Proposed consolidation of New York State and New York City audit functions.

On July 24, 1992, Tax Executives Institute filed the following comments with New York Governor Mario Cuomo on the proposed consolidation of New York State and New York City audit functions. The Institute's comments took the form of a letter from TEI President Reginald W. Kowalchuk to the Governor (with copies provided to other State and New York City officials). The comments, which were prepared under the aegis of its State and Local Tax Committee, whose chair is Harry F. McKeon, Jr. of The Biltrite Corporation, originated in the New York Chapter's State and Local Tax Committee; their preparation was coordinated by Thomas H. Nied of The New York Times Company and were filed with the concurrence of TEI's New Jersey, New York, Niagara-Frontier, Rochester, Syracuse, and Westchester-Fairfield Chapters.

For the reasons set forth below, Tax Executives Institute endorses your proposal for joint administration of certain New York State and City taxes and urges you to vigorously pursue legislation to effect the proposal in the current legislative session.

Background

Tax Executives Institute (TEI), which was founded in New York in 1944, is the principal association of corporate tax executives in the United States and Canada. Of the Institute's nearly 4,800 members (who represent more than 2,000 companies in North America), almost 500 belong to the Institute's chapters in New York State: New York City, Rochester, Syracuse and Niagara Frontier. In addition, many members of our New Jersey and Westchester-Fairfield Chapters work in New York State. Finally, many of our non-New York members work for corporations that, while not headquartered in the State, have substantial operations or sales in New York State and City. The Institute's membership represents a broad cross-section of the business community in New York and, in fact, in all North America.

Because of the diversity of the Institute's membership, TEI dedicates itself to educational endeavors, to promoting the uniform and equitable enforcement of the tax laws, and to minimizing the costs of tax administration and compliance to the common benefit of government and taxpayers. It is from this background and with these goals in mind that the Institute endorses the proposal for joint administration of certain New York State and City taxes.

Discussion

In your September 15, 1991, New York City Budget Speech, you proposed the consolidation of the administration and audit functions of certain New York City taxes by authorizing the New York State Department of Taxation and Finance to assume those responsibilities. TEI supports enactment of the proposal, because it would eliminate duplication of effort by State and City auditors and by taxpayers, and achieve greater efficiencies than possible under the current dual system.

From our members' extensive experience with New York State and City tax audits, we are convinced that the State can effectively assume responsibility for administering those New York City taxes that are substantially similar to New York State taxes (including the New York City Bank Tax). Such a consolidation would not only facilitate the uniform and equitable application of the tax laws, but would reduce the cost of tax administration for both the government and the taxpayer.

Currently, both the State and New York City must maintain an administrative hierarchy to conduct and manage separate audits of the same taxpayer for the same tax period for substantially similar taxes. Because these audits are generally not conducted simultaneously, corporate personnel must expend time and money collecting data and answering questions from two different auditors at two different times. A consolidated audit by a single auditor (or audit team) could not help but be more efficient for the corporate taxpayer. Equally important, the two taxing jurisdictions would also benefit because issues would be resolved consistently and on a more timely basis. Another consequence would be significantly improving the efficiency of the combined audit staff, thereby permitting auditors to focus on noncompliant taxpayers and non-filers. Therefore, the consolidation of audit efforts would produce a "win-win-win" situation - for the State, for New York City, and for the public.

As you know, the State already administers the New York State and City personal income tax as well as the New York State and City Sales and Use tax. Hence, the New York State Department of Taxation and Finance has much valuable experience with consolidated audits. Although there are some distinctions between the State and City taxes and there are some issues that may be more relevant to one jurisdiction than the other, the fundamental principles of these taxes (e.g., nexus inquiries, modifications to determine entire net income, and allocation factor issues) are the same both at the State and local levels. In addition, we are confident that State auditors could easily make the appropriate inquiries concerning local issues (e.g., whether the taxpayer is a resident of Long Island or New York). Consequently, a single, well-trained auditor could conduct a thorough and efficient examination of a taxpayer at both the State and City level.

TEI believes that State auditors and City auditors employed by the State could more than adequately protect New York City's interest in matters of special import to the City. While the Institute would support a uniform set of rules and interpretations that govern both the State and City corporate tax administration, TEI is confident that a consolidated audit function can and will work, even with differing rules and interpretations in some areas. Consequently, we urge your continued support for legislation to consolidate State and City audit functions and thereby bring greater efficiency to the administration of the tax system.