When the governor made his Tax-Free NY announcement, he said, “You can’t do more than this,” meaning the state can’t do more than freeing businesses from all state taxes for a limited amount of time — 10 years for sales, property, and business/corporate taxes. “You can’t go lower than zero.” And employees would be exempt from paying income taxes for five years.
The goal is to set up tax-free communities that promote entrepreneurship and job creation. But we don’t like the time limit for the tax exemption. What happens after 10 years? Do the businesses close shop or simply move to a state that’s tax-friendly more than 10 years?
And while the state’s budget director says there is “no cost” to the state, meaning there is no out-of-pocket expense, there is most definitely a cost when you don’t collect taxes.
We’ve already seen what happens when revenue falls short of expectations. After the country’s economic collapse and federal bailout of Wall Street firms in 2008, many financial institutions were paying a lot less in state taxes. And that reduction in tax revenue led to a budget deficit reaching $15 billion for the state.
We’re not saying these tax-free zones will result in a $15 billion budget shortfall, but there will most likely be some reduction.
When there’s a reduction in sales tax, government agencies that reap the benefit of those taxes need to make up for the shortfall: the state, counties and towns in some instances.
What happens when businesses don’t pay property taxes? It means higher taxes for the other property owners. Shouldn’t the state be generating economic development that adds businesses to the tax rolls instead of taking them off? That’s why there’s a stigma for having tax-exempt properties in town ... no revenue. In this tax-cap era, this could make balancing budgets even harder for some communities and school districts. Many are already cutting jobs.