Friday, December 9, 2011


I recently came across two new developments that apply to the neighboring state of New York.

According to the item -

New York Gov. Andrew M. Cuomo has announced a proposed agreement with the state Senate and Assembly on legislative and executive proposals aimed at creating jobs, reorganizing tax brackets and making other changes affecting corporate and personal income taxpayers.”

This agreement includes a comprehensive WPA-like “New York Works Agenda” that proposes to create jobs via new investments in New York’s infrastructure.

And it would reduce state personal income tax rates -

The agreement would also reorganize the individual income tax brackets. Under the proposed plan, taxpayers earning $40,000 to $150,000 would be taxed at 6.45% (previously, 6.85%); taxpayers earning $150,000 to $300,000 would be taxed at 6.65% (previously, 6.85%); taxpayers earning $300,000 to $2 million would be taxed at 6.85% (previously, 7.85% to 8.97%); and taxpayers earning over $2 million would be taxed at 8.82% (previously, 8.97%).”

The above numbers are for married taxpayers.  They are halved for single filers.  The reduction would provide a $200 to $400 annual tax break. 

The agreement was passed by the Senate on Wednesday night and the Assembly on Thursday morning.  These reduced rates will be effective for tax year 2012.

In addition, the governor has created the “New York State Tax Reform and Fairness Commission” to investigate long-term state tax reform and create economic growth.  Let us hope the governor, and the legislature, decides to act upon the report of the Commission (on the federal level such reports are usually ignored).

(2)  A fellow tax pro, and fellow twit, from New York, who keeps me up-to-date on state developments, recently emailed me a copy of NY Technical Memorandum TSB-M-11(12)I, which states (highlight is mine) -

Under a new electronic filing (e-file) mandate, a taxpayer who does not use a tax return preparer, but instead prepares his or her income tax return using tax software, must file that return electronically. This mandate is effective January 1, 2012, and is due to sunset on December 31, 2012.”

So it appears that all 2011 NYS “self-prepared” individual income tax returns that are prepared using a tax preparation software package MUST be submitted electronically.

Actually I have no problem with this.  The State of New York once again demonstrates surprising and unusual common sense in limiting the mandate to those who use tax software to prepare their return.  I am exempt from the tax preparer e-file mandate because I do not use flawed and expensive tax preparation software to prepare my clients’ NYS returns.

If a taxpayer wants to take a risky chance and prepare his/her own state tax return using software, I expect that the ability to submit the return electronically is included in the package at no additional cost.  So why not submit the return electronically? 

I do agree that submitting the information from a tax return electronically is more efficient than mailing the return.  It removes the potential for error from the additional step of having a civil servant clerk manually enter the return information into the system.  In effect, when submitting it electronically the return’s preparer, either the taxpayer or a tax pro, enters the information directly into the system.  Plus it saves the state a lot of money.

I am not against e-filing.  I am against being forced to use flawed and expensive software to do so.  I e-file NJ returns directly to Trenton whenever possible, and when the client does not opt-out, using the NJWebFile system - because I can do so free of charge on the NJ Division of Taxation website.

The TAM also states -

The Commissioner may require the tax liability or any other amount due on the return or other authorized tax document to be paid electronically if the return or document is required to be filed electronically.”

NY taxpayers who currently do not request direct deposit of a refund are already penalized by excessive delays in issuing the checks.


1 comment:

NY taxpayer said...

"If a taxpayer wants to take a risky chance and prepare his/her own state tax return using software, I expect that the ability to submit the return electronically is included in the package at no additional cost. So why not submit the return electronically?"

Here is one reason why a taxpayer might be willing to use software to prepare his tax return, but might NOT be willing to efile it.

He would like to file a neat typed return that is easy for the state to process, but would like to limit access to the information on his return so that ONLY federal and state tax authorities see it, and does not want his financial information passing through the hands of a commercial intermediary.

Not everyone has terrific handwriting like you do, RDF.

Using software creates a neatly typed tax return with OCR-readable characters in the proper boxes.

Furthermore, although tax software is flawed and capable of making mistakes, self-prepared returns are also full of mistakes. For many taxpayers, the best approach is a combination of the two--with careful manual cross-checking of the software, and/or using several different software programs to cross-check the calculations.

In addition, NYS used to provide tax software publishers with the ability to create 2-D barcoded version of tax returns which were very cheap to process via OCR-readers. I assume that capability will go the way of the dinosaur in the light of the new law.

However, the fact that a taxpayer is willing to use software to assist in preparing his return does not necessarily mean that he is willing to share his family's sensitive financial data with the software company.

Efiling a return does not mean sending it directly to the IRS. It has to go through an intermediary. That means that Intuit, H&R Block, or some other commercial intermediary gets access to a huge treasure-trove of sensitive financial information (names, SSNs, bank account and routing numbers, amounts of different types of income, etc.)

A taxpayer who purchases a downloaded version of tax software to use on his own machine to assist in preparing his tax return does not have to share any information with the software company UNLESS he efiles the return, in which case all information passes through the software company.

So the new NYS tax law forces taxpayers who would prefer not to share their information with a third-party software company to handwrite their own tax returns. This is likely to add transcription errors to the process for those taxpayers who decide to handwrite their tax returns.

I understand that filing a paper return does cost the state a little bit more to process (but probably not all that much, given the 2-D barcode) and I believe some taxpayers would be willing to pay a small fee to cover that cost in exchange for the privilege of keeping their financial information out of the hands of software companies. (Such taxpayers already pay a significant amount to the Post Office, which surely helps with their mounting deficit problems.)