Relates to payment methods permitted for use by taxpayers under the electronic funds transfer programs

Section 3 of the bill amends Tax Law § 9(i) to eliminate the requirement that the Department of Taxation and Finance ("Department") offer as PrompTax payment methods, at least two methods that are free to the taxpayer, and one method that does not require the taxpayer to disclose its financial institution account information to the Department. Under the bill, the Commissioner would be granted discretion to prescribe regulations as to the method or methods to be used by taxpayers participating in the Tax Law § 9 PrompTax program.

Sections 4 through 13 of the bill amend various sections of the Tax Law to eliminate the certified check as an acceptable form of payment for purposes of Tax Law § 10.

Section 14 of the bill provides that the bill would take effect immediately and apply to PrompTax payments required to be made on or after the 30th day following the date on which the bill becomes a law. However, the Commissioner would be authorized under the bill to promulgate rules and regulations necessary for implementation of the bill on an emergency basis.

Existing law

Sections 9 and 10 of the Tax Law require certain taxpayers to pay their liabilities by "electronic funds transfer." Taxpayers may use Automated Clearing House ("ACH") debit, ACH credit, Fedwire and certified check as payment methods for purposes of these statutes.

Using ACH debit, the Department obtains authorization from a taxpayer to debit the taxpayer's designated bank account in an amount, and at a time (on or before the due date), specified by the taxpayer. The Department, in accordance with the taxpayer's authorization, instructs its depository bank to originate an ACH debit transaction through the ACH Network to the taxpayer's bank, the result of which is a debit to the taxpayer's account and a credit to the Department's account.

Using ACH credit, the taxpayer originates an instruction to its bank to debit the taxpayer's account and to credit the Department's account. This transaction is also cleared and settled through the ACH network.

Fedwire works in essentially the same way as ACH credit, except that participating banks . must maintain an account at a Federal Reserve Bank and the clearing and settlement processes are done through the 12 Federal Reserve Banks.

Neither ACH debit nor ACH credit can be initiated on the payment due date; they must be initiated at least one day before the due date in order to ensure timely payment. Fedwire can be initiated on the payment due date in order for the payment to be received timely. Also, unlike ACH debit participants, ACH credit and Fedwire participants need not provide their bank account information to the Department in order for their accounts to be debited. The certified check method allows taxpayers participating in the PrompTax programs prescribed by sections 9 and 10 to mail a paper certified check in advance of the due date for payment prescribed by law.

Legislative history

This is a new proposal.

Statement in support

Since the enactment of Tax Law §§ 9 and 10 in the late 1980s and early 1990s, respectively, banking practices, and electronic payment technologies in particular, have undergone significant changes. This bill recognizes these changes by permitting the Department greater discretion in choosing acceptable taxpayer payment methods for PrompTax purposes, and enables the Tax Department to respond more quickly in the future as electronic payment practices continue to evolve and become more sophisticated. It should also be noted that the PrompTax programs affect only large taxpayers responsible for paying certain business taxes. These programs are not aimed at individual taxpayers.

Also, a particular risk has arisen with respect to one of the current PrompTax payment methods - ACH credit, which, for all intents and purposes, is mandated for PrompTax use by current Tax Law § 9(i)(1). NACHA Rules (the governing authority for banks engaged in ACH transactions) permit users of ACH credit to reverse their ACH credit payment for any of the following reasons: duplicate payment, wrong payee, or incorrect dollar amount. The Rules also provide that once commenced, the reversal cannot be halted. In effect, the Rules permit taxpayers to initiate their own refunds. The Rules thus may conflict with Article Y, § 1 of the New York State Constitution and § 111 of the State Finance Law, both of which prohibit the refund of monies paid to the State without prior authorization of the State Comptroller. There is also a risk of someone (such as an employee of the taxpayer's bank) improperly initiating a reversal and diverting it to his/her own use. This bill would address these risks by allowing the Department to eliminate ACH credit as a PrompTax payment option.

Budget implications

This bill will not have an impact on state finances.

Effective date

This bill would take effect immediately and apply to payments of tax required to be made on or after the 30th day following the date on which the bill becomes a law as provided in section 14 of the bill.