Bill would curb 'executive tax.'

A bill that will probably put the title "vice president" back into the real estate industry and other city industries has been signed by Governor George Pataki.

The measure, proposed by Mayor Rudolph Giuliani as part of the city's fiscal plan, was sponsored by Sen. Roy Goodman. Its signing was

The State law creates an alternative tax for the corporation on the compensation of those who own more than 5 percent of the company, have certain titles like president, vice president, treasurer, secretary, or those whose have the duties of an officer. Most real estate companies and those in the securities, insurance, advertising and real estate industries, therefore, have coined the terms "partners," "managers" and "directors" to avoid the multiple "vice presidents" that would otherwise spring up and be taxed.

The State itself phased out this tax back in 1987 and Federal Internal Revenue Service (IRS) rules also allow certain deductions that are not permitted in New York City. According to a spokesperson for Sen. Goodman, the city was the only jurisdiction in the nation that still imposed this tax on titled executives.

In a statement, Sen. Goodman said this legislation "will help in the continuing effort to make New York City more attractive to businesses and to create more jobs."

According to Neil Rosenberg, a tax partner with Coopers & Lybrand in New York City, the current tax is figured out using two columns.

For the first column, a tax rate of 8.85 percent is applied to the otherwise taxable income. In the second column, you add back the compensation paid to the owners and officers, and then multiply by 30 percent. The tax authorities then allow an exclusion of $15,000 before the 8.85 percent tax rate is applied.

"So imagine, if you do the second column and have an employee intensive business," said Rosenberg. "You get caught in the alternative tax base."

The new law will phase-out the add back of compensation. "They leave the 5 percent owner in place, so you add that back," he said. "But if you are a pure officer, the add backs will be phased out completely."

For the year ended June 30, 1996, the add backs will remain at 100 percent. But for the fiscal year that began on July 1, 1996, the add back will drop to 75 percent. On July 1, 1998 it will drop again to 50 percent and after July 1, 1999, it will be zero.

Additionally, said Rosenberg, from July 1, 1997 through June 30, 1998, the statutory exemption will go up from $15,000 to $30,000 and then from July 1, 1997 through June 30, 1998 it goes up to $40,000.

"The theory of this alternative tax is to ensure corporations don't avoid taxes by giving out all of their earnings," he explained.

Cushman & Wakefield was among the companies that had been involved in notorious early litigation regarding the tax.