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NYS Budget includes Empire Zone Revisions

The New York State Legislature has adopted and the Governor has signed the state Budget for 2009-10 based upon agreements made between the Governor, the Senate Majority Leader and the Assembly Majority Leader.

The Budget includes revisions to the Empire Zone program which affects all existing certified businesses.  Many of the revisions are retroactive.  Tax benefits for tax year 2008 or prior may be affected, while tax benefits generated for tax year 2009 will certainly be affected

The following is a summary of NYS Empire Zone revisions adopted by the 2009-10 NYS Budget:

Business Certification
The role of the local Empire Zone administrative board would be limited to recommending businesses for certification and will include a review by the NYS Department of Labor (NYSDOL). No longer will the determination for business certification be jointly shared by Empire State Development Corp. (ESDC), the NYSDOL and the local zone administrators.  Pursuant to the new law it is the sole authority of the NYS Commissioner of Economic Development to decide upon certification or de-certification for Empire Zone businesses.

Business De-Certification
The new law maintains the existing grounds for de-certification (i.e.-material misrepresentations, failure to meet investment, failure to meet job creation, failure to file Business Annual Report) and includes 3 additional grounds.  In the event of de-certification not only are all current benefits at risk, but also at risk are benefits generated in 2008 or benefits generated from a prior year that are carried-forward  into tax year 2008 or thereafter.

First, existing businesses who have been certified in the program, would have to pass a 1-to-1 cost-benefit test for a 3-year period (the 3-year period to be determined), or risk decertification.  During 2009, ESDC will conduct a review of all Empire Zone certified businesses to determine if each business should be decertified for failing to meet the 1-to-1 cost benefit test, or because they were determined to have committed any substantial labor violation. If businesses pass these tests, they will be issued a retention certification. Decertification could be appealed. 

Second, businesses that reincorporated as different entities, and claimed job creation when they in fact simply transferred employees from their existing corporation to a new corporate entity (so called “shirt changers”) would be decertified unless allowed to continue by the discretion of the ESDC Commissioner.  For businesses that were Empire Zone certified prior to August 1, 2002; a transfer of employees or a transfer of real estate to another entity including a real-estate holding company will result in decertification under the program even if the transfer was conducted for valid business purposes. 

Third, a change in ownership or business operation will result in decertification.  The Commissioner must review all existing certified businesses in 2009 and qualify the business certification against the first two criteria.

 If a business qualifies, the Commissioner will issue an Empire Zone Retention Certificate to businesses that exceed the cost/benefit ratio of 1-to-1.   Any carry-over of credits from prior taxable years will not be allowed unless an Empire Zone retention certificate is issued.

Cost/Benefit Analysis
For businesses certified on or after April 1, 2009; all businesses, except manufacturers, would have to achieve a 20–to-1 cost-to-benefit average.  A Cost/Benefit Analysis is a method of calculation whereby a business is required to demonstrate that it is producing at least $20 in capital investments and wages for every $1 the state grants in benefits in order to remain in the program.  Manufacturers would have to achieve a 10-to-1 cost/benefit average.  

Revisions to the NYS Tax Law
 For Empire Zone certified businesses certified on or after April 1, 2009, starting with tax years January 1, 2009, the QEZE Real Property Tax Credit granted to eligible Empire Zone businesses will be reduced from 100% to 75% of its property tax liability.

The QEZE Sales Tax Exemption will no longer be considered an exemption of the State portion of sales taxes; rather the QEZE Sales Tax Exemption will be considered a tax credit or refund.  For Empire Zone certified businesses certified on or after April 1, 2009, the State portion of the QEZE Sales Tax Exemption will be available only to businesses located within a municipality or county that has imposed local sales tax and offers a similar credit or refund of the local sales tax.  To date only 3-local jurisdictions have opted into the local sales tax exemption. 

Empire Zone Program Termination
The termination date for the NYS Empire Zone program has been moved-up by one year to June 30, 2010