Small business owners across the North Fork could soon benefit from tax reductions that would make income tax rates the lowest in New York State history, according to a proposal outlined by Gov. Andrew Cuomo in his State of the State address Wednesday.
The proposition would help small businesses incorporated in New York State by reducing the net income tax rate from the current rate of 6.5 percent to 2.5 percent over a three-year period, amounting to a four percent reduction by 2018.
An estimated 42,000 businesses stand to benefit from the proposal statewide, which account for 43 percent of employment, that pay about 35 percent of wages in the private business sector statewide, according to the governor’s office.
The tax cuts are intended to help owners grow and expand their businesses, Mr. Cuomo said.
“Small businesses are the engine of opportunity and we will do everything we can to ensure they thrive and grow in New York,” he said during the address, which was held at the Empire State Plaza Convention Center in Albany.
The tax, known as a corporate franchise tax, is applied to businesses incorporated in New York State, and is based on their net income for the year, said Adam Siejka, an accountant with Karen A. Helinski’s CPA office in Southold.
Businesses with less than 100 employees and a net income less than $390,000 stand to benefit from the proposed reduction, which will be included in the Governor’s 2015-2016 executive budget. The current 6.5 rate would be reduced to 3.25 percent for 2016, to 2.9 percent for 2017, and 2.5 percent for subsequent tax years beginning in 2018, Mr. Cuomo said.
6.5 percent of 390,000 is $25,350, while 2.5 percent is $9,750, good for a $15,600 difference for those earning the maximum allowed amount to quality.
The budget would need state legislative approval for any such reductions to take place.
While well-intentioned, Mr. Siejka said he doesn’t see the governor’s proposal making much of an impact on a business owner’s bottom line.
“New York State, yes they charge their small businesses income tax, but that difference is not as much as the federal rates,” he said. “The majority of the taxes that you pay go to the federal government.”
“But, I guess every little bit helps,” he said.
That’s exactly the response shared by area business owners who perked up upon hearing about the proposal.
“I think it will certainly help,” said Ray Pickersgill, president of the Riverhead Business Improvement District. “I really think any decrease will help businesses stay here on Long Island, because it is so expensive to do business here. We need that help.”
The owner of Robert James Salon in downtown Riverhead, Mr. Pickersgill said the reduction would come at the perfect time.
“We’ve been though hell between Hurricane Sandy and the winter last year,” he said of area businesses. “If you’ve got a reduction in taxes, business would have more money and would probably hire more people, and I think Cuomo’s doing everything he can to create jobs.”
Keith Kouris, owner of Blue Duck Bakery, which has locations in Riverhead, Southold and Southampton, said tax reductions could help open up employment opportunities within the bakery, and allow the family-run business to consider adding to its product line.
“It gives me a little incentive to look at additional ingredients I might need to do that,” he said.
The proposal will also benefit many East End growers, as almost all of the area farms fall within the small business category, said Rob Carpenter, a spokesperson with the Long Island Farm Bureau.
“The reduced tax schedule will give the farmers the opportunity to reinvest and possibly purchase new equipment to help them to remain profitable long term,” Mr. Carpenter said.
Farmer Lyle Wells of Riverhead said when it comes to reinvesting, a farmer’s “wish list” is huge.
“Whether it be advancements in technology and new equipment, or stepping up our facilities, it is infrastructure that is critical to agriculture,” he said. “A reduction would be a step in the right direction. It is tough to grow any business here, no matter a farm or IMB [computers].
The proposal is slated to provide $32 million in reductions once fully enacted in 2018.
“Any tax decrease is a welcome thing, but on the flip side of that we worry about how [the state] is going to pay for it,” Mr. Kouris said, adding that getting breaks now might mean added costs elsewhere — or down the line.
Also included in Mr. Cuomo’s expansive agenda, was an increase in minimum wage, which could potentially cost some small business owners.
Both Mr. Kouris and Mr. Pickersgill said they believe most area businesses are paying well above minimum wage, which as of Dec. 31, 2014 was increased from $8 to $8.75, and is scheduled to rise to $9 at the end of the year.
Mr. Cuomo proposed raising the wage to $10.50 an hour by the end of 2016, which would make New York’s minimum wage the highest in the nation.