June 30, 1998 1998-1999 New York State Budget Highlights Kudos to Governor Pataki who on April 28 signed the new budget law. It provides the following: 1. Reduction of Corporate Income Tax from 9% to 7.5% over the next three years. 2. Reduction of the minimum S Corporation and Regular Corporation tax from $325 to $100 for companies with payrolls of $250,000 or less, effective for tax years beginning on or after January 1, 1998. 3. Increase of the income threshold for receipt of the full amount of the federal dependent care credit from $17,000 to $35,000 by 1999. 4. Exemption from sales tax of college textbooks effective June 1, 1998. 5. Expansion of the permanent clothing exemption from s ales tax to include footwear and items costing less than $110 effective December 1, 1999. New York now leads the nation in cutting taxes. This should eventually lead to a resurgence of business in New York State and New York City. The Judge Issues Injunction in NYSBA Medicaid Advisor Suit The New York State Bar Association won an important victory in its lawsuit challenging the constitutionality of the 1997 law which made it illegal for lawyers, CPAs and other professional advisors to advise clients on the lawful transfer of assets to qualify for Medicaid benefits. In a decision handed down April 9, the U.S. District Court for Northern New York granted the Bar’s request for a preliminary injunction to bar U.S. Attorney General Reno from enforcing the criminal penalty provisions of the law citing the “chilling effect” of the statute. The act says anyone who, for a fee, knowingly dispenses advice on how to make these transfers, can be punished with a $1,000 fine, one year in jail, or both. Due to the injunction, Howard Lisch is now able to advise you on how to transfer assets to qualify for Medicaid benefits. Reliance on Tax Advisor Avoids Penalties In a recent decision by the Court of Appeals for the 5th Circuit, the court stated the penalty for underpayments attributable to negligence cannot be imposed upon any portion of an underpayment for which there is shown to be reasonable cause and for which the taxpayer may have acted in good faith. In addition, a taxpayer may avoid the substantial understatement penalty for any non tax shelter item for which treatment on the return is or was supported by substantial authority. A divided Fifth Circuit reversed a Tax Court decision ruling that the taxpayers were not responsible for either penalty, first, because they had consulted a tax attorney and, second, because of a new pro taxpayer interpretation on what constitutes substantial authority. Romans Used Taxation to Subdue an Empire The Roman genius for government first was displayed in solving the weakness inherent in the tribute tax system. Other empires exhausted themselves fielding armies to crush tax rebellions in their colonies. The Romans sent out Colonial Governors and stationed legions as permanent garrisons. For the peace and order these troops could bring, the Roman tribute seemed a small price. But the colonial tax harvests excited the ambition of Roman leeches. A tax productive of revenue will always increase and the greed of the state will override constitutional, moral and cultural ideals. Tax revolts began and abated only under Augustus, the most astute tax strategist of all time. He redirected taxes from the Senate to himself as First Citizen. This centralized power and renewed the spirit of the Legions, but it also shifted power from the Senate to the Emperor and hence to the generals. The control of the tax money became the key to the decline of the Republic. Augustus used a census to make the tax system more uniform. Mary and Joseph were on their way to Bethlehem in order to register for the tax. The census was the basis for decentralizing tax collection. If Rome knew how much wealth and people were in an area, it could delegate tax collection to local sub-contractors. Carpetbaggers from Rome were wiped out. This was the key to the long life of the Pax Romana. If you have any questions about these or any other financial matters, please call me.