Use of this report and data limitations

Use of this report and data limitations

As defined by the Executive Law,² tax expenditures in this report are defined as features of the Tax Law that by exemption, exclusion, deduction, allowance, credit, preferential tax rate, deferral, or other statutory device, reduce the amount of taxpayers’ liabilities to the State by providing either economic incentives or tax relief to particular classes of persons or entities, to achieve a public purpose. This definition is less subjective than an approach that defines tax expenditures by first defining a normal tax structure because it avoids judgments about what constitutes normal.

This report does not purport to offer an official list of tax expenditures. Rather, it describes as many tax expenditures as possible and provides revenue estimates for as many provisions as can be isolated and measured. Where applicable data are available, tax expenditure estimates generally cover five historical years. Forecasted estimates project the cost of a tax expenditure as reflected in the Tax Law as it was in effect on January 1, 2026. The forecasted estimates do not reflect changes proposed in the Executive Budget. A description of the Executive Budget Tax Expenditure proposals is included in a separate section of this report. As a result of new or improved information, the estimates may differ from those published in previous reports. The estimates in the report do not reflect the impact of the Metropolitan Transportation Authority surcharge, imposed on businesses operating in the Metropolitan Commuter Transportation District.

The cost of a tax expenditure,³ or the tax expenditure revenue estimate, is the amount by which a tax expenditure reduces taxpayers’ liability to the state for a taxable year or on a calendar year basis if a taxable year basis is not appropriate. The reduction in taxpayer liability is the difference between tax liability under the current tax law and tax liability if the particular expenditure did not exist. In the case of certain tax credits, the cost also includes amounts refunded to taxpayers. It is important to acknowledge that each tax expenditure estimate is measured separately and independently of other tax provisions (for example, other taxes are held constant) and no changes in taxpayer behavior are assumed. Thus, the tax expenditure estimates provided in this report are not equivalent to the impact on the State’s Financial Plan if the expenditure were repealed or modified. In addition, because the expenditure estimates are measured separately and independently, individual tax expenditures cannot be summed

The following table lists the taxes included in this report and the years for which tax expenditure estimates are provided.

*Tax year is year with liability period beginning in the respective calendar year.

Federal exclusions

The personal income (Article 22), corporate franchise (Article 9-A), and insurance (Article 33) taxes are all based, to some extent, on the federal tax law. In most cases, New York policymakers have opted to conform to the federal tax law. Conformity eases administration of the Tax Law, while at the same time promoting taxpayer compliance. As a result of this coupling of State definitions of the income base to federal definitions, exclusions or deductions from income at the federal level become exclusions or deductions at the State level. Therefore, these provisions automatically become tax expenditures at the State level but do not constitute tax expenditures in the same sense as provisions specifically designed by New York policymakers to promote economic development or to provide specific tax relief. No estimates for these provisions are included in the report. As states can decide to not follow (or decouple from) federal provisions, New York does not conform to all federal tax expenditure provisions.

Reliability of the estimates

Estimates of the cost of tax expenditures have different levels of reliability based on the accuracy of both the data and the estimation procedure.

• For all of the taxes, with the exception of the sales and compensating use tax, the Department of Taxation and Finance assigns the highest category of reliability, Level 1, to estimates based on information from actual tax returns that were verified for accuracy.
• Level 2 applies to estimates based on data files containing unverified or incomplete information from actual tax returns. Neither of these tax return data sources is augmented with audit information.
• In Level 3 estimates, average marginal tax rates are applied to aggregate data.
• Level 4 estimates are based on national tax expenditure estimates made by the Federal Joint Committee on Taxation or the Office of Management and Budget or are estimates derived from non-tax data sources. Estimates for most of the sales tax expenditures are derived from non-tax data sources. Within this fourth level, the report further categorizes estimates based on the accuracy and suitability of the data sources. Category A estimates use both New York State and industry-specific data. Category B estimates use either New York-specific data that are not industry specific or national data derived from direct industry information, such as industry associations. Category C estimates use data other than state or industry-specific data.
• The last level of estimates, Level 5, includes those items for which no reliable data source currently exists.

The reliability of estimates may change from year to year. This is especially the case for base year and forecast estimates versus historical estimates. For example, provisions previously estimated with either less reliable tax return data or federal tax information might become Level 1 (highest reliability) if added directly to tax returns and verified for accuracy. As a result, current and projected estimates may differ from historical estimates.

The reliability of 2026 forecast values is generally lower than that of historical estimates. Historical estimates are based on data received by the Department or from sources covering periods or activity that already occurred. Forecasts by definition are for activity yet to happen and changes in taxpayer behavior, business choices, future economic conditions, and other events can have profound implications that cannot be precisely factored into the forecast estimates.

² § 181(a).
³ § 181(b).