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New York State Proposes Luxury Tax

Plan aims to reduce deficit.

ALBANY — Gov. David A. Paterson on Tuesday proposed an additional 5 percent sales tax on luxury goods, such as jewelry and furs costing more than $20,000, as one of scores of tax and fee boosts intended to close a widening gap in New York’s budget.

Responding to the recession and the collapse of revenues from Wall Street, a key driver of the economy, Paterson is seeking to eliminate the sales tax exemption on clothing and footwear priced less than $110, but he would replace it with two one-week exemption periods on clothing and footwear purchases of less than $500. Municipalities would have the option of joining the state in offering the exemption. Restructuring the exemptions would generate $462 million in the 2009-10 fiscal year and $660 million the following year.

Paterson’s $121.1 billion budget plan would impose higher taxes on everything from personal services such as beauty, barber, manicure/pedicure and massage to beer and wine. It seeks to close a $15.4 billion budget gap over the next two fiscal years.

The luxury goods tax would raise $12 million in 2009-10 and $15 million in 2010-11.

The austere spending plan also mandates widespread service cuts and is expected to trigger a battle in the state legislature, which faces an April 1 deadline to approve it.

“Adjusting our state budget to reflect this new fiscal environment will be an extraordinary challenge,” Paterson said in prepared remarks.

Paterson proposed closing a loophole that allows certain vendors, such as private label credit card lenders (including department stores), to reclaim sales tax revenues from debts that are not repaid, but prohibits other vendors or lenders to access these revenues. The proposal would limit the credit refund to the vendor only.

The governor wants to remove the discrepancy in sales tax between manufacturers’ coupons and store-issued coupons.

Ted Potrikus, legislative liaison for the Retail Council of New York State, said he would have to review the proposals with their members before commenting.

In addition, Paterson wants to limit itemized deductions for high-income taxpayers. This would restrict the ability of taxpayers with incomes of more than $1 million to reduce their liability by claiming itemized deductions. At present, taxpayers with incomes in excess of $525,000 are allowed to claim 50 percent of the value of itemized deductions. Charitable deductions would be excluded from this proposal and may still be claimed as itemized deductions for the purposes of state income taxes.