New York State tax credits for research and development, job creation and capital investment
New York offers many tax incentives to companies performing research and development, creating jobs or making a significant capital investment in the state. These credits are available not only for those companies paying tax, but are available as refundable credits for those with no current tax liability.
Excelsior Jobs Program
The Excelsior Jobs Program provides job creation and investment incentives in the form of four fully refundable tax credits to taxpayers in targeted industries. Targeted industries include:
- Green technology
- Financial services
In order to earn these credits, which are claimed over a ten-year period, taxpayers must first meet and maintain the established job and investment thresholds. Due to the required pre-certification, taxpayers are urged to act now in order to establish eligibility.
Excelsior Jobs Tax Credit
This credit is available for each new job created by the taxpayer in the state of New York. It provides a benefit in the amount of 6.85 percent of wages per new job created and maintained.
Excelsior Investment Tax Credit
This credit provides a benefit in the amount of 2 percent of the qualified investments. Expenses incurred prior to the date the certificate of eligibility is issued are not eligible for inclusion
Excelsior Research and Development Tax Credit
This credit provides a benefit of 50 percent of the Federal Research and Development credit for up to 3 percent of research expenditures incurred in the state of New York. This state credit remains in effect even when the federal credit is expired.
Excelsior Real Property Tax Credit
This credit is available to taxpayers located in certain distressed areas and to firms in targeted industries that meet higher employment and investment thresholds. It provides a benefit percentage of real property taxes over the ten year period, starting at 50 percent in year one and decreasing in 5 percentage point increments each year until year ten, where the credit is 5 percent.
Qualified Emerging Technology Company Credits
There are various refundable tax credits available to Qualified Emerging Technology Companies (QETC) in the state of New York. These credits may be claimed against the taxpayer's corporate franchise or personal income tax liability, or they may be refunded.
A QETC is a company located in the state of New York with total annual product sales of $10 million or less and with primary products or services that are classified as emerging technologies. Emerging technologies include:
- Advanced materials and processing technologies
- Engineering, production, and defense
- Electronic and photonic devices and components
- Information and communications technologies
- Bio- and nano-technologies
- Remanufacturing technologies
The provision for these credits expired as of December 31, 2011, so taxpayers must act now in order to benefit from these refundable credits on their 2011 tax return. Taxpayers also can claim these credits for prior years that remain open under the statute of limitations.
QETC Employment Credit
Designed to encourage job creation in QETCs, this credit is available to QETC taxpayers whose average number of QETC full-time employees in New York is at least 101 percent of the QETC's base year. The base year is defined as the average number of full-time employees in New York during the three years immediately preceding the first year the credit was taken.
The benefit under this credit is equal to the average number of full-time employees in New York for the current tax year, minus the base year employment, multiplied by $1,000.
QETC Facilities, Operations, and Training Credit
This credit is available for amounts paid or incurred for certain facilities, operations and employee training. To claim this credit, the taxpayer must have 100 or fewer full-time employees, with at least 75 percent of those employees employed in New York. The taxpayer and any affiliates/related members must have gross revenues that do not exceed $20 million for the immediately preceding year. Additionally, the taxpayer must have a ratio of research and development funds to net sales that equals or exceeds 6 percent.
The amount of this credit is the sum of:
- 18 percent of R&D property, costs, and fees incurred in connection with emerging technology activities;
- 9 percent of qualified research expenses paid or incurred during the tax year; and
- 100 percent of qualified high-technology training expenses paid or incurred by the taxpayer, not to exceed $4,000 per employee per year.
The total credit for a taxpayer cannot exceed $250,000.
QETC Capital Tax Credit
This credit provides a capital tax credit for investors in businesses certified as QETCs. Certification is required to claim this credit.
The amount of this credit is the sum of:
- 10 percent of qualified investments in certified QETCs with a useful life of 4 years; and
- 20 percent of qualified investments in certified QETCs with a useful life of 9 years.
A qualified investment is defined as the contribution of property to a corporation and/or partnership in exchange for original issue capital stock, ownership or partnership interest and similar contributions to an unincorporated business or partnership in exchange for an ownership interest. Qualified investments do not include those made by or on behalf of an owner of the QETC.
Taxpayers must act quickly to apply for these generous benefits, as the QETC credits are expiring and the Excelsior credits require pre-certification. It is important to note that the amount of combined credits issued under the Excelsior program have a variable annual cap ($100 million for tax years beginning in 2012), and credits will be issued on a first-come, first-served basis.
Taxpayers must submit applications that take the eligibility criteria into account, properly document proposed costs and do not include unallowable expenses. Pre-certification, where required, should be sought in advance of incurring qualified expenditures.
If you have any further questions on this or other emerging tax issues, please contact McGladrey Life Sciences professionals, John Lanza at 212.372.1307 or Jennifer Stanik at 212.372.1991