Department of Taxation and Finance

The 21-day amendments to the Executive Budget recommend the following changes (analysis as of February 13, 2008):

Reduces the department’s General Fund appropriation by $4 million. The department’s All Funds appropriation is now $445 million, an increase of 2.2% from the enacted 2007-08 budget.   The reductions are as follows:

Personal Service reductions of:

•  Centralized Operations Support -$150,000; the total appropriation is $4.5 million, a $200,000 decrease from the SFY 2007-08 enacted appropriation.

•  Conciliation and Mediation -$44,000; the total appropriation is $1.5 million, a $44,000 decrease from the SFY 2007-08 enacted appropriation.

•  Management, Administration, & Counsel -$412,000; the total appropriation is $13.98 million, a $472,000 decrease from the SFY 2007-08 enacted appropriation.

•  Revenue Processing & Reconciliation -$1.1 million; the total appropriation is $33.2 million, a $2.4 million decrease from the SFY 2007-08 enacted appropriation.

• Tax Policy -$291,000; the total appropriation is $9.9 million, a $356,000 decrease from the SFY 2007-08 enacted appropriation.

• Technology and Information -$955,000; the total appropriation is $32 million, a $1.1 million decrease from the SFY 2007-08 enacted appropriation.

Contractual Service reductions of:

• Centralized Operations Support -$250,000; the total appropriation is $18.7 million, a $250,000 decrease from the SFY 2007-08 enacted appropriation.

• Management, Administration, & Counsel -$250,000; the total appropriation is $1.1 million, a $250,000 decrease from the SFY 2007-08 enacted appropriation.

Supplies and Material reductions of:

• Centralized Operations Support -$500,000; the total appropriation is $13 million, a $500,000 decrease from the SFY 2007-08 enacted appropriation. 

The Executive Budget recommends (analysis as of 1/28/08):

A FY 2008-09 workforce of 5,041.  This is an increase of 75 FTEs from the adjusted FTE level for FY 2007-08.  The following chart identifies adjustments in the current fiscal year’s FTEs along with the recommended differences in FY 2007-08 FTEs by program (if the FTE’s are the same the program is not listed):

·         During SFY 2007-08 there was a shift of 335 FTEs in the Revenue Processing and Reconciliation Program from Special Revenue other appropriations to General Fund appropriations.  We believe this was related to the last year’s proposal that required NYC to pay more to the department for their processing of NYC’s own income tax returns. This issue should be clarified at statewide labor management.

·          An All Funds appropriation of $449.3 million, an increase of $13.485 million, (3.1%) from SFY 2007-08 enacted budget. 

·         A total Personal Service appropriation of $257.768 million, an increase of $9.38 million (3.8%) from the SFY 2007-08 enacted budget.

·         A total contractual service appropriation of $136.7 million, an $8.3 million decrease from the enacted SFY 2007-08 contractual services appropriation.  This decrease primarily reflects a $7 million decrease in the contractual service appropriation for the e-MPIRE project in the Technology and Information Services program which is expected to be completed by March 31, 2008.

·         A $6.6 million increase in the personal service appropriation for the Audit, Collection, and Enforcement program which is consistent with the plan to add 75 FTEs to this program.  According to the Assembly budget analysis, 45 of these new FTEs are for audit positions and 30 are for criminal enforcement positions.

·         A $1.25 million decrease in the regular personal service appropriation for the Revenue Processing and Reconciliation program which is offset by an increase in temporary service (+$750,000), and holiday/overtime compensation (+$500,000) appropriations. Since there are no recommended FTE decreases in this program the reason for this change should be discussed at statewide labor management.

·         A $10,417,000 increase in the Special Revenue other appropriation in the Revenue Processing and Reconciliation program reflects the elimination of a fringe benefit waiver New York City received when its assessment for the department processing NYC income tax returns was increased.

·         A $1.3 million decrease in the Internal Service Fund appropriation in the Revenue Processing and Reconciliation program. According to the Assembly budget analysis, this reflects a $5 million increase in the cost of the bank service contract, which processes paper tax returns, offset by a $6.3 million decrease in funds due to the Article 7 proposal to allow the Commissioner of Tax and Finance to require the electronic filing of tax returns by certain groups of taxpayers.

·         The Executive Budget shows that Taxation and Finance employed an estimated 204 FTE employees under consultant contracts in SFY 2007-08 at an estimated cost of $27.7 million or an average cost of $135,946 per consultant contract employee.  It is estimated that the number of FTE employees employed under consultant contracts will remain the same in SFY 2008-09.  Interestingly consultant contract employees will be paid $29.7 million in SFY 2008-09 or an average cost of $145,470 per FTE consultant contract employee, a 7% increase over the average cost in SFY 2007-08. The purpose and use of these contract employees and whether they can be replaced by state employees should be clarified at statewide labor management

There were several other Article VII proposals affecting the Department.

• Qualified Production Activities Income (QPAI) Decoupling. Conforming New York’s tax code to the practices of 18 other states, the Executive Budget proposes to decouple the State from the Federal deduction related to qualified production activities, requiring taxpayers to add back this deduction for State tax purposes.  This measure will generate $56 million annually starting in SFY 2008-09.

• Tax Shelter Reporting. This proposal would provide the Department of Taxation and Finance with permanent statutory tools to address the increasing use of abusive tax shelters. These tools were originally scheduled to sunset July 1, 2009.  This measure will generate $17 million annually starting in SFY 2009-10.
• Merge Fuel Taxes into One Petroleum Business Tax.  This proposal would increase revenues by $13.2 million in SFY 2008-09 and $55.9 million when fully effective.
• Restructure Fees and Minimum Taxes Imposed on Limited Liability Companies (LLCs) and Corporations.  This measure will generate $75 million annually starting in SFY 2008-09.
• E-Commerce Retailer - Registered Vendor. Creates an evidentiary presumption that certain sellers, for example Amazon.com, using New York residents to solicit sales in the State are vendors required to collect sales and use taxes. This will correct a competitive disadvantage experienced by New York-based businesses by subjecting out-of-State vendors to the same sales tax requirements. This will raise $47 million in SFY 2008-09, and $73 million in SFY 2009-10.

Division of Tax Appeals

The Executive Budget recommends (analysis as of February 1, 2008):

A SFY 2008-09 workforce of 31.  There is no change from the adjusted FTE level for SFY 2007-08. 

• The total appropriation for Personal Service is $2.8 million, an increase of 2.4%.