Tax Credits for New York State High-Tech Businesses
Help your colleagues, customers, or friends be well-informed.
New York State Gets Inventive for High Tech
By Paul Fries, CPA, Partner, The Bonadio Group
In an attempt to invigorate New York’s struggling economy, the State has developed a new tax initiative — the Excelsior Jobs Program. On the heels of the now defunct Empire Zones program, this program is also designed to entice businesses to expand in and relocate to New York, a state with a less than stellar reputation for being "pro-business." In addition to this new program, there exist some "old reliable" credits and incentives available to high-tech companies.
Excelsior Jobs Program
Launched in July 2010, Excelsior, by definition, will provide job creation and investment incentives to businesses in specific industries, such as: biotechnology, high-tech, pharmaceutical, clean technology, green technology, software development, financial services, agriculture and manufacturing. Firms in these strategic industries that create and maintain new jobs or make significant new capital investments in a New York facility will be eligible for up to four new tax credits.
What are the Credits?
There are four new, fully-refundable tax credits that businesses can claim over a five-year period. They are as follows:
- Excelsior Jobs Tax Credit: A credit of up to $5,000 per new job created and maintained in NYS.
- Excelsior Investment Tax Credit: A credit valued at two percent of qualified investments.
- Excelsior Research & Development Tax Credit: A credit of ten percent of the business' federal R&D credit related to NYS-based R&D expenditures.
- Excelsior Real Property Tax Credit: A credit of a portion of real property taxes available to firms located in certain designated areas (known as Investment Zones) or to firms in targeted industries which meet significantly higher employment and investment thresholds.
While every business in the program is eligible to apply for the first three credits, only certain categories of companies are eligible to apply for the Real Property Tax Credit.
Application and Accountability
A company must first submit an application to Empire State Development (ESD), outlining its plan for expansion, growth, and investment. If accepted, a Certificate of Eligibility will be issued by ESD along with a Preliminary Schedule of Benefits stating the maximum possible benefits to be received over a five-year period, based on:
- Projected capital investment.
- Amount of salary & benefits expected to be paid to new employees.
- R&D expenditures.
- For certain firms and in certain areas, property taxes paid on the facility.
In contrast to the Empire Zones program, the Excelsior program has an “accountability measure,” which permits a business to claim credits under this program only after demonstrating that its employment and investment commitments have been met. No benefits will be provided if a firm fails to meet these commitments.
Since Excelsior Jobs Program benefits are capped at $250 million each year, with a total lifetime program value of $1.25 billion, time is of the essence. Submit your application today.
Qualified Emerging Technology Company (QETC)
Whereas the Excelsior Program does not list any specific size parameters for eligible businesses, the Qualified Emerging Technology Company (QETC) Incentive Program, which has been in existence for several years, is specifically targeted toward developing companies. In order to qualify as a QETC, you must be a small business with:
- total annual product sales of $10 million or less, and
- have either :
- (a) primary products or services that are specifically classified as an "emerging technology," or
- (b) research and development activities in NYS, with the ratio of R&D expenditures to net sales equal to or exceeding an average surveyed ratio (i.e.- approximately 3.4%).
The specifically designated emerging technologies include the following: Advanced materials and processing technology related to chemical, biochemical, or medical processes; Engineering, production, and defense technologies; Electronic and photonic technologies; Information and communication technologies; Biotechnology; or Re-manufacturing technologies.
Within the QETC program, there are three different credits. The eligibility requirements are extensive, but the payoff can be significant:
- QETC Employment Credit - A credit of up to $1,000 per additional employee over a base period average, available for 3 years, and refundable for "new businesses."
- QETC Capital Tax Credit (for investors) - A credit of 10%-20% of qualified investments.
- QETC Facilities, Operation, and Training Credit - A fully-refundable credit capped at $250,000 per year, available for 4 consecutive years, which is applicable to investments in R&D property, eligible R&D expenditures, and high-tech training costs.
While the first two components are scheduled to continue, the Facilities, Operation, and Training Credit is set to expire at the end of the 2011 tax year; so again, time is of the essence for submitting your QETC application to NYS.
For companies that don’t qualify as a QETC, there are other tax credit options to be investigated, such as the Investment Tax Credit, Biofuel Production Credit, etc. To learn more about qualification and application requirements, the www.empire.state.ny.us website details every aspect of these initiatives. Naturally, there are restrictions, some of which can be complicated, so if you need someone to help you dissect the varying, confusing, and complex requirements associated with these incentives, give us a call.