Realtors Declare Victory Against Onerous Tax Proposals

John Jordan | April 2018

ALBANY—Chief officials of the Hudson Gateway Association of Realtors, while not specifically citing the old axiom, did in fact embrace the tried and true sports strategy uttered by many a head coach that “Sometimes a good offense is a good defense.”

The recently passed $168.3-billion Fiscal Year 2019 New York State budget did not include any of the proposed real estate transfer tax increases or flip tax measures that were under consideration.

“It appears our lobbying efforts have succeeded,” said HGAR Government Affairs Director Philip Weiden, who thanked all those that participated in the annual Lobby Day program in Albany last month.

He cautioned that while action on these measures could be taken before the end of the legislative session, measures involving fiscal impacts usually do not get passed after the budget is approved.

Weiden added that HGAR is hopeful that some of its legislative priorities, including measures involving transparency in the co-op purchase transaction, will be approved by the State Legislature prior to the close of the current legislative session.

A study called for by Gov. Andrew Cuomo was approved by the State Legislature to study the impacts of a first-time homebuyer savings account. The legislation would allow individuals seeking to purchase their first home to establish a savings account and make annual tax-deductible contributions of up to $5,000 for an individual or head of household or $10,000 for married taxpayers who file taxes jointly. The bill put a cap on contributions of up to $100,000 for the purchase or construction of their primary residence. The study, which is expected to be completed and its findings released on June 30, is to include a detailed review of the fiscal and economic impacts of the bill.

The budget also includes a number of measures geared at blunting the effects of the federal tax reform bill that state officials contend effectively raises middle class families’ property and state income taxes by 20% to 25%. “New York will also become the first state to implement new measures to shield families from the devastating federal tax law’s elimination of full state and local deductibility—an economic arrow aimed at the heart of this state’s economy,” the governor said.

The budget creates two new state-operated Charitable Contribution Funds to accept donations for the purposes of improving health care and education in New York. Taxpayers who itemize deductions may claim these charitable contributions as deductions on their federal and state tax returns. Any taxpayer making a donation may also claim a state tax credit equal to 85% of the donation amount for the tax year after the donation is made. In addition, the legislation authorizes school districts and other local governments to create charitable funds. Donations to these funds would provide a reduction in local property taxes (via a local credit) equal to a percentage of the donation.

While federal tax reform eliminated full state and local tax deductibility for individuals, businesses were spared from these limitations. Under the FY 2019 New York State budget, employers would be able to opt-in to a new ECEP structure. Employers that opt-in would be subject to a 5% tax on all annual payroll expenses in excess of $40,000 per employee, phased in over three years beginning on Jan. 1, 2019. The progressive personal income tax system would remain in place, and a new tax credit corresponding in value to the ECEP would cut the personal income tax on wages and ensure that state filers subject to the ECEP would not experience a decline in take-home pay.

State officials also say that the budget decouples the state tax code from the federal tax code, where necessary, to avoid more than $1.5 billion in state tax increases brought solely by increases in federal taxes.

Other tax relief measures in the budget include the continued phase in of the middle-class tax cut. In 2018, average savings will total $250 and, when fully effective, six million New Yorkers will save an average of $700 annually, according to state officials. Once fully phased in, the new rates will be the lowest in more than 70 years—dropping from 6.45% to 5.5% for incomes ranging from $40,000 to $150,000 and 6.65% to 6.0% for incomes ranging from $150,000 to $300,000. The new lower tax rates will save middle class New Yorkers $4.2 billion, annually, by 2025.

Other highlights of the state budget that pertain to the real estate, construction, finance and development sectors include:

  • Continued the Local Property Tax Relief Credit enacted in 2015 that will provide an average reduction of $380 in local property taxes to 2.6 million homeowners this year alone. By 2019, the program will provide an additional $1.3 billion in property tax relief and an average credit of $530.
  • Allocates $5 million to further a study of constructing a third lane in each direction on sections of Route 17 in Orange and Sullivan counties. State Assembly members Aileen Gunther and James Skoufis issued a joint press release announcing the funding from the 2019 budget that will go toward environmental and design costs related to the study. The New York State Department of Transportation completed a Route 17 study in 2013. The new funding advances the project to its next phase.
  • Begins service on the Lower Hudson Transit Link. The budget appropriates $8 million to allow the Lower Hudson Transit Link to begin bus service along the Governor Mario M. Cuomo Bridge in 2018.
  • Continues the Regional Economic Development Councils: In 2011, the state established 10 Regional Economic Development Councils (REDCs) to develop long-term regional strategic economic development plans. The budget includes core capital and tax-credit funding that will be combined with a wide range of existing agency programs for an eighth round of REDC awards totaling $750 million.
  • Launches the next round of the Downtown Revitalization Initiative. The FY 2019 Budget provides $100 million for the Downtown Revitalization Program Round III. Recently, Kingston and Middletown have been awarded $10 million for downtown revitalization programs.
  • Invests $250 million for New York City Housing Authority repairs. To expedite repairs to NYCHA facilities, the FY 2019 Budget includes design/build legislation for NYCHA projects. The record investment brings total state funding for NYCHA to $550 million.
  • The budget includes Design/Build legislation for the construction of new jails to replace the Rikers Island Jail Complex, the reconstruction of the Brooklyn Queens Expressway and NYCHA projects. As a result of design/build authorization, the city will avoid significant delays in construction and will realize savings in excess of $1 billion.
  • Supports the comprehensive $836-million MTA Subway Action Plan to address system failures, breakdowns, delays and deteriorating customer service, and position the system for future modernization. The budget fully funds the Subway Action Plan to move forward on these critically needed repairs, with the city required to contribute half of the funding for the plan. The MTA will begin receiving the funding in April and will receive the full funding by the end of 2018.
  • Enacts a $2.75 surcharge on for-hire vehicles in order to establish a long-term funding stream for the MTA and to reduce motor vehicle congestion. The budget enacts a surcharge on for-hire vehicles below 96th Street in Manhattan. The surcharge is $2.75 for for-hire vehicles, $2.50 for yellow cabs, and $0.75 for pooled trips. This funding will go into an MTA “lock box,” and will provide long-term funding to sustain the Subway Action Plan, outer borough transit improvements, as well as a New York City general transportation account.
  • The state currently collects and disburses the Payroll Mobility Tax (PMT) to the MTA. The budget amends the law so the revenue is directly provided to the Authority.
John Jordan
Editor, Real Estate In-Depth