Barclay Damon
Barclay Damon

Legal Alert

Governor’s Executive Budget Proposes Limitations on State Sales Tax Exemption Granted by IDAs

On January 22, 2013, Governor Cuomo released the proposed 2013-2014 Executive Budget. The Budget contemplates an increase in State sales tax revenue, which would in part be supported by a proposed bill that would dramatically restrict the authority of industrial development agencies (“IDAs”) to provide State sales and use tax exemption (“State sales tax exemption”).

Currently, an IDA may grant exemption from State sales and use taxes for projects that the IDA determines advance the job opportunities, health, general prosperity and economic welfare of the inhabitants of the municipality and the State. IDAs can provide State sales tax exemption without State approval and must give notice to the State of the agent/project operator’s appointment. Projects receiving State sales tax exemption are not required to pay sales tax on eligible expenditures.

The bill would restrict an IDA’s authority as follows: 

  • Eligible Projects: An IDA could only grant State sales tax exemption to an agent or project operator that has been certified as a participant in the Excelsior Jobs Program (the “Program”), or is a business that would be eligible to participate in the Program. Eligibility in the Program is limited to scientific research and development firms, software development firms, agriculture firms, manufacturing firms, financial services customer service back office operations, back office firms, distribution firms and select other firms, with specific criteria for job creation and capital investment for each type of firm. For example, a manufacturing firm must create at least 25 new jobs. Additionally, firms in strategic industries that make significant capital investment and have at least 50 employees are also eligible for the Program. Further details on Program eligibility are available at: http://www.esd.ny.gov/BusinessPrograms/Excelsior.html.
  • State Approval: Before an IDA could award State sales tax exemption, it would need to receive a determination from the Commissioner of Economic Development, in consultation with the Regional Economic Development Council, that the benefit plan is consistent with regional economic development strategies; an IDA would not be able to provide State sales tax exemption greater than that approved by the Commissioner of Economic Development.
  • Payment and Refund of Sales Tax: An agent or project operator would have to submit a claim for credit or refund to obtain State sales tax exemption.
  • Reporting: An IDA would be required to send notice to the Tax Department when its appointment of an agent/project operator has expired or been revoked.

In addition, the bill provides that an IDA would need to remit to the State any payments from a payment in lieu of taxes agreement for State sales and use taxes (if such an agreement is entered into) and that if an IDA recaptures State sales and use tax monies from its agent or project operator, it would be required to turn such monies over to the Tax Commissioner.

The bill would not affect an IDA’s right to grant local sales tax exemption.

The bill would take effect immediately and apply to: 

  • Any IDA project established, agent or project operator appointed, financial assistance provided or agreement regarding payments in lieu of taxes entered into on or after the bill’s effective date or which is amended or revised on or after the bill’s effective date (which would include an extension of the sales tax exemption period);
  • Any State sales tax benefits recovered, recaptured, received or otherwise obtained by an IDA on or after the bill’s effective date; and 
  • Any payments in lieu of State sales and use taxes that an IDA receives on or after the bill’s effective date.

The State sales tax rate is currently 4% and would not change under the proposed budget.

If you would like further information or have any questions with respect to the impact of the Governor’s proposed reform on the grant by IDAs of State sales tax exemption, please feel free to contact Connie Cahill at (518) 429-4296 or mcahill@hblaw.com, Garrett DeGraff at (518) 429-4235 or gdegraff@hblaw.com, Jean Everett at (202) 582-0601 or jeverett@hblaw.com or Susan Katzoff at (315) 425-2880 or skatzoff@hblaw.com.