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Gov. George E. Pataki's proposal to change the way manufacturers pay corporate income tax in New York would help generate thousands of new jobs, according to a study done for the Business Council of New York State.

The tax reform could also make Upstate New York more attractive to factory site selectors.

Pataki wants to make New York one of the few states with a "single-sales factor" corporate tax for manufacturers, reforming the current code that assesses a tax penalty for adding property and jobs in the state.

But the labor-backed Fiscal Policy Institute thinks the governor's proposal is a "costly corporate giveaway" that would have little impact on economic development.

The tax code currently measures three factors, the percentage of a company's employment in state, the percentage of property a company has in the state and its percentage of sales in New York.

The law creates a tax penalty for adding employees and equipment here. For example, if a company built a plant in Buffalo creating hundreds of jobs, its state tax bill would go up because the company's percentage of property and employees in New York would rise.

Some other states, such as Massachusetts and Illinois, only tax based on sales. So a business investment there does not lead to higher state taxes.

"What we're trying to do is reward investment and job creation in New York," said Bob Ward, director of research for the Business Council. "This would give companies based in New York a competitive advantage."

The prospects for such a tax cut passing are cloudy. The measure would cost the state more than $34 million a year in lost tax revenue.

The Business Council will attempt to convince legislators higher personal income taxes from jobs created will more than outweigh the lost corporate tax revenue.

"Any tax cut we do should be based on putting more money into the economy or changing the corporate setting to encourage job creation," said Assembly Majority Leader Paul Tokasz, D-Cheektowaga.

Tokasz generally likes the idea, but is still reviewing the details. He warns the state faces several financial challenges this year, including new funding for the multibillion-dollar Superfund environmental cleanup program and a state court ruling requiring more equitable school funding formulas.

The change would have to be approved by both the Democratic controlled Assembly and the Republican controlled Senate.

The Business Council wants the tax reform extended to all industries, not just manufacturing. An across-the-board change would generate 133,000 new jobs within several years, according to an economic study conducted for the state's business lobby.

The change would generate about 32,000 new manufacturing jobs, according to the study of similar tax reform in other states done by economists at the University of Chicago and University of North Carolina.

The Fiscal Policy Institute disputes those figures, claiming the reform would do little to create jobs. State corporate tax is such a small percentage of overall operating expenses that the tax reform would not make enough difference to drive business decisions, the think tank argues.

State officials are underestimating the potential lost tax revenue that could be used for important services such as education, according to the Fiscal Policy Institute.

The change could benefit companies that have a lot of property and employees in New York, but sell globally, such as IBM, Kodak and possibly Rich Products, according to the Business Council.

A Rich Products spokesman delined to comment on the proposal. He said the company's finance department is still reviewing the details.

The proposal could also help lower taxes for some of Buffalo's growing medical device manufacturers, which generate most of their revenue in the national and international health-care markets.

John H. Boyd, president of The Boyd Co., a Princeton, N.J., company that helps businesses select factory sites, said the change would particularly help companies that do a lot of business outside the state.

"This would be a significant shift in the way corporate income taxes are calculated," Boyd said.

The tax change would make Upstate New York more attractive to site selectors hunting for factory locations, he said.

Advance Upstate New York, a coalition that includes the Buffalo Niagara Partnership, is also lobbying for the single-sales factor reform this year.

"As competition for new plants and expansion of existing facilities increases, states have been seeking whatever competitive edge they can to attract new jobs," the Advance Upstate coalition wrote in its 2001 lobbying agenda.

Pataki's proposal would phase in the tax reform over five years. Assemblyman Joseph Morelle, a Democrat from the Rochester area, said he will submit a bill extending the tax reform to both manufacturing and biotechnology. Morelle wants the change phased in over just two years.

"This invites businesses to come to New York. We're not going to penalize you any longer for having significant holdings here," Morelle said.

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