Public Hearing: Review Existing Tax Policy and Discuss Reform Initiatives

1 JOINT HEARING BEFORE THE NEW YORK STATE

SENATE STANDING COMMITTEE ON FINANCE 2 AND

SENATE STANDING COMMITTEE ON INVESTIGATIONS AND 3 GOVERNMENT OPERATIONS

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PUBLIC HEARING:5

REVIEW EXISTING TAX POLICY AND 6 DISCUSS REFORM INITIATIVES 7 ----------------------------------------------------- 8 Buffalo City Hall

Common Council Chambers, 13th Floor 9 65 Niagara Square

Buffalo, New York 10

September 12, 2013 11 10:00 a.m. to 1:00 p.m. 12 13

PRESIDING:14

Senator John A. DeFrancisco 15 Chairman

NYS Senate Standing Committee on Finance 16 17

PRESENT:18

Senator Patrick J. Gallivan 19

Senator Mark J. Grisanti 20

Senator George D. Maziarz 21

Senator David J. Valesky 22 23 IN ATTENDANCE: 24 Assemblyman Robin Schimminger 25 1

SPEAKERS:PAGE QUESTIONS 2

Richard E. Updegrove 4 9 3 Majority Leader

Niagara County Legislature 4

AJ Wright 20 26 5 Director of Government Relations

Buffalo Niagara Partnership 6

Kory Schuler 35 40 7 Director of Government Affairs

Niagara USA Chamber of Commerce 8

Samuel C. DiSalvo 46 55 9 Director

Freed Maxick CPAs 10

Gregory Sweeney 62 72 11 Executive Director, Economic and

Business Development 12 Praxair, Inc. 13 Raymond Reichert 76 85

Partner 14 Jaeckle, Fleischman & Mugel, LLP 15 Matthew O'Connor 88 102

Regional Vice President 16 Compliance Technologies, Inc. 17 18 ---oOo--- 19 20 21 22 23 24 25 1 SENATOR DEFRANCISCO: This is the third 2 hearing of the joint committees of the 3 Finance Committee and the Investigations and 4 Taxation Committee [sic]. 5 And with me today are Senators George Maziarz 6 and Senator David Valesky. 7 Other senators will be here as the day goes 8 on, but we do not want to hold up the speakers who 9 have been gracious enough to provide us information 10 that will help us in trying to find tax reforms that 11 will be helpful to make New York State more 12 competitive, and they're devoting their times here, 13 so we don't want to hold them up. 14 Secondly, we have two more hearings 15 scheduled, one on October 3rd in Mineola, 16 Long Island, and one in New York City on 17 October 4th. 18 We've already had one in Albany and Syracuse. 19 I'm not going to give my prepared remarks, 20 but the basic thrust of them are, that we have been 21 trying to do things to make New York State more 22 competitive. I don't think anybody believes that 23 we've done enough, in view of our ratings by various 24 organizations, including the national Tax Foundation 25 which rates us 50th in business-friendliness. 1 And that's -- you can't go any lower than 2 that. 3 So, that's the purpose of the hearings, and 4 we want to get started right away, unless either of 5 the gentlemen have any remarks they want to make. 6 SENATOR MAZIARZ: Just, I think this is a 7 historical moment, Mr. Chairman. I think this is 8 the first Senate hearing I've ever attended that 9 started on time. 10 [Laughter.] 11 SENATOR DEFRANCISCO: Well, you should come 12 to more budget hearings then, because they all start 13 on time. 14 [Laughter.] 15 SENATOR DEFRANCISCO: All right, we went out 16 of order by just one person, because 17 Mr. Undegrove [sic] has an appointment that he has 18 to make very shortly, and he's been gracious enough 19 to come here, and we'd like to hear what he has to 20 say. 21 Niagara County Legislative Majority -- 22 Legislature Majority Leader Richard E. Undegrove. 23 RICHARD E. UPDEGROVE: "Updegrove." 24 SENATOR DEFRANCISCO: Pardon me? 25 RICHARD E. UPDEGROVE: "Updegrove." 1 SENATOR DEFRANCISCO: "Updegrove." 2 I can't read. 3 RICHARD E. UPDEGROVE: Close enough. 4 SENATOR DEFRANCISCO: Sorry. 5 RICHARD E. UPDEGROVE: That's fine, Senator. 6 I certainly appreciate the opportunity to 7 come here today, and thank you for accommodating my 8 schedule. 9 I'll be fairly brief. 10 On behalf of the county of Niagara, we just 11 wanted to take a few moments to talk about several 12 expenses that have a significant impact on our 13 budget, including a couple unfunded mandates. 14 I want to take a few moments to talk about 15 Medicaid, pension costs, and safety net. 16 Our tax levy in 2013 in Niagara County was 17 $73 million. 18 Our Medicaid expenditure was $47 million, 19 which was a $2 million increase from the year 20 before. 21 And, we certainly don't want to seem 22 ungrateful regarding the cap, because we do 23 appreciate the cap; however, Medicaid still 24 comprises 64 percent of our entire property-tax 25 levy, and I think that alone should indicate the 1 significance on the local property taxpayers. 2 With respect to our recommendations, 3 obviously, a complete State takeover would be more 4 than appreciated, but, at the very least, there's a 5 couple things that we've asked for in the past, and 6 we've always had Senator Maziarz's help and support 7 on these things, and that is, a residency 8 requirement, and an imposition of a residency 9 requirement. 10 According to our chairman of social services, 11 we have approximately 400 people -- 12 "400 non-residents" -- a year apply for Medicaid 13 benefits in Niagara County. The average case is 14 about $15,000 per case. 15 You can do the math. 16 That, to me, is offensive, because we're 17 providing benefits, not just for residents of 18 Niagara County with the county property-tax dollars, 19 but we're providing Medicaid benefits for persons 20 who don't even reside within this county. 21 And, finally, we would also appreciate the 22 opportunity to choose those treatment options that 23 are available under the Medicaid program if the 24 county is going to, in fact, contribute to the 25 funding of same. 1 With respect to the safety net, as you know, 2 that's the -- the assistance that's provided once a 3 person's federal eligibility has ended. 4 As you also know, the State reimbursement 5 was, at one point in time, 50/50, and that has 6 recently changed to 79/21. 7 This year, we project our total safety-net 8 expenses to be about $10 million. The County's 9 share is going to be about 8 million. 10 Well, that is about a $3 million increase 11 just based on the change in the formula. 12 The irony is, that the Governor's imposed tax 13 cap of 2 percent of the levy was exceeded simply 14 with this one expenditure. 15 With respect to safety net, recommendations 16 from the County would include simply eliminating the 17 safety net. 18 I talked to -- I talked to our chairman -- 19 or, our commissioner of social service last night, 20 and he told me that he believes that we're the only 21 state in the country that still provides this type 22 of benefit. 23 I'm not sure of that. I'm just relaying what 24 a conversation that we had. 25 And, finally, Senators, pension costs have 1 become significantly more, have become a 2 significantly greater burden on the property 3 taxpayer over the last few years. 4 And I brought a chart along with us today, 5 and I think the chart, essentially, speaks for 6 itself. 7 But importantly, I think we need to note 8 that, while we've seen our pension costs spike 9 significantly, in Niagara County, we've decreased 10 the size of county government, and I think that's 11 very important. 12 In 2004, our pension costs were about 13 $7.2 million. We had 1577 full-time employees. 14 In 2013, our pension costs were $14 million. 15 They're projected to go to $16 million next 16 year, which is -- they've more than doubled in the 17 last few years, but, our full-time employees during 18 that time have decreased, from 1577, to 1,385 in 19 2013. 20 And if my math is correct, that's in excess 21 of a 12 percent reduction in the size of our 22 workforce; at the same time, we've seen our pension 23 costs double. 24 And, finally, with respect to pension costs, 25 just to put this in perspective, they now represent 1 about 19 percent of our entire property-tax levy, 2 because our levy's around $74 million. 3 So Medicaid, safety net, and pension costs 4 equal almost 100 percent of our entire property-tax 5 levy. 6 And with respect to pension costs, I know 7 that that's a difficult issue, but we would ask that 8 there be some sort of cap indexed to the size of the 9 municipal workforce. 10 So, in other words, we would have some 11 certainty as to what our pension-costs numbers are 12 going to be every year. 13 So if we continue to reduce our workforce, or 14 if we -- if a county or municipality increases their 15 workforce, that they would know exactly what their 16 pension costs are going to be, because we think at 17 least knowing what they're going to be is almost as 18 important as reducing them. 19 And, I certainly appreciate your time. 20 Thank you. 21 SENATOR DEFRANCISCO: Okay, first of all, 22 this is a little off topic, because we're talking 23 about tax reform in the state of New York, but, 24 I just want to address a couple of points you made, 25 and then others can say whatever they choose to. 1 But, first of all, residency requirement, 2 there's a provision in the State Constitution that 3 says you have to take care of your poor. 4 There's been case law that has restricted the 5 residency requirement in the state of New York, and 6 that clause has been used in order to say you can't 7 impose one. 8 I would do one tomorrow if I was the 9 benevolent dictator here. 10 And I think that everybody else here would be 11 supporting the fact, maybe we should do it, and let 12 it get challenged in the court again, because you're 13 absolutely right. 14 Number two, as far as the Medicaid costs, 15 when Medicaid was shared with the counties, there 16 was a quid pro quo, sales tax, part of the sales tax 17 was given to counties. 18 RICHARD E. UPDEGROVE: That is true. 19 SENATOR DEFRANCISCO: Okay. 20 So, I think it's important to see, you know, 21 what the Medicaid cost is in relationship to the 22 tax -- the sales tax. 23 And I would think, you know, if one's gonna 24 go, the other ought to go as well, if you're looking 25 at fundamental fairness. 1 But more importantly, in my judgment, it's 2 good to have the localities have skin in the game, 3 because they're more apt to try to -- since they're 4 administering the program, they're more apt to be 5 very careful on the dollars that are going out, 6 rather than the State's going to take over. 7 When we -- as Chairman of Finance, I noticed 8 this very clearly, and I predicted this, as soon as 9 there was the cap on Medicaid costs, when that was 10 put in, and the excess over a certain number was 11 picked up by the states -- by the State, 12 New York City's Medicaid costs, which, in my 13 judgment, they don't control anything in 14 New York City, went up exponentially, and all 15 taxpayers, including the taxpayers in 16 Niagara County, are picking up some of those costs, 17 because that's what -- it's coming out of the State; 18 in other words, they're not getting some things they 19 should get. 20 Lastly, on pensions, that chart there, we 21 can't -- again, the Constitution says we cannot 22 impair the pension rights of employees. 23 So we can't just say we're going change what 24 was negotiated. We just can't do that. It would 25 not be upheld. 1 However, we've done Tiers 5 and 6 over the 2 last four years, so new employees, at some point in 3 the future it's going to be helpful. 4 Lastly, with respect to your chart, there is 5 a correlation, if you look at that chart, you can 6 see when the stock market tanked? 7 RICHARD E. UPDEGROVE: Yes. 8 SENATOR DEFRANCISCO: And you can see when 9 the expenses went up? 10 And, unfortunately, the stock market goes up 11 and down. 12 Now it's gone up. 13 In fact, the Comptroller said, the market, it 14 went -- 15 RICHARD E. UPDEGROVE: It may come down a 16 little bit. 17 SENATOR DEFRANCISCO: -- just came down, now 18 the rates are gonna come down a little bit. 19 So, unfortunately, the counties and the 20 cities haven't had the funds to set aside to prepare 21 for market fluctuations. 22 It's nice when the market's going up and 23 there's a very little contribution by the towns, and 24 the school districts, and so forth. 25 Some were zero contributions some years, 1 I remember that distinctly. 2 And, so, in the bad times you get hit. 3 And, hopefully, in the future we can balance 4 it off in some fashion, and maybe the counties can 5 keep some money in reserve, if they have any, so -- 6 to prepare for that sort of thing. 7 RICHARD E. UPDEGROVE: Well, those are -- and 8 if I missed -- if I missed the point of today's 9 conversation, I certainly apologize, but, you know, 10 we wanted -- we appreciate the opportunity to talk 11 about a few of those things that impact our budget, 12 and any help. 13 But, I also want to tell you that 14 I appreciate everything you said, and you mentioned 15 a couple of things that, to be honest with you, 16 I forgot to mention, and I should have. 17 We do have a "Medicaid penny" in 18 Niagara County that's directed to pay Medicaid 19 expenses, and that generates about $26 million a 20 year. 21 So you're, in fact, absolutely correct. 22 SENATOR DEFRANCISCO: Good. 23 RICHARD E. UPDEGROVE: And we had help from 24 the State with the -- with that additional penny in 25 sales-tax revenue. 1 Also, I forgot to mention the new tiers 2 certainly will help. 3 And I think, when it comes to pension costs, 4 and you did hit on it, that is, we're not asking 5 that anyone relieve that burden or take pension 6 costs away. We understand and appreciate that 7 pension costs are a part of the wages and the 8 benefits offered to the employees. 9 But what you said, I think, which was very 10 important, was that, you're right, in years -- there 11 are years that maybe the municipalities are paying 12 less than they should, and that's the problem that 13 municipalities face, because, as you know, when our 14 budgets are tight, it's -- sometimes it's hard to 15 think 10 years down the road. 16 And if you look 2001, they were paying about 17 a million-two in 2001, which we all know was less 18 than Niagara County should have been paying, to 19 prepare for future pension costs. 20 So you're absolutely right, maybe the happy 21 medium is somewhere where there's a formula that 22 kind of levels the spikes and forces municipalities 23 to prepare for the future when it comes to those 24 pension costs, because I would agree that 25 artificially-low pension costs are troublesome too. 1 But I certainly -- and, you know, with 2 respect to your comments about Medicaid, I agree 3 with everything you say. 4 We know that residency requirements, there's 5 the constitutional limitations. 6 You know, we just want to, kind a, take the 7 opportunity to share those frustrations. 8 SENATOR DEFRANCISCO: And last thing 9 I forgot, probably the most important thing I wanted 10 to say, is that the way to reduce Medicaid costs, we 11 provide Medicaid services, a lot of optional 12 coverages that the federal government does not 13 require us to provide. 14 Other states don't pay those optional things. 15 They say, No, it's an option, we're not gonna do it. 16 And, the reason -- and because of all of 17 that, and because of many other reasons, the State 18 of New York spends more on Medicaid than Texas and 19 California combined. 20 And we've been on the stump, trying to 21 convince people, and help from your legislature, and 22 every legislature, your organizations throughout the 23 state, to say, Look, we've got to look at what we 24 can afford on a Medicaid dollar, and we want to 25 give -- we can't give everything to everybody. 1 That's where the true dollar savings are 2 going to be. 3 RICHARD E. UPDEGROVE: Oh, I agree. 4 I agree, and we appreciate the cap. 5 And we've always had the support of the 6 Senate when it comes to looking at the treatment 7 options that are available. 8 We've always had that support, so I'm, 9 obviously, preaching to the choir. 10 But, you know, it was my understanding that 11 this was really an opportunity for us to kind of 12 talk about some of those things, with respect to our 13 property-tax levy, that are significant for us. 14 SENATOR DEFRANCISCO: Senator Valesky. 15 SENATOR VALESKY: Just to follow up on one of 16 the pension points, obviously, your goal is to 17 flatten out that green line. 18 In addition to the new tiers that the 19 Legislature has enacted, which is not going to 20 necessarily do anything for you in the immediate 21 future, we did, as I'm sure you're aware, in that -- 22 the Governor's pension-smoothing proposal. 23 RICHARD E. UPDEGROVE: Yes. 24 SENATOR VALESKY: Now, I happen to represent 25 much of the city of Syracuse. 1 And in a very high-profile situation, the 2 mayor there, and her administration, determined that 3 that -- the action that we took at the state level 4 would not necessarily have helped the city of 5 Syracuse taxpayers, so they chose not do that. 6 I don't know whether you have done that 7 analysis? 8 RICHARD E. UPDEGROVE: We did the math -- 9 SENATOR VALESKY: You did the math -- 10 RICHARD E. UPDEGROVE: -- and we had some 11 concerns. 12 SENATOR VALESKY: -- and that didn't work out 13 for you either? 14 Okay. 15 All right, I just wanted to make sure. 16 RICHARD E. UPDEGROVE: But it is -- you're 17 right, though, what we were asking for and what we 18 were looking for is, really, just much more 19 certainty. 20 SENATOR VALESKY: Sure. 21 RICHARD E. UPDEGROVE: Not -- 22 SENATOR VALESKY: For predictability. 23 RICHARD E. UPDEGROVE: Not elimination of our 24 obligation to our employees, because we can't -- 25 that's not going change, we understand that. 1 But that would be the -- again, the 2 Comptroller -- you know, Comptroller DiNapoli has a 3 lot of control over that, and that's really where 4 we're directing our comments with respect to pension 5 costs. 6 SENATOR DEFRANCISCO: Anyone else? 7 SENATOR MAZIARZ: I just want to thank you, 8 Rick, for being here today. 9 You know, when you talk about tax policy, 10 I think we're talking about all-inclusive 11 property-tax policy, and that's -- certainly is what 12 impacts the county here. 13 And, you know, we hear your clarion call 14 about -- you know, about Medicaid services, and 15 about limiting the number of services. 16 And I think Senator DeFrancisco did a great 17 job of pointing out to you, we would love to give 18 the counties, you know, more flexibility on what 19 they can offer and what they can't offer. 20 What I think would happen, though, as 21 Senator DeFrancisco pointed out, is, downstate, 22 you probably get the counties offering everything, 23 and, upstate, very little, but, yet, the upstate 24 taxpayers, property taxpayers, for the most part -- 25 RICHARD E. UPDEGROVE: We would still 1 continue to pay for it, yes. 2 SENATOR MAZIARZ: -- would be paying for 3 that. 4 Yeah. 5 So, really, anything that has to be done, 6 really has to be done on a statewide basis. 7 And, you know, that's more in our arena, and 8 it's very difficult. 9 But, I just want to point out for my 10 colleagues, that Niagara County is a county of 11 220,000 people. 12 The State Comptroller did an analysis, and 13 came out with that list of fiscally distressed 14 governments in New York State, and Niagara County 15 wasn't anywhere near that list. 16 They've done a great job. 17 They've lowered the number of employees; 18 They've consolidated -- consolidated numerous 19 services; 20 They closed a facility -- a health-care 21 facility that was losing the county taxpayers 22 millions of dollars a year; 23 Recently, just announced they were closing a 24 landfill facility that was also losing millions of 25 dollars a year. 1 But there was plenty of opportunity in the 2 private sector for those -- for the taxpayers in 3 Niagara County to access those things at, probably, 4 a cheaper rate. 5 So -- 6 RICHARD E. UPDEGROVE: Oh, absolutely. 7 SENATOR MAZIARZ: -- good job. 8 Thank you. 9 SENATOR DEFRANCISCO: Thank you very much. 10 RICHARD E. UPDEGROVE: Thank you. 11 And I appreciate your time. 12 Thanks. 13 SENATOR DEFRANCISCO: The next speaker is 14 AJ Wright, director of government relations, 15 Buffalo Niagara Partnership. 16 Whenever you're ready, thank you. 17 AJ WRIGHT: Great, thank you. 18 Chairman DeFrancisco, Senator Maziarz, 19 Senator Valesky, Senator Gallivan, thank you for the 20 opportunity to speak today. 21 My name is AJ Wright. I'm the director of 22 government relations for the Buffalo Niagara 23 Partnership. 24 We're the region's largest business-advocacy 25 organization, and a vocal supporter of improved 1 business competitiveness and expanded economic 2 activity in Buffalo Niagara. 3 As an organization consisting of employer 4 members, we have probably supported initiatives, 5 many of which have come from your respective 6 committees, that promote making Upstate New York a 7 better place to do business and raise a family. 8 As co-founder and board member of 9 Unshackle Upstate, the Buffalo Niagara Partnership 10 was a leading advocate for the property-tax cap, 11 Tier 6 pension reform, fiscally responsible and 12 on-time budgets, and most recently, the unemployment 13 insurance and worker's compensation reforms that 14 were pushed through the budget, all accomplishments 15 that will help our state's economy and business 16 climate. 17 However, New York State has also extended the 18 18-A utility assessment surcharge, increased minimum 19 wage, allowed the continuation of anti-business 20 regulations that are hidden taxes, such as 21 Scaffold Law, wage theft prevention, WIC's Law, 22 SEQR, prevailing wage mandates, and has so far 23 refused to move forward on natural-gas development, 24 which are all impediments to -- on New York State's 25 employers that drive up the cost of doing business. 1 State-led initiatives, like Start-Up NY, 2 Launch NY, and here locally, the Buffalo Billion, 3 are exciting plans that have the potential of 4 recruit new employers to New York, but there must be 5 a simultaneous effort to address the issues current 6 employers face. 7 Those that have stuck it out through the late 8 budgets, tax-credit deferrals, and tax increases 9 that have decimated both our economy and the state's 10 standing as a pro-business -- the state's standing 11 as pro-business, they cannot survive the current 12 system. 13 In order to address the needs of our current 14 employers, especially in the economically depressed 15 Upstate New York, Unshackle Upstate has developed a 16 new economic revitalization agenda for 17 Upstate New York. 18 This agenda provides affordable broad-based 19 tax relief that will enable the growth of 20 private-sector jobs and strengthen communities in 21 need. 22 And I'll just quickly list the tenets, 23 I won't get into much detail. 24 First one, reduce by 25 percent, state income 25 taxes for upstate residents making less than $50,000 1 annually. 2 Quite simply, that would benefit the -- those 3 that would benefit from that tax reduction are the 4 type of taxpayers that would use these funds on 5 goods and services in their community, reinvesting 6 in the local economy. 7 Reducing the corporate franchise tax, 9-A, 8 for Upstate New York businesses. 9 As I mentioned, Upstate New York is in dire 10 need of an influx of new jobs, and the 11 aforementioned initiatives, such as Launch NY and 12 Start-Up NY, have the potential to drive new job 13 creation, but do not address the issues of employers 14 already located in upstate that want to grow their 15 business. 16 A corporate franchise tax reduction would 17 allow current businesses to expand their operations 18 and hire more employees. 19 Reduce the sales tax by 50 percent in 20 targeted upstate counties. 21 And I realized, when I was sitting there, 22 that I didn't bring the list of counties, but I can 23 make sure that I get that to you. 24 So, a reduction in state sales-tax share, 25 from 4 percent to 2 percent for upstate counties 1 with the largest population losses according to the 2 2010 U.S. Census, and have the highest average 3 unemployment rate over the last five years, would go 4 a long way towards addressing the needs of upstate 5 counties. 6 Eliminating the 18-A energy assessment for 7 upstate manufacturers. 8 This is something that we lobbied very hard 9 for in last year's budget session. We were among 10 the most vocal opponents of the original 18-A 11 assessment in 2009, and we're even more vocal during 12 the deliberations to extend it. 13 This energy tax hits manufacturers the 14 hardest. Many of our members report that it's 15 tens of thousands of dollars per month for 16 manufacturers in Buffalo Niagara, let alone the rest 17 of upstate. 18 That needs to be immediately eliminated. 19 Finally, enabling the development of 20 Marcellus Shale. 21 Marcellus Shale can be developed responsibly, 22 and New York must take full advantage of this 23 tremendous opportunity. 24 The State should finalize its comprehensive 25 review of environmental impacts and adopt 1 regulations that balance economic development with 2 environmental protection. 3 There's a clear path to moving forward on 4 Marcellus Shale, and the State needs to proceed down 5 that path. 6 The total cost of this agenda, these 7 five points, is approximately $860 million in 8 2014-15, which is equivalent to .6 percent of the 9 projected 2014 state budget; so, drop in the bucket. 10 New York State's leaders have made a renewed 11 commitment to economic development, especially in 12 Upstate New York, and particularly in 13 Buffalo Niagara, and that commitment is both 14 appreciated and welcome. 15 But, until Albany follows New York -- excuse 16 me, until Albany follows the New Era road map and 17 builds on those investments, New York's troublesome 18 tax burden, overarching regulations, and refusal to 19 tap into its regional assets will continue to hinder 20 Upstate New York's economy, limiting the potential 21 and prosperity that we all recognize is within our 22 reach. 23 Thank you, and I would be happy to answer any 24 questions. 25 1 SENATOR DEFRANCISCO: Thank you. 2 I am familiar with your proposal here, and 3 I just have a couple of questions. 4 First of all, I fully, you know, support the 5 reduction and phasing out of corporate franchise 6 tax. 7 We're starting to do that in the 8 manufacturing sector this year, very minuscule. It 9 should have -- hopefully, that could be accelerated. 10 You're absolutely right when -- that the 18-A 11 should be -- should be phased out as quickly as 12 possible. It's another anti-business thing. 13 As far as these reductions in sales tax, and 14 income tax, of 25 percent and -- excuse me, 15 50 percent, and 25 percent, for upstate residents, 16 you've limited those to specific counties. 17 AJ WRIGHT: Uh-huh. 18 SENATOR DEFRANCISCO: Two questions: 19 Have you had that checked to see whether a 20 lawyer checked it, or see whether you can 21 constitutionally do that? 22 And, secondly, how do you get legislation 23 like that passed through the Legislature, when more 24 than half of the people are not from those counties? 25 AJ WRIGHT: Well, I think a point of 1 clarification: I believe the 25 percent state income 2 tax, I believe that's upstate-wide. I don't believe 3 that's for just the targeted counties. 4 For the state sales tax, we have not had a 5 lawyer check that, I don't believe. I could get 6 back to you on that. 7 And it's -- it's -- there's been a recognized 8 effort to help the upstate economy. I think 9 everyone here knows that. I think everyone here 10 recognizes that upstate is in dire need. 11 And, sometimes I think you need to take 12 things a different way than doing a broad-based 13 change. You need to target specific areas; and if 14 that works, maybe there's an opportunity to address 15 it upstate-wide or statewide. 16 SENATOR DEFRANCISCO: Okay, now, how do we 17 get it passed? 18 [Laughter.] 19 SENATOR DEFRANCISCO: You don't -- 20 SENATOR MAZIARZ: AJ, I can feel you -- 21 AJ WRIGHT: Yeah, Senator, if I would have 22 known that, we would had proceeds 10 years ago. 23 SENATOR DEFRANCISCO: Okay, fine. 24 AJ WRIGHT: I mean, there's -- 25 SENATOR MAZIARZ: Yeah, that's a good 1 correlation. 2 SENATOR DEFRANCISCO: But just one last 3 question. 4 I would really appreciate it if you did get 5 some kind of legal opinion, because that's going to 6 be the first hurdle, that we can't do this. 7 And if it's going be seriously considered, 8 I think we've got to have something to show that it 9 can be done. 10 Whether we can get it done is another story. 11 AJ WRIGHT: Certainly. 12 SENATOR DEFRANCISCO: Senator Gallivan, you 13 had a -- 14 SENATOR GALLIVAN: Ah, yes. 15 AJ, thanks for being here. 16 I guess I won't repeat 17 Senator DeFrancisco's comments, but I share his 18 thoughts, about the income taxes, and the taxes on 19 businesses. And, we are making an effort, 20 especially in that business area. 21 I have a follow-up question on the 22 "Unshackle" proposal, you may not be able to answer. 23 How do you -- has Unshackle considered 24 that -- let's just say this legislation passes. 25 Isn't there a concern that it would lead to a 1 shift -- a population shift, from the counties right 2 now that are doing okay, they would want to move 3 their residences and businesses to the counties that 4 are now getting this 2 percent so-called 5 "tax break," and then the same thing would happen 6 all over again, and then we would have a whole 7 different set of counties doing well, and the other 8 set of counties went from doing well, or, lower 9 unemployment rates to higher unemployment rates, 10 population loss? 11 AJ WRIGHT: I'm not sure if there's -- if 12 it's enough of an impact to get someone to uproot 13 and move, but, it could be. I'm not sure on that. 14 SENATOR GALLIVAN: Helps to start a business, 15 though. 16 AJ WRIGHT: To start a business, possibly. 17 I mean, the list of counties, and, again, 18 I apologize for not bringing it with me, there is a 19 county almost strategically placed, it seems, it 20 almost ended up being that there are counties 21 throughout each region of Upstate New York. 22 So, I think the goal would be more so, to 23 drive people to visit those counties more, to drive 24 up commerce in those counties, versus, you know, 25 encouraging people to relocate. 1 I don't think that that would happen, but, 2 I mean, I'm not sure what would be the impact. 3 SENATOR GALLIVAN: Thanks. 4 Let me just move forward and ask for your 5 help. 6 We hear all the time, of course, the 7 impediments to businesses, to bringing businesses 8 into this state, to the expansion of business, has 9 to do with our high cost of doing business. And we 10 always hear "taxes and regulations." 11 So, of course, today, and throughout the 12 state, Senator DeFrancisco is conducting a series 13 of tax-reform hearings, to look for ideas where we 14 could do better in the tax area. 15 Senator Valesky and I are co-chairing a 16 panel. 17 Yesterday, we started with our first of 18 10 statewide hearings on regulatory reform; so, we 19 want to reduce the taxes and regulations. 20 AJ WRIGHT: Absolutely. 21 SENATOR GALLIVAN: And, I'm simply not 22 looking for ideas right now, but asking for your 23 help, and Unshackle's help, in identifying a minimum 24 of 1,000 outdated, useless regulations where the 25 cost greatly exceeds the benefit, and serves no 1 useful purpose. 2 We hear all the time, "taxes and 3 regulations." 4 What regulations? 5 Well, we know unemployment insurance is an 6 issue, we know worker's comp is an issue, but we 7 have 140,000 pages of regulations in this state, and 8 we can only get to them as businesses are willing to 9 identify, not just those big silver-bullet items, 10 but all those -- also, those other things that are 11 driving them nuts. 12 And we're asking -- I'm asking for your help 13 in passing it on, of course, to the partnership, and 14 then to Unshackle -- 15 AJ WRIGHT: Absolutely. 16 SENATOR GALLIVAN: -- and ask them to 17 participate in our hearings. 18 AJ WRIGHT: We would be happy to. 19 I was happy to help with bringing some of our 20 members -- 21 SENATOR GALLIVAN: I appreciate that with. 22 AJ WRIGHT: -- to your hearing yesterday, and 23 we'd love to continue to help drive that, especially 24 the Unshackle across upstate. 25 I know we have the Let New York Work agenda, 1 which we shared with the legislator last year. That 2 addresses some of the bigger-picture stuff, and 3 that's an agenda that's been put together with 4 business coalitions across Upstate New York, local 5 government groups, and had to deal with 6 design-build. Tier 6 was in there, stuff like that. 7 So, there's definitely the bigger-picture 8 stuff, but the -- I know you like to use the 9 language -- 10 SENATOR GALLIVAN: Doing everything. 11 AJ WRIGHT: -- "death by 1,000 cuts." 12 SENATOR GALLIVAN: We want to go big. 13 We want to go all the way. 14 AJ WRIGHT: Yep, absolutely, there's 15 certainly -- we could certainly help with -- 16 SENATOR GALLIVAN: All right, thanks. We'll 17 follow up separately. 18 But we we're doing manufacturing at the 19 latter part of next week in Syracuse, so, we'll 20 follow up separately. 21 AJ WRIGHT: Excellent. 22 Thank you. 23 Senator. 24 SENATOR DEFRANCISCO: George? 25 SENATOR MAZIARZ: Thank you, Mr. Chairman. 1 Thank you, AJ, for being here today, and 2 doing -- you know, representing both the partnership 3 and Upstate New York. 4 And I notice on your plan here for 5 Upstate New York, it's the income taxes, corporate 6 franchise taxes, the sales tax, and 18-A assessment, 7 which I think you've got a lot of friends at this 8 table, I know, and, the Marcellus Shale development. 9 You know, when people complain to me about 10 taxes, you know, they tend to be more focused on 11 their property taxes more than they do on any of 12 these taxes here, you know, particularly during the 13 month of September when the school tax bill comes 14 out. 15 And -- you know, and I only make this as a 16 suggestion, you know, towards upstate, and 17 Unshackle, again, I agree with your program. I want 18 to make that -- I'm not saying that I disagree with 19 it, but, you know, in my Senate district, which is 20 right here in Western New York, I think you know it 21 well, we have two school districts, through our 22 encouragement, that -- two in Niagara County that 23 are sharing superintendents now; two that have 24 consolidated their athletic teams. 25 And those may be small steps, but we have to 1 begin with those types of small steps. 2 AJ WRIGHT: Absolutely. 3 SENATOR MAZIARZ: You know, sharing 4 superintendents is -- it may be a moderate step, 5 I wouldn't call it exactly a small step, but it's 6 working well. 7 And I think, you know, getting groups like 8 yours, business groups -- pro-business groups to go 9 out and to recognize that, and to see the 10 cost-savings that are involved in that. 11 And, you know, eventually, that may lead 12 to -- "may lead to" -- because of the declining 13 enrollment in a lot of school districts. 14 I have one district, you know, in my 15 Senate District, that has an incoming kindergarten 16 class of six students this year. 17 You know, it may lead to that consolidation, 18 and, I think, eventual savings of money. 19 So, I'm just maybe suggesting that, on top of 20 this, that may be a good way for you to go forward, 21 too. 22 AJ WRIGHT: And I won't speak for Unshackle 23 on this, but I know for the partnership, it's 24 something that we have stood for, is the 25 school-district reform. We've focused primarily on 1 the Buffalo School District, but, in terms of the 2 almost sprawl of school districts, we would 3 certainly be in favor of consolidation and reducing 4 the costs there, absolutely. 5 SENATOR MAZIARZ: The point I guess I want to 6 make is, you know, when people look at this, again, 7 you know, you may not understand this, but when -- 8 I think when the -- I don't know, the average 9 taxpayer property owner looks at it, what they're 10 more concerned about, I think, is that property-tax 11 bill that just arrived in the last 10 days. 12 Thank you. 13 AJ WRIGHT: Thank you. 14 SENATOR MAZIARZ: Thank you, Mr. Chairman. 15 SENATOR DEFRANCISCO: Thank you very much. 16 AJ WRIGHT: Thank you, Senators. 17 SENATOR DEFRANCISCO: Appreciate it. 18 The next speaker, Kory Schuler, director of 19 government affairs, Niagara USA Chamber. 20 KORY SCHULER: Good morning, gentlemen. 21 My name is Kory Schuler -- 22 SENATOR DEFRANCISCO: I just want to note for 23 the record that the Honorable Assemblyman 24 Robin Schimminger is here, with us, because he wants 25 to know what we're learning here today as well. 1 ASSEMBLYMAN SCHIMMINGER: I do. 2 SENATOR DEFRANCISCO: Very good. 3 KORY SCHULER: Good morning, 4 Assemblyman Schimminger. 5 ASSEMBLYMAN SCHIMMINGER: Good morning, Kory. 6 KORY SCHULER: My name is Kory Schuler, 7 director of government affairs for the 8 Niagara USA Chamber of Commerce. 9 I have rewritten this statement over and over 10 before I came here today. 11 There are a lot of issues that Niagara USA, 12 as well as a lot of the other leading business 13 advocacy organizations, work on, from Scaffold Law, 14 to WIC's Law, consolidation, overall lowering taxes. 15 One of the issues that I focused on, or the 16 sole issue that I focus on today, is a new 17 tax-reform policy that we as a chamber and our 18 membership has concerns over, and it's the 19 Start-Up NY program. 20 I'm going to read a brief statement now 21 regarding some of our issues. 22 The Niagara USA Chamber, Niagara County's 23 leading business-advocacy organization, would like 24 to thank everyone involved with this hearing today. 25 We feel it is important to share information 1 and concerns regarding one program, upstate -- 2 Start-Up NY, for taxes. 3 The chamber has taken no official position on 4 this program, as we have found there are several 5 issues that need further scrutiny. 6 One of the most significant questions, is one 7 of tax fairness to existing businesses. 8 This program bases its premise on the fact 9 that lower taxes will attract a new business, and 10 new business development will, in turn, create more 11 jobs. 12 We as a business chamber could not agree 13 more; however, if negating or lowering the taxes 14 creates jobs, then why not lower taxes for all 15 businesses? 16 While we commend anyone willing to lower 17 taxes on business, and, indeed, tax-free zones have 18 been proposed in the past, the question is, Why now, 19 and why these businesses? 20 The current tax-paying job-creating business 21 sector has stood by New York State with its high 22 taxes, overregulation, and burdensome hurdles to 23 development. 24 We hear that New York State is open for 25 business, but for which ones? 1 We have all heard that New York State is one 2 of the highest-taxed states in the country, and 3 while Start-Up NY addresses some of that with 4 tax-free zones, it ignores the needs of existing 5 businesses who remain burdened with those high 6 taxes. 7 The other issue we feel needs to be addressed 8 regarding this program is the effect it will have on 9 municipalities. 10 As businesses move into these corridors, the 11 burden on local resources will grow at a time when 12 those resources are already stretched thin. 13 In Niagara County, school budgets were voted 14 down, as they sought to go beyond the 2 percent 15 property-tax cap or have large tax increases. 16 As more students enter the system, the 17 necessary costs will rise, while the money in school 18 taxes needed to meet the demand will remain 19 stagnant. This will leave districts struggling to 20 stay under the cap while trying to find dollars that 21 aren't coming. 22 Current homeowners and businesses should not 23 have to shoulder the extra costs. 24 In many communities, aging infrastructure 25 will be tested as development grows. The lack of 1 tax revenue under this program will deprive local 2 governments the money needed to maintain and replace 3 roads, sewers, and other aging infrastructure, and, 4 once again, will leave current taxpayers at risk for 5 massive increases to pay for all of this. 6 While Start-Up NY does have merit, there are 7 just too many questions and risks at this time. 8 The State has to look at leveling the playing 9 field for everyone. There has to be more protection 10 for current taxpayers. 11 While we want to start up New York, we must 12 first start out by protecting those that have 13 carried the burden for so long. 14 I heard the word "consolidation" mentioned a 15 little while ago during AJ's testimony, from 16 Senator Maziarz. 17 And Niagara USA has been leading the charge 18 in Niagara County, pushing for consolidation for 19 schools -- school districts to shared services. 20 There's just not that much money to go around 21 anymore. 22 And, while we've all been working on things 23 like the Scaffold Law, WIC's Law, unfunded mandates, 24 this is another new wrinkle. 25 We're just concerned, as this program gets 1 pushed through, there's too many unanswered 2 questions of how it will affect current businesses 3 and municipalities. 4 So, thank you for your time. 5 SENATOR DEFRANCISCO: First, on 6 consolidation, I think everybody has the concern 7 about it. 8 And, in fact, Governor Cuomo, when he was 9 attorney general, proposed a law, making it easier 10 for people in a community to petition for 11 consolidation, because it rarely got through local 12 legislators -- legislatures because of the turf 13 protection that all of them wanted to do. 14 In my community, incredibly, there was an 15 opportunity by a village to consolidate police 16 forces, with the town; a village to do it with the 17 town, and it went to the voters, they voted it down. 18 Now their taxes went up about 200 bucks, and 19 they're going ballistic, as if they weren't warned 20 of that. And they'll probably put it back on the 21 ballot. 22 We had a town of Camillus, and a village of 23 Camillus, it was on the ballot for the consolidation 24 of both of those, which was an excellent idea. 25 The voters voted it down. 1 And so, I think, however, in my judgment, 2 I don't think the 2 percent tax cap was something 3 done simply to lower the tax burden. 4 I think it was done also, to ensure that 5 districts will have to seriously consider 6 consolidation, because they can't afford to do 7 anything else. 8 And I think that's an intentional policy, and 9 I think, in the next couple of years, you're going 10 to see a lot more consolidation. 11 That's number one. 12 Number two, I don't know if you were 13 listening to the debate on Start-Up NY when you 14 prepared your statement, because this is exactly 15 what I said. 16 I didn't say it about property taxes, because 17 Start-Up NY -- and I voted no, by the way -- 18 Start-UP NY is -- really, gives no income taxes, and 19 no property taxes. 20 The property taxes, because you're either 21 gonna be on the State university and there would 22 wouldn't be property taxes, usually. 23 So, there's more of an effect. 24 And just to keep in the back of your mind, 25 how does a business, one of the parts of the 1 proposal, was that you can't qualify for startup if 2 you're competing with another company. 3 Now, how you administer that is beyond 4 imagination. 5 But, number two, let's suppose they're not 6 competing industries, they'll still need clerical 7 staff, they'll still need administrators. 8 How does the existing businesses compete with 9 that new company coming in, saying, you're -- you, 10 as an employee, aren't going to pay taxes for 11 10 years, income taxes? 12 They can't. 13 So, in fact, the genesis of these hearings 14 that we're doing all over the state, was my promise 15 back at that time, that we got to do broad-based tax 16 cuts. 17 Existing businesses are struggling. They 18 need the incentives as much, if not more, than 19 others. 20 So, I'm with you 100 percent; however -- 21 there's always a "however" -- if you can give us, 22 your organization, in writing, or a call, or 23 whatever, what areas you think would be the most 24 effective, as far as a tax-reform package, that we 25 should advocate in this coming budget, that would be 1 very helpful for us. 2 Okay? 3 KORY SCHULER: Absolutely. We will do that. 4 SENATOR DEFRANCISCO: Thank you. 5 SENATOR VALESKY: I'm not telling you 6 anything that you don't already know, and 7 I certainly understand your concerns, and 8 Senator DeFrancisco summarized them as well. 9 He made very similar -- raised very similar 10 issues on the floor of the Senate. 11 But the fact of the matter is, that may be 12 your position, but Start-Up NY is done. I mean, 13 it's a law, it's not going be repealed. 14 It is what it is. 15 So you may have concerns about it, and some 16 of them I think are valid, but I think it's time to 17 move on. 18 And I think Senator DeFrancisco indicated 19 this is why he's convening these hearings -- a 20 series of hearings, that the time has come to look 21 at broad-based tax reforms. 22 So, just to reiterate his point, the degree 23 that you can be specific, as the speaker before us 24 has, that would be helpful, certainly to the 25 Committee, as we prepare agenda for the 1 2014 session. 2 KORY SCHULER: Absolutely. 3 Just to address that, I understand that 4 Start-Up is here to stay, for now, but, under a true 5 business advocacy, I would not be doing my job as a 6 business advocate if I did not lobby as hard as 7 I possibly could for the businesses in 8 Niagara County. 9 If that means broad-based tax relief, then 10 I'm all for it, but, right now, this program is 11 going forward, and there's still unanswered 12 questions. And there's a lot of unanswered 13 questions. 14 If that means coming up with a list of ways 15 we can save taxes, whether it's reducing sales tax, 16 whether it's getting rid of homestead/non-homestead 17 for equalization for business and residents of 18 communities, those are all great things. 19 And, you know, I absolutely respect what 20 you're saying, but in saying that, we have to 21 advocate until we can no longer advocate. 22 Niagara USA Chamber's been around for 23 100 years, and we're going to keep fighting until 24 businesses can stay open and have a level playing 25 field in New York, absolutely. 1 SENATOR VALESKY: And you should, and you 2 should, and you should certainly fight for your 3 businesses. 4 I'm just suggesting that I'm not sure it's 5 the best use of your time to fight against the 6 Start-Up program that is now the law of the state of 7 New York. 8 That's all, that's my only thing. 9 KORY SCHULER: Thank you. 10 SENATOR DEFRANCISCO: Anyone else? 11 Yes, thanks. 12 SENATOR GALLIVAN: Kory, I'm going to flip to 13 the other side of the cost of doing business. You 14 alluded to some of them, Scaffold Law, WIC's Law. 15 But, I'm going to look for your help in 16 lowering the cost of doing business in this state, 17 and with your businesses, in helping to identify 18 specific regulations that are duplicative, outdated, 19 that we can target. 20 So, if we can follow up separately -- 21 KORY SCHULER: Absolutely. 22 SENATOR GALLIVAN: -- if you're willing 23 participate in that, I'd appreciate it. 24 KORY SCHULER: We'd be more than willing to 25 do that. 1 SENATOR GALLIVAN: Thanks. 2 SENATOR MAZIARZ: Thanks for being here, 3 Kory. We appreciate it. 4 KORY SCHULER: Thank you. 5 SENATOR DEFRANCISCO: Thank you very much. 6 And I just want to note for the record, the 7 next speaker's on for 10:45, and it's 10:40, so 8 you're -- I'm sure you're totally amazed 9 Senator Maziarz, of the efficiencies of this 10 organization. 11 SENATOR MAZIARZ: Senator DeFrancisco, once 12 again. 13 [Laughter.] 14 SENATOR DEFRANCISCO: Samuel DiSalvo, 15 director of Freed Maxick CPAs. 16 Okay. 17 SAMUEL C. DISALVO: Good morning, gentlemen. 18 On behalf of Freed Maxick, my name is 19 Sam DiSalvo, and we appreciate the opportunity to 20 appear in front of the Finance Committee to discuss 21 the urgent need for tax reform in the state. 22 I will say at the start, we're in a unique 23 position, in that, we kind of -- are the sergeants 24 in the field that have to really execute the orders; 25 protecting our guys, which are our clients; and at 1 the same time, making sure that we serve the orders 2 of the general, which is the State. 3 So, we're in a position, a rather unique 4 position, where we're not so much involved with 5 policy; we're involved with dodging bullets every 6 day. 7 And in that vein, what I thought would be 8 best, for us to give you some decent insight, is to 9 really look at what we hear from our clients, the 10 frustrations that they have, and, then, where we 11 find some significant areas that I think the State 12 can improve in. 13 First, to go over some, I think the top 14 topic, that, when I asked all our partners what they 15 felt, this came through loud and clear, and that is, 16 as a state, compared to other states, New York State 17 is overly complex, we feel. 18 In our conversations with our clients, for 19 the amount of time we have to put into research 20 laws, et cetera, it just doesn't add up to value for 21 our clients. 22 So, you have to remember, from an accounts' 23 perspective, in dealing with our clients, we hear 24 their frustrations over -- pretty much, over the tax 25 return, or over tax planning. 1 I'm not talking about taxpayers that are 2 really aggressive. Those days of really aggressive 3 tax planning are gone. 4 I'm talking about really looking and trying 5 to fairly take every advantage of the law, so these 6 are men and women that want to do the right thing. 7 When we have to go to them with increased 8 time in our budget for preparing tax returns, it's 9 difficult, and it's wasteful, and that's where they 10 get the frustration and negative connotations on the 11 system of New York State taxes. 12 I'll give you a couple examples. 13 First is, the notion of combined returns in 14 the state. 15 The federal government has a relatively 16 simple standard to say, if there's 80 percent 17 ownership, all companies are combined into a single 18 affiliated group. 19 New York State isn't nearly that easy. 20 The rules have been set up, they were -- 21 there were regulations which, essentially, embodied 22 rules of years earlier, that were finalized in 2012, 23 and it's a morass of rules that you have to look 24 through. 25 And what we found, as taxpayers, and dealing 1 with our clients over the years, and this theme has 2 been consistent, is that the rules are so unclear, 3 that you can have two equally competent and diligent 4 tax auditors come out, and decide on different -- on 5 the same coin, and either they'll flip the coin and 6 come up with a different stance on the same rules. 7 Very confusing. 8 I've had a situation years ago in my office, 9 where we simultaneously had two issues going on with 10 this issue at once, and nearly identical facts. And 11 both -- in both cases, the State decided in a 12 situation that raised the tax of the taxpayer. 13 Very frustrating. 14 So, if you're going to look at overall tax 15 reform, which, as a personal opinion, I feel it's 16 needed, there should be some element in your 17 equation to consider complexity. 18 The other areas that we look at, that are 19 different from other states, are the areas of 20 investment capital, subsidiary capital, and business 21 capital, going through all of those calculations, 22 which, for the vast majority of our clients, doesn't 23 matter. It takes a tremendous amount of time. 24 I had one of our partners tell me, who's 25 involved significantly with states, is that he 1 spends, despite the fact, that he's in New York, and 2 he concentrates on New York tax law, that he spends 3 more time on the New York State tax return than he 4 does on many of the other state tax returns. 5 Now, there's other states that may be a 6 little bit harder, but New York ranks right up 7 there. 8 So I would think complexity is an issue. 9 SENATOR DEFRANCISCO: Investment capital, 10 business capital, and what was the third one? 11 SAMUEL C. DISALVO: Subsidiary capital. 12 SENATOR DEFRANCISCO: All right. 13 SAMUEL C. DISALVO: The next thing we have, 14 from an observational perspective, is the tax 15 framework and administration of taxes. 16 And in our observations there, that I've 17 gotten from our partners, that I share with you 18 today, are -- the first thing is, the Bureau of 19 Mediation and Conciliation Services, it has less 20 than a stellar record, in our mind, of just, not of 21 bad decisions, but of indecision, of trying to get 22 things moving through the channels. 23 This was designed to facilitate things. 24 And what we've -- our impression has been, is 25 that the conferees, the mediators, who are involved 1 have their hands tied. Even though they're, quote 2 "independent," they may not act that way. 3 So, this is a suggestion, personal: If 4 you're going to create something to facilitate the 5 mediation of taxes in a complex tax framework, you 6 ought to have the bright people there, which I'm 7 sure happens most of the time, but you ought to 8 empower them to make some independent decisions. 9 And I think that is what's holding back, to 10 some degree, their ability to move forward. 11 So this whole idea of mediation hasn't really 12 met its goal, from our experience. 13 The other interesting point, and I'm sure 14 you're aware of this, is the Empire Zone credits and 15 the brownfield program credits. 16 We've -- these credits are almost routinely, 17 I'll say, "unanimously" would not be a stretch of 18 the word, denied if they approach anything over 19 $10,000. 20 Our clients, who are really just focusing on 21 business, they're really -- I mean, we'll be as 22 aggressive as possible in putting together a good 23 tax plan for them, but we won't be foolish. 24 These folks want to do business. 25 And when we got to go back to them, or they 1 come to us, that they've got a credit, that all the 2 bells and whistles and everything's been put in good 3 order, that we take pride in doing, has just been 4 unilaterally denied, many times without an 5 explanation. They don't find this out for months. 6 There's a problem with that, for two reasons: 7 Number one, they depend on that money for 8 cash-flow purposes; 9 And then, number two, it takes us time to try 10 to work with them to get things done. 11 We've had cases that have been as long as 12 two years old. 13 And I personally had one, for seven figures, 14 that was over a year and a half. 15 So, there is a problem in the totality of tax 16 reform, I think, with the administration and the 17 framework. 18 I don't think the people who are out there in 19 the trenches doing the work is the issue. I think 20 it's the bureaucracy and the process that have been 21 set up. 22 So that's something to consider once again. 23 The formula that you have in front of you for 24 tax reform is -- is you got to be incredibly 25 complex, but it's going to be the effort, but this 1 is also another area you ought to look at, 2 I believe. 3 The second thing is, we talk about tax 4 competitiveness, Senator. You mentioned 5 Tax Foundation. 6 And I found out about this hearing about a 7 week or so ago, so I didn't have as much time to 8 prepare as I would have liked, but I looked at the 9 Tax Foundation, and it doesn't look too good. 10 The thing to keep in mind is, though, despite 11 the tax competitiveness, in our ranking of 50, the 12 economic vitality of this area, of the state, 13 frankly, is incredible, how industrious we are 14 despite the fact that these -- that we've got really 15 shackles that are holding us back with respect to 16 taxation. 17 So when you look at that, there's some really 18 obvious things that need to change, to make it 19 competitive as a state; and number one is, the -- 20 what we're hearing from our clients, is that the 21 rates are too high. 22 You've got these snowbirds that count their 23 days in New York, versus Florida, so they can avoid 24 New York State taxation. 25 Estate taxes, I think, were -- there's less 1 than half -- much less than half of the states have 2 estate taxes, and ours are relatively high. That 3 encourages flight. 4 So, there may need to be some creative 5 thinking around what you do with retirees, and what 6 do you with the rates themselves. 7 That's something to think about. 8 The other thing to consider, and this is 9 where it gets complicated, and I don't envy your 10 position, is that you work on state tax reform, but 11 you can't do it in a bubble, because you've got 12 local taxes, and local means that you have to 13 consider. 14 And it was mentioned here, real-property 15 taxes is a real issue that you've got to consider. 16 We've had some clients that were enticed by 17 some good and persuasive people in New York, to have 18 their businesses moved. 19 And then we've heard their complaints, that 20 worker's compensation is too high, real-property 21 taxes are too high, and there's too much regulation. 22 So in one hand we've got -- we're sending the 23 right message with the right intention; on the other 24 hand, though, we haven't really worked on the 25 fundamentals; the substance and the rules that these 1 people have to follow to do business. We haven't 2 really worked on it enough to really let them 3 flourish. 4 So there's issues here, and we hear from our 5 clients who've recently transferred. 6 And if I can use a poker metaphor here, 7 there's a lot of chips on the table for this. 8 I think, personally, when you look at the 9 industriousness of the state, that we're holding a 10 winning hand, but I don't know if we're playing the 11 hand that well. 12 It's really going to take some resolve by you 13 folks, and other people in the state, to put 14 ideology and perfection aside. We're not going to 15 come up with a perfect system, but I think it is 16 possible, if we take a broad-based approach, with 17 administration, with rates, and with complexity. 18 SENATOR DEFRANCISCO: Thank you. 19 We had an accountant speak in Syracuse. 20 And, when was the last federal tax reform 21 act? '86 or '87, Rostenkowski? 22 I can't remember. 23 SAMUEL C. DISALVO: Well, there's been a lot 24 of little ones since then, but it's been a while. 25 SENATOR DEFRANCISCO: Well, in any event, 1 that was the last big one, and he said the tax 2 reform that they did, increased his business by 3 about 50 percent. 4 So, it didn't get any less complex; it got 5 more complex. 6 But we're -- and I'm glad you're here to 7 testify, because you see it from a practical 8 standpoint. 9 I just have several questions, as I've been 10 studying this. 11 I took tax law in law school, many years ago, 12 and my eyes crossed, my -- I get very nervous when 13 I start thinking about it. 14 But, I was speaking with, I can't remember 15 who it was, but, he, basically, represents taxpayers 16 before these conciliation bureaus, or with the 17 tax department, to try to resolve issues, both 18 federal and state. 19 And he said that there is a -- I don't know 20 if it's correct -- in federal taxes, a compliance 21 manual that kind of gives the guidelines for how 22 agents of the IRS are supposed to make 23 determinations. 24 And that he said, At least when I try to deal 25 with an agent in the federal government, I can point 1 to something to say, Look, there's your compliance 2 guidelines, and you're violating them. 3 He said -- now, I don't know if this is true 4 or not -- he said, New York State has no such thing, 5 and it's almost, like, whatever the agent says, they 6 got to fight it, because there's nothing that they 7 can point to, a regulation. 8 That's at least what he's saying. 9 Now, a manual that he can point to, to say, 10 "You're interpreting it wrong," is that true? 11 Or is there some -- 12 SAMUEL C. DISALVO: Well, I will say this: 13 In terms of the interpretation of the law, we've had 14 situations, and you can look at court cases, every 15 year, there's situations where, the agent in the 16 field has made a decision that is absolutely 17 contrary to what the laws are. 18 And, it has to go through many hours, and 19 many dollars, before that is ultimately determined. 20 So, that does exist. 21 And, the IRS has something along those lines 22 for specific issues. 23 In general terms, I think something like that 24 could be beneficial for New York State. 25 And it's all in the spirit, frankly. 1 You know, in a contract that you can write 2 up, you hope you never have to use the contract, 3 it's all in the spirit in which it's written. 4 Frankly, I take pride -- and this is what 5 I do, it's how I support my family -- I'm looking at 6 the laws and making sure I interpret them, but it 7 really is in the spirit of the way, in this 8 situation -- I mean, the laws have to be exact. 9 But in this situation, it's in the spirit of 10 which they want -- these laws want to be enforced. 11 So, to do the compliance manual, I think you 12 also have to have an approach that you take with 13 respect to getting it done. 14 As I said, nothing's perfect, but at some 15 point in time, cut your losses, turn the clock off, 16 and try to do what's reasonable. 17 SENATOR DEFRANCISCO: Okay. 18 There are certain adjustments from the 19 federal, as far as making this less complex, 20 New York State has a series of adjustments from the 21 federal -- federal return. 22 And I don't need it right now, but if you 23 would care to provide it to me, are there some 24 things that we could do to make that simpler, or to 25 change some of the adjustments, or, things that just 1 logically don't make sense? 2 That it would be interesting to know whether 3 we could do something like that. 4 SAMUEL C. DISALVO: I can look at it for you 5 and get back to you on some information. 6 I will say, it's difficult, just to be honest 7 on this. 8 You've got the federal government that is 9 writing a policy for encouraging investment, and one 10 of ways they encourage investment, is to provide for 11 increased depreciation, bonus depreciation, for 12 purposes of their budget, in enhancing the -- 13 lowering the taxable income. 14 Well, what that does is, then all of these 15 states need to take that into account and determine 16 how it affects their budget. 17 So there's always going to be these little 18 incon- -- not little, but there's always these 19 incongruities that you need to deal with. 20 But I do think, to answer your question, 21 there could be many situations where you can 22 piggyback what the federal government is, and 23 I think, maybe, overly bright people that really get 24 into an issue, and I can get that way, when you get 25 into the woods, they thought through things maybe a 1 little bit too -- too -- in too much detail, that 2 when you take a step back and you look at the 3 practicalities, it doesn't add up. 4 So, to answer that, yes, I think there are 5 some situations, and I'll get back to you on that. 6 SENATOR DEFRANCISCO: Well, we also have 7 someone from your statewide association speaking on 8 these same topics in New York City, October 5th, 9 I believe. 10 SAMUEL C. DISALVO: Okay. 11 SENATOR DEFRANCISCO: So, you know, whether 12 you work through them, or whether -- however that 13 goes, it just seems that that would be helpful to 14 know. 15 SAMUEL C. DISALVO: They're speaking on 16 October 5th, Senator, you said? 17 SENATOR DEFRANCISCO: Yes. 18 SAMUEL C. DISALVO: Okay. I'll check with 19 them. 20 SENATOR DEFRANCISCO: Now, I was -- we were 21 told by the accountant in Syracuse, he gave 22 examples, and he's going to write it for me, because 23 my head was spinning, but, he was describing some 24 instances that says, depending upon the corporate 25 structure you have, if you're an out-of-state 1 resident, you will have less of your business income 2 captured as taxable income in the state of New York. 3 And I don't know what -- which way that goes, 4 whether it's, if you're a Subchapter C -- or, if 5 you're a Chapter C corporation, or a Subchapter S. 6 Are there instances where we're actually 7 treating out-of-state businesses more generously 8 than we should, to the detriment of in-state 9 businesses? 10 I'll throw them out, I'm not expecting 11 answers, but I just want to get other opinions on 12 it. 13 SAMUEL C. DISALVO: I could check that, but 14 I would imagine with the complexity, there's got to 15 be ways that clever people can work that. 16 SENATOR DEFRANCISCO: Okay, okay. 17 And I think that's all the questions I have. 18 And I appreciate very much you testifying 19 today. 20 And, we're looking forward to the accountant 21 that comes to New York City in that hearing as well. 22 Thank you. 23 SAMUEL C. DISALVO: Very good, thank you. 24 SENATOR DEFRANCISCO: Anyone else? 25 Okay. 1 SENATOR MAZIARZ: Thank you. 2 SENATOR DEFRANCISCO: I almost put us off 3 schedule, but I didn't. 4 The next speaker, Gregory Sweeney, executive 5 director, economic and business development, 6 Praxair, Inc. 7 Whenever you're ready. 8 GREGORY SWEENEY: Good morning, 9 Mr. Chairman, and Senators. 10 And, Assemblyman Schimminger, nice to see you 11 again. 12 Nice to see you again as well, 13 Senator Maziarz. 14 SENATOR MAZIARZ: Good to see you, Greg. 15 GREGORY SWEENEY: I would like the take this 16 opportunity to talk a little bit about Praxair, just 17 to give you a framework from how we're approaching 18 this particular testimony, and it's not from the 19 X's and O's that you typically see from a tax 20 professional, which I am not, but, really from how 21 we look at investment, and how we look at investment 22 in North America, as compared to other locations. 23 We're an industrial gas company, we're a 24 multi-national company, started right here in 25 Buffalo, New York, in 1907, and we are a company 1 that sells, and manufactures, and distributes 2 atmospheric gases, processed gases, specialty gases, 3 and high-performance surface coatings. 4 These products and services that we sell help 5 companies be more productive; be better, 6 environmentally, in how they have their footprint in 7 the world in which they operate; and, really, to a 8 wide variety of industries. It's very diverse, from 9 metals, to manufacturing, to health care, food and 10 beverage, hospitals; so, a wide variety of 11 institutions. 12 And we have always been recognized, 13 consistently, for strong financial performance, 14 diversity, and sustainability. 15 Praxair employs approximately 10,000 people 16 in the United States, over about -- a little over 17 500 locations, so we have a pretty good view of all 18 the different kinds of structures that there are 19 with taxes in the United States. 20 And we have, as I said before, a facility 21 here in Tonawanda, New York, which has about 22 1200 workers, and 700 of which of those workers are 23 degreed professionals. 24 So, this testimony is going to focus in on 25 investment, and how it affects the employees, and 1 the longevity of a company like Praxair. 2 In addition to our production in 3 Niagara Falls, we produce hydrogen and oxygen, 4 argon, and nitrogen. 5 We have a facility in New York -- in 6 Orangeburg, New York, which is a part of our 7 electronics organization that creates specialty 8 metals for the electronics industry and magnetic 9 industry. 10 Praxair is a small part of New York's 11 chemical industry as well, and that industry 12 directly employs over 43,000 people in the state of 13 New York, with an average wage of over $71,000 a 14 year. This is a 25 percent above the average of 15 general manufacturing in the state. 16 So -- and, furthermore, for every chemistry 17 job that there's created, there's 3.3 jobs created 18 to support that industry. 19 I would like to thank the Committees' 20 opportunity to talk about tax policy today, and as 21 I said, not being a tax professional, I'm going to 22 focus in on how we view -- how we invest capital 23 across the world. 24 And, New York is a competitive, and job 25 creation depends on New York being a competitive 1 location to start businesses. 2 More investment, of course, means more jobs, 3 and tax policy plays an important role in that. 4 Before I look at specific tax issues, I'll 5 try to explain a little bit about how Praxair 6 invests its money, and how it views those 7 investments. 8 We operate in over 40 countries around the 9 world, and those business units, every year, come to 10 our headquarters and fight for the limited amount of 11 dollars that we can invest. 12 In many cases, we look at those, and part of 13 that analysis looks at, What is the tax structure in 14 that geography where we're looking to invest? 15 Additionally, because we have a broad base of 16 where we buy our equipment, equipment typically 17 doesn't play as much in the cost stack as some of 18 these tax structures, so, when we look at it, it's 19 all based on the internal rate of return: which 20 project has a higher rate, versus which don't. 21 And it's really just that simple in how we 22 look at our investment. 23 And, certainly, you know, when you look at 24 tax profiles between competing jurisdictions, where 25 we're looking to do potential investment can 1 certainly sway where those investments happen. 2 I think New York has taken some very positive 3 steps towards making tax code more competitive. 4 And, to see how policymakers, you know, look 5 at these as well, we continue to identify ways to 6 use the tax code as a tool to help with broader 7 economic development and job creation. 8 I've had the privilege to travel throughout 9 the United States as I have handled the investment 10 side of the business, and see of many different 11 states in how they approach incentives, whether 12 that's tax incentives, bond inducements, and those 13 kinds of exemptions, and, it encourages us to create 14 those jobs and really invest in that local economy. 15 While every state has similar goals, how 16 different states go about how they structure some of 17 the tax codes and how they look at incentives really 18 helps create more jobs in those states as compared 19 to others. 20 So at the base, these incentives can play a 21 critical role in making a, you know, proposed 22 competitive evaluation. 23 And when we look at these things, for the 24 most part, in today's world, after 2008, when things 25 took a downturn, more and more companies are looking 1 at those opportunities to partner, and look at 2 creating clusters; sharing services, sharing 3 manufacturing, sharing labor pools, sharing R&D. 4 These all help reduce the amount of capital, 5 and, therein, help reduce the return -- increase the 6 rate of return by reducing the capital as part of 7 projects. 8 And so what we've see now is, most 9 policymakers now really understand this concept of 10 clustering, but how do you put it to use when you 11 consider what kinds of things you want to do from a 12 tax basis and investment? 13 And one of the things that New York has done, 14 that I applaud, is that they've created these 15 regional economic-development clusters, and really 16 focusing strategies that help regional growth and 17 job creation, and really moving away from just 18 one size fits all. 19 I certainly applaud the Excelsior Program, 20 because it does promote job creation, but, it is 21 focused on specific industries. 22 I think, though, there's room for 23 improvement, and perhaps some of the things that 24 might be considered, are really looking at how does 25 job creation happen? 1 Don't create jobs for the sake of creating 2 jobs. 3 It's about creating infrastructure that 4 companies can create these clusters, and feed off of 5 it. 6 And, so, it's really chasing the capital 7 investment, and the jobs will come from the capital 8 investment. 9 As I said before, Praxair is a 10 capital-intensive business, and we're not always 11 labor-intensive. 12 We might build a facility that's 13 $100 million. We'll employ contractor construction 14 workers for 18 months, to build a facility, and -- 15 but at the end of the day, we might only create a 16 half a dozen to a dozen jobs; good paying jobs, but 17 not that many jobs. 18 But one of the things that's kind of the 19 undercurrent of that, is that most of the incentives 20 today are really focused on just those kinds of 21 things. 22 It's just the job creation only, and not what 23 the infrastructure is bringing the value to the 24 broader economic development of a region. 25 So, you know -- and we're really part of that 1 infrastructure. Once we put our things in the 2 ground, and we've been here since 1907 here in 3 Buffalo, it's an attraction for other companies to 4 see the value of co-locating with companies like 5 Praxair, and considering that over other locations 6 as one of the benefits, because we provide a lot of 7 the raw materials that these companies require, 8 going forward. 9 One of the other parts of our cost stack at 10 Praxair is our distribution costs of moving our 11 products around. 12 Out of our Niagara facility, we typically 13 ship our oxygen, nitrogen, and argon products within 14 about a 300-mile radius. 15 The hydrogen -- liquid hydrogen that we 16 produce at Niagara Falls, we can ship that product 17 all over the United States, because we only have 18 four liquid-hydrogen plants in the United States, 19 and that's the largest of any liquid-hydrogen 20 producer in North America. 21 So there's a lot of issues that we see on 22 the -- for example, the mileage/ton tax, it can 23 become an issue, which is, for anything that has a 24 maximum weight of 18,000 pounds or more going across 25 the roads, and increased thruway tolls as well for 1 commercial vehicles. 2 So, I would encourage the Committee to 3 consider exploring repealing the ton/mile tax, and 4 really being careful of just saying, when we want to 5 create an increase in the toll tax, that it's just 6 not the easiest course, going forward, to raise it 7 for revenue. 8 Because we have a lot of capital on the 9 ground, property tax is always a consideration when 10 doing these things, going forward. And, on average, 11 New York State has a higher property tax than many 12 states. 13 But, we welcome some of the recent reforms 14 which puts limits on annual property-tax-levy 15 increases, and through that cap, we saw that, you 16 know, local governments must now take a serious look 17 at how they manage their budgets, and their 18 surpluses or deficits. 19 And, really, helping make sure that those 20 caps stay in place, so the communities then have to 21 make those choices, rather than doing it through 22 assessments or similar kinds of taxing. 23 One of the other big pieces of our 24 manufacturing process is electrical power. 25 In what we do in the air-separation business, 1 it's about 60 to 70 percent of our cost stack, in 2 production costs. And, we're fortunate that our 3 main facility is in Niagara Falls, that we have 4 low-cost hydropower, that really can't be said for 5 other locations throughout the state of New York for 6 low-cost power. 7 So, you know, since affordability of 8 electricity, and energy in general, is important to 9 manufacturing, these would be ones to consider 10 before making policy changes that would affect the 11 cost of overall energy in the state of New York, 12 including that 18-A assessment, which I heard was 13 mentioned before with one of the gentlemen speaking. 14 So, the last piece is, even partially why I'm 15 here today, I'm from out of state, and as we have a 16 large facility here in New York, we're required to 17 travel to these facilities, for engineering and 18 support. 19 And we're finding that with the traveling -- 20 the cost for taxed travel for people in each state, 21 and New York being one of the ones that has kind of 22 a low threshold, or kind of an outlier, is a 23 concern. 24 And this kind of approach certainly has 25 changed behavior within Praxair, that, we can do 1 more things via teleconferences. We don't spend as 2 much time in New York, if we can avoid that. 3 And that has kind of a ripple effect. 4 Those are the folks that would normally come 5 here and travel, and spend time in a hotel, and go 6 out to dinner, and do those kinds of things. 7 So, those effects, especially with what we 8 have here in Western New York, is -- I think, is an 9 important thing that kind of goes throughout the 10 state of New York. 11 I think that there's some room for at least 12 some thoughts on this particular thing. 13 So, I would like to just say that, you know, 14 I really thank the Committee for this opportunity to 15 talk today, and take an approach from a 16 manufacturing company, and how we operate in 17 New York. 18 And, I appreciate all the things that 19 New York does for business, and perhaps we can do 20 more. 21 And, I look forward to your questions. 22 SENATOR DEFRANCISCO: Thank you. 23 That last point you made, I'm not familiar 24 with this 14-day withholding rule for employers. 25 What is it? 1 GREGORY SWEENEY: When I -- for example, 2 I live in Connecticut, and, so, for every day that I 3 come to the state of New York, I have to do a filing 4 within my company; that we have a system that 5 exempts me from the tax in the state of Connecticut, 6 and taxes me for being in the state of New York. 7 And many states have these things, but to 8 have these lower thresholds limits the time that 9 most people want to be able to have to have that 10 burden of all of this reporting, and it costs 11 companies money to do those things. 12 SENATOR DEFRANCISCO: So what does it have to 13 change to? What is it that you're looking to have 14 happen? 15 GREGORY SWEENEY: I think that there needs to 16 be a large -- a higher limit for days that you're -- 17 certainly, you're traveling, whether that's 30 days, 18 or -- or, I know that there are -- there is some 19 legislation to talk about, How would all states, 20 from a federal level, look at some of these travel? 21 SENATOR DEFRANCISCO: Could you possibly get 22 me -- I don't need a dissertation, but just a 23 paragraph or two, the specific section of the state 24 tax code, and what specifically would -- you're 25 looking to change? 1 Because I'm still not familiar with it. 2 GREGORY SWEENEY: I would have to get back 3 with you on that. 4 SENATOR DEFRANCISCO: No, no, no, I don't 5 mean now. 6 GREGORY SWEENEY: Okay, yeah, right. Yeah. 7 SENATOR DEFRANCISCO: If you could just send 8 it in, it would be great. It would -- that's 9 another example of things that could very well be 10 helpful. 11 Just a couple other things. 12 When you say "this clustering and creating of 13 infrastructures," what infrastructures are you 14 talking about? 15 GREGORY SWEENEY: These are -- these are 16 capital-intensive manufacturing processes in the 17 ground, that can create, for example, in Praxair's 18 case, we have many locations around the 19 United States where we have pipelined complexes, and 20 people can tap into those pipelines. 21 As an example, we started in East Chicago, 22 Indiana, supplying one location for 23 United States Steel in 1917. And today we have over 24 350 miles of pipeline of oxygen, nitrogen, argon, 25 and hydrogen that supply over 30 customers on these 1 pipelines. 2 In many of those cases, we share steam with 3 other companies, we share wastewater-treatment 4 facilities with our companies. 5 And in today's world of constraints on 6 capital, and returns are important, sharing of those 7 kinds of things help create that environment, where 8 more and more companies want to invest and want to 9 locate their companies where know they can take 10 advantages of the kinds of infrastructure. 11 SENATOR DEFRANCISCO: So what comes first? 12 Does a few companies come in and say, Look, 13 we need the State to construct this infrastructure, 14 and we'll come in? 15 GREGORY SWEENEY: Right. 16 SENATOR DEFRANCISCO: Or how does the State 17 go about trying to identify the companies that might 18 be attracted by that infrastructure? 19 GREGORY SWEENEY: It would be the State 20 having taken existing incentive programs, and 21 looking at, saying, What creates the opportunity for 22 other companies to join there? 23 So, for example, in Praxair's case, because 24 we are a raw-materials provider to a lot of 25 companies, we're taking the risk on the front end 1 with investments many times, but then once we do 2 invest, many companies want to be near that source 3 for a reliable quality supply of those raw 4 materials. 5 SENATOR DEFRANCISCO: Okay. 6 I think that's all I had. 7 Any other questions? 8 George? 9 SENATOR MAZIARZ: No, I'm fine. 10 Thank you. 11 SENATOR DEFRANCISCO: Thank you very much for 12 coming in, and hopefully you don't have to file too 13 many forms for being here today. 14 [Laughter.] 15 SENATOR DEFRANCISCO: Thank you. 16 GREGORY SWEENEY: Thank you. 17 SENATOR DEFRANCISCO: So, the next speaker is 18 Raymond Reichert, a partner in Jaeckle, Fleischman & 19 Mugel. 20 RAYMOND REICHERT: Good morning. 21 SENATOR DEFRANCISCO: Good morning. 22 Whenever you're ready, we're ready. 23 RAYMOND REICHERT: Okay. 24 Well, thank you very much for holding these 25 hearings, and coming to Buffalo. 1 I was a little disappointed that you're 2 running so fast. I have a partner's lunch meeting 3 that I was hoping to get out of, because I was going 4 to be here. I may have to speak for a very long 5 time. 6 SENATOR DEFRANCISCO: Well, we can put you on 7 last, and go till about three, if you'd prefer that. 8 SENATOR MAZIARZ: You can just tell people 9 you were last. 10 [Laughter.] 11 RAYMOND REICHERT: All right, you know, I'm a 12 partner with Jaeckle Fleischman. 13 I'm in the tax-and-economic-development area, 14 and so the focus of my practice is, basically, 15 real-property development, development of commercial 16 property and housing, and especially affordable 17 housing. 18 And, you know, the State has a number of 19 credits to provide help in doing these developments, 20 that I want to talk about today, because I think 21 that they're very beneficial, and they could be more 22 beneficial. 23 And some of the things that can be fixed with 24 respect to them really don't have an impact on the 25 fisc, or should not have impact on the fisc. 1 The investment, and some of the stuff has 2 already been proposed in various legislation, but 3 it's not gone anywhere yet, or not gone over the 4 finish line. 5 In order for property to be developed, 6 oftentimes it needs incentives, especially 7 challenging property where there's additional costs 8 involved, whether it's affordable housing for using 9 low-income-housing tax credits, and the costs 10 associated with meeting the requirements, and 11 dealing with the fact you can't get a whole lot of 12 rents in those properties; 13 Or, "historic redevelopment," development of 14 historic properties, which is typically more 15 expensive than new builds; 16 Or, somewhat differently, the incentive to 17 maintain and clean up housing -- I'm sorry, 18 brownfields, and make them useable again. And, 19 there, the State is ahead of the feds by giving the 20 brownfield tax credit. 21 And, so, these credits are all useable, and 22 most developers use them by accessing the investor 23 markets and having investors come in and buy the 24 credits. 25 And the investors, for the most part, when 1 they market these credits, especially the housing 2 credits and the historic credits, are more 3 interested in the federal credits than the state 4 credits. 5 And, that results in the pricing of those 6 credits being reduced, and not getting enough -- or, 7 not getting sufficient money for your credits that 8 I think the legislation was meant to do. 9 Why this is the case, there's a number of 10 reasons. 11 First of all, and some of these apply across 12 the board, and some of them apply with specific 13 credits. 14 First -- the first thing that would be very 15 helpful, is having a refundability feature in 16 low-income-housing tax credit. That would permit 17 investors to -- who may not have a need for New York 18 tax credits, to be able to use these credits for 19 cash in their pocket, and that would permit them 20 to -- permit the investor pool to be bigger; and, 21 therefore, the value of the credits to be greater. 22 So, that refundability function is a very 23 attractive thing, and, there's, I think legislation 24 pending on that. 25 Much like the Historic Tax Credit 1 Refundability Provision, which was passed, and is 2 now going to be effective January 1 of 2015, that, 3 kudos for passage of that legislation, because 4 I think that does open up the market. 5 The request here, is to consider moving that 6 date forward, to January 1 of 2014, because, 7 frankly, there are deals out there where investors 8 are saying, Hold off, don't put this thing in 9 service, don't finish the building. We want the 10 credits in '15, and we want them to be refundable. 11 And, so, that has a stagnating effect on 12 current development. 13 And, again, in theory, refundability should 14 not affect tax costs to the State, if the State 15 intends, actually, for those credits to be used one 16 way or the other. 17 The next item I want to talk about is more of 18 a process item, and that is in the brownfield 19 tax-credit arena. 20 You know, there's a lot of process to go 21 through the brownfields' tax-credit program, and the 22 front end is DEC-laden with approval process, where 23 there's a brownfield cleanup agreement entered into, 24 and then there's a certificate of completion, 25 acknowledging the cleanup has been done, and then 1 credits are taken. 2 The problem is, on the front end, the DEC is 3 very amenable, and you're getting what you want; 4 they're getting what they want, which is the 5 cleanup. 6 But very often, at the back end, when you 7 take the credits, you get an awful lot of pushback, 8 deservedly, and undeservedly, and I really care more 9 about the undeservedly, from the Department of 10 Taxation when you file your returns and look for the 11 credits. 12 There's no incentive for them to give you the 13 check, there's no interest payable, so there have 14 been times when it's been a year, or more than a 15 year, before the refund is [unintelligible]. And 16 it's clear that it's good credit; it's, just, it's 17 big enough, they hold the money. 18 It would be helpful, I think, at least in 19 some regard, to have the Department of Taxation and 20 Finance in on the front end, whether they're part of 21 the cleanup agreement -- 22 brownfield-cleanup-agreement process, or, they 23 somehow bless the structure, saying, Yeah, this 24 investor, if you do what you say you're going to do, 25 these credits should be there. 1 I think that would be helpful, and, again, 2 would be -- would lift the ability -- to increase 3 the ability to utilize those credits. 4 The next topic is one that I don't know if 5 there's a fix for, and that is, just, why investors 6 are low to invest in New York State tax credits, is 7 because history indicates that they're not 8 particularly reliable. 9 And I don't know if there's anything you can 10 do about that, but with the -- you know, a few years 11 ago, the capping and delaying of credits was a cause 12 of great furor, and -- you know, and the retroactive 13 application of limitations of the Empire Zone, also 14 caused a great deal of chagrin. 15 Now, there may be -- and good reasons to make 16 some changes, but I'm not sure that those are the 17 right changes to make. And I don't know how you fix 18 that, except with creating, you know, starting from 19 the day after they happen, seeing that they don't 20 happen again, because that will drive investment out 21 of the state. 22 And, finally, I'm a little out of order here, 23 but, the bifurcation -- you hear the term 24 "bifurcation of credits," and that's, people are 25 viewing the refundability of the credit as a 1 bifurcation, but that's not necessarily the case. 2 A real bifurcation would be, where you can 3 have one set of investors investing for the federal 4 historic credits, for example; another set investing 5 for the state historic credits. 6 And that's beneficial, because there may be 7 situations, for whatever reason, that one investor 8 doesn't want them both. Maybe they can't afford 9 both of them, because they're -- it's a large 10 project. 11 I aspire to large projects. We don't have 12 very many of them up here. 13 But, you know, it's -- that is a tweak, 14 again, that will help increase investor appetite. 15 And, also, the byproduct of that would be, in 16 the last instance, if you can bifurcate the credit 17 and you can't get a buyer for the state credits, for 18 example, at least the developer who's putting the 19 money in, the thing's getting built. The developer 20 would have the ability to get some credit out of 21 that money that he would be putting in to get the 22 deal done. 23 All right, I think I pretty much have gone 24 over and talked about the problems and possible 25 solutions. 1 I guess, if you have any questions, I would 2 like to hear them. 3 SENATOR DEFRANCISCO: Thank you. 4 Senator Grisanti is with us. He came 5 earlier, and I missed him. 6 And, I think you really ought to talk about 7 your last paragraph, because it's very important. 8 RAYMOND REICHERT: Oh, I'm sorry. 9 I was so focused on what is, as opposed to 10 what can be. 11 Yeah, the asbestos -- look, I think the 12 largest building in Buffalo is becoming, virtually, 13 vacant. And, in order for them to rehab that 14 building, there's going to be an ungodly amount of 15 costs associated, I think, with asbestos rehab in 16 that building. 17 And, it's not unique to that building, it 18 just is -- presents a unique challenge because it's 19 such a big building: the HSBC Center. 20 But other developers face the same problems, 21 and that, of course, is additional costs. 22 In this case, much like the brownfield 23 credit, there's certainly an incentive on the part 24 of the State to get this stuff cleaned up. 25 And the -- you know, there's always going be 1 a gap, where you have difficult-to-develop 2 properties in areas that can't charge premium rents, 3 because you got to get the money from somewhere, 4 and, ultimately, that money has to come back in the 5 form of payment of rents. And, the rents just 6 aren't going to be enough to do development. 7 So we do need State help. 8 And, you know, why asbestos removal was not 9 included in the brownfield credit program in the 10 first place, I don't know, but it really should have 11 been. 12 And, in fact, I think Senator Grisanti's bill 13 proposed a 20 percent credit? 14 SENATOR GRISANTI: Correct. 15 RAYMOND REICHERT: Yeah, and, really, I don't 16 see any reason why that shouldn't be 50 percent, 17 which is the level of cleanup credit available in 18 the brownfields' program, where you cleaned it up to 19 the highest level possible. 20 And, again, it's an incentive, but I think 21 it's a needed incentive. 22 SENATOR DEFRANCISCO: Thank you. 23 Are there any questions? 24 SENATOR GRISANTI: Ray, I want to take the 25 opportunity, first of all, to thank you for being 1 here today. 2 You know, and your message is loud and clear, 3 especially with regards to brownfield tax credits. 4 We are in the process, through, as I chair 5 the Environmental Conservation Committee for the 6 New York State Senate, trying to redo some of the 7 criteria that's in the brownfields. We've been at 8 for it the last couple of years. We've passed 9 two different forms of legislative intent in the 10 Senate, so the Senate's very much aware of it. 11 And, with regards to the asbestos-abatement 12 credits, we've done the same in the Senate, but we 13 need -- as you said, we need to do more. 14 If we can get it in the brownfields, under 15 some new guidelines, that's great, once we revamp 16 those guidelines. 17 The question on the historic tax credits, you 18 know that I had legislation out there to increase 19 the historic tax credits from $5 million, to 20 12 million. That was vetoed. 21 Then it -- you know, we did it this year, to 22 go from 5, to 7, to 9, to 12, you know, in a gradual 23 fashion. 24 You've seen, probably, firsthand here in 25 Western New York, how those worked with 1 Rocco Termini's building at the LaFayette. 2 RAYMOND REICHERT: Yeah, and the project that 3 didn't get done, I think AM&A's didn't get done 4 because of the gap. 5 SENATOR GRISANTI: Right, because of the gap, 6 and that you need that increase, and I'm sure 7 there's asbestos in that building as well. 8 So in your opinion, in Western New York, and 9 probably other avenues across the state, increase in 10 the historic tax credit, the asbestos-remediation 11 credits, you know, revamping a little bit of the 12 brownfield credits, so on the back end, the credits 13 are available quicker, so the payments are actually 14 made when the work is done and not dragging on for a 15 year, those would be, in your opinion, three 16 criterias that would be important, not only to rehab 17 properties here in Western New York, but across the 18 state? 19 RAYMOND REICHERT: Yeah, absolutely. 20 And, again, the point I think is, it's more 21 important in upstate, I think, just because of the 22 practicality of the rent differential. 23 You know, we're a poor city, and we can't 24 afford their rents that are necessary to achieve 25 these sort of additional hurdles for development, 1 without some help. 2 SENATOR GRISANTI: Okay. 3 And I want to thank, you know, for you coming 4 here today; 5 And thank Senator DeFrancisco for holding 6 these hearings. 7 And, you know, he's going to take all this 8 information, as well as the Committee, and go 9 through it, and see what aspects we can get done. 10 But thanks a lot your testimony here today. 11 I appreciate it. 12 RAYMOND REICHERT: Well, thank you very much 13 for hearing me. 14 SENATOR DEFRANCISCO: Thank you. 15 And if you need a note to get out of your 16 luncheon, let me know. I'll be happy to give you 17 one. 18 RAYMOND REICHERT: Well, I'm going to 19 actually sit back there and just stay for several 20 hours. 21 Thank you very much. 22 SENATOR DEFRANCISCO: Okay. Thank you. 23 RAYMOND REICHERT: The last speaker is 24 Matthew O'Connor, from Compliance Technologies, Inc. 25 I'm sorry. 1 MATTHEW O'CONNOR: Hi, Senator. 2 SENATOR DEFRANCISCO: You're on. 3 MATTHEW O'CONNOR: Thank you, Mr. Chairman, 4 Senate Committee Members. 5 The invitation for me to speak about an 6 important topic with direct impact on the financial 7 condition of the state, related to sales-tax 8 collections and competitiveness, is important. 9 I'm not making statements on behalf of my 10 employer, but as an individual businessman and 11 resident of New York with significant knowledge in 12 the field of audit practices, business, and 13 point-of-sale industries. 14 I have owned several businesses in New York, 15 and currently own a laundromat and assisted-living 16 facility. 17 My primary job is as a regional 18 vice president for a publicly traded company that 19 sells, manufactures, and services point-of-sale 20 terminals. 21 I live in Clarence, New York, with my wife 22 and children. 23 Everybody wants tax reform and lower taxes, 24 and I understand that's the purpose of this. 25 So what are the issues? 1 The state of New York and taxpayers deserve 2 the money collected for taxes, lessening the overall 3 burden and promoting fair competition. 4 Businesses collecting taxes don't want to get 5 audited. 6 Most businesses are reporting to the best of 7 their ability, and some businesses don't comply and 8 sales suppression does exist. 9 Suppressing sales is easy to accomplish and 10 hard to detect for the State. 11 Tax collection is burdensome for the 12 business. They would prefer to remit the taxes 13 collected immediately. 14 This is not just a cash issue. As technology 15 advances, so does the ability to circumvent using 16 other form of tender, and underreporting exists in 17 the retail, C-Store, and restaurant industries. 18 Evaders deploy many means to skim, all are 19 difficult for an auditor to uncover. 20 Policy changes and technology can solve these 21 issues. 22 So, the stakeholders, the government, local 23 and state governments, are confronting major budget 24 challenges. Technology has both improved and 25 diminished the sales-tax-collection efforts. 1 The business-governmental environment is 2 confrontational and overreaching in the eyes of 3 taxpayers within the retail, C-Store, and 4 hospitality industries. 5 Governments view the situation and deal with 6 these industries using their primary weapon, the tax 7 audit. 8 Québec concluded their annual tax losses in 9 excess of $400 million on a tax base of restaurant 10 businesses, less than that -- of half of 11 New York State's. These tax losses have a 12 multiplier effect when these funds are now used to 13 pay employees off the books, resulting in lost 14 federal and state revenues. 15 As a result of these individuals working off 16 the books, additional burdens are placed on the 17 government to provide medical and social assistance, 18 putting the squeeze on the taxpayer. 19 As quoted from Revenu Québec about tax 20 evasion in the restaurant sector, the following is 21 stated: 22 "For several years, the Québec government has 23 been fighting the underground economy in all forms 24 of tax evasion. Among the different economic 25 sectors targeted in this fight is the restaurant 1 sector, one of most highly affected by tax evasion. 2 "Even though most restaurants fulfill their 3 tax obligations, the Québec government sustains tax 4 losses of more than 400 million per year in 5 restaurant sector." 6 It is further stated, the impact is 7 significant as follows: 8 "In Québec, losses related to tax evasion 9 reduced the government's capacity to fund public 10 services, finance programs, that meet our society's 11 needs, whether it be in the health, education, or 12 transportation sector. 13 "Because of tax evasion, some taxpayers pay 14 for others, some workers are without social 15 protection, and honest businesses are confronted 16 with unfair competition." 17 Every resident of the state has the right to 18 make sure tax collectors remit the fair and accurate 19 amount of tax collected from their consumers. 20 The State has the responsibility to collect 21 taxes, ensuring it is done accurately and fairly. 22 As expressed by Québec, "Fighting tax evasion 23 is a question of fairness to consumers, taxpayers, 24 restaurateurs, and workers." 25 Underpayment of taxes hurts our social 1 fabric, unevenly distributing the burden to those 2 that pay promptly, accurately, and willing, as 3 prescribed by law. 4 New York has 40,000 bars and restaurants 5 compared to Quebec's 18,000. 6 Lost sales-tax revenue for Québec is 7 estimated at 400 million, which by comparative 8 numbers, puts New York State's estimate at 9 $1 billion annually in this industry alone. 10 (Comparative analysis done by Richard Ainsworth, the 11 tax expert.) 12 Québec is seeing post-sales recording modular 13 (SRM) implementation published collection rates at 14 nearly 70 percent with respect to the 400 million, 15 or, $280 million. 16 This mandatory compliance is passive, and 17 allows the government to channel their efforts on 18 the smaller percentage trying to evade, versus 19 New York State's architecture which makes you look 20 at 100 percent of the taxpayers. 21 The SRM device records and reports to the 22 business owner their exact tax liability without 23 need for keeping additional records. 24 It's very business-friendly. 25 The restaurant industry: 1 Independent restaurants are under financial 2 pressures. Food and labor costs are up, year over 3 year, in large national chains, causing pricing 4 pressures on independents, creating an eroding 5 bottom line. 6 Couple this with certain companies to pay 7 employees off the books, that don't declare all 8 their sales, lowering their operating costs, and 9 evading their tax obligation. 10 Anecdotally, it is my belief that most 11 restaurateurs I talk to wish to report sales 12 accurately, but their competition doesn't, putting 13 the law-abiding restaurateur at a disadvantage 14 competitively. 15 Paying your taxes will win every time. 16 Given a choice between paying, or going 17 through an audit which lasts between 18 and 18 24 months, at a cost of thousands of dollars and 19 lost-opportunity costs, restaurants do not want to 20 get audited. 21 The State has done a good job under previous 22 and current commissioners, and credit is also due to 23 enforcement and the audit groups as well. 24 The industry doesn't necessarily fear an 25 audit, but fears what it does to their business. 1 They also look to accountants and 2 POS vendors, such as myself, to provide guidance 3 with respect to what "adequate records" means, but 4 they're often left befuddled when these experts 5 defer to the state regulations which are 6 significantly vague, and left to the discretion of 7 the auditor. 8 Often, the best intentions and advice from 9 experts result in an alternative audit, followed 10 with an assessment, unless they can prove otherwise. 11 The impact to the state's economy is 12 significant. 13 Within my group, we have fielded no less than 14 20 calls from customers, or, restaurateurs, 15 regarding audits recently. 16 Without a single exception, these restaurants 17 cease spending on capital projects, don't hire 18 employees, and hold or reduce costs significantly. 19 The small-business economic engine we need to 20 improve the financial conditions within the state is 21 being put in neutral. 22 Fear is pervasive with anticipation of 23 sales-tax audits. 24 Restaurateurs, if given the chance, wouldn't 25 even touch tax they collect. They would pass it to 1 the state coffers as soon a possible. 2 The responsibility put on the business owner 3 to collect sales tax, when viewed from a risk/reward 4 perspective, by far, favors the State. 5 For a minimum reimbursement given by the 6 State to the business owner, they collect the 7 state's money; run the risk they get audited; 8 surprised to find they have inadequate records; 9 assessed, found personally liable, for thousands of 10 dollars, or maybe put out of business. 11 I assert to of this Committee that there is a 12 better way to even out the risk/reward proposition 13 through the use of a -- through a policy change and 14 use of technology, spin up tax collection, increase 15 sufficiencies, and get a good return on your 16 investment. 17 The stakeholders have needs to be addressed, 18 and are willing, therefore, to create a win-win 19 relationship. 20 Sales-tax supression exists, hurting the 21 state -- the state's financial position. 22 It also hurts the ability to audit quickly 23 and efficiently, inhibited, due in part, for the 24 following reasons: 25 There is no common reporting standard in 1 point-of-sale equipment between manufacturers and 2 products; 3 There is no common database platform for the 4 auditors to get in and get used to, and learn how to 5 audit; 6 There is no consistent electronic-journal 7 format for them to review; 8 The ability to suppress reporting 9 information, in particular, with respect to those 10 transactions that can impact sales reporting, such 11 as voids, coupons, discounts, promotions, item and 12 subtotal discounts, hash totals, non-sales, 13 non-resettable grand totals, Z and X counters, 14 date-and-time suppression, and clearing all totals, 15 et cetera; 16 There is ineffective logging tools; 17 And poor communication between the 18 stakeholders. 19 Automated sales suppression occurs in many 20 forms, but not limited to the following: 21 Zappers, which are devices that is either 22 inserted or native to a point-of-sale system that 23 automatically, by a determined percentage or amount, 24 deletes transactions or sales totals from the ECR 25 point of sale. 1 The more sophisticated devices also clean up 2 the "bread crumbs." 3 "Bread crumbs" are defined as the trail used 4 by auditors to tie back to an accurate sales number. 5 Basically, they reconstruct the audit trail. 6 Reports: Shaping and programming report data 7 in the format which is favorable to the evader. 8 Through internal report-writers, it is used 9 to camouflage critical data used by the auditor to 10 determine debit and credit information, making it 11 difficult for the auditor to discern. 12 External report writing, which is similar in 13 manner to an internal report-writer. 14 And then you have export to an Excel 15 spreadsheet, where sales totals are manipulated and 16 made to appear as though they were generated by the 17 point of sale or ECR. 18 System resets, clear all totals. 19 Training mode, most systems have this mode, 20 allowing an end user to ring sales without impacting 21 totalizers, with exception, the training-mode 22 totalizer. Normally, in this mode, items do not 23 output to any remote devices. 24 Database manipulation through voids, 25 discounts, negative menu items, coupons, promotions, 1 hash totals, non-revenue service charges, 2 grand-total suppression, credit-card scam with the 3 second terminal, not ringing up sales in the 4 systems, Z-counter suppression, date-and-time, and 5 data corruption. 6 The ability to change, modify, or conceal the 7 reporting system by an end user, college kid with 8 computer experience, or a rogue programmer, for the 9 purposes of underreporting, is relatively easy to 10 accomplish. 11 The functionality provided by manufacturers 12 required to satisfy operational requirements has not 13 been developed, in most cases, to defraud or 14 underreport sales. 15 So what's the resolution? 16 This is a big problem with many moving parts. 17 Respectfully, the Committee needs to consider 18 the following to remedy this situation, and enforce 19 the proper collection of sales tax. These 20 guidelines would provide a framework for a fair 21 resolution for the stakeholders: 22 Strict enforcement: Continue with the 23 enforcement efforts from compliance and enforcement. 24 Unilateral enforcement, which is one of the 25 topics that one of the previous gentlemen that was 1 providing testimony gave, is that auditors make 2 calls in the field. 3 More audits by sector with the same 4 geography, tighter standards at the level, to 5 diminish subjective calls in the field with respect 6 to adequate records. 7 Just be consistent, and part of that's the 8 definition of what "adequate records" really is 9 currently. 10 Records standards: Consistent 11 records-retention policy, with published guidelines; 12 what needs to be kept in what kind of order. 13 Current regulations need be further defined 14 to provide better result. 15 Technology: Deploy a pilot test utilizing a 16 product that securely captures point-of-sale 17 transaction data. 18 Making shareholders accountable, and 19 competition fair. This will mean less-stressful 20 audits, which are more timely, resulting in the 21 State's ability to perform a greater number of 22 targeted audits, and business people getting back to 23 what they want to do, running their business. 24 Communication between all stakeholders: 25 government, restaurateurs, retailers, C-Store 1 operators, and POS vendors. 2 It is my belief that most of these people are 3 committed, and good citizens of this state, wanting 4 to do the right thing. 5 In summary, a policy behind this effort will 6 spin up sales-tax collections, yielding the state 7 hundreds of millions of dollars. It will improve 8 the quality of the audit, and decrease the duration, 9 making it a win for the business sector. 10 As a further byproduct, the business sector 11 will get an additional analytics to help run their 12 business. 13 Another win for the state and the businesses. 14 The right strategy should include a win-win 15 thought process for all stakeholders' gain. 16 A policy change can be viewed as 17 progressive -- as a progressive New York, at a 18 positive, in fostering pro-business environment. 19 Lastly, the most important, it should allow 20 the state to become more financially sound, develop 21 a business-friendly environment without raising 22 taxes. 23 Thank you again, Mr. Chairman, and 24 Committee members. 25 1 SENATOR DEFRANCISCO: Thank you. 2 I understand everything you say. 3 The one point that I am not aware of, it 4 says, "Deploy a pilot test using a product that 5 securely captures POS transaction data." 6 How do you do that, and are there such 7 products available? 8 MATTHEW O'CONNOR: There are products 9 available, Senator. 10 Similar, a good model would be how Québec 11 instituted the deployment up there. 12 They selected a -- 3 percent of a target 13 population, deployed that first, and then they moved 14 to the -- to the next step, which was an overall 15 deployment. The process took, approximately, a 16 2- to 3-year span for them to do. 17 SENATOR DEFRANCISCO: What's the process? 18 MATTHEW O'CONNOR: The process would be, 19 first, to identify individuals who would be willing 20 to be part of a program, and there's plenty of those 21 individuals that are out there. 22 That would be first. 23 Second would be, to make it a policy, where 24 those individuals that have been found to be 25 assessed in the past, would have -- would have to be 1 under the program, so you get a larger market 2 sample. 3 And then the following process would be, 4 working with business, the product manufacturer, and 5 the government, to deploy the product for -- 6 SENATOR DEFRANCISCO: And that's my question: 7 What is the product? 8 What's capable, technologically, that the 9 state of New York, if this was something that was 10 needed, to get a more accurate sales collection -- 11 sales-tax collection? 12 MATTHEW O'CONNOR: So the way it would work 13 is, there would be a device which would be 14 encrypted, and have a secure communication between 15 the point-of-sale system and this device. 16 The device would then capture the transaction 17 data of the point of sale, primarily interested in 18 the tax component of that. 19 It can even be set up so that the exact 20 device would actually transmit the tax on a nightly, 21 quarterly, whatever time frame the State would 22 prescribe. 23 SENATOR DEFRANCISCO: And does that -- that 24 would -- Québec used a system like that? 25 MATTHEW O'CONNOR: That is correct. 1 SENATOR DEFRANCISCO: And who sells these 2 things? 3 MATTHEW O'CONNOR: There's several different 4 vendors, that I can get you a list of. 5 SENATOR DEFRANCISCO: That would be helpful. 6 And do you know of -- do you have any clue 7 whether the State of New York has looked into 8 anything like this? 9 MATTHEW O'CONNOR: Uhm, they have. 10 I know, Scott Paladino, Nonie Manion, have 11 been involved in looking at some of these. And they 12 felt that there needed to be some type of a policy 13 shift in order to bring this to the forefront, to 14 allow them to properly deploy it. 15 But it is something that -- 16 SENATOR DEFRANCISCO: And who are they? 17 MATTHEW O'CONNOR: Nonie is director of 18 audits, I believe, and Scott is the, uhm -- 19 SENATOR DEFRANCISCO: But he's a State 20 employee? 21 MATTHEW O'CONNOR: State employee, yes. 22 SENATOR DEFRANCISCO: Okay. 23 Well, if you could get us some more 24 information about some products that are available, 25 and see what -- whether it makes sense or not. 1 MATTHEW O'CONNOR: Okay. 2 SENATOR DEFRANCISCO: Thank you. 3 SENATOR MAZIARZ: So just, you know, to make 4 it as simple -- the simplist of forms: So, right at 5 the point of sale, if you swipe your credit card on 6 a $100 sale, there's $8 in sales tax. 7 The $8 would be transmitted automatically to 8 the State of New York, so the owner of the facility 9 wouldn't have to deal with it at all? 10 MATTHEW O'CONNOR: That is correct, Senator. 11 SENATOR MAZIARZ: That is -- 12 MATTHEW O'CONNOR: Most owners don't want to 13 deal with it because, believe it or not, they're in 14 business, but very often, those are things that end 15 up getting in their way. It's paperwork that they 16 don't want to deal with. 17 And, they end up, I think, getting caught 18 behind the fact that they get behind in sales tax. 19 They don't necessarily put it into a separate fund, 20 as you'd think they should. 21 SENATOR MAZIARZ: Right, right. 22 MATTHEW O'CONNOR: They have the best of 23 intentions, but they end up getting behind. And 24 once they're behind, it keeps snowballing, and -- 25 and it's problematic. 1 And most of them, if they didn't have it, 2 they wouldn't spend it. And that's one of the 3 things that I have heard. 4 You know, I've been in the point-of-sale 5 business, I grew up in it, my father owned it. 6 He started in '45, worked at NRC for 7 10 years, and then had a family-run business here in 8 Buffalo for -- you know, until '85. 9 So, you know, I've grown up in the 10 point-of-sale business my whole life, and that's how 11 people do it: they have the best intentions, but 12 they end up getting behind. 13 SENATOR MAZIARZ: Right, right. 14 Thank you. 15 SENATOR DEFRANCISCO: Just one follow-up. 16 It would seem to me that people going through 17 all the sales-tax business that they have to go 18 through at a point for sales, would love this 19 system, because there would be elimination of 20 paperwork, elimination of audits, except those who 21 are profiting from not being honest about the 22 situation. 23 Even some of them might be, if they figure 24 out what their cost of everything else is, for doing 25 this. It might be cheaper. 1 Does the -- does every business owner have to 2 buy equipment in order for this system to be used? 3 Or, how is it paid for? 4 MATTHEW O'CONNOR: In Québec -- and there's a 5 couple different models, but Québec, which was 6 extremely successful, they funded the entire 7 project, which was, approximately, 95 million -- 8 95 million-and-some-change. And the return, in the 9 first nine months, was 160 million in additional 10 taxes. 11 So even those individuals that were paying 12 the right amount of tax, as far as they were aware, 13 weren't paying everything they thought they should 14 be paying. 15 So, at the end of the day, in the 9-month 16 span, that 95 million turned into 160 that they got 17 returned. 18 So the return on investment's pretty 19 significant. 20 These are published by -- these are 21 published. 22 SENATOR DEFRANCISCO: So in a pilot plan, 23 whoever's been identified would be given whatever 24 equipment they would need in order to participate? 25 MATTHEW O'CONNOR: That's correct. 1 SENATOR DEFRANCISCO: Okay. 2 Anything else? 3 Thank you very much. 4 It was very interesting, and we'll -- 5 I'd like to follow up on this. This sound great. 6 We are now right on time, completing our 7 third hearing. 8 And, I appreciate all the people from 9 Western New York, especially the Senators who 10 participated: Senators Grisanti, Maziarz, Gallivan, 11 and from central New York, Dave Valesky. 12 And, we'll have our next hearing on 13 October 4th in Mineola, and then October 5th in 14 New York City, and then we will do our best to put a 15 package together, including whatever ideas we think 16 we can get some support for, for this upcoming 17 budget process. 18 Thank you very much. 19 (Whereupon, at approximately 11:49 p.m., 20 the public hearing held before the New York State 21 Senate Standing Committee on Finance and the 22 New York State Senate Standing Committee on 23 Investigations and Government Operations 24 concluded, and adjourned.) 25 ---oOo---