Taxable Talk

The Tax Foundation noted last week that several states will be delaying income tax refunds. Hawaii won’t be sending out refunds until July 1st; North Carolina will send them out “when they feel like it,” and New York Governor David Paterson wants to delay refunds for those who file in March. Meanwhile, Illinois is simply not paying its debts.

Meanwhile, it’s almost a certainty that California will be joining this list. Barring a miracle in the Legislature (the Democrats and Republicans and Governor Schwarzenegger coming to an agreement in the next few weeks), registered warrants (aka IOUs) will have to be sent out beginning in late March or early April. Controller John Chiang implied this when he said the state was running out of cash. Meanwhile, the Democrats in the legislature continue to pass big ticket programs (e.g. healthcare legislation) so it’s as if they’re living in dreamland.

New York will soon have a ‘racino’ at Aqueduct Race Track in Queens, New York. (A racino is a race track that also has slot machines.) Governor David Paterson chose Aqueduct Entertainment Group to build and run the racino. New York Assembly Speaker Sheldon Silver is quoted in the New York Post as saying that no investor could have a felony conviction, “or any other crime or offense involving . . . misappropriation of funds, or tax evasion.”

It turns out that one of the partners in AEG is Queens developer Darryl Greene. Mr. Greene, according to the Post doesn’t have any convictions. However, companies he’s involved in owe $1 million in state income taxes.

Well, that’s still not a conviction…

This has apparently been a big story in Albany. The process is clearly political and with elections coming up this Fall, expect the Republicans in the New York legislature to hold hearings and make this into a political football.

Roger Corbin was a founding member of the Nassau County (Long Island, New York) Legislature. He was arrested last year and accused of filing false federal tax returns and lying to agents of the FBI and IRS. He allegedly received $226,000 from developers—checks made out to “Cash”—and deposited them in his personal account. He then allegedly ‘forgot’ to include them on his tax return. He compounded this by then allegedly lying to government agents.

His attorney, Thomas Liotti, told the Associated Press that he will plead guilty to tax evasion on Monday. Mr. Liotti, a Democrat, was defeated in his re-election bid last fall.

Across the Hudson River, another politician is in trouble. Leonard Kaiser, the former Republican mayor of North Arlington, New Jersey, and the former executive director of the Bergen County Utilities Authority and the Meadowlands Commission, pleaded guilty to tax evasion. Mr. Kaiser’s wife also pleaded guilty to a similar charge.

Mr. Kaiser’s troubles stemmed from his 2002 re-election bid. Mr. and Mrs. Kaiser wrote checks from their 2002 campaign fund to Mrs. Kaiser for “salary.” However, New Jersey law doesn’t allow personal use of campaign funds, and the payments weren’t disclosed on campaign financing documents or on their tax returns. Given that the total income involved is $30,000, a minimal sentence is likely.

Public servants indeed.

The headline says it all: Yet another politician who doesn’t understand what voters want. New York governor David Paterson (D) proposed a $134 billion budget that contains $1 billion in new taxes:

• A $1 increase in the cigarette tax to $3.75/pack;
• A new tax on sodas of $0.01 per ounce; and
• 50 speed cameras that will issue tickets at $100 a pop.

Governor Paterson is up for re-election this fall. I suspect voters will remember the proposed budget and the speeding cameras at election time.

I’m not a boxing fan. For those of you who are, you’ll recognize Manny Pacquiao and Floyd Mayweather Jr. as big names in the sport. Those two boxers will fight in the Spring of 2010.

Newsday asked boxing promoter Bob Arum if Yankee Stadium was being looked at for the fight. “No chance,” Arum told Newsday. “Nothing would please me more than to have it at Yankee Stadium, but the way the tax structure in New York is set up, it’s impossible.”

Taxes matter. Apparently the prime candidate for the match is the new Cowboys Stadium in Arlington, Texas. Texas, of course, doesn’t have a state income tax.

I live and work in Orange County, California.  My license comes from the federal government (I’m an Enrolled Agent, regulated under Circular 230). Yet New York State has enacted a measure that if legal would force me to remit $100 a year to the Empire State.

New York has passed mandatory state registration for tax preparers. The New York State Department of Taxation and Finance has more here. New York is forcing all Enrolled Agents (whether within or without of New York State) and all non-New York CPAs and attorneys to pay this tax fee if they prepared ten or more New York returns for 2008 and expect to do the same in 2009. I have already prepared more than ten 2008 New York returns; I don’t know if I will for 2009 but it’s likely.

Robert Flach asked, “I am curious to know if any of the tax preparation membership organizations are planning to seek a Court ruling on New York State’s authority to force preparers with absolutely no physical presence in New York State to pay this fee.” I have been told that the New York State Society of Enrolled Agents has or will soon file a lawsuit over this. I’m unsure if the lawsuit is just on the discrimination issue (New York EAs must pay the fee by New York CPAs don’t).

I am considering filing a lawsuit against New York in Federal Court in nearby Santa Ana. I believe I have plenty of grounds for a temporary restraining order against New York:

• Restricting and Regulating Interstate Commerce
• Improper Regulation (My license comes from the federal government)
• The fee is an improper tax, also restricting interstate commerce

I’m sure my attorney will attempt to dissuade me; the cost to fight New York would be a lot more than the $100. He’s right, of course. However, my parents taught me that there are times to stand up for your principles. I do believe that New York has the right to issue such a fee on New York tax professionals (assuming that New York law allows such a fee). But the last time I checked I’m located in Irvine, California, not Irvine, New York.

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.