New York Basic Business Taxes 2010
New York's economic development, finance and tax organizations provide a range of incentive programs to initiate new business and commercial investment. Specific programs include a corporate income tax, sales and use tax, and property tax.
New York State's maximum corporate franchise (income) tax rate for most corporate taxpayers is 7.1 percent; for qualified New York manufacturers the corporate franchise tax is 6.5 percent.
Corporations pay the highest tax computed on the following four alternative bases:
1. A tax of 7.1 percent (6.5 percent for qualified NYS manufacturers) on allocated entire net income.
2. A tax of 0.15 percent on allocated business and investment capital (maximum for qualified NYS manufacturers: $350,000; maximum for non-manufacturers: $10 million for tax years beginning on/after January 1, 2008 but before January 1, 2011; $1 million for tax years beginning on/after January 1, 2011);
3. A tax of 1.5 percent on allocated minimum taxable income; and
4. A separate minimum tax at fixed dollar amounts, ranging from $25 to $5,000, based on New York receipts.
An additional tax of 0.09 percent applies to a corporation's allocated subsidiary capital.
Sales and use taxes:
A 4 percent sales tax (4.375 percent in New York City and the 12-county Metropolitan Commuter District) is levied on retail sales of tangible personal property and certain services, as well as on the use of such property and services upon which sales tax was not collected. The tax is based on receipts from retail sales. Furthermore, counties and cities may impose additional sales and use taxes up to a maximum of five percent.
All real property within the state is taxed at the local level. Property is assessed where located at a portion of the actual value by local assessors. Personal property is tax-exempt.
Industrial or commercial construction or reconstruction in designated areas of New York City may be exempt from real property taxes. Exemption rates and terms vary with the area and type of business facility.
Commercial and industrial facilities constructed or reconstructed outside New York City at a cost of more than $10,000 may be eligible for a partial exemption from local real property taxes. The maximum exemption amounts to 50 percent of any increase in value in the first year following completion and declines by five percentage points in each of the succeeding nine years.
Investment tax credit (ITC):
A credit equal to five percent of investment (up to $350 million; four percent rate on amount over $350 million and for personal income taxpayers) in buildings and tangible personal property, acquired by purchase, with a useful life of four years or more and used in production (manufacturing, processing, assembling, agriculture), financial services, qualified film production facilities, or research and development. The ITC is available at an optional rate of nine percent (seven percent for personal income taxpayers) of qualified investment in research and development property. The ITC can reduce corporate tax to the higher of the alternative minimum tax or fixed dollar minimum tax. The ITC is taken in the year investment made or property placed in service. New businesses may take a refund of unused credit, and other unused credits may be carried forward 15 years (10 years for personal income taxpayers).
An additional credit for the same capital investment is available in each of the two years following the investment if employment in those years reaches specified levels. If employment is at least 101 percent of the base year level but less than 102 percent, the credit is 1.5 percent; at least 102 percent but less than 103 percent, two percent; and at least 103 percent, 2.5 percent. Unused credits may be carried forward for up to 15 years (10 years for personal income taxpayers).
Effective for property placed in service after October 1, 1998, but before October 1, 2011, the investment tax credit (ITC) - and Empire Zone ITC - is extended to tangible personal property principally used in the ordinary course of business: As a broker or dealer in connection with the purchase or sale (which shall include but not be limited to the issuance, entering into, assumption, offset, assignment, termination, or transfer) of stocks, bonds or other securities, or of commodities (as defined in the Internal Revenue Code
• Of providing investment advisory services for a regulated investment company (as defined in the IRC), or lending, loan arrangement, or loan origination services to customers in connection with the purchase or sale of securities
• As an exchange registered as a national securities exchange or a board of trade
Research and development credit:
A credit of nine percent against the corporation franchise tax (or seven percent against the personal income tax) is available for investment in property used for research and development in the experimental or laboratory sense.
Property tax abatement:
Industrial or commercial facilities financed by industrial development agencies are exempt from property taxation. Negotiated payments in lieu of taxes can be made to municipalities.
Empire Zone credits:
The Empire Zone Investment Tax Credit, a 10 percent credit against the corporation tax or eight percent against the personal income tax may be taken for new capital invested in buildings and/or depreciable tangible personal property in an Empire Zone (EZ). The eligibility requirements are the same as for the regular investment tax credit described above.
An additional credit of 30 percent of the zone investment tax credit may be taken in the next three succeeding years if employment is at least 101 percent of that immediately preceding the zone investment.
Empire Zone Wage Tax Credit - A credit against the corporation, personal income, insurance, or bank tax is available to firms creating full-time jobs in empire zones or zone equivalent areas. For "targeted" employees, the credit is $3,000 in the first year and in each of the four succeeding taxable years. "Non-targeted" employees are eligible for a zone wage credit equal to 50 percent of the targeted employee zone wage tax credit. The wage credit in any year cannot exceed 50 percent of the tax otherwise due, but unused tax credits may be carried forward until exhausted. For "new" business (operating in the state for less than five years), one-half of the unused credit is refundable.
Empire Zone Capital Tax Credit - Credit against the corporate franchise tax or the personal income tax is allowed for up to 25 percent of the following:
• Investments in qualified zone businesses that employ not more than 250 persons in New York State.
• Cash contributions to community development projects.
Empire Zone Property Tax Exemption - Under Section 485-e of the Real Property Tax Law, businesses or homeowners constructing, reconstructing, or improving real property located within a zone may be eligible for a partial exemption from real property taxes for up to 10 years. The exemption begins as a total exemption of the improvement of real property for up to seven years, and is reduced by 25 percent per year for the next three years. The credit is offered at local option, and cannot be combined with any other available property tax abatement.
Empire Zone Sales Tax Abatements - Purchases of building materials that will become an integral part of non-retail commercial or industrial real property located in an EZ are exempt from the state sales/use tax and may also be exempt from local sales/use tax if authorized by local law.
Qualified Empire Zone Enterprises (QEZE) Incentives:
Businesses locating and increasing employment in Empire Zones may receive enhanced benefits that provide the opportunity to operate on an almost "tax-free" basis for up to 10 years. Enhanced benefits include:
QEZE Sales Tax Exemptions - Qualified Empire Zone Enterprises are granted a 10-year exemption from State sales tax on purchases of goods and services used predominantly in such zone.
QEZE Credit for Real Property Taxes - Qualified Empire Zone Enterprises EZcertified on/after April 1, 2005 are allowed a refundable credit against business tax equal to the greater of the percentage of wages/benefits calculation (up to $10,000 per net new job) or the capital investment amount (based on a percentage of federal basis of real property), capped at the actual amount of property taxes paid.
QEZE Tax Reduction Credit - Qualified Empire Zone Enterprises are allowed a credit against tax equal to a percentage of income taxes attributable to the zone enterprise. This credit can reduce tax to zero.
Brownfield redevelopment credit:
Effective for taxable years beginning on or after April 1, 2005, three refundable credits are available to taxpayers that have executed a "Brownfield Cleanup Agreement" with the Department of Environmental Conservation and have received a remediation certificate pursuant to such agreement.
• Brownfield Redevelopment Credit - consists of the sum of the site preparation costs, tangible property costs, and on-site groundwater remediation costs. Credit is determined by applying a two to 12 percent credit applicable under various provisions of Environmental Conservation Law and geographic location.
• Remediated Brownfield Credit for Property Taxes - The amount of the credit against the taxpayer's income tax increases based upon the number of persons employed at the qualified site and is generally equal to 25 percent of the product of the "employment number factor" and the eligible property taxes paid. If the property is located in an Environmental Zone, the credit is not subject to the 25 percent limitation.
• Environmental Remediation Insurance Credit - For premiums paid for environmental remediation insurance, up to the lesser of $30,000 or 50 percent of the cost of premiums.
A credit is available for employers who employ individuals with disabilities. The credit equals 35 percent of the first $6,000 of first-year wages paid to the disabled employee (maximum of $2,100 per employee). However, if the first-year wages qualify for the federal work opportunity tax credit, the New York credit will apply to the second-year wages.
Emerging Industries Jobs Act:
1. Qualified Emerging Technology Employment Credit: A credit of $1,000 per new full-time employee (employees in excess of 100 percent of base year employment level) is available for one three-year period (the year the credit is first claimed and in each of the next two years provided minimum employment levels are maintained). Unused credits are refundable.
2. Qualified Emerging Technology Company Capital Tax Credit: A taxpayer is allowed a credit equal to a percentage of each qualified investment in a qualified emerging technology company and certified by the Commissioner of Taxation and Finance as follows:
• Ten percent of qualified investments, provided the taxpayer certifies that it will not be sold, transferred, traded, or disposed of during the four years following the year in which the credit is first claimed; or
• Twenty percent of qualified investments, provided the taxpayer certifies that it will not be sold, transferred, traded or disposed of during the nine years following the year in which the credit is first claimed.
Investments made by or on behalf of an owner of the business, including but not limited to a stockholder, partner or sole proprietor, or any related person, are not eligible for this credit. The total amount of the credit allowable to a taxpayer for all years, taken in the aggregate, cannot exceed $150,000 (at the 10 percent rate) and $300,000 (at the 20 percent rate). The use of the credit is limited to 50 percent of the tax otherwise due; unused credits can be carried forward indefinitely (no refund provision). The program provides for the recapture of a pro rata share of the credit in the event the qualified investment is not held for the requisite period.
3. Qualified Emerging Technology Company Facilities, Operations and Training Credit: A credit for qualified emerging technology companies, equal to the sum of:
• Eighteen percent of the cost or other basis for federal income tax purposes of "research and development property" acquired by the taxpayer by purchase and placed in service during the taxable year;
• Nine percent for "qualified research expenses" paid or incurred by the taxpayer in the taxable year; and
• One hundred percent of "qualified high technology training expenditures" paid or incurred by the taxpayer, up to $4,000 per employee per taxable year.
An "eligible taxpayer" shall:
• Have no more than 100 full-time employees, of which at least 75 percent are employed in New York State;
• Have a ratio of research and development funds to net sales (as referred to in Public Authorities Law section 3102-e) which equals or exceeds six percent during its authorized taxable year; and
• Have gross revenues, along with the gross revenues of its affiliates and related members, not exceeding $20 million for the taxable year immediately preceding the year the taxpayer claims this credit.
An eligible taxpayer may claim these credits for four consecutive taxable years, except, if a taxpayer is located in an academic incubator facility and relocates within New York State to a nonacademic incubator site, then the taxpayer (1) may make a revocable election to defer the credit to the first taxable year beginning after such relocation, and (2) shall be eligible for the credit for five consecutive taxable years. Cap on the credit is $250,000 per eligible taxpayer per year. Credit can reduce tax to the higher of the AMT or fixed dollar minimum (for corporate taxpayers). Unused credits are refundable. Applicable to tax years beginning on/after January 1, 2005; sunsets on December 31, 2011 (e.g., credit is not applicable for taxable years beginning on/after January 1, 2012).
Alternative Fuel Vehicle Refueling Credit:
A credit is allowed for alternative fuel vehicle refueling property that is qualified within the meaning of section 30C of the Internal Revenue Code. The credit is equal to 50 percent of the cost of new alternative fuel vehicle refueling property located in New York State, used in a trade or business, and for which a credit is allowed under section 30C of the Internal Revenue Code. This credit is not refundable, but any excess can be carried over to the following year or years. In addition, recapture of the credit may be required if the property ceases to qualify.
Pollution-control facilities are exempt from local real property taxes and ad valorem levies on any increase in value resulting from the construction of such facilities.
Sales and use tax exemptions:
Exemptions from state and local sales and use taxes are provided for:
•Machinery and equipment used directly and predominantly in manufacturing, mining, and experimental research and development.
• Tools used directly in manufacturing, mining, and refining.
• Commercial aircraft, machinery and equipment installed in such aircraft, personal property used in aircraft repairs, and certain aircraft equipment.
• Repair, installation, and maintenance of manufacturing machinery and equipment, including parts, tools, and supplies.
• Manufacturing machinery and equipment, and fuels and utilities used or consumed in the manufacturing process.
• Building parts, packaging materials, manufacturing fuels and utilities, and fuel for aircraft.
Ingredients consumed in manufacturing, mining, agriculture, and research are exempt from sales and use taxes. Also exempt are building parts, packaging materials, manufacturing fuels and utilities (outside New York City), and fuel for aircraft.
Green buildings credit:
A green buildings tax credit is available to enhance the supply of environmentally sound buildings in New York. The credit includes six components, which are based on the capitalized costs (excluding land costs) of constructing green buildings, rehabilitating buildings to become green buildings, and purchasing and installing fuel cells, photovoltaic modules, and environmentally sensitive non-ozone-depleting refrigerants. The credit may be claimed over a five-year period by owners or tenants of eligible buildings, or by successor owners or tenants.
Long-term care insurance credit:
A credit is allowed for long-term care insurance premiums paid during the taxable year equal to 20 percent of the premium paid for long-term care insurance. The credit may not reduce the tax below the AMT or fixed dollar minimum. Unused credits can be carried forward indefinitely.
Automated external defibrillator credit:
A credit may be taken for the purchase of automated external defibrillators, such as those used for first-aid treatment of heart attacks. The credit is equal to the cost of each defibrillator purchased, but may not exceed $500 per unit. Credit cannot reduce tax below the AMT or fixed dollar minimum. Unused credits cannot be carried forward.
Security Training Tax Credit:
This is a refundable tax credit, administered by the State Office of Homeland Security in conjunction with the Tax Department, for qualified building owners, effective for taxable years beginning on/after January 1, 2005. Taxpayers must apply to the State Office of Homeland Security for an allocation of credit and credit certification in order to claim this credit.
The credit is equal to the sum of the number of qualified security officers providing protection to a building(s) owned by the taxpayer multiplied by $3,000.
Empire State Film Production Credit:
A refundable credit against corporate franchise (income) tax and personal income tax for qualified film production companies, or sole proprietors of qualified film production companies, available for tax years ending on/before December 31, 2014.
The credit is the product of 10 percent and the qualified production costs paid or incurred in the production of a qualified film, provided that at least 75 percent of the production costs ("stagework") are spent in New York State. The credit is allowed for the taxable year in which the production of such qualified film is completed.
"Qualified Film" excludes documentary films, news or current events programs, interview or talk programs, game shows, award ceremonies, sports programming, soap operas, commercials, music videos, or "reality" programs.
New York City is authorized to allow this credit against NYC tax; NYC credit is five percent of qualified production costs; NYC program capped at $12.5 million per year.
Empire State Commercial Production Tax Credit:
This credit is provided to a taxpayer that is a qualified commercial production company, or a partner of a partnership (including a member of a limited liability company that is treated as a partnership for federal income tax purposes) that is a qualified commercial production company. (A New York S-corporation may not use this credit against its own tax; instead, the credit is provided to its shareholders who are subject to tax under Article 22 of the Tax Law.)
To be eligible for this credit, at least 75 percent of the production costs (excluding post production costs) paid or incurred directly and predominately in the actual filming or recording of a qualified commercial must be incurred in New York State.
New York will provide $7 million of credit annually to be disbursed to all eligible commercial production companies as follows:
• Growth Credit ($3 million) - a refundable credit equal to 20 percent of the qualified production costs attributable to the use of tangible property or the performance of services in New York in the production of a qualified commercial. Total qualified production costs must be greater in the current year than the average of the three previous years for which the credit was applied. However, until a qualified production company has established a three-year history for the credit, the benchmark for the credit will be the greater of the previous year's or the average of the two previous years' qualified production costs. If the qualified production company has never applied for the credit, the previous year's data will be used to create a benchmark. The credit is applied only to the excess of the current calendar year's costs over the previous calendar year's cost. The annual $3 million cap will be disbursed on a pro rata basis to all eligible commercial production companies. No qualified production company will be allocated more than $300,000 of credit annually. The credit is allowed for the tax year in which the production of the qualified commercial is completed.
• Downstate Credit ($3 million) - a refundable credit equal to five percent of the qualified production costs attributable to the use of tangible property or the performance of services in New York in the production of the qualified commercial within the Metropolitan Commuter Transportation District (MCTD, which includes New York City and the counties of Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk and Westchester). Total qualified production costs in the current calendar year must be greater than $500,000 and the credit applies only to such costs exceeding $500,000. The annual $3 million cap will be disbursed on a pro rata basis
• Upstate Credit ($1 million) - a refundable credit equal to five percent of the qualified production costs attributable to the use of tangible property or the performance of services in New York in the production of the qualified commercial outside the MCTD. Total qualified production costs in the current calendar year must be greater than $200,000, and the credit applies only to such costs exceeding $200,000. The annual $1 million cap will be disbursed on a pro rata basis.
The credit may not reduce the tax due to less than the fixed dollar minimum tax.
The amount of credit not applied to the tax in the current tax year (the excess credit) may be refunded or credited as an overpayment to next year's tax. The refund is limited to 50 percent of the excess credit in the current year; the balance may be carried forward to the following year and may be deducted from the tax in that year. The amount of the excess credit not applied to the tax in the next succeeding tax year will be credited or refunded (without interest). Production costs used as the basis for allowance of this credit or used in the calculation of this credit cannot be used to claim any other credit.
This program expires December 31, 2011. (The Empire State commercial production tax credit is administered by the Governor's Office for Motion Picture and Television Development.)
New York State Contact:
Empire State Development
633 Third Avenue, 37th Floor
New York, NY 10017
Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.