New York Looks to Entice Out-of-State Businesses Through Limited Tax Reforms
In 2014, the state of New York will roll-out its new business tax incentive program, START-UP NY. The intent of the legislation is to entice businesses to relocate to upstate New York by offering them and their employees zero taxes for a period of “up to” ten years. Governor Cuomo believes that the move will portray New York to the nation as a “no-tax state,” and hopefully give a much needed shot in the arm to the upstate economy.
The need for tax reform programs is clear. The most current IRS data shows that between 1992 and 2010, the state conceded over $68 billion in revenue, primarily to the no-income-tax state of Florida. This loss came in many forms. The state lost valuable revenue generating businesses because of high corporate taxes. They lost constituents looking to keep more of their money presently being lost to high personal income taxes, on top of those levied by the state, city and local governments. Many who could, did as you would expect. They packed up their families and brought with them their accumulated wealth and future taxable earning potential and headed off to more favorable tax environments. Many notable sports figures and celebrities soon recognized that they could save millions in taxes by becoming residents of states with far more inviting tax structures, which is bringing about an interesting unintended consequence related to the world of sports. There is now a concern that the continued migration of the highest paid top performing athletes to no-tax states like Florida and Texas will eventually result in southern based sports teams dominating national sporting competitions.
New York State has a sizable task in front of it, and not one that can be easily rectified by less than sweeping tax reforms. In its 2013 rankings of Best and Worst States for Business, chiefexecutive.net cites New York in the 49th position, only one place better than California. In its 2013 State Business Tax Climate Report, the Tax Foundation ranks New York dead last, as the 50th worst state for business.
The obvious downside of Gov. Cuomo’s plan is that there is nothing in it to address tax reforms for businesses already located in New York. It is fine to attempt to attract new out-of-state businesses, but what would stem the tide of a greater number of companies still leaving? And what will happen after the ten years, when these tax relief programs expire and taxes are reenacted? Businesses will be in full operation, employees will be settled-in, perhaps with kids in schools. It would seem to me to be a classic “bait and switch” and totally unfair to everyone in the long run.
New York needs to take the bold move of total tax reform. The prospect of lost revenue, and the need to make unpopular choices to recoup that revenue through increased or expanded sales taxes, increased property taxes and the like, will be very difficult for politicians to swallow. But data shows that those states who have gone out on that limb, are now the better for it.