State Incentives for Start-Up Companies Are Heating Up This Summer

The New Jersey Angel Investor Credit launched on July 1, 2013 and other states are now announcing programs to continue to entice start-ups to take up business within their jurisdictions. 

The California Legislature recently approved proposals to reform the state’s tax incentive programs.  The previous program provided tax credits only to companies doing business within various enterprise zones.  This program will be replaced by three tax credits: a sales and use tax exemption, a hiring credit and the California Competes Tax Credit.  The sales and use tax exemption exempts purchases of manufacturing and biotechnology equipment (including equipment used in R&D) from up to $200 million in state sales tax per year beginning on January 1, 2014.  The exemption applies for 6.5 years for companies located within the enterprise zones and 4.5 years for companies outside the zones.  The hiring credit, while not specific to any industry, provides credits to small businesses within specific geographic areas that hire “hard to hire” employees at a wage 1.5 to 3.5 times the minimum.  Lastly, the California Competes Tax Credit creates a fund which will aid in attracting job creation within the state of California.  The total allocated to all three programs will not exceed $750 million in any fiscal year. 

The ‘SUNY Tax-Free Areas to Revitalize and Transform Upstate New York’ (START-UP NY) program was recently created by a new law signed on June 24.  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.  The program creates tax-free communities designed to attract business to various areas in the state, especially upstate.  The areas will encompass vacant land or space on the campus of SUNY schools and community colleges.  Businesses must apply for the program by December 31, 2020, and they must be a new or expanding business that will create net new jobs.  If the business is locating within New York City and Nassau, Suffolk, and Westchester counties, the businesses must be high-tech, biotech or in the formative stage of development in order to qualify.  Qualified businesses will be exempt from virtually all taxes for ten years including: 

  • Corporate and personal income taxes on business income,
  • Sales and use taxes on personal tangible property and services purchased by businesses,
  • Real property taxes due on property owned by a college or university, and
  • Metropolitan Commuter Transportation District Mobility Tax

Also, employees working at the business will be authorized to claim personal income tax deduction equal to the wages earned from the business in the tax free area for the first five years, after five years the benefit will begin to phase out for certain income levels.

Lastly, in addition to the provisions governing the START-UP NY program, the legislation also makes changes to the Excelsior Jobs Program, reducing by half the job creation requirements for participants. In addition, participants that do not create all the required jobs but create at least 75% of those jobs will be allowed to proportionally reduce its tax credits.

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