Cuomo commission proposes, among other things, an iTunes tax

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ALBANY—A state commission is recommending Gov. Andrew Cuomo tax Netflix, iTunes and e-books.

A 157-page report from the first of two tax commissions Cuomo convened in the past year offered a “menu” of revenue-neutral changes, which includes dialing back some targeted subsidies, as well as a repeal of several items carved out of the sales tax base.

That includes the end of a state exemption on sales tax for clothing and shoes totaling less than $110, as well as the extension of sales tax to “digital products,” including e-books and services streaming music and videos.

”The State currently forgoes $35 million per year by not taxing digital products. Revenue losses will increase as technological change accelerates,” the report says. “Twenty-three states now tax digital products to protect against the erosion of their tax bases and to level the playing field between online retailers and Main Street businesses.”

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This commission was co-chaired by H. Carl McCall and Peter Solomon, an investment banker and deputy mayor for finance and economic development during the Koch administration. Cuomo convened a second commission in October, to issue a report by December 1, that is charged with finding ways to cut property taxes.

In an interview, Solomon said the commission met biweekly and held meetings around the state. It included representatives of large labor unions and businesses, but Solomon said the recommendations were unanimous.

He said he expects the report to stir controversy—“there's nothing we propose that won't drive an outcry”—and said the research supporting the recommendations was his proudest achievement. He said he would not begin crusading for the adoption of any of its specific provisions.

Perhaps the most tangible recommendations deal with the state's four-percent sales tax.

“Sales tax hasn't been updated for how people live,” Solomon said. “Most tax expenditures in the state have no basis in fact. They've been put in over a period of time, they've never been adjusted, the basis on which they were put in is anecdotal and if you look at them, they favored one group at one moment and another group at another moment.”

The report notes, as an example, that the exemption for “coin-operated car washes only apply to cash purchases. Payments by credit card are subject to taxation.” The commission recommended putting luggage carts, dry cleaning, Broadway shows and movies back under the sales tax, and reducing it by expanding credits that favor low-income people.

The report also recommends reinstating the gift tax, but increasing the dollar threshold of property exempted from the estate tax.

Finally, the report said that a tax credit for film and television production, which Cuomo has proudly expanded, “should be scaled back because it does not appear to pay for itself in its current form.”

Liberal groups were wary that Cuomo formed the second tax commission, co-chaired by McCall and ex-Gov. George Pataki, because he felt the first commission's recommendations were not sufficiently in line with his stated desire to cut taxes next year. Cuomo said the two commissions would work in parallel.

Solomon said he and the governor discussed the overlap between the two commissions “endlessly.”

“In the course of it, he said, maybe we'll have money. What would you think?” Solomon said. “I said, I don't want to think. This is the product you asked for—that's enough work. You go take this product. We've laid out the alternatives. This is good research, good stuff you can use—go use it.”

“Let him figure out what he wants to do with it," Solomon continued. "A great question is, would you cut the [personal income tax] or would you cut the estate tax? I think new York State would get greater bang for its buck by eliminating 100 percent of the estate tax. But this is my own personal stuff. I would scale back and monitor a lot of business taxes, so 100 percent of the corporations would pay lower tax rather than one percent getting a refundable tax. I have a real point of view. … What we're laying out is the information that should allow people to debate these issues with some intelligence and facts about what's going on.”

A source indicated the report was initially planned for release at a press conference in New York City, but it never came to fruition. Cuomo issued a statement along with a press release linking to the final document, which is below.

“I want to thank Co-Chairs H. Carl McCall and Peter J. Solomon, the members of the Commission, and all the people who provided input to this process,” Cuomo stated in a press release. “Since being elected Governor, my administration has focused on reversing New York’s negative tax reputation, further improving our business climate and easing the burden on everyday taxpayers. Today’s report represents another step in that direction as we seek to simplify New York’s antiquated and unnecessarily onerous tax code, and to ease the tax burden on families and businesses statewide.”

Business Council President Heather Briccetti said, on first blush, there was "a lot to like here." Ron Deutsch, executive director of New Yorkers for Fiscal Fairness—a coalition of labor and progressive groups—urged more hearings on the report, and said it was a "smorgasboard" that offered something for everyone.

 

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