New York's governor and an influential state senator have proposed separate measures that would ease or erase the competitive disadvantage New York has created for itself in its method of taxing corporations. The Assembly is also considering the matter, though no legislation has been proposed.
It is an important effort that, according to one academic study, could lead to the creation of 133,000 jobs. Even if it didn't, though, it would still eliminate an incentive the state gives to corporations to move jobs out of New York.
The problem is this: Like a number of other states, New York bases corporate income taxes on three factors: in-state sales to in-state destinations; the percentage of worldwide property within the state; and the percentage of worldwide payroll within the state.
But not all states calculate taxes that way, and that sets up an intense competition. If another state bases tax only on in-state sales, corporations have an incentive to move jobs there. That is the problem in which New York finds itself, as its corporate tax policy penalizes companies that choose to locate here.
Worse, the disincentive is growing as more and more states move toward a "single sales factor."
To New York's credit, it was the first state to recognize this problem. In the 1970s, it "double weighted" the sales factor, thereby diminishing the influence of the other two.
But other states have caught up and moved ahead. Now, only 11 states have the triple system, each weighted equally, while 11 others either base their corporate income taxes solely on the sales factor or have no such tax at all. And four others weight the sales factor stronger than New York does.
This is a dicey position for New York, because four neighboring or nearby states have tax systems more advantageous to corporations. Connecticut and Massachusetts are among the states that base their tax solely on sales, while Pennsylvania and Ohio weigh that factor at 60 percent, compared to New York's 50 percent.
As always, any change would produce losers. Among them in this case would be retailers, whose tax liability could rise under a sales-only computation. But New York desperately needs to attract the kind of high-paying manufacturing jobs this change would most benefit. In the end, the state has few options.
Under Gov. George E. Pataki's approach, the state would phase out the tax over five years, but only as it applies to manufacturers. Sen. Dean Skelos, R-Nassau County, would dump the tax immediately and apply the change to all relevant businesses. The Assembly expects to take the matter up as a budget bill, though some observers suggest it will split the difference between the other two approaches.
In truth, any of those plans would probably do. The important matter is to put this state on a footing that is at least competitive with its neighbors.
That seems likely to happen, but lawmakers from Western New York, which leans heavily on the manufacturing sector for jobs, must work to see that it does.