Over the past few years, we’ve seen a mass exodus of taxpayers leaving New York. Why? Well, first there was the COVID-19 pandemic; that didn’t help. But in the middle of the pandemic, the State raised the personal income tax rates to some of the highest in the nation. That didn’t help either! And then we had issues around a declining standard of living in New York City, empty office buildings, remote work, and safety issues, all leading more New Yorkers to seek out more friendlier climates.
This is no secret, of course, it’s been all over the news.[1] And eventually, we expected the decline in population to eventually catch up to the tax department from a revenue standpoint.
That time has come.
A February 2024 Revenue Report was released by the tax department a couple weeks ago that showed New York tax collections from July 2023 through February 2024 were $8.1 billion lower than they were in the previous fiscal year. According to the report, in the first eight months of this fiscal year, tax revenue only equated to $133.57 billion, whereas the previous fiscal year collected $141.71 billion. And the drop is largely related to income tax revenues. According to the report, sales tax revenue actually increased. Revenue from New York’s business taxes - including corporate franchise tax and pass-through entity tax - was about flat, decreasing from $19.19 billion to $18.36 billion. But most notably, the Division reported a $5.02 billion decrease in revenue from personal income tax in the 2023-2024 fiscal year.
This is a 9.2% reduction, and forgive the double-negative, but it is not inconsequential. Personal income tax makes up the vast majority of revenue for the state. The reduction in personal income tax this year brings the revenue for the category from $54.54 billion to $49.51 billion.
How can the state close this gap? Easy. Just make the business climate more friendly for taxpayers. Stop with the endless regulation. Curb spending. And lower tax rates.
Haha. Just kidding.
What we’ll probably see, and what we’ve already started to see, is increased enforcement. Indeed, the New York Tax Department has one of the most sophisticated and aggressive residency programs in the country. And while many taxpayers have really moved out, some of those taxpayers still maintain significant connections to the state, creating potential issues under New York’s residency tests. Or they continue to earn income from New York activities, creating nonresident sourcing issues. So there’s still plenty of issues to audit, and plenty of opportunities to close that revenue gap. Thus, reports like this recent revenue report only underscore the fact that we’re likely to continue to see the tax department step up enforcement efforts.
[1] See, e.g., Christian Wade, New York Losing More Taxpayers To Outmigration, The Post-Journal, December 22, 2023, https://www.post-journal.com/news/local-news/2023/12/new-york-losing-more-taxpayers-to-outmigration/; DiNapoli: Taxpayers Moving Out of State Spiked in 2020, Led by Those Leaving NYC, Office of the New York State Comptroller, December 5, 2023, https://www.osc.ny.gov/press/releases/2023/12/dinapoli-taxpayers-moving-out-state-spiked-2020-led-those-leaving-nyc#:~:text=A%20report%20released%20today%20found,compared%20to%20the%20prior%20year.; Justine Golata, More Than Half a Million People Have Left New York In The Last Year, Secret NYC, October 25, 2023, https://secretnyc.co/people-are-leaving-new-york-by-the-masses/; Paulina Catcher & Jo Constantz, New York Comptroller Warns of Spike in Taxpayers Leaving State, Bloomberg, July 25, 2023, https://www.bloomberg.com/news/articles/2023-07-25/lower-taxes-in-florida-rich-americans-left-new-york-california-during-pandemic?embedded-checkout=true.
