 million increased revenue for the state.  

 3          Is that annual, or is that just for the first 

 4          year?

 5                 ACTING COMMISSIONER MANION:  That 

 6          would be annual.

 7                 SENATOR KRUEGER:  Annual.

 8                 ACTING COMMISSIONER MANION:  Yeah.

 9                 SENATOR KRUEGER:  What do we think the 

10          impact will be if companies decide to change 

11          their structures and file under 9A to avoid 

12          this?

13                 ACTING COMMISSIONER MANION:  I don't 

14          have that information with me right now.

15                 SENATOR KRUEGER:  Do we have any 

16          estimate of what the impact of this change 

17          would be on New York City's business taxes?

18                 ACTING COMMISSIONER MANION:  I don't 

19          have that split.

20                 SENATOR KRUEGER:  You don't have any 

21          idea.

22                 ACTING COMMISSIONER MANION:  Yeah.

23                 SENATOR KRUEGER:  I would love you to 

24          be able to get back to me on that.


 1                 ACTING COMMISSIONER MANION:  Okay.

 2                 SENATOR KRUEGER:  Thank you.

 3                 So in 2010, Congress passed 

 4          Dodd-Frank.  It had significant impacts on 

 5          the banking industry and the financial 

 6          industry throughout the country.  There's 

 7          discussion about ending Dodd-Frank in 

 8          Washington as we speak.  Has your department 

 9          done any analysis of what the impacts would 

10          be for us here as far as tax revenue or 

11          having to shift potentially our entire 

12          structure of how we do financial business 

13          taxes?

14                 ACTING COMMISSIONER MANION:  Our 

15          department is watching what's happening in 

16          Washington.  But as we all know, things are 

17          changing down there all the time.  

18                 So we will continue to watch it.  As 

19          anything becomes more formalized and we could 

20          do some type of analysis to determine the 

21          impact, we will do that.

22                 SENATOR KRUEGER:  Did our tax revenue 

23          go up or down when they applied Dodd-Frank, 

24          when it was implemented?


 1                 ACTING COMMISSIONER MANION:  There are 

 2          a lot of variables that go into it, so I 

 3          don't know if we could actually attribute any 

 4          change specifically to that.  But I can get 

 5          back to you on it.

 6                 SENATOR KRUEGER:  Thank you.

 7                 ACTING COMMISSIONER MANION:  Thank 

 8          you.

 9                 CHAIRWOMAN YOUNG:  Thank you.

10                 CHAIRMAN FARRELL:  Thank you.

11                 That's it?  Well, just a couple 

12          myself.

13                 The Executive Budget proposed a 

14          variety of tax reforms, tax enforcement 

15          actions as well as the extension of the 

16          current millionaire's tax rate for an 

17          additional three years.  In the context of 

18          the economy still experiencing moderate 

19          growth and with increased uncertainty over 

20          the course of federal policies, would you 

21          comment on the state's tax structure's 

22          ability to withstand any of the adverse 

23          economic effects?

24                 ACTING COMMISSIONER MANION:  The items 


 1          that are in the budget are really modernizing 

 2          the law to recognize the changes, such as the 

 3          marketplace that we discussed.  And also 

 4          closing loopholes to really make sure that 

 5          we're collecting the intent of the tax laws 

 6          that are on the books.

 7                 Our ability to adjust with the economy 

 8          really comes into play with watching what is 

 9          coming in and making adjustments such as 

10          these.  So with the marketplace, I think 

11          we've all seen that sales tax collection has 

12          been a little bit sluggish.  That could be 

13          because a number of these smaller businesses, 

14          working through the marketplace, are not 

15          collecting the sales tax.  In fact, in our 

16          initial audit activity, we've found that they 

17          are not collecting the sales tax -- and in a  

18          few instances, they are collecting the sales 

19          tax but not sending it into the state.  

20                 So as we can improve the enforcement 

21          along these lines, we'll be able to better 

22          make sure that we're collecting the money 

23          that's due under the existing laws, but also 

24          be tracking it to adjust with the economy and 


 1          what's happening in Washington also.

 2                 CHAIRMAN FARRELL:  Thank you very 

 3          much.

 4                 ACTING COMMISSIONER MANION:  Thank 

 5          you.

 6                 CHAIRWOMAN YOUNG:  Thank you for 

 7          coming in today.

 8                 ACTING COMMISSIONER MANION:  Thank 

 9          you.

10                 CHAIRMAN FARRELL:  Edmund McMahon, 

11          research director, Empire Center for Public 

12          Policy.

13                 MR. McMAHON:  Good morning.

14                 CHAIRWOMAN YOUNG:  Good morning.  

15                 CHAIRMAN FARRELL:  Good morning.

16                 MR. McMAHON:  Thank you, Assemblyman 

17          Farrell, Senator Young, Assemblyman Oaks, 

18          Senator Krueger, other committee members.  

19          Thank you for this opportunity to testify 

20          once again this year on the tax side of the 

21          budget.

22                 Over the past several years, you and 

23          the Governor have done a number of things 

24          that significantly improved our tax climate.  


 1          These include but are not limited to the cap 

 2          on local property tax levies, to the 

 3          corporate estate tax and corporate tax 

 4          reforms of 2014, and, last but not least, the 

 5          personal income tax, so-called middle-class 

 6          tax cut done last year.

 7                 Unfortunately, I think some of the 

 8          most notable tax and revenue proposals in the 

 9          fiscal '18 Executive Budget would move 

10          New York in the wrong direction.  For 

11          example, it includes a three-year extension 

12          of what amounts to the state's third largest 

13          tax, which is the $5.7 billion in dedicated 

14          revenues collected through the Health Care 

15          Reform Act.  

16                 Bill Hammond, the Empire Center's 

17          health policy director, has recently issued a 

18          report on this about how counterproductive 

19          and inequitable the impacts of the HCRA 

20          program can be.  While this is not, strictly 

21          speaking, a focus of this hearing, the 

22          program's purpose and cost deserves a closer 

23          look than it appears to be getting.  

24                 Another problematic feature of the 


 1          budget is a proposed extension, as has been 

 2          referred to here a few times, of the Film and 

 3          TV Production Credit, which is now scheduled 

 4          to expire in a couple more years. Since the 

 5          program's inception in 2004, the state has 

 6          awarded or allocated, going forward, roughly 

 7          $4.5 billion in credits, which is far beyond 

 8          any program of its type in the country and 

 9          far larger than any similar tax subsidy on 

10          the books here.  

11                 I would submit that it's time to bring 

12          down the curtain for good on what amounts to 

13          a gratuitous giveaway.  You may view this as 

14          you -- if you please, as a tax on wealthy 

15          corporations and individuals.  

16                 But I'd like to devote most of my 

17          testimony this morning to the Executive 

18          Budget revenue proposal that's garnered the 

19          most attention, which is of course the 

20          proposed three-year extension of the 

21          so-called millionaire tax.  Without getting 

22          into the details, with which you're familiar, 

23          there are several reasons why I would suggest 

24          that this proposal does not merit the 


 1          Legislature's full support.  

 2                 First, assuming you join Governor 

 3          Cuomo in committing yourselves to restraining 

 4          spending growth to 2 percent a year, as you 

 5          have done for the past four or five years, it 

 6          appears from the financial  plan that you 

 7          won't need the money.  Based on the Executive 

 8          Budget financial structure, you could reduce 

 9          the tax below 8 percent in the first year and 

10          a half or so that it's extended, and you 

11          could eliminate it entirely before the end of 

12          2020.  

13                 I've illustrated the numbers used to 

14          come up with this estimate in Table 1 of the 

15          appendix attached to my testimony.  

16                 Second, I would suggest that the 

17          millionaire tax is anti-competitive.  It's an 

18          outlier compared to other states with income 

19          taxes. And I've submitted some charts that 

20          illustrate where we stand compared to other 

21          states.  The current is a hair below the 

22          original version of the current millionaire 

23          tax enacted in 2009, but it's higher than any 

24          permanent PIT rate imposed by New York since 


 1          the historic bipartisan state income tax 

 2          reform this Legislature enacted in 1987.  It 

 3          ranks 7th among all statewide income tax 

 4          rates in 2016.  It's the second highest among 

 5          the 10 largest states that have an income 

 6          tax.  And among the 43 states in all that 

 7          impose any individual income tax, the median 

 8          top rate was around 6 percent last year.  So 

 9          it's higher than that rate also.  

10                 Of course, the personal income tax 

11          isn't just "personal"; it's an integral part 

12          of the business tax for many flow-through 

13          businesses and partnerships.  And on top of 

14          the state income tax, New York City imposes a 

15          rate of about 3.9 percent.  It also imposes 

16          an unincorporated business tax of 4 percent, 

17          which is in effect a commuter tax.  It 

18          applies to resident and nonresident 

19          participants in pass-through entities.

20                 So in the city, the rate is at least 

21          the second highest in the country after 

22          California's, and far above those of other 

23          jurisdictions.  

24                 Third, the extension of the 


 1          millionaire tax has compounded our reliance 

 2          on what the Assembly Majority Ways and Means 

 3          staff a few years ago noted is an inherently 

 4          unstable, volatile and unsustainable revenue 

 5          source.  We now depend on the income tax for 

 6          roughly two-thirds of our total state tax 

 7          revenues, and roughly 40 to 41 percent of the 

 8          income taxes being collected from the 

 9          highest-earning 1 percent of taxpayers.  That 

10          makes us vulnerable to swings in their 

11          incomes and in economic conditions that 

12          affect their incomes. 

13                 I would point out that during the 

14          Great Recession, much of -- or most of the 

15          problem you encountered in terms of the 

16          fiscal crisis was due to a 40 percent drop in 

17          the incomes of the highest-earning 1 percent 

18          over a two-year period.  And that, in turn, 

19          was due largely to a 75 percent drop in 

20          capital gains, which is a very large and 

21          outsized component of incomes among your 

22          highest-earning taxpayers.  That had happened 

23          before, a few years earlier, when there was a 

24          66 percent drop in capital gains.  


 1                 And again, I have attached a -- 

 2          Figure 4 in my appendix shows you the roller 

 3          coaster ride, as it's called, of net capital 

 4          gains in our income base over the last 

 5          15 years.  The more you rely on an added 

 6          surtax on high incomes, the more you are 

 7          susceptible to sickening falls in that 

 8          revenue source.  

 9                 Fourth, there is a question of how the 

10          millionaire tax is affecting the tax base at 

11          the top of the income distribution.  While 

12          it's impossible to establish any clear causal 

13          link here, the repeated imposition of the 

14          millionaire tax, starting with a lower surtax 

15          rate in the state and city between '03 and 

16          '05, starting again with the imposition of 

17          the millionaire tax in '09, has coincided 

18          with marked growth in the portion of 

19          high-income taxpayers who are classified as 

20          full-year nonresidents of New York.  

21                 Nonresidents are taxed only on their 

22          New York source income -- mainly, salaries 

23          and profit shares from New York businesses -- 

24          not on their capital gains, dividends and 


 1          interest, which make up the bulk of their 

 2          personal income.  

 3                 Now, we're familiar with nonresidents 

 4          such as commuters from New Jersey and 

 5          Connecticut who form a large part of the 

 6          workforce in New York City, who commute into 

 7          New York City and who are taxed on the bulk 

 8          of their incomes which come from salaries by 

 9          New York, and credited for it in their state 

10          of residence.  

11                 However, at income levels below 

12          $100,000, those commuters make up less than 

13          10 percent of all taxpayers.  The higher you 

14          go on the income scale, the larger the 

15          proportion of taxpayers who are nonresidents.  

16          In fact, the percentage of nonresidents 

17          increases sharply, and the allocation 

18          percentage to New York drops, the higher you 

19          go on the income scale.  

20                 Nonresidents now make up nearly half 

21          of all New York taxpayers with incomes above 

22          $1 million.  Nearly 60 percent in the 

23          super-high income category above $10 million 

24          are nonresidents in our tax base.  Both these 


 1          figures are the highest on record, as best as 

 2          I can tell, looking at state tax data.  

 3          Between '09 and '14, the number of resident 

 4          filers earning $1 million or more increased 

 5          60 percent -- but the number of nonresident 

 6          filers increased 79 percent.  

 7                 If you look solely at the income of 

 8          residents versus non residents, the 

 9          difference was even greater.  The AGI of 

10          residents grew 76 percent in this $1 million 

11          and above category; the AGI of nonresidents 

12          grew 124 percent.  

13                 Many if not most of the taxpayers in 

14          these rarified brackets are members of what 

15          you might think of as "the 183 Club" -- that 

16          is, people who carefully arrange their 

17          affairs to establish a residency in another 

18          state and monitor their presence in New York 

19          to ensure they are not here for more than 

20          183 days a year.  Indeed, there's a whole 

21          cottage industry of lawyers, accountants, and 

22          software developers who cater to high-income 

23          taxpayers who want to make sure they minimize 

24          their exposure to New York taxes, both in 


 1          New York City and in New York State.  

 2                 While nonresidents make up roughly 

 3          half of the 45,000 households the Governor 

 4          has estimated are subject to the millionaire 

 5          tax, they do not generate a similar 

 6          proportion of the nearly $4 billion raised 

 7          from the tax.  Their actual share probably 

 8          ranges between 10 and 15 percent -- there 

 9          isn't a published number -- depending on 

10          income class, because, on average, that's the 

11          percentage of income they allocate to 

12          New York.  

13                 Even small shifts of millionaire 

14          earners can have outsized effects on our 

15          revenues.  For example, at an average 2014 

16          federal AGI level of $5.4 million, if just 

17          10 percent of the 43,343 nonresident 

18          taxpayers New York had in 2014 shifted their 

19          main residence to the Empire State, we'd gain 

20          $1.6 billion in revenue with a tax rate of 

21          6.85 percent.  

22                 Last but not least, the extension of 

23          the millionaire tax needs to be considered in 

24          light of the impending federal tax reform.  


 1          This gets, in part, to the question 

 2          Assemblyman Farrell asked about our tax 

 3          code's vulnerability to changing economic 

 4          conditions and forces beyond our control.  

 5                 Both President Trump and congressional 

 6          Republicans have embraced tax reform plans 

 7          that would effectively eliminate the state 

 8          and local tax deduction for households 

 9          affected by our millionaire tax.  Even 

10          assuming the federal marginal rate drops by 

11          nearly as much as Republicans in Washington 

12          have proposed, eliminating deductibility at 

13          the margin would significantly raise 

14          New York's net tax price relative to states 

15          with low or no income tax, such as Florida. 

16                 This is not just a Republican 

17          priority, by the way.  President Obama, in 

18          almost all of his budgets, proposed 

19          curtailing deductibility.  Hillary Clinton 

20          proposed such a change.  President Obama and 

21          former Speaker Boehner agreed to do it before 

22          it was blocked by the Senate in 2012.  

23                 For state government, in conclusion, 

24          downstate New York's concentration of wealthy 


 1          Wall Street investors, elite professionals, 

 2          and corporate executives is like the goose 

 3          that laid the golden eggs in Aesop's Fable.  

 4          The moral of the fable, of course, was don't 

 5          kill the goose.  A corollary would be don't 

 6          expect to collect more gold eggs by squeezing 

 7          the goose harder, either.  Or, as the 

 8          Governor himself was quoted as telling the 

 9          Daily News yesterday:  "People will take a 

10          certain amount of abuse and then there is a 

11          point. The question is, what is that point?  

12          Nobody knows for sure, but you don't want to 

13          reach that point."

14                 I think those are words to live by, 

15          for the Governor and for you, in considering 

16          what to do about this tax.

17                 In conclusion, I'd be happy to answer 

18          any questions in the time left.  I did listen 

19          to most of Commissioner Manion's testimony, 

20          before and after the disruption, and I found 

21          it interesting and would be happy to share 

22          any insights on that as well.

23                 Thank you very much.

24                 CHAIRMAN FARRELL:  Thank you.


 1                 Questions?  Mr. Oaks.

 2                 ASSEMBLYMAN OAKS:  The issue that the 

 3          state has to deal with, I think, is that 

 4          we -- if we extend the tax or increase it, as 

 5          some would have us, we are already depending, 

 6          it's a percentage, to a greater extent on 

 7          high earners in New York State.

 8                 MR. McMAHON:  This is a double-edged 

 9          sword.  There's a couple of issues to think 

10          of from the standpoint of legislators who 

11          need to be concerned about a balanced budget 

12          and a sustainable revenue base and about the 

13          economy in general.

14                 One issue is the volatility that comes 

15          with increased dependence on high incomes.  

16          As I pointed out, the chart of the capital 

17          gains is really stunning.  You have had, in 

18          recent times, in recent memory, you've had 

19          drops of 66 percent and 75 percent in capital 

20          gains.  Those are the principal income 

21          sources of your highest-income payers.

22                 So the more you rely -- and the total 

23          incomes of the top 1 percent went down by at 

24          least 1 percent during the recession.  So 


 1          with each and every, say, billion dollars, to 

 2          round it off, that you raise from high-income 

 3          payers, you've got a $400 million to $700 

 4          million risk built into that, in terms of a 

 5          volatility risk.  Just pointing that out.

 6                 Now, that by itself, in isolation, is 

 7          not an argument against the tax.  It is an 

 8          argument for thinking that you can program 

 9          recurring spending on a smooth basis against 

10          a tax like that.

11                 But secondly, there's the 

12          competitiveness issue and there's the 

13          behavioral issue.  No one can say for sure 

14          what's going on.  But there's clearly been a 

15          migration, a paperwork migration, to 

16          nonresident status among your highest-income 

17          taxpayers.  That's happening.  We don't know 

18          why it's happening.  Why it suddenly began 

19          happening at a fairly steady rate, 

20          interrupted by the income drop 

21          post-recession, is not something that the 

22          data shout loudly about, but I think they 

23          should give you pause.

24                 If you erode your own tax base, I 


 1          think what you're looking at, in my opinion, 

 2          is leakage.  And I think that you can erode 

 3          your own tax base by doubling down on this 

 4          rate.

 5                 And again, last but not least, all may 

 6          seem chaos, periodically, in Washington.  

 7          There is going to be a federal income tax 

 8          reform.  There is -- they are absolutely 

 9          committed to doing it, Congress, on a fast 

10          track.  And the stars are aligned this time.  

11          Compared to 1986, the stars are aligned much 

12          more firmly in the direction of curtailing if 

13          not eliminating the state and local 

14          deduction.  In '86, you may recall, there was 

15          significantly more bipartisan balance in the 

16          congressional delegations from New York, 

17          California, New Jersey, Illinois, 

18          Connecticut -- the states most affected by 

19          this, disproportionately.  Between us and 

20          California alone, our tax bases account for 

21          half of what will be affected by this.

22                 And I really would be very aware of 

23          that.  The incoming Treasury Secretary, when 

24          asked about the rate reduction proposed in 


 1          Trump's last campaign plan, said that in 

 2          light of the fact that -- of the deficit 

 3          issues that the plan raised, said that the 

 4          rate cuts at the top in particular would be 

 5          paid for by closing loopholes and exemptions.

 6                 Now, one of the largest of those, 

 7          because everybody wants to protect the 

 8          charitable deduction, is the state and local 

 9          tax deduction.  Never in history has New York 

10          gotten away with imposing taxes at outlier 

11          rates without having them almost fully 

12          deductible, with some wrinkles in terms of 

13          federal rules, including the so-called Pease 

14          rule.

15                 But I would point out, if you look at 

16          the post-deductibility tax price of New York, 

17          throughout history, going back to when our 

18          marginal rate was over 15 percent, just on 

19          the state level, it actually has tended to 

20          waver in a band between 4.5 and 6 percent, 

21          effectively, because of the interplay with 

22          federal rates.  If they get rid of 

23          deductibility, you're right up at 8.82.

24                 And while the federal rate may go 


 1          down -- perhaps not as much as Speaker Ryan 

 2          and the President had supported in the 

 3          campaign, but to some extent -- a great part 

 4          of the tax reduction, from the point of view 

 5          of the people getting that tax reduction, may 

 6          be not by state and local taxes if the 

 7          deduction is eliminated.

 8                 Now, you can dislike that policy, you 

 9          can have questions and qualms about the 

10          direction federal tax reform is going, but 

11          that should give you pause in terms of the 

12          reliability of a high income tax surcharge.  

13                 And many of the arguments, some of 

14          them more disruptively made in this room 

15          several times today, and among other parties 

16          in favor of, quote, unquote, taxing the rich, 

17          who I would note we already tax, tend to be 

18          arguments that are really ultimately about 

19          federal tax policy.  Because you're one 

20          jurisdiction, New York is an island among 

21          many jurisdictions.  There's obviously a 

22          great deal of tolerance among a certain 

23          critical mass of taxpayers in New York for 

24          high rates, but that tolerance isn't 


 1          infinite, I would argue.  And clearly there's 

 2          been erosion of the tax base, I think.  

 3          Certainly there's enough questions raised 

 4          about whether we're getting erosion and how 

 5          much faster it might occur.

 6                 ASSEMBLYMAN OAKS:  Certainly I enjoy 

 7          having the further conversation.  The 

 8          nonresident issue, certainly when they don't 

 9          have earned income, then we won't get their 

10          income because they won't be our residents.

11                 MR. McMAHON:  And most of their income 

12          tends to be what we used to call, quote, 

13          unquote, unearned, meaning just from 

14          investment and passive investment income.

15                 ASSEMBLYMAN OAKS:  Thank you.

16                 CHAIRMAN FARRELL:  Thank you.

17                 Senator.

18                 CHAIRWOMAN YOUNG:  Thank you.

19                 Senator Savino.

20                 SENATOR SAVINO:  Thank you, Senator 

21          Young.

22                 Thank you, E.J.  Hopefully you won't 

23          be interrupted through this part -- through 

24          our questioning.  It's odd, because it would 


 1          seem that you and the group of people that 

 2          just marched through here are at 

 3          cross-purposes with one another.  You have 

 4          completely divergent opinions on tax policy 

 5          in the state, not surprisingly.

 6                 But what would you -- I mean, 

 7          obviously we as a state have taken on the 

 8          responsibility of providing for many of the 

 9          needs that that group were advocating for, 

10          whether it's education or healthcare or 

11          housing.  And, you know, they obviously feel 

12          the pain of the state's shortcomings in a 

13          very profound and real way.  And we've only 

14          been able to achieve what we've done, albeit 

15          they may disagree whether or not we've done a 

16          good enough job at it, because of the revenue 

17          that we derive, and some of it is the 

18          high-earner tax.

19                 If we were to allow it to expire, how 

20          would we satisfy the needs of the millions of 

21          people that don't -- you know, will never be 

22          able to be part of the 183 Club?  As a state, 

23          how would we continue to make sure that 

24          people aren't sleeping in the street or where 


 1          we can provide a decent education?  I mean, 

 2          and you're a smart guy, and I know you have 

 3          thought this through, and I'm not being 

 4          facetious, I'm actually curious.  Like what 

 5          are your ideas on how we would be able to do 

 6          some of these things?

 7                 MR. McMAHON:  Well, thank you.  I 

 8          would say part of it had to do with my point 

 9          about whether you need it, quote, unquote, 

10          under the Governor's own financial plan.  And 

11          really the question becomes can you meet the 

12          most pressing needs of New Yorkers in every 

13          region and in every situation that government 

14          feels it must respond to, under the cap, the 

15          2 percent spending cap in the budget?

16                 I would point out that right now, 

17          taxes as a percent of GDP in New York State 

18          are higher than they were in 2011, 2010.  

19          Slightly, but they're higher.  I mean, you've 

20          actually net raised taxes.  And that, by the 

21          way, was 2010.  You had a higher millionaire 

22          tax then.

23                 How much is enough, is the question.  

24          There was -- for instance, a lot of the 


 1          shouting about this tax, figurative and 

 2          literal, is about school aid.  I don't need 

 3          to remind you, probably, that we spend 

 4          89 percent more than the federal per-pupil 

 5          average on school aid -- considerably more 

 6          than any state, including some fairly 

 7          high-cost-of-living Northeastern states that, 

 8          by some measures, have better educational 

 9          results than we do, with equally diverse 

10          educational systems.

11                 So the question is, can we spend more 

12          effectively and can we meet our needs by 

13          rearranging priorities within the budget.  

14          And one example I gave you was -- which is 

15          why I was not being totally facetious about 

16          the Film and TV Production Credit.  You're 

17          handing $445 million a year to wealthy 

18          Hollywood production companies, actors, 

19          producers and directors, in effect, directly 

20          and indirectly, to exploit the comparative 

21          advantage that New York already has, in 

22          spades, for producing motion pictures and TV 

23          shows.  That's highly questionable, to say 

24          the least, I would suggest.


 1                 You had a discussion earlier about 

 2          STAR credits.  Now, part of that had to do 

 3          with the shift of STAR to a credit; part of 

 4          it, I think, had to do with the conversion of 

 5          the so-called property tax freeze credit into 

 6          a STAR rebate.  And I would suggest that the 

 7          problems you're having with the Tax 

 8          Department are inherent in that design.  

 9          That's a really bad example of tax policy.

10                 Now, last year you did the right 

11          thing, you approved a middle-class tax cut, 

12          which basically said, you know what, we're 

13          going to cut your taxes by cutting your 

14          taxes, rather than cutting you a check.

15                 Having done that, why continue to 

16          spend, even on a program that at least now is 

17          temporary, I think three-quarters of a 

18          billion to a billion dollars a year, on a 

19          muddled-up program of putting checks in 

20          mailboxes at some point in the year?  That is 

21          causing you nothing but headaches because, in 

22          fact, it's inherently flawed.

23                 SENATOR SAVINO:  Because it's a visual 

24          reminder.


 1                 MR. McMAHON:  Well, but I would say 

 2          that in my own experience as just another 

 3          suburban guy, and anecdotally, most people 

 4          get the check for $71.63 and say, What is 

 5          this?  Didn't we get our refund earlier this 

 6          year?

 7                 It's like you buy a dryer and six 

 8          months later, you know, ACS Consumer Services 

 9          sends you a check for $150 and you say, What 

10          is this?  Is this like one of those come-ons?  

11          And you forgot there was a rebate attached to 

12          the dryer you bought.

13                 I mean, it actually disattaches the 

14          tax -- the check is disattached from anything 

15          having to do with the tax.  You've capped 

16          property taxes.  You still need to do, in my 

17          view, mandate relief, as we're getting on 

18          programmatically.  But you've capped property 

19          taxes, you're now cutting the personal income 

20          tax, and yet what you're hearing the most 

21          from your constituents, which I do not doubt 

22          for a minute, is "Where is this check I keep 

23          hearing about?"  Which is -- it's just 

24          confusion.


 1                 And again, that's a waste of money.  

 2          So when you ask about, coming back to your 

 3          question, how do we fund the real needs we 

 4          have -- and there are real needs.  Nobody 

 5          argues that.  Well, one might argue, you 

 6          know, that the priorities are misplaced and 

 7          that we're basically blowing a lot of money 

 8          on things that don't make that much 

 9          difference and don't help many people.

10                 SENATOR SAVINO:  Fair enough.  Thank 

11          you.  My time is up.

12                 MR. McMAHON:  You're welcome.

13                 CHAIRMAN FARRELL:  Thank you.

14                 Senator?

15                 CHAIRWOMAN YOUNG:  Senator Krueger.

16                 SENATOR KRUEGER:  Thank you, E.J.

17                 So the protestors raised a number of 

18          issues, and one was the carried interest 

19          loophole, which is federal, not state.

20                 MR. McMAHON:  Right.  Right.

21                 SENATOR KRUEGER:  What's your position 

22          on closing the carried interest loophole?

23                 MR. McMAHON:  I don't find myself 

24          getting all worked up at the thought of the 


 1          federal government changing the treatment of 

 2          carried interest.  

 3                 As you know, what that amounts to, 

 4          it's -- principally, it is a form of fee, if 

 5          you will, or a form of compensation taken -- 

 6          it's mainly private equity firms, as opposed 

 7          to hedge funds, although it's most frequently 

 8          identified with hedge funds.  And it's 

 9          treated on the federal level as capital 

10          gains.  So if you're a partner in a hedge 

11          fund, part of your payment, if you will, for 

12          arranging the refinancing or acquisition or 

13          restructuring of a company comes in the form 

14          of a capital gain, which is called, quote, 

15          unquote, carried interest.

16                 There are other types of businesses, 

17          nonfinance, that have carried interest.  And 

18          one of the problems with carried interest, I 

19          would observe -- and people a lot smarter 

20          than me about tax codes have observed this -- 

21          it's kind of like one of those cases where 

22          you go to the doctor and the doctor says:  I 

23          have good news, the tumor is benign, but it's 

24          got all these little nerve endings attached 


 1          to it.  So it's going to be a very delicate 

 2          process.

 3                 Carried interest actually connects to 

 4          a lot of industries that you don't think of 

 5          that are other than finance, which is the 

 6          reason that Senator Schumer, our own senior 

 7          senator, in the past has brought talk of 

 8          repealing it to a standstill by saying, 

 9          "Okay, let's repeal all carried-interest 

10          capital gains treatment."  Which brings an 

11          immediate change of subject to the discussion 

12          in Washington, because there's other 

13          industries affected by it.

14                 But if they change it, only for 

15          finance, it would be really interesting to 

16          see what Congress is -- among other things, 

17          it will be a very telling indication of who 

18          in Congress cares about Connecticut.  

19          Because it would be a tremendous windfall for 

20          New York State of some level -- hundreds of 

21          millions of dollars at the very least -- that 

22          we would begin taxing that Connecticut would 

23          be left in the position of double-taxing.  

24          Because right now, the main thing with 


 1          carried interest is carried interest for 

 2          federal purposes is a capital gains income.  

 3          We tax all income at the same rate.  But we 

 4          don't tax the capital gains of nonresidents.  

 5          If it becomes treated as a business 

 6          partnership related income or some sort -- an 

 7          earned income category in New York, then we 

 8          gain the tax and Connecticut has a choice 

 9          between dropping the tax or double-taxing 

10          people.

11                 One thing no one will sit still for, 

12          at any income level, is being double-taxed.  

13          So that would -- I think that something 

14          different would ultimately happen.  But what 

15          it would be, I don't know.

16                 SENATOR KRUEGER:  So we know your 

17          position on the millionaire tax or the higher 

18          rates for the wealthiest, but you also said 

19          it, the federal government is going to change 

20          tax policy dramatically, and they're going to 

21          end up starving us.  They may take away 

22          state/local deductibility, which will have, 

23          as you point out correctly, en enormous 

24          impact on New York taxpayers.  But the 


 1          federal government is going to starve New 

 2          York.  

 3                 We have to make sure the services are 

 4          provided.  So what should we be doing with 

 5          our tax code to make sure we can provide the 

 6          services we need, as we will see less money 

 7          coming from the federal government, some real 

 8          winners and losers in the changes the feds do 

 9          to our tax policy, and our need to adapt and 

10          adjust and be the state that actually 

11          provides the services?

12                 MR. McMAHON:  A couple of things in 

13          response to that.  I think the risk from the 

14          tax reform is more pointed and measurable in 

15          the immediate future than the amorphous 

16          threat of what is done to Medicaid and the 

17          Affordable Care Act and what impact that has 

18          on that.  That's very complex.  We're already 

19          seeing signs of a hesitation and a reset in 

20          terms of the way Congress is approaching 

21          that.

22                 SENATOR KRUEGER:  Then let's stick 

23          with taxes now.

24                 MR. McMAHON:  But taxes, I would say 


 1          again, to get back to one of my first themes, 

 2          was you want to eliminate exceptions and 

 3          loopholes like the film production credit, 

 4          you want to eliminate things like the latest 

 5          version, whose name I can't even recall at 

 6          this point, of the property tax freeze 

 7          credit, family tax credit, whatever it is, 

 8          which is causing part of the agitation that 

 9          you had to ask Commissioner Manion about.

10                 Those things are not providing -- 

11          you're well intentioned in the sense you're 

12          trying to provide tax relief to people on 

13          some sort of means-tested basis, but it just 

14          is not an efficient use of what we're talking 

15          about, between those two things, of billions 

16          of dollars over the next few years.  For 

17          starters, you should not do those things.  

18          You should bring them both to a halt and look 

19          at other aspects of the tax code that involve 

20          loopholes and exceptions and special targeted 

21          credits, and have a tax code that's as 

22          efficient and fair and broad and sustainable 

23          as possible.

24                 SENATOR KRUEGER:  Thank you.


 1                 The Governor has proposed a new 

 2          version of 421-a.

 3                 MR. McMAHON:  Right.

 4                 SENATOR KRUEGER:  He doesn't call it 

 5          421-a, but it's 421-a.  And that's been 

 6          scored by the city's Independent Budget 

 7          Office -- because again, it would be the 

 8          state acting, but taking the city tax 

 9          money -- that it would cost $2.4 billion a 

10          year and get the city about $150 million of 

11          affordable housing.  Do you think that's a 

12          good deal for the City of New York?

13                 MR. McMAHON:  No.  No.

14                 SENATOR KRUEGER:  Good.  Glad.  Glad 

15          to hear that.

16                 MR. McMAHON:  Absolutely not.

17                 SENATOR KRUEGER:  And you brought up 

18          HCRA briefly, referenced Bill Hammond's 

19          report.

20                 MR. McMAHON:  Yes.

21                 SENATOR KRUEGER:  Is he going to 

22          testify at the healthcare hearing?

23                 MR. McMAHON:  I hate to be -- I think 

24          he was.  I believe he was.  Don't hold me to 


 1          that.  The last I heard, he was.

 2                 SENATOR KRUEGER:  Because it is the -- 

 3          I read the report, and it is the contention 

 4          that HCRA is actually a package of taxes, 

 5          even though it's specific to healthcare.  And 

 6          I wanted us to cover it.  But if he's coming 

 7          to the healthcare hearing --

 8                 MR. McMAHON:  I believe he is.

 9                 SENATOR KRUEGER:  -- and it's his 

10          report, I'll wait and ask him.

11                 MR. McMAHON:  Okay.

12                 SENATOR KRUEGER:  Thank you very much.

13                 MR. McMAHON:  You're welcome.

14                 CHAIRMAN FARRELL:  Thank you.

15                 CHAIRWOMAN YOUNG:  Thank you, E.J.

16                 MR. McMAHON:  Thank you.

17                 CHAIRMAN FARRELL:  Business Council, 

18          New York State, Ken Pokalsky, vice president.

19                 VICE PRESIDENT POKALSKY:  Thank you.  

20          I can still say "good morning."

21                 On behalf of the Business Council and 

22          our membership, I appreciate the opportunity 

23          to be here today --

24                 CHAIRMAN FARRELL:  Do me a favor and 


 1          pronounce your name?  I want to see how bad I 

 2          was on that one.

 3                 VICE PRESIDENT POKALSKY:  Pardon me?

 4                 CHAIRMAN FARRELL:  Say your name.

 5                 VICE PRESIDENT POKALSKY:  Ken 

 6          Pokalsky.

 7                 CHAIRMAN FARRELL:  I wasn't far off.  

 8          All right, I'm getting better.

 9                 VICE PRESIDENT POKALSKY:  So we 

10          submitted pretty extensive, detailed comments 

11          on a lot of provisions of the Executive 

12          Budget.  I'd like to just hit on a couple of 

13          highlights in the five minutes we have for 

14          our oral presentation today.

15                 First and foremost, you know, the 

16          Business Council puts out our legislative 

17          agenda each year, we call it our Back to 

18          Business Agenda.  And it really focuses on 

19          the economic reality you see when you look at 

20          New York State's regional economies in 

21          detail.  The general perception is that 

22          New York State is doing just great.  If you 

23          look at the general employment growth numbers 

24          and unemployment numbers, that we compare 


 1          well to the nation overall and to many of our 

 2          sister states.

 3                 When we look at the regional 

 4          economies, though, you see a real, marked 

 5          uneven growth.  Most of the private-sector 

 6          job growth, whether you look back one year or 

 7          five years or to prerecession peaks in 2008, 

 8          almost all that growth is in New York City.  

 9          If you look at what's happening in much of 

10          upstate New York, it's either total flat 

11          growth or negative growth.  Many regions of 

12          upstate New York have fewer private-sector 

13          jobs now than they did in their pre-recession 

14          peaks.  

15                 The point is New York State's economy 

16          and policy still impose some significant 

17          competitive challenges to the private sector.  

18          And we think that's the context in which the 

19          Legislature should be looking at major policy 

20          documents, including the Executive Budget and 

21          other issues that come before the state 

22          legislature during the course of the year. 

23                 The one thing I wanted to talk about, 

24          it's not taxes per se, but it's a 


 1          $5 billion-plus state mandated cost on 

 2          employers, and that's workers' compensation.  

 3          In last year's budget we did see a modest 

 4          package of proposals for workers' 

 5          compensation reform that eventually were not 

 6          enacted.  

 7                 One of our great disappointments in 

 8          this year's Executive Budget and the State of 

 9          the State, with the large number of 

10          initiatives, there's really no discussion at 

11          all of the need for workers' compensation 

12          reform.  It's a major cost.  When we speak 

13          with individual businesses, including 

14          manufacturers, more often than not, they're 

15          citing workers' comp as the single most 

16          significant cost of doing -- state level -- 

17          cost of doing business factors that they're 

18          facing.

19                 We think there are both administrative 

20          reforms and legislative reforms that need to 

21          be addressed.  Administratively, the Workers' 

22          Comp Board can issue already completed 

23          guidelines for assessing what are known as 

24          scheduled loss of use injuries.  


 1          Legislatively, we think it's imperative that 

 2          the Legislature make the 2007 reforms dealing 

 3          with duration caps on permanent partial 

 4          disability benefits more clear, so that the 

 5          duration cap begins on the date of injury.

 6                 What we've seen is benefits that are 

 7          intended to run up to 10 years running 12, 

 8          14, 16 years because of uncertainty about 

 9          when the clock starts running on those caps.  

10                 And those are the major cost savings 

11          that were part of the '07 reforms that saw 

12          more than a doubling of benefits.  So that's 

13          a major focus for this year.

14                 In my remaining time I'd like to touch 

15          on a couple of tax policy recommendations 

16          that we're putting on the table and reaching 

17          out to fiscal staffs on that are not 

18          addressed in Executive Budget.

19                 First, small business income tax 

20          reduction.  Actually, in last year's 

21          Executive Budget there were proposals for 

22          small-business-focused income tax reductions 

23          on both the corporate franchise and personal 

24          income tax.  That proposal was accepted in 


 1          the Assembly's budget resolution and accepted 

 2          with some modifications in the Senate budget 

 3          resolution.  And even though you had 

 4          three-way support for it, it was really set 

 5          aside when the focus turned to restructuring 

 6          the middle-class tax rates.

 7                 We think it should be back on the 

 8          table.  We thought last year's reform 

 9          structure made a lot of sense, although we 

10          did propose a higher income threshold on both 

11          the corporate and personal income tax side.

12                 Article 9A.  In 2014, we did a major 

13          restructuring of the corporate franchise tax.  

14          Through now two years of experience of living 

15          with the statutory changes, we keep seeing -- 

16          we see the need for some technical amendments 

17          addressing practical compliance and audit 

18          issues that were really not anticipated when 

19          the statute went through.

20                 The one we're suggesting today deals 

21          with how you source income to New York.  The 

22          statute says you're supposed to base this on 

23          where services sold to a customer are used or 

24          where the benefit is derived, something 


 1          that's almost impossible for a business to 

 2          know when you have hundreds if not thousands 

 3          of similarly situated customers around the 

 4          nation.  

 5                 So what we're proposing is something 

 6          we've seen adopted in Massachusetts, endorsed 

 7          by the Multistate Tax Commission, is to 

 8          create a safe harbor allowing taxpayers to 

 9          use data; specifically, billing addresses, 

10          because it's already in their files.  It's an 

11          issue that's being talked about with the 

12          department in their rulemaking process but 

13          has not yet been resolved.

14                 The last thing I'll mention is R&D 

15          credit.  The Executive Budget did propose 

16          what I'd say is a relatively modest tax 

17          credit aimed at the life science industry.  

18          That's actually being attached to the limited 

19          tax credits available under the Excelsior 

20          Jobs Program that was adopted a few years 

21          ago.

22                 We think the intent is correct.  We 

23          think the state should have a more robust R&D 

24          investment credit than what we have today.  


 1          And what we would suggest is something that's 

 2          not limited to just life science but would 

 3          focus on any significant increase in R&D 

 4          expenditures by any business in New York 

 5          State.  Like the Governor's proposal, we 

 6          would base it off of the IRC, the federal 

 7          Internal Revenue Code, tax credit.

 8                 You know, with all this focus on 

 9          economic growth, innovation economy, R&D, 

10          investments as the lifeblood of future 

11          growth, we think it would behoove the state 

12          to be more aggressive in this field and adopt 

13          a more robust and more broadly available R&D 

14          credit.

15                 We have some other initiatives that 

16          we're going to be recommending to the 

17          Legislature, and, as you see in our 

18          testimony, commentary on a lot of the 

19          individual tax changes proposed in the 

20          Executive Budget.  

21                 I'd be happy to take any questions you 

22          have on our other initiatives or 

23          Executive Budget issues.  Thank you.

24                 CHAIRMAN FARRELL:  Senator?


 1                 CHAIRWOMAN YOUNG:  Senator Savino.

 2                 SENATOR SAVINO:  Thank you.

 3                 Ken, always good to see you.

 4                 I want to focus on the piece on 

 5          workers' comp reform.  You and I have talked 

 6          about this in the past many times.  I, like 

 7          you, have several concerns about workers' 

 8          comp post the reforms that were done in 2007, 

 9          which were supposed to solve a whole host of 

10          problems, and I would say you and I probably 

11          both agree they have not solved many of them, 

12          either in your interests or mine. 

13                 One of the concerns that we both 

14          share, I think, though is this idea that any 

15          excess funds that exist, I believe, should go 

16          back to the ratepayers.  But the Governor's 

17          office or the Division of Budget seems to 

18          think that it's a slush fund that they could 

19          reclaim on an annual basis.  

20                 Do you believe that that is something 

21          that we should continue, or should we -- in 

22          an effort to reduce premiums, should we 

23          return that money back to the ratepayers?

24                 VICE PRESIDENT POKALSKY:  Absolutely.  


 1          We do mention that in our testimony.  It was 

 2          an issue we raised last year as well.  

 3                 And last year's Executive Budget was 

 4          the first time we saw this, and it was due to 

 5          a change in statute on how carriers made 

 6          assessments and then how they were supposed 

 7          to be remitted to the state.  It turned out 

 8          that the state had collected a significant 

 9          surplus of assessments -- these are all 

10          assessments on providers of workers' comp 

11          insurance.

12                 Historically your bill, based on 

13          anticipated premiums, was sort of a 

14          fifth-quarter true-up and surplus monies are 

15          credited against the future.  

16                 Last year I believe the budget 

17          authorized up to $400 million being swept 

18          into the General Fund.  Our understanding is 

19          this year is just an extension of that, 

20          taking what's left.  And ironically, our 

21          understanding is in part those monies are 

22          being targeted to pay the workers' comp 

23          premiums incurred by the state for state 

24          workers.


 1                 So absolutely, at a time when, you 

 2          know, we're really focused on the overall 

 3          cost, we're seeing an almost 10 percent 

 4          increase in premiums that were approved for 

 5          2017, it is the absolute wrong thing to do to 

 6          be taking assessments by all accounts that 

 7          were overcharged and moving them to the 

 8          General Fund.

 9                 SENATOR SAVINO:  I mean, I would say 

10          that advocates for workers, the AFL-CIO, we 

11          all agree that the reforms of 2007 have 

12          achieved almost none of its intended goals 

13          and that it is time for us to take another 

14          look at workers' comp reform.  The realities 

15          are the premiums have gone up, the costs 

16          continue -- but most importantly, injured 

17          workers are waiting a disproportionate amount 

18          of time for approval of their treatments, 

19          which is leading them to extended periods of 

20          time out of the workplace, which actually 

21          creates a problem for their employer.

22                 The whole purpose behind workers' comp 

23          was to eliminate the -- or to prevent an 

24          employee from suing their employer -- right?  


 1          So you can't sue your employer if you're 

 2          injured on the job.  You're supposed to get 

 3          access to treatment quickly so that you can 

 4          get back to work as quickly as possible.  

 5          That's the purpose of workers' comp, right?  

 6          That's why we have it.  

 7                 It's not working, though.  So we have 

 8          employees waiting longer, we have doctors who 

 9          are waiting -- actually, we have doctors who 

10          are leaving the system because the 

11          reimbursement rates are so ridiculously low 

12          and the paperwork is even more ridiculous for 

13          them to complete to be compensated a 

14          relatively small amount of money.  So you 

15          have less doctors participating in the 

16          workers' comp system, you have employees 

17          waiting longer, premiums are going up, 

18          employers are not getting their employees 

19          back to work faster, so none of it is 

20          working.

21                 So I would hope that you would join 

22          myself and I know Senator Alcantara, who is 

23          now chairing the Labor Committee.  We're 

24          going to be taking another good long look at 


 1          workers' comp in an effort to try and make 

 2          some sense out of it.  Because if not, we may 

 3          as well just tear up the statute and go back 

 4          to allowing employees to sue their employers 

 5          if they're injured on the job, or just be 

 6          covered by their regular insurance, which 

 7          happens in some other places.

 8                 VICE PRESIDENT POKALSKY:  Well, we'd 

 9          be happy to be part of that.  I don't know 

10          the data on delays in medical care --

11                 SENATOR SAVINO:  Oh, I can get it for 

12          you.  I have plenty of it.

13                 VICE PRESIDENT POKALSKY:  I would talk 

14          to -- I'm sure Lev is aware of that.

15                 One of the two things that the 2007 

16          reforms certainly did, we've seen more than a 

17          doubling in maximum benefits.  I mean, that 

18          was one of the major asks at the table of 

19          worker representatives.  So that's, you know, 

20          clearly occurred; benefits are significantly 

21          higher.

22                 But second, through the adoption of 

23          peer-reviewed medical treatment guidelines, 

24          one of the focuses there was for there to be 


 1          a generally accepted agreement on what 

 2          treatments are efficacious and would be 

 3          approved without, you know, additional 

 4          review.

 5                 I don't know if the delays are based 

 6          on so-called waiver requests for different 

 7          treatment modalities, but I would be happy to 

 8          take a look at that.  I just don't know the 

 9          data off the top of my head.

10                 SENATOR SAVINO:  More than happy to 

11          have that conversation.  Thanks.

12                 CHAIRWOMAN YOUNG:  Thank you.

13                 Anybody else?

14                 I just want to say thank you to the 

15          Business Council and you, Ken, for everything 

16          that you do as far as job creation and, you 

17          know, making sure that we have a 

18          business-friendly environment and working 

19          with the Legislature.  So I just want to say 

20          thank you.

21                 VICE PRESIDENT POKALSKY:  I appreciate 

22          that.  We welcome your support in those 

23          efforts.  Thank you.

24                 CHAIRWOMAN YOUNG:  Thank you.


 1                 ASSEMBLYMAN OAKS:  Thank you.

 2                 CHAIRMAN FARRELL:  Thank you.

 3                 Fiscal Policy Institute, Ron Douche 

 4          {sic}, executive director.

 5                 SENATOR KRUEGER:  Deutsch.

 6                 CHAIRMAN FARRELL:  Deutsch.  I'm 

 7          getting close again.

 8                 EXECUTIVE DIRECTOR DEUTSCH:  However 

 9          you want to pronounce it is fine.

10                 (Laughter; overtalk.)

11                 CHAIRMAN FARRELL:  I just have to be 

12          careful.  Showoff.

13                 (Laughter.)

14                 EXECUTIVE DIRECTOR DEUTSCH:  All 

15          right.  Well, thank you very much, 

16          Assemblyman, and Senators.  Appreciate the 

17          opportunity to speak here today once again.

18                 You have my lengthy testimony, so I 

19          won't bother reading it to you.  You can look 

20          at it at your leisure.  But I certainly want 

21          to discuss one of my favorite topics, which 

22          would be the millionaire's tax, and 

23          potentially refute some of what's been said 

24          already regarding that tax.


 1                 But I like to think of it as the Swiss 

 2          Army knife, kind of our fiscal Swiss Army 

 3          knife in our budget.  It's there, it will 

 4          help us respond to priorities and needs, many 

 5          of which maybe haven't even arisen yet.  But 

 6          we certainly have enough need in New York 

 7          State that we can use some of this money to 

 8          help fill some of those gaps.  

 9                 We have the greatest income inequality 

10          of any state in the nation right now.  And if 

11          you look at the chart on page 10, you'll 

12          realize that the share of income going to the 

13          top 1 percent has been growing quite 

14          substantially over the last couple of 

15          decades.

16                 So in 2015, in New York City, the top 

17          1 percent get about 40.9 percent of the 

18          income.  So if you're wondering why they're 

19          paying a lot in terms of income taxes in 

20          terms of the overall amount, well, that's 

21          obviously why; they get the majority of the 

22          income.  So we should keep that in mind as 

23          well.

24                 And on the next page there's a chart 


 1          that clearly shows that income inequality 

 2          didn't always used to be this way.  It wasn't 

 3          always this bad in New York.  And in reality, 

 4          when we had higher taxes on the wealthy and 

 5          we invested in our citizens more, then we saw 

 6          a sharp reversal of income inequality.  But 

 7          since 1980 when we started cutting taxes for 

 8          the wealthy, both at the federal and state 

 9          levels, we saw income inequality grow.

10                 So the next chart on page 10 clearly 

11          reflects the fact that even with the 

12          millionaire's tax, the wealthiest 1 percent 

13          in New York, those who are impacted by this 

14          tax, pay a smaller share of their income in 

15          state and local taxes.

16                 So overall, while we may have a fairly 

17          progressive income tax structure, our overall 

18          state and local tax structure is fairly 

19          regressive.  So a higher millionaire's tax 

20          would address some of those issues.

21                 So I guess I would suggest a number of 

22          things.  One is -- you know, there are three 

23          options, really, on the table.  Right?  It's 

24          expiration, extension, or expansion.  I 


 1          can -- you know, I can let you guess as to 

 2          where I stand, but I'll tell you, we want to 

 3          see expansion of the millionaire's tax.

 4                 We agree with the Assembly's proposal.  

 5          We think it's smart, we think it's the right 

 6          proposal at the right time.  

 7                 We also have our own 1 percent plan.  

 8          Our plan differs a little bit in that we 

 9          start our first bracket at $665,000, around 

10          where the top 1 percent kicks in in New York 

11          State.  We ask those who are earning $665,000 

12          to $1 million to pay 7.65 percent; those 

13          $1 million to $2 million, 8.82 percent, which 

14          is the current top rate at $2 million and 

15          above; and then we have additional rates 

16          between $2 million and $10 million, 

17          $10 million and $100 million, and above 

18          $100 million.

19                 Now, I can assure you that should I 

20          make more than $100 million a year, I'd be 

21          glad to pay that 9.9 percent tax under our 

22          plan.  But this notion that somehow 

23          millionaires, you know, will flee New York 

24          and will leave in droves I think is absurd.  


 1          And I think at the end of page 10 you'll see 

 2          and you'll note that actually the number of 

 3          millionaires since the millionaire's tax has 

 4          been in place has grown by 33 percent.

 5                 So between 2010 and 2014, we've seen a 

 6          33 percent increase in the number of 

 7          millionaire tax returns.  So obviously the 

 8          millionaire's tax is not causing millionaires 

 9          to flee or the number of millionaires to 

10          shrink -- quite the opposite.  

11                 We actually had a letter from 

12          50 millionaires last year in support of 

13          expanding the millionaire's tax.  They 

14          realize it's not affecting their quality of 

15          life, it's not causing them to move.  And 

16          quite frankly, they want to help.  They want 

17          to help address child poverty, they want to 

18          help address education outcomes.  So I would 

19          suggest that there is certainly room for 

20          expansion here.

21                 Also I'd like to point out that, you 

22          know, who's impacted by this?  Obviously the 

23          Senate majority has been in favor of letting 

24          the tax expire.  Well, only 3 percent of the 


 1          millionaires in New York State that would be 

 2          impacted by this are in upstate New York.  

 3          Ninety-seven percent are in New York City, 

 4          Long Island, Westchester, Rockland and Orange 

 5          County.

 6                 So I guess I would say that this is 

 7          not a plan that, you know, has any negative 

 8          impact on upstate.  Quite the opposite is 

 9          true, actually, since a lot of this money 

10          would likely flow to upstate regions for 

11          education and other programs.

12                 So our plan would raise about 

13          $6.2 billion.  The Assembly plan raises about 

14          $5.6 billion.  We heard a lot about the fact 

15          that nonresidents pay this as well, and 

16          that's true.  About 50 percent of the filers 

17          are nonresidents, but they make up about 

18          17 percent of the total yield generated from 

19          the millionaire's tax.  So while they make up 

20          half the filers, it's 17 percent of the 

21          total.  So keep that in mind as well.

22                 So, you know, I think there's plenty 

23          of room right now to expand the millionaire's 

24          tax.  And my friend E.J. continues to kind of 


 1          cherry-pick what's happening at the federal 

 2          level, right?  He talked about the fact that 

 3          if we remove state and local tax 

 4          deductibility, that would be a hit to that 

 5          same population.  We estimated that to be 

 6          somewhere in the neighborhood of $8 billion.

 7                 But when you look at the tax plans 

 8          that have been proposed so far -- certainly 

 9          by President Trump -- looking at the Tax 

10          Foundation and Tax Policy Center estimates, 

11          we realize that the top 1 percent of 

12          New Yorkers would see about a $20 billion 

13          windfall if tax rates go down to where the 

14          president is suggesting they go down to, from 

15          39 to 25 percent.

16                 So, you know, this notion that somehow 

17          the wealthy can't handle a $3.7 billion tax 

18          that they're paying right now -- which is 

19          exactly what we would lose if we allow the 

20          millionaire's tax to expire, which I think 

21          would be quite a shame.  I don't think that 

22          this population, given the explosion in the 

23          number of millionaires since the tax has been 

24          in place and the level of income that these 


 1          folks have, that this would be a good time to 

 2          basically provide a $3.7 billion tax cut to 

 3          the wealthiest New Yorkers.

 4                 So I'm out of time, and I'm sure you 

 5          have a ton of questions.

 6                 CHAIRMAN FARRELL:  Questions?  Give 

 7          him some funds.

 8                 SENATOR KRUEGER:  Okay, thank you.  

 9          Thank you, Ron.  I appreciate you responding 

10          to E.J.'s analysis.

11                 So if I just heard you right, if the 

12          Trump-Ryan tax proposals go through, while we 

13          could really potentially lose the 

14          deductibility for state and local taxes, the 

15          tax reduction to the wealthiest New Yorkers 

16          would be dramatically more than the loss in 

17          state and local --

18                 EXECUTIVE DIRECTOR DEUTSCH:  Right.  

19          We estimate a net of about $12 billion in 

20          terms of a tax windfall to the 1 percent.

21                 SENATOR KRUEGER:  But they're also 

22          slightly different universes, am I correct?  

23          So you can look at the proposed federal tax 

24          reduction on the 1 percent and say for them, 


 1          the loss of deductibility is still just, you 

 2          know, a piece of what they're gaining, right, 

 3          with the federal tax cuts.

 4                 EXECUTIVE DIRECTOR DEUTSCH:  Right.  

 5          For you and I, that might be a different 

 6          scenario.

 7                 SENATOR KRUEGER:  But every -- I mean, 

 8          there's a lot of people who do their taxes 

 9          with deductibility --

10                 EXECUTIVE DIRECTOR DEUTSCH:  Right.  

11          Anybody who itemizes, generally.

12                 SENATOR KRUEGER:  So have you done any 

13          analysis on what the impact would be on other 

14          taxpayers who we might not want to harm?

15                 EXECUTIVE DIRECTOR DEUTSCH:  We have 

16          not done that analysis.  We should probably 

17          look at that as well.  But I thought that 

18          given the topic of the day in terms of taxes, 

19          that we should probably be looking at right 

20          now the top 1 percent, what the impact would 

21          be on them.

22                 SENATOR KRUEGER:  No, I appreciate 

23          that.  And I guess I am -- I've been asking, 

24          in any number of settings, what New York 


 1          State is doing to analyze and plan for the 

 2          endless impacts of proposed federal changes 

 3          under this administration, trying to get our 

 4          arms around -- you might have heard me 

 5          earlier -- what if Dodd-Frank goes away, what 

 6          is the impact.

 7                 EXECUTIVE DIRECTOR DEUTSCH:  Right.  

 8          Right.  Meaning a third of our budget is 

 9          federal dollars.

10                 SENATOR KRUEGER:  Even though this is 

11          not the Health budget, if they do away with 

12          ACA and they radically change Medicaid, 

13          what's the impact on the health budgets, 

14          et cetera, et cetera, et cetera.

15                 But I do think the -- since almost 

16          everyone thinks we're at risk of losing 

17          deductibility, it would be valuable to have 

18          the small number of tax policy advocates in 

19          New York State help us understand exactly, 

20          you know, the winners and losers in the 

21          federal story.  Because I do think that could 

22          and even should impact how we evaluate what 

23          we do with New York State tax policy going 

24          forward.


 1                 EXECUTIVE DIRECTOR DEUTSCH:  Right.

 2                 SENATOR KRUEGER:  So I look forward to 

 3          seeing that.

 4                 And on the other comment you made 

 5          about the out-of-state residents and the 

 6          chart that was in E.J.'s report, do you have 

 7          any -- I agree the numbers show that people 

 8          aren't fleeing when we raised the tax rate on 

 9          the highest-income earners.  And for the 

10          record, my district probably has more of them 

11          than anyone, and I'm on record as supporting 

12          the continuation and expansion.

13                 But is there any analysis of, even 

14          though it's only 17 percent of the 

15          higher-earner revenue, a projection of -- is 

16          E.J. right, we would see more people becoming 

17          nonresidents or even some percentage of those 

18          nonresidents simply ending their New York 

19          address?

20                 EXECUTIVE DIRECTOR DEUTSCH:  Yeah, you 

21          know, I think those nonresidents are making 

22          their millions.  And let's keep in mind, 

23          right, that this surcharge or this 

24          millionaire's tax only applies to families 


 1          with incomes over $2 million.  So these 

 2          nonresidents are making tons of money in New 

 3          York, which is why they're paying this tax.  

 4          I don't think they're going to go to Wyoming 

 5          or North Dakota and make that kind of money.

 6                 So I guess I would suggest that this 

 7          is where the money is made -- right?  I mean, 

 8          the majority of those folks are in the 

 9          financial sector or real estate sector, and 

10          they're making their millions there.  So I 

11          don't foresee that changing any time soon.

12                 SENATOR KRUEGER:  Thank you.

13                 EXECUTIVE DIRECTOR DEUTSCH:  I don't 

14          think they'll forgo their millions just 

15          because they're angry about paying a little 

16          in taxes to New York State.

17                 SENATOR KRUEGER:  Thank you.

18                 Assembly?

19                 CHAIRMAN FARRELL:  Questions?

20                 Thank you very much.

21                 EXECUTIVE DIRECTOR DEUTSCH:  My 

22          pleasure.

23                 CHAIRMAN FARRELL:  Michael Kink, 

24          executive director, Strong Economy for All 


 1          Coalition.

 2                 EXECUTIVE DIRECTOR KINK:  Thank you, 

 3          Chairman Farrell, Senators Krueger and 

 4          Savino, Mr. Oaks, Mr. McDonald.

 5                 I'll also rely on my written testimony 

 6          for details and try to hit three specific 

 7          points in my oral testimony.

 8                 First, on the millionaire's tax, I 

 9          agree with Ron and I agree with Speaker 

10          Heastie that New York should extend and 

11          expand the millionaire's tax.  The brackets 

12          that the Assembly proposes in the plan that 

13          Speaker Heastie recently announced actually 

14          are the exact brackets that I came here last 

15          year and recommended to the Legislature.  

16          They reflect the explosive growth in income 

17          in the high end of the spectrum that New York 

18          has seen.  Our tax brackets at some level are 

19          kind of stuck in the '70s and '80s and don't 

20          reflect the dramatic increase in incomes in 

21          the multimillionaire and billionaire class.

22                 I also agree with Ron and disagree 

23          with E.J.; I don't think the millionaires 

24          will move.  The facts show that after our 


 1          millionaire's tax in 2009 and 2011, we grew 

 2          millionaires each time.  And there is a 

 3          specific study of ultra-high-net-worth 

 4          individuals -- millionaires, 

 5          multimillionaires, and billionaires -- that I 

 6          refer to in my testimony that's done by 

 7          Knight Frank, the global real estate analysis 

 8          firm.  They project New York not only to 

 9          continue as having the largest number of 

10          ultra-high-net-worth individuals, but to grow 

11          substantially between now and 2025, with 

12          substantial increases in the tech and 

13          information sectors, actually, outpacing the 

14          growth in high-net-worth individuals in 

15          Wall Street.  

16                 So when we think of New York, we think 

17          about Wall Street, we think about the 

18          financial industry, but there are new 

19          fortunes being minted in Silicon Alley, tech, 

20          advertising, creative content.  We have a lot 

21          of multimillionaires and billionaires.  They 

22          can afford to pay to live in the state where 

23          they're making fortunes every day.

24                 The second issue I wanted to address 


 1          was the state-level carried interest bill 

 2          that was introduced last year by Senator 

 3          Klein, on the Senate side, and Assemblyman 

 4          Aubry and a host of cosponsors on the 

 5          Assembly side.

 6                 The carried interest loophole is a 

 7          federal-level loophole, but we now have 

 8          legislation in many states to impose a 

 9          19 percent surtax on carried interest profits 

10          at the state level, until and unless the 

11          Congress takes action.

12                 The bill, as was introduced by 

13          Senator Klein and Mr. Aubry last year, 

14          includes a regional compact so that we avoid 

15          the problem that E.J. mentioned in his 

16          testimony of hedge funds dashing across the 

17          state lines to avoid taxes.

18                 This same bill is now introduced in 

19          New Jersey, New York, Connecticut, and 

20          Massachusetts, and will be introduced in 

21          Rhode Island in the first week of March.  

22          It's also been introduced in Illinois, it 

23          will be introduced in California, and will be 

24          introduced in Minnesota.  So this is the 


 1          states taking action when the federal 

 2          government is not taking action.  

 3                 Although Donald Trump promised on the 

 4          stump that he was going to close this 

 5          loophole, it's clear from recent reporting 

 6          that the hedge fund and private equity 

 7          billionaires have built their influence, 

 8          particularly with the Senate and House 

 9          majority in Congress, and the most recent 

10          reporting suggests that there will be tiny 

11          tinkering around the edges on the federal 

12          carried-interest loophole, they're not going 

13          to close it, and our state could raise an 

14          estimated $3.5 billion every year just by 

15          fairly taxing carried interest if Congress 

16          isn't going to do it.

17                 The third point I wanted to make goes 

18          to the larger issues of inequality and social 

19          cohesion.  You know, the anger that we've 

20          seen from the public about taxes and about 

21          the economy is not because we've been taxing 

22          millionaires and billionaires too little -- 

23          it's because regular, everyday working people 

24          are paying their fair share and the 


 1          billionaires and multimillionaires are not.  

 2                 Ron's chart that shows the 

 3          regressivity of the combined tax structure in 

 4          New York is exactly the right point we'd urge 

 5          the Legislature to pay attention to.

 6                 And to Senator Krueger's points 

 7          earlier, this is only going to get worse.  I 

 8          believe that Congress is going to give us 

 9          multi-billion-dollar budget cuts, we're going 

10          to have large holes in our state budget.  And 

11          if we lose the deductibility of state and 

12          local taxes on the federal form, we are going 

13          to raise an authentic populist outcry from 

14          folks about their property taxes and their 

15          state taxes.  And that is a reasonable 

16          outcry.

17                 I think it's time for the Legislature 

18          -- maybe not for the April 1st budget, but 

19          going forward -- to think about shifting the 

20          tax burden away from working people and 

21          towards the people that can afford to pay and 

22          who are minting new fortunes every day in 

23          New York.  New York is a great place to do 

24          business.  It's only getting better.  The 


 1          unfair fact is that the billionaires and 

 2          multimillionaires have taken all of the gains 

 3          from -- since the collapse of the economy in 

 4          2007, and our tax policy at the state level 

 5          can provide an effective redress of some of 

 6          those inequalities.  It can also assure that 

 7          we have the public schools, the healthcare, 

 8          the housing that our state needs to serve its 

 9          people fairly.

10                 Thank you.

11                 CHAIRMAN FARRELL:  Questions?

12                 SENATOR KRUEGER:  Senator Savino.

13                 SENATOR SAVINO:  Thank you, Senator 

14          Krueger.

15                 Thank you, Michael, for the -- for 

16          explaining -- because the carried interest 

17          loophole had been mentioned more than once, 

18          that it's a federal issue.  So I just want to 

19          thank you for clarifying the role that the 

20          state has and how in fact we could -- so if 

21          we were to do this and join with other 

22          states, what would be the revenue effect on 

23          New York State?

24                 EXECUTIVE DIRECTOR KINK:  We would 


 1          raise $3.5 billion a year, according to our 

 2          estimate.  We examined, using the Preqin 

 3          database of hedge fund and private equity 

 4          deals, the number and amount of deals that 

 5          were done in New York.  We used a very 

 6          conservative estimate of the revenue yield; I 

 7          expect that it will be more than 

 8          $3.5 billion.  But that's the amount of money 

 9          that's lost at the federal level to this, you 

10          know, basic straddle play between the tax 

11          rate on long-term capital gains and the gain 

12          on income.  

13                 It's not investment income.  They 

14          can't take a long-term capital loss.  Their 

15          own -- they don't have skin in the game in 

16          terms of the investment.  It is a fee.  But 

17          it's a unique type of income.  And by doing 

18          this surtax, we could raise a lot of the 

19          money, and the other states could too.  We're 

20          all going to face big holes, and it's a fair 

21          way to do it.

22                 SENATOR SAVINO:  Thank you.

23                 SENATOR KRUEGER:  Thank you.

24                 EXECUTIVE DIRECTOR KINK:  Thank you.


 1                 CHAIRMAN FARRELL:  Thank you.

 2                 Teri Ross, president, New York State 

 3          Assessors' Association.

 4                 MS. ROSS:  Good afternoon.  Thank you 

 5          for allowing me to speak before you today.

 6                 I just want to comment on a couple of 

 7          quick, quick budget items that are in the 

 8          budget this year.  And what I'm going to try 

 9          to concentrate my remarks on today is about 

10          the STAR program.  There's a couple of action 

11          items in the budget, one of them being making 

12          the IVP, the Income Verification Program, 

13          mandatory for all senior citizens. 

14                 There were a lot of changes in last 

15          year's budget regarding STAR, and in my 

16          written testimony I've given you some of my 

17          ideas on that.  But I really want to 

18          concentrate on making the IVP mandatory.

19                 Our senior population, you know, are 

20          very close to assessors' hearts.  We are the 

21          first line for these seniors and a lot of 

22          questions that they have about government.  

23          We're local, we're there for them.  

24                 I don't know how much you guys know 


 1          about the Income Verification Program for 

 2          senior citizens, but it is a program that if 

 3          you file a New York State income tax, instead 

 4          of coming in every year to your assessor's 

 5          office to renew your Enhanced STAR exemption, 

 6          which is based on income, you can give the 

 7          assessor your Social Security number and they 

 8          will enter it into a state system.  The DTF, 

 9          the Department of Taxation and Finance, will 

10          then check that income, notify the assessor 

11          that the person still qualifies for the 

12          exemption, and then we notify that senior 

13          that they still qualify.

14                 The problem making this program 

15          mandatory is we have a lot of seniors that 

16          don't file an income tax.  Currently, of the 

17          seniors that are on this program, I probably 

18          have about 600 or 700 on the Income 

19          Verification Program, and when we get a list 

20          every year from DTF, we have a bunch of -- 

21          probably 100 to 200 people that they can't 

22          determine their income.  Maybe a spouse dies, 

23          so they don't file in the right name, 

24          something like that.  So we have to reach out 


 1          to them anyway.

 2                 I have about 35 percent of my Enhanced 

 3          STAR seniors that don't file an income tax, 

 4          and way over 50 percent of my low-income aged 

 5          exemption seniors.  I mean, that's low 

 6          income.  I have seniors that make, you know, 

 7          $11,000 a year.

 8                 We're there for them.  We're the local 

 9          place for them to go.  Part of this IVP 

10          program, and making it mandatory, is that 

11          it's another step for these seniors to do.  

12          And it's a step that they can go online to 

13          qualify for this program.  A lot of seniors 

14          are not computer-savvy.  They're not going to 

15          be comfortable going online.

16                 The other way they're going to be able 

17          to qualify for the IVP program is to call a 

18          hotline number.  I don't know if any of you 

19          have gotten some phone calls this fall, this 

20          winter, about people not receiving checks, 

21          receiving wrong checks.  The hotline DTF 

22          number has had up to a three-hour wait.  And 

23          that is not a toll-free number.

24                 I spoke in front of the Assembly last 


 1          week, and the members there could not believe 

 2          that this was not a toll-free number for 

 3          people to register for this really important 

 4          exemption for them.

 5                 So the senior population is being 

 6          affected the most.  The seniors that want to 

 7          call to register, they're the ones that are 

 8          going to have the landlines.  And if they 

 9          don't live in the Albany area, if they live 

10          in Buffalo or Long Island or something, 

11          that's obviously a toll number for them.

12                 I believe that DTF right now is having 

13          a hard time qualifying these people's income 

14          that don't file a New York State return or a 

15          federal return.  Every year, they have to 

16          come to the assessor's office to qualify for 

17          their low-income aged exemption, and these 

18          people come in with a grocery bag full of 

19          papers and just hand them to us to go 

20          through.  I've even driven to their homes to 

21          get this information from them.  I just don't 

22          see how making this mandatory IVP is going to 

23          work.

24                 In your packet, I've actually sent DTF 


 1          last week a compromise proposal.  I believe 

 2          that one of the reasons that DTF wants this 

 3          IVP program mandatory is they want to be able 

 4          to check for double-dippers, for people like 

 5          a couple of years ago, when we did the basic 

 6          STAR registration and DTF found a few people 

 7          that were, you know, double-dipping, over 

 8          income, something like that.

 9                 So my compromise would be to have the 

10          assessors input the seniors' information, 

11          their Social Security numbers.  Let DTF then 

12          check those Social Security numbers to check 

13          for double-dippers, but the assessor would 

14          still be the one that is in the front lines 

15          for them, still be the one that sends the 

16          reminder notices, the reminder phone calls, 

17          going to their houses to get this exemption 

18          information, this income information.

19                 So the New York State Assessors' 

20          Association is vehemently opposed to that 

21          part of the STAR action items.

22                 There were two other action items on 

23          there that we have a stance on, and one is 

24          letting DTF lessen their secrecy a little bit 


 1          about giving the assessor some information 

 2          about some of these people so that we can 

 3          help them, maybe qualify them for different 

 4          exemptions.  

 5                 Right now we've asked DTF quite a few 

 6          requests for information about our seniors 

 7          that they have that they can't share with us.  

 8          So yes, we are definitely in favor of that 

 9          portion of the STAR action items.

10                 And the third one is straightening out 

11          the co-op buildings.  Right now, for those 

12          new STAR checks that were sent last year -- 

13          were supposed to be sent last year to help 

14          people pay for their school taxes -- right 

15          now, currently, these co-op owners are 

16          getting a hundred percent of what their STAR 

17          exemption would be worth.  Sometimes that's 

18          more than what their school tax bill is.  So 

19          they're getting checks for $1200, $1500, 

20          $1800, $2500 when maybe their school tax bill 

21          was only a thousand.  

22                 So the action item that the Governor 

23          has in his budget is to straighten that out, 

24          to limit that to whatever they would pay on 


 1          their school taxes.

 2                 The same thing is happening -- I don't 

 3          know if any of you have mobile home parks in 

 4          your area, but the mobile home owners of the 

 5          actual units in there are eligible for STAR 

 6          as well.  Right now DTF is sending them 

 7          checks based on a value of $20,000 throughout 

 8          the state.  

 9                 Now, I know in Long Island there are a 

10          bunch of mobile home parks where their values 

11          of their mobile homes are way over $20,000, 

12          and I know of mobile home parks in New York 

13          State where the values of those units are 

14          $4,000.

15                 So what we're asking is for that to be 

16          straightened out as well, to base their STAR 

17          checks, just like we do on the exemptions, on 

18          the actual value of those individual units or 

19          co-op units.

20                 CHAIRMAN FARRELL:  Thank you.

21                 SENATOR KRUEGER:  Thank you.

22                 CHAIRMAN FARRELL:  Questions?

23                 Mr. Oaks.

24                 ASSEMBLYMAN OAKS:  Just a quick 


 1          comment.  I appreciate having people on the 

 2          front lines who are making a lot of the 

 3          recommendations, and thank you for pointing 

 4          those out.  And also for giving us a pretty 

 5          extensive packet to follow up on as well.  So 

 6          thank you.

 7                 MS. ROSS:  Okay, thank you.

 8                 CHAIRWOMAN YOUNG:  Thank you.

 9                 So the commissioner of Tax talked 

10          today about the PIT checks and so on, and the 

11          comment was that the assessors aren't getting 

12          the right information to the state.  So how 

13          could the system be changed?

14                 MS. ROSS:  They're getting -- I wasn't 

15          here for the commissioner.  I really wish I 

16          was, because at last week's Assembly hearing, 

17          they declined to show up.

18                 So did they say -- did she say that 

19          they were not getting the right information 

20          from the assessors?

21                 CHAIRWOMAN YOUNG:  Right.  Basically, 

22          they're saying it was because the local 

23          assessors weren't getting them the correct 

24          information.


 1                 MS. ROSS:  Absolutely not.  

 2                 I'm on a STAR team, actually, that 

 3          meets weekly, a teleconference team, with DTF 

 4          members, with county directors and other 

 5          assessors.  We've been working since 2013 

 6          with them on a weekly basis trying to wade 

 7          through these waters of changes to STAR, and 

 8          especially this year when it -- you know, it 

 9          changed at the last minute with the STAR 

10          check credits in April so new homeowners get 

11          the checks.

12                 We've worked with them extensively, 

13          and in almost every instance DTF has put up a 

14          roadblock.  We have requested in person 

15          meetings with DTF, we've requested 

16          compromises, we have sent them everything 

17          they have asked for, and I know that -- I 

18          don't want to speak badly about DTF.  I know 

19          a lot of this is they were given this program 

20          to do and they had to try to make it work.  

21                 I don't see that program ever working, 

22          personally.

23                 CHAIRWOMAN YOUNG:  Why is that?

24                 MS. ROSS:  For one thing, most people 


 1          have to pay their school tax bills by 

 2          September 30th, or they're into a penalty 

 3          period.  I'm not going to talk about this 

 4          year, because this was the first year and it 

 5          was a disaster.  

 6                 But the way this schedule goes, 

 7          schools do not confirm their tax rates until 

 8          the end of August.  Then the tax bill 

 9          preparers have to run their programs.  Those 

10          programs have to be sent to DTF.  DTF then 

11          has to look at those programs and figure out 

12          who gets checks and who doesn't get checks.  

13          They have to calculate the checks.  Those 

14          checks have to be checked before they're 

15          sent.

16                 I don't think physically they can get 

17          those checks to people before they have to 

18          pay their school tax bills.  This year those 

19          checks did not go out until the end of 

20          September, and a lot of those checks were 

21          wrong and had to have second checks.

22                 You can see all of that in my 

23          testimony, because I really concentrated on 

24          that.  


 1                 But I really don't see how they are 

 2          going to physically get these checks to 

 3          people before they have to pay their school 

 4          tax bill.  And that's what they're there for.  

 5          Those checks are supposed to be the same 

 6          benefit as the exemption.  And instead of 

 7          having the exemption automatically reduce 

 8          your school tax bill, these people get the 

 9          checks to help them pay their tax bill.

10                 I personally do not know how -- any 

11          way possible this is saving the state money, 

12          having -- you know, instead of sending 

13          720 wire transfers to the school districts, 

14          they're now sending over 2 million checks.  

15          Just that alone, I can't imagine the time and 

16          effort and manhours that go into that.  And 

17          it's been fraught with issues from the 

18          beginning.

19                 We are -- the assessment community is 

20          there for DTF.  We will do everything 

21          possible to help our taxpayers.  And if it 

22          was up to me, if I personally was asked, I 

23          would want the whole -- every change in last 

24          year's budget that pertained to STAR to be 


 1          repealed.  It's just not going to work.

 2                 CHAIRWOMAN YOUNG:  Thank you.  Thank 

 3          you very much.

 4                 SENATOR KRUEGER:  I just want to thank 

 5          you for your detailed proposal.  

 6                 And when the commissioner was here, I 

 7          actually took the position we should go back 

 8          to what we had and drop this whole system.

 9                 MS. ROSS:  Exactly.

10                 SENATOR KRUEGER:  And you think we 

11          could.

12                 MS. ROSS:  I think we could.  I think 

13          a lot of assessors have said they don't want 

14          anything to do with it anymore, that the 

15          Department of Taxation and Finance, whomever, 

16          has messed it up so badly they want them to 

17          keep it.

18                 Then there's another side of the 

19          assessors that want it back, that want to be 

20          our advocates for our taxpayers, make sure 

21          they get the exemptions they want, make sure 

22          that they have reduced tax bills, help them 

23          pay their tax bills.  

24                 I'm on the side of wanting the whole 


 1          thing repealed.

 2                 SENATOR KRUEGER:  Thank you.

 3                 MS. ROSS:  You're welcome.

 4                 CHAIRMAN FARRELL:  Thank you.

 5                 ASSEMBLYMAN OAKS:  Thank you.

 6                 CHAIRWOMAN YOUNG:  Thank you.

 7                 CHAIRMAN FARRELL:  John Olsen, 

 8          executive director, New York State Internet 

 9          Association.

10                 MR. OLSEN:  Good afternoon.

11                 CHAIRWOMAN YOUNG:  Good afternoon.

12                 CHAIRMAN FARRELL:  Good afternoon.

13                 MR. OLSEN:  Hello, Chairwoman Young, 

14          Chairman Farrell, Assemblyman Oaks, Senator 

15          Krueger, Senator Savino.  Thank you for 

16          allowing me to testify today.  My name is 

17          John Olsen, and I'm the New York executive 

18          director for The Internet Association.  

19                 The Internet Association is the 

20          unified voice of the internet economy, 

21          representing interests of leading internet 

22          companies and their global community of 

23          users.  It is dedicated to advancing public 

24          policy solutions that foster innovation, 


 1          promote economic growth, and empower people 

 2          through the free and open internet.  

 3                 I am here before you today to comment 

 4          on some of the provisions Governor Cuomo has 

 5          included in his Executive Budget. In 

 6          addition, I would like to encourage the 

 7          Legislature, the Governor, and all interested 

 8          parties to use The Internet Association as a 

 9          resource when crafting policy that impacts 

10          e-commerce. 

11                 Users and regulators alike must be 

12          cognizant of the fact that the internet 

13          provides not only new and unique products and 

14          services, but also a medium for traditional 

15          products, services, and businesses to improve 

16          productivity and increase availability.  

17          Policymakers must begin to move past 

18          antiquated regulatory and statutory regimes 

19          and perceptions about the internet.  

20                 While historically recognized as the 

21          Information Superhighway, the internet has 

22          become much more than that.  The internet is 

23          a complex economic, social, political, and 

24          cultural ecosystem -- one without physical 


 1          borders and limitless potential.  

 2                 With this concept in mind, I would 

 3          like to address two specific proposals in the 

 4          Governor's budget.  

 5                 Number one, provide access to 

 6          important and enhanced transportation options 

 7          for residents and visitors throughout 

 8          New York State.  The Internet Association 

 9          applauds Governor Cuomo for proposing to 

10          bring ride-sharing to upstate New York and 

11          thanks him for including it among his budget 

12          proposals.  And thank you again to the Senate 

13          for passing your bill yesterday.  

14                 However, IA has some concerns related 

15          to the imposition of a 7.5 percent fee, which 

16          is one of the highest assessments applied to 

17          transportation network companies in the 

18          nation.  IA requests the Legislature to 

19          consider a lower tax on fares, similar to the 

20          bill passed yesterday, to ensure 

21          transportation options such as Uber and Lyft 

22          remain affordable to all citizens of 

23          New York.   

24                 Number two, modernize sales tax 


 1          collection to reflect the internet economy.  

 2                 IA is opposed to this proposal.  

 3          Online marketplaces are an essential segment 

 4          of the internet economy.  Including 

 5          marketplace providers in New York law would 

 6          set a new precedent for discriminatory tax 

 7          collection.  If applied to a brick-and- 

 8          mortar marketplace, for example, this 

 9          proposal would require large shopping centers 

10          to collect the sales tax for all purchases 

11          made in their tenant stores.  

12                 Online marketplaces provide a forum to 

13          connect retailers in New York to consumers 

14          globally, and vice versa.  Requiring these 

15          platforms to collect and remit sales tax 

16          would create undue compliance burdens for 

17          growing marketplaces.  As the world continues 

18          to move to digital platforms, more and more 

19          companies providing online sales are likely 

20          to meet the imposed $100 million threshold in 

21          annual sales and would be considered a 

22          "marketplace provider" under state law. 

23                 New York companies may choose to limit 

24          their growth to avoid the burden of sales tax 


 1          collection and thus discourage innovation, 

 2          workforce development, and new hires.  

 3                 New York State has advertised 

 4          repeatedly that it is a state that is open 

 5          for business.  An entire sector of the 

 6          internet economy stands to become closed for 

 7          business with adoption of this proposal.  IA 

 8          urges lawmakers to reject this provision and 

 9          ensure New York remains competitive in a 

10          growing e-commerce economy.  

11                 The Internet Association stands ready 

12          to provide a voice for its members, the tech 

13          economy, and users in New York State.  IA 

14          welcomes the opportunity to provide guidance 

15          and knowledge about this unique and 

16          ubiquitous element of everyday life.  

17                 I thank you for your time today and 

18          would be happy to answer any questions you 

19          may have.

20                 CHAIRMAN FARRELL:  Thank you.

21                 Questions?

22                 CHAIRWOMAN YOUNG:  Senator Krueger.

23                 SENATOR KRUEGER:  Hi.

24                 MR. OLSEN:  Hello.


 1                 SENATOR KRUEGER:  I actually would 

 2          like meeting with you at another time, 

 3          because I have a much larger set of questions 

 4          than I think apply to the tax issues today.

 5                 MR. OLSEN:  I would welcome that.

 6                 SENATOR KRUEGER:  All right.  Because 

 7          a significant frustration of mine is the 

 8          world of business is moving to the internet, 

 9          I get it, and yet the internet companies 

10          individually seem to think that they're not 

11          businesses, they're magic, because their 

12          platform is on an internet and they don't 

13          have to have liability and they don't have to 

14          pay taxes and they don't have to compete with 

15          non-internet businesses under the same rules 

16          of the road.  So that's the meeting I would 

17          like to have.

18                 But specifically to the two 

19          recommendations you're making here, do you 

20          actually think that because I order my livery 

21          car on an app, I ought to pay a different 

22          rate of taxes than if I am calling them on 

23          the phone or waving them down on the street 

24          of my town?  And why?


 1                 MR. OLSEN:  Well, I think we're just 

 2          seeking parity with other states and what 

 3          they've imposed as an assessment on all 

 4          fares.  The average is about 4 percent, which 

 5          is what was passed yesterday.  I think -- you 

 6          know, I consider 7.5 percent one of the 

 7          highest in the nation.  And therefore, we're 

 8          just seeking options that would allow 

 9          affordability for everyone, including in 

10          upstate New York.

11                 SENATOR KRUEGER:  But in New York we 

12          tend to apply our taxes to be equitable 

13          across the state, not in competition with 

14          other states.  I mean, when you're picking up 

15          people in New York State, you're doing 

16          business in New York State, would you agree?

17                 MR. OLSEN:  Right.

18                 SENATOR KRUEGER:  Okay.  So you want a 

19          national, I don't know, average, but in fact 

20          that's not really how state and local tax 

21          policy work anywhere in the country.

22                 And you talked about, under the 

23          marketplace modernization -- and I had asked 

24          the commissioner some questions about taxing 


 1          when you're above $100 million and not taxing 

 2          when you're below $100 million in sales.  

 3          You're going a different direction on this, 

 4          but you say that companies will choose to 

 5          stay below $100 million to avoid the taxes.  

 6          How would they do that?

 7                 MR. OLSEN:  Well, I think they would 

 8          just inhibit growth in their own companies.  

 9          I think rather than becoming tax collectors, 

10          they would rather stay below the cap and 

11          operate as they continue to operate, instead 

12          of continuing to grow.

13                 SENATOR KRUEGER:  So again, in 

14          bricks-and-mortar businesses, I don't think 

15          companies choose not to expand their business 

16          because they have a tax cost.  But you think 

17          in the world of internet, because it's 

18          different, internet providers will choose not 

19          to get bigger and make more money for 

20          themselves because then they have to collect 

21          and remit taxes?

22                 MR. OLSEN:  I think we need to start 

23          thinking about the internet a little 

24          differently than how we've already done, 


 1          especially when it comes to statutory and 

 2          regulatory regimes.  We need to start looking 

 3          at the internet in a more broad sense rather 

 4          than just, you know, this magic place that is 

 5          exempt from the rules.  

 6                 It's not that our companies do not 

 7          want to collect taxes, but we would like a 

 8          scheme that reflects the global e-commerce 

 9          economy rather than a patchwork attempt from 

10          state to state.

11                 I think we would support federal 

12          regulation that evens the playing field 

13          throughout, you know, the United States.  But 

14          as far as New York is concerned, I think this 

15          is setting a new precedent for discriminatory 

16          tax collection.  These aren't marketplaces, 

17          they're forums.  They're not necessarily 

18          brick-and-mortar vendors.

19                 SENATOR KRUEGER:  Right.  And because 

20          they're not brick-and-mortar venues, they 

21          don't provide jobs for people in the State of 

22          New York or taxes at the local level, at the 

23          local stores, and they actually are doing -- 

24          I shop on the internet.  I'm not telling you 


 1          I'm not.  I'm no Luddite.  But they are 

 2          actually having a real impact on jobs and 

 3          businesses and communities.

 4                 When we have that meeting -- and 

 5          you're welcome to bring whoever you wish to 

 6          it -- I'd also like you to be prepared to 

 7          talk to me about the fact that a 

 8          disproportionate number of the larger 

 9          internet business companies are choosing to 

10          establish a nexus outside of the U.S., so 

11          they're not paying federal taxes either.  

12                 So they don't want to pay the taxes at 

13          the state or local level, but they also are 

14          not paying taxes at the federal level.

15                 So I look forward to setting up that 

16          meeting to have a further discussion.

17                 MR. OLSEN:  I welcome that discussion 

18          as well, Senator.  Thank you.

19                 SENATOR KRUEGER:  Thank you.

20                 CHAIRMAN FARRELL:  Any further 

21          questions?  Thank you very much.  

22                 And we are finished for the day.

23                 (Whereupon, the budget hearing 

24          concluded at 12:50 p.m.)