Authorizes N.Y. city to impose the city earnings tax on nonresidents and repeals chapter 5 of the laws of 1999

BILL NUMBER:S3044

Title of bill

An act to amend the general city law and the tax law, in relation to imposing the earnings tax on nonresidents and to repeal chapter 5 of the laws of 1999, amending the tax law and the general city law relating to the definition of nonresident for the purpose of imposing the earnings tax on nonresidents and to repeal such tax in the event of certain judicial determinations relating thereto

Purpose

This legislation would restore the New York City Commuter Tax which was eliminated by Chapter 5 of the Laws of 1999.

Summary of provisions

Section One of the bill repeals Chapter 5 of the Laws of 1999 which amended the tax law and the general city law relating to the definitions of nonresident for the purpose of imposing the earnings tax on nonresidents. Section Two creates Article 2-E of the General City Law, providing for a city earnings tax on nonresidents.

Existing law

Currently, there is no earnings tax on nonresidents who produce an income within cities of over one million or more.

Justification

The New York City Commuter Tax was established in 1966 as tax. on wages and on self employment earnings. It applies to those who work within the City limits, but are not residents of the City The rates of this taxation were increased in 1971 and continued until the time of its repeal in 1999. It was estimated that 450,000 New Yorkers were paying the commuter tax which was providing New York City with $360 million dollars in revenue. The repeal could result in harming the City's long term fiscal health. In 2007, if the commuter tax were reinstated, the City of New York could raise an estimated $550 million for city fiscal year 2008.

There are several reasons why a commuter tax is needed:

* Many more people work in New York City than live there. A major portion of City services and expenses go toward servicing the commuter population. Even with the commuter tax, those commuting from outside the City to work get a better deal than those living within the City who commute to the outside.

* Currently, the City requires an income tax to support the level of services provided and, in some cases, mandated. This income tax provides a distortionary incentive favoring out-of-city labor, with no local income tax, over City labor. Rather than introducing an economic inefficiency in the labor market, the commuter tax actually offsets a portion of a pre-existing distortion.

* The loss of commuter tax revenues makes the rest of the City's tax reduction program more difficult. The City still has a relatively high

unemployment rate and the reduction of other business taxes could help stimulate City employment to a greater degree than a reduction in the commuter tax. Other large cities impose commuter taxes and New York City's was modest in comparison

Legislative history

2002: S.4373 Died in Senate Cities Committee 2003-2004: S.1219 Died in Senate Cities Committee 2005-2006: S.2576 Died in Senate Cities Committee

Fiscal implications

Substantial increase of revenue to the City of New York.

Effective date

This act shall take effect immediately, with provisions.