New businesses coming into New York State and existing businesses that will expand and create new jobs may be eligible to begin receiving significant tax credits when the State's newly-launched START-UP NY initiative takes effect in January 2014.
New York Governor Andrew M. Cuomo launched the START-UP NY initiative at a formal event on October 22, 2013, and the State soon after released regulations and a technical memorandum setting forth the operational details of the Program. The START-UP NY initiative is designed to leverage the State University of New York ("SUNY") campus system as well as other private colleges and universities in the State to incentivize new businesses to move to New York State and also to have existing businesses expand and create jobs. START-UP NY is an acronym for SUNY Tax-free Areas to Revitalize and Transform UPstate NY.
Major benefits of the START-UP NY initiative (the "Program") include:
- Businesses which locate in a Tax-Free NY Area may be able to operate 100% tax-free for ten years.
- No income tax for eligible employees (with caps after certain income levels after five years).
- No business or corporate state taxes (with certain limitations).
- No sales tax.
- No property tax.
- No franchise fees.
- Businesses will have access to resources of world-class higher education institutions, including industry experts and advanced research laboratories.
- Universities and colleges will become tax-free communities that provide students and teachers access to real-world, cutting edge business experiences.
Benefits for companies already in existence but which are creating new jobs through the Program will be calculated on a pro-rata basis.
How START-UP NY is Expected to Operate
In essence, the companies will work with SUNY campuses and private colleges and universities – not directly with the State. Each qualifying educational institution will submit its Plan for certain land or vacant building space, either on campus or nearby, subject to stated provisions to be approved by the Commissioner of Economic Development and the START-UP NY Approval Board as a Tax-Free NY Area with a defined purpose and focus. Once a Tax-Free NY Area is approved, the educational institution will solicit business entities that meet the eligibility requirements to apply for acceptance into the Program.
Vacant land or space in any building located on campus, and a portion of vacant land within a one-mile perimeter of campus will be eligible for designation as a Tax-Free NY Area. It is anticipated that the requirement that tax-free zones be on or adjacent to campuses will be flexible due to the urban locations of many campuses.
It will be essential for new businesses hoping to participate in the Program to carefully structure the new entity and fully understand the tax ramifications. The Program is defined in the NYS Economic Development Law, but the benefits are realized under the Tax Law, and the NYS Department of Taxation & Finance will be responsible for the approval of tax credits and benefits under the Program. The defined method for calculating the tax credits makes it less advantageous for some entity types, and both new and existing business should be aware of potential pitfalls.
The Program has substantial penalty provisions in the event a business fails to meet and maintain its projected job creation targets. At the time it is preparing and submitting its application for acceptance into the Program, a business should also be undertaking a careful analysis to make certain its structure and proposed operations will realize the anticipated benefits and results.
Prohibited Businesses
The law does prohibit certain types of businesses from participation in START-UP NY, under the theory that these businesses would already be operating in the State without the new initiative incentives:
- Retail and wholesale businesses;
- Restaurants;
- Real estate brokers;
- Law firms or businesses providing legal services;
- Medical or dental practices;
- Real estate management companies;
- Hospitality-related businesses;
- Finance and financial services;
- Businesses providing personal services;
- Businesses providing business administrative or support services (exceptions apply);
- Accounting firms or businesses providing accounting services;
- Businesses providing utilities; and
- Energy generators and distributors.
Public Disclosure and the FOIL
In addition, participating companies must authorize the State to publicly disclose certain information contained in applications and subsequent annual benefits. That information will be made public in a report starting December 31, 2014, and automatically each year thereafter.
The Commissioner of Economic Development may also furnish information requested under the New York State Freedom of Information Law ("FOIL"), including information on employees' tax exemptions. Certain information, such as proprietary information submitted in support of an application, will be exempt from FOIL.
Application Deadlines
The next step for the Program now is to encourage potential participants to find linkages between campuses and companies, identify underutilized properties, and begin the application process, which is open from now until December 31, 2013.
If you would like further information on the START-UP NY Program and the possibilities it presents for your organization, please contact Kevin R. McAuliffe at (315) 425-2875 or kmcauliffe@hblaw.com; Angela M. Orlandella at (315) 425-2874 or aorlandella@hblaw.com; or David G. Burch at (315) 425-2788 or dburch@hblaw.com.