Federal Economic Recovery Funds to Help Everyday New Yorkers in Difficult Economic Climate

Governor David A. Paterson, Senate Majority Leader Malcolm Smith and Assembly Speaker Sheldon Silver today announced an agreement to eliminate $1.3 billion in tax increases included in the proposed 2009-10 Executive Budget. The agreement eliminates new taxes on common items, including previously tax-free goods and services such as clothing under $110, sugared drinks, digital downloads, cable and satellite television, manufacturers’ coupons, haircuts, manicures, concerts, movies, live theatre, health clubs, bowling, golf, skiing and others. Additionally, to help businesses and families in a struggling real estate market, a proposal to limit the sales tax exemption on capital construction improvements made to property is no longer advanced.

“The proposed tax increases we are eliminating today were only put forward as a last resort when the deficit ballooned to an unprecedented level,” said Governor Paterson. “Now that enhanced federal funding is available, our highest priority must be to provide targeted relief to those who need it most during this economic crisis – average New Yorkers struggling to make ends meet.”

Senate Majority Leader Malcolm Smith said: “Taking these taxes off the table is a smart step forward in a budget process that should actually force government to do more with less. If implemented, these taxes would have impaired small businesses and adversely impacted middle income families. We have to take this opportunity to fundamentally restructure New York’s budget to make government more efficient and more effective – and in this fiscal crisis, taxes should be the last thing we consider, not the first. Reducing the rate of growth in our spending while investing in job creation and sound economic development will put New York back on the road to economic recovery.”

Assembly Speaker Sheldon Silver said: “At a time when so many working families are struggling to make ends meet, when the cost of everything from food to fuel to tuition is increasing, it is essential that government do all that it can to ease their tax burden. We believe it is particularly important not to increase the cost of those basic ‘quality of life’ products and services that help families tolerate times of hardship and uncertainty.”

These restorations will be financed through aid from the American Reinvestment and Recovery Act (ARRA), which is expected to provide New York with $6.5 billion in fiscal relief through the end of 2009-10. This includes $5 billion in flexible funding through increased Medicaid reimbursements (FMAP), $1.2 billion specifically designated to restore education reductions, and $274 million in other flexible funding. The use of the remainder of this economic recovery aid, as well as further agreements concerning tax and fee actions in the 2009-10 State budget, will be determined through continued budget negotiations.

Governor Paterson continued: “I want to thank New York’s Congressional Delegation for fighting hard for this funding, however we cannot treat a temporary windfall from Washington as an excuse to avoid the tough choices we must inevitably make to get our fiscal house in order. Federal funding will cover only a fraction of our overall budget deficit, and the economic outlook remains uncertain, so we must ensure that we use this aid in a responsible manner that strengthens our State’s long-term finances.”

A full list of taxes that will be eliminated from the proposed 2009-10 Executive Budget is included below:

Eliminate Proposed Restructuring of the Clothing Exemption. The Executive Budget would have eliminated the sales tax exemption for clothing and footwear priced under $110 and replaced it with two, one-week exemption periods for clothing and footwear priced under $500. This proposal is no longer recommended. (2009-10 Impact: $462 million, 2010-11 Impact: $660 million).

Eliminate Sales Tax on Non-diet Soft Drinks. The Executive Budget would have imposed an additional 18 percent rate of sales and compensating use taxes on fruit drinks that contain less than 70 percent natural fruit juice and non-diet soft drinks, sodas and beverages. This proposal is no longer recommended. (2009-10 Impact: $404 million, 2010-11 Impact: $539 million).

Eliminate Proposed Extension of Sales Tax to Cable and Satellite Television and Radio. The Executive Budget would have imposed sales tax on television and radio services provided by cable, satellite or other similar means. This proposal is no longer recommended. (2009-10 Impact: $136 million, 2010-11 Impact: $180 million).

Eliminate Proposed Limitation on the Capital Improvement Exemption. The Executive Budget would have limited the capital improvement exemption under the tax code to new construction, a new addition to existing construction, or complete reconstruction. This proposal is no longer recommended. (2009-10 Impact: $120 million, 2010-11 Impact: $160 million).

Eliminate Proposed Extension of Personal and Credit Services Sales Tax. The Executive Budget would have made personal services (such as beauty, barbering, manicure, pedicure, massage, health salon, or gymnasium services) and credit rating and reporting services subject to sales tax statewide. This proposal is no longer recommended. (2009-10 Impact: $78 million, 2010-11 Impact: $104 million).

Eliminate Proposed Extension of Sales Tax to Entertainment-Related Spending. The Executive Budget would have imposed a sales tax on entertainment-related consumer spending, including but not limited to, movie theaters, live theatre, concerts, golf, skiing, bowling and others. This proposal is no longer recommended. (2009-10 Impact: $53 million, 2010-11 Impact: $70 million).

Eliminate Proposed Digital Property Sales Tax. The Executive Budget would have imposed State and local sales tax on purchases of prewritten software, digital audio, audio-visual and text files, digital photographs, games and other electronically delivered entertainment services. This proposal is no longer recommended. (2009-10 Impact: $15 million, 2010-11 Impact: $20 million).

Eliminate Proposed Change in Coupon Taxation. The Executive Budget would have applied sales tax to the value of a store coupon used for a purchase. This proposal is no longer recommended. (2009-10 Impact: $3 million, 2010-11 Impact: $3 million).