Taxable Talk

New York is another state facing a deficit. New York Governor David Paterson proposed 88 new taxes to fill a $15 billion budget deficit. One of those taxes is on downloading digital entertainment services. Sure, music downloads were the obvious target, but there’s an industry that is even more successful: porn.

Yes, a New York based pornography business (such as some of the stores near Times Square) will be impacted by this new tax. “The last thing any of us need is an additional tax,” said Steven Hirsch to the New York Daily News. Republicans in the New York Legislature oppose the tax.

The reason they state for opposing it isn’t to stop tax increases; rather, they don’t want to legitimize the pornography industry. I’d like to see Republicans look for smaller government. Or Democrats. New York Governor Paterson had said that he was for spending cuts. As the Daily News said, “[Paterson’s] spokesman said the governor’s new comments did not represent a shift in his position.” Yeah, right.

New York suffered a setback this week in its fight against the Cayuga Indian Nation. The Cayugas have been selling cigarettes without New York sales and cigarette taxes; district attorneys had previously executed search warrants and seized records from their cigarette stores. A state appellate court issued a preliminary injunction stopping the district attorneys from pursing the matter until the appeal is heard.

The stores, operated by the Cayugas, have been closed since mid-December. It’s likely they’ll soon be reopened. The last time I reported on this the score was New York 4, Indians 3. It looks like a two-run homer for the Indians from this vantage point.

New York’s attempt to tax cigarettes sold on Indian reservations in the Empire State hit a roadblock last week. Judge Rose Sconiers issued a temporary restraining order against New York and barred collection of the sales tax. A hearing on a permanent injunction will be held in Buffalo on January 27th.

New York already already has the second worst tax climate in the country according to the Tax Foundation. Governor David Paterson today announced a budget that seeks to add or increase 88 taxes and user fees.

User fees are just another form of taxes, and as I’ve said before all taxes and fees are passed on to consumers. New York faces another difficulty in adding taxes: its proximity to other states. If clothes cost more in New York, consumers can always go to New Jersey or Connecticut.

There are some planks of Governor Paterson’s budget that deserve praise. Governor Paterson proposes eliminating seven state agencies. He also proposes the smallest increase in spending in years, just 1%.

Here are just some of the taxes/user fees that are proposed:
– An increase on the tax on beer, wine, and flavored malt beverages;
– An iPod tax on digital downloads;
– State sales tax on entertainment purchases, taxis, buses, limousines, and satellite and cable television;
– A $0.50 cigar tax;
– An 18% tax on non-diet sodas; and
– Luxury taxes on expensive cars, yachts, airplanes, furs, and jewelry.

Of course, this is just a budget, and it must be approved by the New York state legislature. Governor Paterson told the New York Daily News, “If you start taxing at times when [revenues are] receding, you’ll drive job creators out of the state.” He could teach California’s legislature and governor something about basic economics. We’ll see if the New York legislature understands that.

In New York state there’s been a festering battle between state government and Indian tribes regarding cigarette sales. There were several developments last week.

Judge Kenneth Fisher of the state Supreme Court (equivalent to a district court in California) ruled that the Cayuga Indian nation cannot sell tax-free cigarettes at its stores in Union Springs and Seneca Falls, New York. Judge Fisher noted that the stores are not on Indian reservations. District attorneys in Cayuga and Seneca counties plan on presenting charges to grand juries. The Cayuga Indian tribe will appeal, and that battle could last years.

Meanwhile, a bill that would tax all Indian cigarette sales in New York is awaiting the signature of Governor David Paterson. Indian nations complain that this legislation, if signed, is an attack on their sovereignty. The Buffalo News is reporting that Paterson will sign the legislation though it will take some time to craft regulations to enforce the new law. Additionally, a legal challenge by the Indian tribes is almost certain.

Finally, the New York Times has an excellent article exploring New York City’s battle with a nearby Indian tribe that sells a lot of tobacco. New York City is suing the tribe. With most government budgets being under stress you can expect all local governments to go after anything that even looks remotely promising as a source of funds.

There’s a scandal in New York involving the Governor’s Chief of Staff. Charles O’Byrne is Chief of Staff to New York Governor David Paterson. He makes a good salary ($178,500 a year). He also owes $200,000 in back taxes—he didn’t file tax returns from 2001 through 2005 (from the news story it appears the unpaid taxes are New York state income taxes).

Mr. O’Byrne blames bouts of clinical depression for the failure to file tax returns. Republicans in the state senate are trying to make hay on this, and are starting an investigation. Governor Paterson (who succeeded to office after the Eliot Spitzer scandal) promises to soon disclose Mr. O’Byrne’s tax records.

In any case, if you are an elected government official, or if you are a high staff member of such an official, make sure you pay your taxes. You can be that if you don’t the opposition—be it Republicans or Democrats—will use this against you politically.

New York is facing a budget shortfall this coming year. Governor Eliot Spitzer has an interesting idea about how to fill the gap: a crack tax. I’ve written about these taxes before. Many states have these taxes (21 at last count); however, they sometimes don’t survive the courts.

In any case, Governor Spitzer’s proposal is to tax marijuana $3.50/gram and cocaine $200.00/gram. The proposal is estimated to bring in $13 million if it is enacted into law.

That doesn’t seem certain. Jeffrion Aubry (D-Queens) vows to fight this “boneheaded” proposal. And given that it would only bring in $13 million, other revenue enhancers (or cuts in spending) will be needed to balance New York’s budget.

News Story: Washington Post

It hasn’t been a good year for Governor Eliot Spitzer (D-NY).

First, he’s been accused of using state troopers to spy on political opponents. Next, he proposes to give illegal aliens drivers licenses—a measure that’s overwhelmingly not supported by New York residents. Eventually he abandons the idea. Then he supports a stretching of the definition of “nexus” for state sales taxes to include affiliate programs. Yesterday, he dropped the idea—at least for the time being.

Republicans were going to paint Spitzer as the “Grinch who stole Christmas.” Spitzer won’t have to deal with that, for now.

However, New Yorkers should still watch what happens in Albany. The State Department of Taxation and Finance still believes they’re right in their expansive view of nexus. This plan will likely reappear sometime in 2008.