Upstate New York, often the forgotten child when it comes to economic stimulus programs, recently received some much needed attention with the implementation of the SUNY Tax-Free Areas to Revitalize and Transform Upstate New York (START-UP NY) Program.  While many of the requirements are eerily similar to the program’s much-maligned, oft-abused predecessor, the Empire Zone program, the basic objectives are the same: to spur the growth of new businesses in the Upstate region.

The program was initiated on June 24, 2013 and is designed to provide various benefits and incentives to approved businesses that locate in specific areas.  These areas include vacant space or land of approved public and private colleges and universities, approved strategic state assets and New York State incubators affiliated with private universities or colleges that are designated as tax-free areas.  Under the new program, there will be tax benefits available to both the eligible business and certain employees of that business.

In order to qualify, a business or the owner of a business in the case of sole proprietorships, partnerships (limited liability companies treated as partnerships) or S Corporation, that is subject to corporation franchise tax or personal income tax must:

• Be approved to participate in the START-UP NY Program,
• Operate in a tax-free NY area at an approved location,
• Annually create and maintain specific levels of “net new jobs”, and
• Meet an annual employment test beginning with the first year of operation.

If approved, eligible taxpayers qualify for the following tax benefits:

• A credit that eliminates corporate entity-level franchise taxes as well as the personal income taxes related to the income earned in the tax-free NY area by the business,
• An exemption from various filing, license and maintenance fees,
• An exemption from various taxes and surcharges if the eligible business is located within the Metropolitan Commuter Transportation District (MCTD),
• A credit or refund of NYS sales and use taxes imposed on the sale of tangible personal property, utility and other services
• An exemption from real property transfer taxes on any lease of real property located in a tax-free NY area,
• Certain exemptions from Real Property taxes, and
• A full or partial wage exclusion from personal income taxes for eligible employees of an approved business.

Unlike the Empire Zone program, START-UP NY more clearly defines “net new jobs” for purposes of maintaining eligibility for the program’s benefits.  In order to qualify as a “net new job”, the job must satisfy all of the following criteria:

• The job must be new to the state,
• The job must not have been transferred from employment with another business located in this state through an acquisition, merger, consolidation or other reorganization of businesses, or transferred from existing employment with a “related person” (as defined by the Internal Revenue Code) located in the state unless approved by the Commissioner of Economic Development,
• The job is not filled by an individual employed within the state within the preceding 60 months by a related person,
• The job is either a full-time wage-paying job (at least 35 hours per week) or two or more part-time jobs which together constitute the equivalent of a full-time wage-paying job, and
• The job is filled for more than six months during each year for which the tax benefits are being granted.

In order to satisfy the “annual employment test”, the average number of employees of the business during the year must equal or exceed the sum of the average number of employees from the preceding tax year plus the net new jobs created during the current tax year.

Once approved the business must continue to meet all eligibility requirements or be faced with possible suspension or termination of its participation in the START-UP NY program as well as proportional recovery of the tax benefits previously awarded.

The program will be administered by Empire State Development while the Department of Taxation and Finance will monitor the benefits claimed on income tax, corporate tax and sales tax returns.

The above information represents just the highlights of the START-UP NY Program and its eligibility requirements.  We encourage you to contact your Dermody, Burke & Brown tax advisor if you are contemplating starting any new business venture.

The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.