Senate and Assembly Passes Budget

The following summary of the State Budget has been provided by Brian McMahon, President of the NYS Economic Development Corp.
April 2, 2007

To NYSEDC members:

Below is an initial summary of the budget passed by the legislature last night. This summary will be supplemented in the next few days, as more details are made available.

The legislature passed an on-time budget last night with messages of necessity provided by Governor Spitzer to avoid the three-day aging period required before bills can be voted on by the Senate and Assembly. The budget passed last night does not include capital project funding, member items, or pay raises for legislators, which are expected to be enacted at a later date.

Budget parameters

Spending

• Overall spending will increase from $112.6 billion to approximately $122 billion
• School aid will increase by $1.9 billion to $19.27 billion. The Senate was successful in adding to the budget $75 million for Long Island districts, and $25 million for other districts. The aid formula was revised to redirect more dollars to the neediest schools.
• STAR will increase by $1.3 billion, and provide at least some rebates to individuals/families with incomes up to $250,000.
• 100 Charter schools were approved, but the Assembly was successful in requiring Charter schools with at least 250 students in the first two years of operations to automatically be unionized.

Taxes

• Combined reporting required for 9-A taxpayers where there are “substantial intercorporate transfers” between related companies.
• Personal Service or S-Corps: If all services are performed on behalf of another corporation, and the effect of forming an S-Corporation is to avoid taxation, Commissioner may reallocate income to clearly reflect source and amount of the income.
• Subchapter S corporations: Businesses that file as Subchapter S corporations for federal income tax purposes that have investment income of 50 percent to also file as Subchapter S corporations for NYS tax purposes.
• Reduces corporate income tax for manufacturers from 7.5 percent to 6.5 percent. In determining a “combined group’s” gross receipts, intercorporate receipts shall be eliminated.
• REITs and bank loophole closures: $450 million in “loophole” closures were enacted, although many proposed by the Governor, especially those related to banks, were either eliminated or modified.

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