The following is a summary of the incentives and benefits available in the Empire Zone program. For a more detailed description of the tax incentives together with links to the required tax forms, click here.
How A Business Becomes "Certified"
In order to receive the benefits in the Empire Zone Program, a business must be located within the designated area of the Zone and planning to expand or create new jobs. If your business is already located in the Empire Zone, we invite you to call the Cortland County BDC-IDA at (607) 756-5005 or e-mail empirezone@cortlandbusiness.com to explore the program in more detail. We will meet with you to explain the tax benefits and work with your business to guaranty the best the program has to offer.
If your business is not currently located in the Zone, but you are planning an expansion and meet the criteria of a regionally significant project, it is possible to explore the possibility of a boundary amendment, which requires approval by a local Zone Administrative Board who oversees the program. New York State must also approve the boundary amendment before a company can apply for Zone benefits.
The Business Certification Process
To become a Certified Business, an Application for Joint Certification of an Empire Zone Business Enterprise must be completed, reviewed and approved by the Zone Administrative Board, signed by the local Zone Certifying Officer, and forwarded to the New York State Department of Labor and the New York Department of Economic Development.
The application requests information about actual or projected investments a business or property owner is planning for the Zone facility over the next five years, as well as the existing and projected employment at the facility. In addition, the business must agree to list all job openings with the Cortland Department of Labor Office and submit a brief annual report to the Zone Coordinator. The BDC/IDA staff assists businesses with the application, reviews the completed form, and forwards it on for final certification. Typically, within eight weeks the business will receive a Certificate of Eligibility entitling the business to all the Empire Zone benefits.
Tax Incentives And Benefits
The following is a summary of the incentives and benefits available in the Empire Zone program. For a more detailed description of the tax incentives together with links to the required tax forms, please contact our office or visit our website at www.cortlandbusiness.com.
Investment Tax Credit
An investment tax credit is available for the purchase of production property and equipment used to produce goods. This credit is also available for property and equipment purchased for the financial securities industry, industrial waste treatment facilities, air pollution control facilities, and research and development.
The credit is equal to 10% for business corporations and 8% for personal income tax filers. The investment tax credit cannot reduce the franchise tax for any tax year to less than the alternative minimum tax or the fixed dollar minimum. Any amount of the credit that cannot be used in a given tax year, may be carried over to following years. A taxpayer that qualifies as a new business may elect to treat 50% of the amount of the credit available for carryover as an overpayment of tax.
Employment Incentive Credit
An employment incentive credit is available to businesses that have utilized the investment tax credit and creates new employment in the 3 years immediately following the tax year the credit was allowed. The credit each year is equal to 30% of the allowable investment tax credit.
To be eligible, the average number of employees must be at least 101% of the average number of employees employed in the Zone in the year proceeding the taxable year the investment tax credit was allowed. The employment incentive credit cannot reduce the corporate tax liability to less than the alternative minimum tax or the fixed dollar minimum. Any incentive credit not used in a current tax year may be carried over to the following year or years.
This credit is allowed in conjunction with claiming the wage tax credit.
Wage Tax Credit
The wage tax credit is available for every newly created full time job in the Zone for up to five consecutive years. The credit is $1,500 per new full time employee, or $3,000 for a new "targeted" full time employee. Employees paid $40,000 per year or greater will receive an additional $500, for a total tax credit of $2,000 or $3,500.
"Targeted" employees are persons whose income are below the poverty level, recipients of public assistance, or may be eligible for benefits under the Job Training Partnership Act.
To qualify for the credit, the average number of employees in and outside the Empire Zone must exceed the average number of employees in the four years proceeding the first year the Zone wages are paid.
QEZE Credit For Real Property Taxes
Available for a 10-year period, a Qualified Empire Zone Enterprise (QEZE) is allowed a refundable credit against their business tax equal to percentage of real property taxes paid in the Zone and the percentage of employment increase. The tax credit is based on a formula that is the product of two factors:
- % increase in employment in the Empire Zone
- The amount of real property taxes
To be eligible, the QEZE must own the property and pay the real property taxes (or make payments in lieu of taxes) or as a tenant, be responsible for the payment of the taxes as stipulated in a lease agreement dated June 1, 2005 or later. . The property taxes are paid to the locality and school district when due, then claimed as a credit on NYS income taxes. A limitation on the amount of the real property tax credit claimed may be limited to the greater of: A) 25% of wages, health benefits & retirement benefits paid to NET NEW EMPLOYEES during the taxable year, not to exceed $10,000 per new employee or B) the capital investment limitation calculated at 10% of the cost or other basis is, owned by the QEZE, multiplied by the greater of: A) the percentage of physical occupancy by the QEZE or related person or B) the percentage of the cost to the construction, expansion or rehabilitation of the real property. If the percentage is 50% or greater attributable to construction, then the percentage would be 100%.
QEZE Tax Reduction Credit
The tax reduction credit is against business related income, based upon the business' structure. The credit is available for a ten year period. The tax reduction credit may reduce the company's tax liability to zero, eliminating the alternative minimum tax and the fixed dollar minimum.
The tax reduction credit is based on a formula that is the product of the following factors:
- % of employment increase
- Zone allocation factor
- The tax factor
A new business exclusively in an Empire Zone is able to eliminate its entire NY income tax burden with this credit.
Sales Tax Exemption
An exemption from the 4% NYS sales and use taxes for tangible personal property for use in an Empire Zone is available. The sales and use tax exemptions are available for 10 taxable years for an eligible certified business.
All tangible personal property must be predominately used or consumed by the qualified business in the Empire Zone including motor vehicles and tangible personal property sold to a contractor, sub-contractor or repairs to real property owned by a qualified business. Excluded from exemption are: food, drink, hotel occupancy and amusement charges.
To be eligible for the sales and use tax exemption, the business must exceed its base period employment both in the Zone and outside the Zone in New York State for the taxable year immediately prior to the tax year you are in.
Zone Capital Credits Provision
Zone capital credits are a provision of the General Municipal Law Article 18-B, Section 964 amended in 1994. Regulations governing these credits are located in 5NYCRR Chapter II Economic Development Zones, Parts 13 and 14.
The purpose of this provision is to stimulate economic activity in an Empire Zone by granting each Zone a $2.5 million allocation of New York State tax credits. These credits may be used by Zones to encourage such economic activity by offering a 25% tax credit against New York State franchise taxes or personal income taxes for investments and contributions in the following categories:
- Direct equity investments in Empire Zone certified businesses; and
- Contributions of money to approved community development projects.
Community Development Projects
To qualify as a certified community development activity, a project must be either a child care project serving Zone residents and businesses; a community development project in direct support of economic development and business revitalization in activities, such as commercial revitalization projects; or a business development activity of a local development corporation.
The project must advance the Economic Development Zone Plan. It must be clearly demonstrated how the project will benefit Zone residents, promote the development of new business and the expansion of existing business. The project sponsor must be a not for profit entity, and contributions to the project must be in the form of money. Funds raised with credits may not be used to replace existing debt, and in general, the project must be used for non-recurring expenses, such as capital projects (i.e. "bricks and mortar" projects).
The Process:
The not for profit sponsor of the community development project must submit Form Z6-Application for Determination of Eligibility of a Community Development Project to the local Zone Administration Board requesting an allocation of credits to support the fundraising goals of the project. The Zone Administration Board approves the project and allocates the credits. The Zone Coordinator forwards the application to Empire State Development for final approval.
Once Empire State Development approval has been granted, the Zone Coordinator will be notified. Contributions received prior to State approval are not eligible for credit.
Credit Approval:
As the organization conducts its fundraising, it must provide a copy of Form Z7 to each qualified contributor to the project. The contributor must complete and return Form Z7 to the sponsoring organization for further processing.
The Zone Coordinator will forward the completed Z7s to the State for final approval. Once approved by the State, a credit certificate (Form Z10) will be issued for each contributor. The Z10s will be sent to the Zone Coordinator who will obtain the signature of the Zone Board Chairperson on each form. The Coordinator will forward the Z10 to each contributor. The contributor attaches Form Z10 to the NYS Taxation and Finance DTF-602 form at the time of the contributor's annual tax filing period. A taxpayer may carry forward unused credits to the following year or years until exhausted.
Direct Equity Investments
A Zone certified business may offer a potential investor an immediate 25% NYS tax credit for the amount of his/her investment into the business. This is in addition to any return-on-investment offerings the business and investor may otherwise negotiate.
Utility Rate Deductions
Basic Requirements:
An Empire Zone certified business must request from the local Zone Administrative Board an allocation of credits prior to making an offering to an investor. This request must be in the form of a written summary including the number of jobs to be created in ratio to the amount of investment; a description of any equipment to be purchased and the economic impact the equipment will have on the operations of the business. An Empire Zone certified business must employ 250 or fewer workers during the 12 month period preceding the month in which the investment is made. The investor may not be an owner, existing stockholder or partner of the business. The investment must contribute significantly to an activity, which has tangible economic benefits, such as a start-up, expansion or modernization. The investment must have the potential to cause the creation of new jobs.
The investment must increase the capital available to the business, not merely replace existing debt or equity.
The Process:
An Empire Zone certified business discussed its project with the local Zone Administrative Board in order to determine the amount of credits the business will be allowed to offer potential investors. Once a commitment is made by the Board (by resolution), the business owners may begin negotiations with potential investors.
Credit Approval:
The investor must complete Form Z5 Application for Eligibility to Claim a Zone Capital Credit Direct Equity Investment and forward to the certified business owner for further processing. The Zone certified business owner must complete Form Z5a-List of Direct Equity Investors in EZ-Certified Business. A package, which includes (1) Form Z5a (2) Form Z5 from each investor, and (3), all necessary exhibits must be sent to the local Zone Administrative Board for approval. The Board forwards the approved application to Empire State Development for final approval.
Once approved by the State, a credit certificate (Form Z10) will be issued for each investor. Each taxpayer is limited to a $100,000 tax credit in this category. The Z10s will be sent to the Zone Coordinator who must obtain the signature of the Zone Board Chairperson on each form. The Coordinator then forwards the Z10 to each investor.
The investor attaches Form Z10 to the NYS Taxation & Finance DTF-602 form at the time of the investor's annual tax filing period.
Utility Rate Deducitons
Special reduced rates are offered for gas and electric services from National Grid and NYSEG. The discounts depend on the customer's service classification, delivery voltage and energy use profile. The discounts are offered for a ten-year period. A business must first complete the application process for benefits in the Empire Zone program. The Zone Coordinator will then forward the approved certificate of eligibility to the utility company. At that time, the utility will review the customer's account and personally meet with the EZ certified business and discuss the discounts available to them.
NOTE: Interpretation of the Empire Zone Program and final determinations as to eligibility are made by Empire State Development in partnership with the New York Department of Labor, and subject to audit by the New York State Department of Taxation and Finance.