The application cycle for up to $750 million in New York economic development incentives is due soon. Whether a business is currently operating in New York (the Regional Economic Development Council (REDC) Initiative) or considering starting up, relocating or significantly expanding there (the SUNY Tax-Free Areas to Revitalize and Transform Upstate New York, or START-UP NY program), there is an incentive program to fit businesses of every stage and size. The Consolidated Funding Application (CFA) required for 2014 REDC capital fund grants (up to $150 million state wide) and Excelsior Jobs Program tax credits (Excelsior Tax Credits) (up to $70 million state wide) is due by 4:00 pm EDT on June 16, 2014. Time is running out for businesses seeking consideration for these broad business incentives, as well as up to $530 million more narrowly tailored agency-sponsored incentive awards.
Additionally, though there is no imminent deadline, businesses should not overlook the recently enacted START-UP NY program as it also offers extremely generous tax incentives of potentially no state or local taxes for 10 years.
Governor Cuomo recently launched Round IV (the 2014 component) of the REDC Initiative. This multi-year initiative awards businesses, municipalities, nonprofits and the general public incentives for investment in New York job growth and development. Applications for funding are made through the CFA, which is open now and closes at 4:00 pm EDT on June 16. The CFA serves as a single point of entry for up to $750 million in state funding and tax incentives this year with grants of up to $150 million coming from capital funds, $70 million from Excelsior Tax Credits and $530 million coming directly from programs administered by a dozen state agencies.
When the REDC Initiative was created in 2011, New York was split into 10 regions. In addition to their strategic plan, each REDC has been asked to focus on the following priorities in 2014:
- Developing and implementing global marketing and export strategies
- Collaborating with local governments to transform business climate
- Supporting NY Rising Community Reconstruction Plan projects
- Keeping the project pipeline flowing
- Addressing regional workforce development needs for key sectors
- Refining the regional Opportunity Agenda
- Promoting veterans’ participation in the workforce
For this year’s competition, the five top-performing regions from 2013 (Capital Region, Long Island, Mohawk Valley, North Country and Southern Tier) will compete for two awards of $25 million in capital funds. Last year’s bottom half (Western New York, Finger Lakes, Central New York, Mid-Hudson and New York City) will compete for three awards of $25 million in capital funds. After applications are submitted in June, each Regional Council will score projects on a scale of 0–20 in increments of five depending on the degree that it implements the regional strategic plan and aligns with regional priorities. By August 15, after all projects are scored, each Regional Council will submit its score total to the Strategic Implementation Assessment Team (SIAT). The SIAT consists of leaders from various New York state agencies, including the Commissioner of the Department of Taxation and Finance. The SIAT will ultimately grant capital fund awards to each region based on these scores. The five remaining regions not awarded $25 million this year will each be awarded $5 million. In addition to these capital fund awards, each region will be eligible to receive up to $10 million in Excelsior Tax Credits.
The granting of the $220 million in capital funds and credits is in addition to up to $530 million available to CFA applicants from various state agencies to support economic development projects that align with REDC strategic plans. This year there are 33 programs available through 12 different state agencies.
START-UP NY Program
One program outside the scope of the CFA and the various REDC awards is the recently implemented START-UP NY program, which requires a completely separate application that is ongoing and submitted directly to one of the approved public or private colleges and universities in the state (including community colleges) with tax-free areas that the business would like to sponsor, as listed and updated regularly here. Once a sponsorship is established, the program provides significant tax incentives to eligible businesses that relocate, start up or significantly expand in New York through their affiliation with the academic institution. Outside the explicit statutory prohibition of certain classifications of businesses (e.g., law firms, financial service companies, restaurants, etc.), businesses are only required to show that they create new jobs through operations in one of the designated tax-free areas and align with the academic mission of the sponsoring college or university. For businesses aiming to create new jobs in the New York City metropolitan area (including Long Island and Westchester County), they must be a start-up or fit within the broad definition of a “high tech” business. Outside these limits for the metropolitan area, businesses eligible to apply to the program include:
- A business starting up in the state of New York
- An out-of-state business relocating to New York
- An expanding New York business able to demonstrate the creation of new jobs (outside of shifting jobs from elsewhere in the state)
- A business that successfully completed residency in a New York business incubator through the Business Incubator and Innovation Hot Spot program
Once an approved sponsorship is established, a qualifying business will be permitted to operate completely tax-free for a 10-year period so long as they annually create and maintain net new jobs and meet an annual employment test. See N.Y. Econ. Dev. Law § 433.1(b). As long as these requirements are met, the program allows qualifying businesses to receive tax-free status through application of the following tax benefits:
- A tax credit that eliminates corporate entity-level franchise taxes and personal income taxes related to income earned in the tax-free NY area by the approved business
- An exemption from the organization tax or the license and maintenance fees (if the business is located exclusively in the tax-free NY area)
- An exemption from the Metropolitan Commuter Transportation Mobility Tax (MCTMT) for the payroll expense of all covered employees (and net earnings from self-employment of an individual) attributable to an approved business located in a tax-free NY area
- A credit or refund of New York state and local sales and use taxes (including the 3/8 percent tax imposed by the state in the metropolitan commuter transportation district (MCTD)) imposed on the sale of tangible personal property, utility services and taxable services
- An exemption from state or local real estate transfer tax or local real property transfer tax on any lease of real property located in a tax-free NY area, including certain exemptions from Real Property Taxes
- A wage exclusion for eligible employees of an approved business for purposes of the state, New York City and Yonkers personal income tax
The McDermott Difference
McDermott Will & Emery’s State and Local Tax Group has extensive experience in securing economic development incentives for businesses considering expansion or relocation. While the application for many New York incentives was streamlined by Governor Cuomo’s 2011 initiative, the interaction between various incentives remains complex and detailed. Our lawyers are committed to helping businesses understand all of their options and put their best foot forward so they receive the most economic development incentives each year. If you have any questions about this alert or applying for the REDC Initiative or START-UP NY program, please contact your regular McDermott lawyer or an author.