This article has been saved to your Favorites!

NY Counties Ask For Pot Taxation, More Sales Tax Power

By James Nani · September 9, 2020, 5:54 PM EDT

New York counties are asking state leaders for a slew of tax changes to help them recover from the economic fallout caused by the COVID-19 pandemic, including more local power to tax and the legalization and taxation of cannabis.

The report issued by the New York State Association of Counties, or NYSAC, was submitted Tuesday to the New York State Division of Budget. It asks for the tax changes as counties and New York City face what the group estimates is more than $14 billion in revenue deficits over the next two years.

The report, meant to influence state leaders as they consider midyear cuts and develop a budget for the 2022 fiscal year, comes as New York faces what Democratic Gov. Andrew Cuomo's administration has estimated as $14.5 billion in revenue declines and potential state cuts in local spending.

"Counties are providing the essential services that New Yorkers depend on during this recession, and we need the state to consider these recommendations to help us address the lack of revenue and their budget cuts," said NYSAC's executive director, Stephen J. Acquario.

As part of its request, NYSAC has asked the state to allow the legalization and taxation of cannabis, with counties allowed to choose their own local sales and use tax rates and with any cultivation taxes to be shared with the county in which the cannabis is grown, the group said. Efforts by Cuomo and legislators to tax and legalize cannabis earlier this year via the state budget failed.

The state should also allow the sales and use tax rate to increase for three years by 1%, with revenue to be split evenly between New York and counties. In addition, the counties want permanent authority to impose up to 4% in sales and use tax, instead of the authority having to be renewed by state lawmakers and the governor. New York City already has that authority, the group said.

Counties should also be allowed to set their own rates for sales taxes, mortgage recording taxes, occupancy taxes, real estate transfer taxes and others, "up to the most common rate existing in other counties across the state," the group said.

The group also asked that the short-term lodging service industry outside New York City be required to collect sales and use tax, a request that mirrors a bill that's been introduced in the state Legislature. While businesses like Airbnb have entered into voluntary collection agreements with counties to collect and remit occupancy taxes, NYSAC said the state doesn't require them to collect sales and use tax, which deprives counties of potential revenue.

Counties have also asked for more flexibility in their ability to exceed a state-mandated 2% property tax levy cap and have asked that payments-in-lieu-of-tax agreements be excluded from the calculation of that tax levy cap.

Under the state budget passed in April, lawmakers gave Cuomo's budget division director the power to cut spending without their input unless lawmakers returned to Albany and voted otherwise within 10 days, in response to the uncertain revenue climate caused by the pandemic. If the Legislature adopts no alternative plan, or if the plan doesn't balance the budget, the budget director's plan would take effect.

Revenue shortfalls could result in 20% cuts to education, hospitals, local governments and nonprofits, state officials have said. State Democratic lawmakers and Cuomo have been pushing federal lawmakers to provide aid to states to help fill depleted coffers, but no federal bill has passed.

While state Democratic legislative leaders have signaled willingness to increase taxes on the wealthy to avoid cutting services, Cuomo has been more reluctant to back such increases. He's argued that raising taxes wouldn't be enough to bridge the gap of lost revenue, that increased taxes could make New York less competitive with other states and increased taxes on the wealthy could push them to leave New York.

Asked for comment, the state Division of Budget pointed to public comments Cuomo made Tuesday in which he reiterated his reluctance to increase taxes, but also opened the door to a scenario in which he could support such an increase. Cuomo said he still preferred that the federal government provide funding to states, but if that doesn't materialize New York would need a combination of additional revenues, cuts and potential borrowing to balance the budget.

"If you want to get to the third level of hell, if the federal government won't raise resources, you're on your own," Cuomo said.

Some of NYSAC's tax proposals were met with skepticism Wednesday. E.J. McMahon, research director for the fiscally conservative Empire Center for Public Policy, called NYSAC's proposals to weaken the property tax levy cap based on state aid or other revenue trends "disingenuous and politically self-serving."

He said counties already had the ability to override the tax cap by a vote of 60% of their legislative bodies, which in most counties is already controlled by the county executive's own party. He called the proposal political cover to minimize the greater accountability of Cuomo's tax cap law.

McMahon also said NYSAC's proposal to allow counties to set home-rule tax rates would launch a "race to the top" when it comes to tax rates.

"In general, while it contains some good ideas, this report is weak tea, given the dimensions of the crisis," McMahon said.

The offices of state legislative leaders in the Assembly and Senate didn't respond to requests for comment on Wednesday.

--Editing by Vincent Sherry. 

For a reprint of this article, please contact reprints@law360.com.