December 3, 2013
By Stephen Bercovitch
The NYS Department of Taxation and Finance has taken the initial step to implement the the ‘SUNY Tax-Free Areas to Revitalize and Transform Upstate New York’ (START-UP NY program) by issuing a technical memorandum summarizing the tax benefits for approved businesses located within a tax-free NY area, and for the employees of these businesses. The full text of the State’s October 22, 2013 Memorandum can be found here.
In brief, the START-UP NY program is intended to draw businesses and jobs to New York State, that would not have otherwise located in-state and especially upstate. New York loses many start-up companies to various states shortly after their formation. This program is designed to help attract and expand job opportunities that will benefit all residents. The benefits afforded under the program will apply to tax years beginning on or after January 1, 2014 and to sales tax quarters beginning on or after March 1, 2014. Businesses must apply for the program by December 31, 2020.
The START-UP NY program is designed to create tax-free communities on currently vacant land or space on the campuses of SUNY schools and community colleges, CUNY campuses, and other eligible New York private college and university campuses. The initiative is geared toward leveraging higher education institutions with advanced research and development resources for the benefit of new businesses for a synergy of industry experts and research laboratories, to create new jobs and expand opportunities for students and academic researchers in targeted start-up industries. The intention is to foster business-academic alliances that result in commercially viable technological innovation and the resulting new jobs. There are a number of requirements to be met:
- The eligible start-up business must be new to New York – start-ups cannot have been engaged in a line of business that is currently or was previously conducted by the business or a related person in the last five years in New York State, and employees cannot be transferred from employment with another business located in-state through reorganization;
- The mission and activities of the business must align with or further the academic mission of the campus, college or university sponsoring the tax-free NY area;
- The new job must be a full-time job (or two or more part-time jobs that together constitute the equivalent of a full-time job), filled for more than six months during each year for which tax benefits are being granted, and not filled by an individual employed within New York State within the preceding 60 months by a related person.
- In New York City, Long Island, and Westchester County, new technologies are targeted. For these downstate areas – in addition to the other requirements -- a business must be in the “formative stage” (not yet in the commercial marketplace); or
- Engaged in the design, development and introduction of
- new biotechnology,
- information technology,
- advanced materials processing,
- engineering or electronic technology products; and/or
- innovative manufacturing processes.
Qualified businesses and their employees will enjoy numerous tax benefits such as:
- Business income tax exemption for ten years, based on presence in the designated campus related area;
- Employees in participating qualifying companies will pay no state personal income taxes for the first five years on income of $200,000 for a single individual or $300,000 if filing a joint return;
- Exemption from sales and use taxes on property and services; and/or
- Exemption from real property taxes on property owned by a college or university.
Much remains to be implemented. Campuses must submit a plan to be designated as a tax-free community. A three-member Start-Up Approval Board will designate up to twenty such sites. Existing academic programs cannot be cancelled and current buildings, such as dorms or classrooms, cannot be razed to make land available for companies seeking tax benefits. The Governor is also seeking additional ideas to incentivize business. On October 2, 2013 he established the New York State Tax Relief Commission comprised of former Governor Pataki and Comptroller Carl McCall as well as other highly qualified citizens and business leaders. This group is to examine new ways to reduce the burdensome tax load on start-up businesses and fuel economic growth. For more information, please contact your tax professional.