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07 Nov

START-UP NY: Businesses Work With Universities for Tax-Free Benefits in New York State

In October 2013, START-UP NY was launched in New York, creating tax-free zones to attract and grow new businesses across the state. Under the program, businesses have the opportunity to operate completely tax-free for 10 years on eligible campuses and spaces. Businesses will partner with the higher education institutions in the State University of New York (SUNY) system as well as other universities and be able to access industry experts and advanced research laboratories.

Tax Benefits of START-UP NY

Participating companies in START-UP NY will not pay any state or local taxes (no income tax; no business, corporate state or local taxes; no sales tax; no property tax; and no franchise fees) for 10 years. Employees in participating companies will pay no state or local income taxes for the first five years. For the second five years, employees will pay no taxes on income up to $200,000 of wages for individuals, $250,000 for a head of household, and $300,000 for taxpayers filing a joint return. The number of net new jobs eligible for personal income tax benefits will not exceed 10,000 new jobs per year.

Eligibility for Businesses Applying for START-UP NY

In order to locate into a START-UP NY tax-free community, a business needs to be aligned with or further the academic mission of the campus, college or university sponsoring the tax-free community. Businesses participating in the program will need to have positive community and economic benefits. Every business must create and maintain net new jobs in order to participate. Businesses must:

  • Be a new start-up company;
  • Be a company from out-of-state that is relocating to New York State; or
  • Be the expansion of an existing New York State company (e.g., a company creating a new line of business or opening a new advanced manufacturing facility), as long as it can demonstrate that it is creating new jobs and not moving existing jobs.

In addition, New York State start-ups that “hatch” from New York State incubators will be eligible to enter tax-free communities and therefore be eligible for the benefits under the program.

In New York City, Long Island and Westchester County, businesses must be start-ups or high-tech companies. Statewide, certain types of businesses are excluded from the program, including retail and wholesale businesses; restaurants and hospitality; professional practices like law firms and medical practices; and energy production and distribution companies. Companies will be eligible to enter into the program until December 31, 2020 and by that time, Empire State Development (ESD) will prepare an evaluation of the effectiveness of the program in order to determine whether eligibility should be extended.

Higher Education’s Role in START-UP NY

Each university community will develop a plan for the types of businesses it intends to attract and the locations that will be tax-free. Businesses will apply directly to the participating college and, once a business is accepted, ESD will have 60 days to review the application to ensure eligibility. SUNY, City Universities of New York (CUNY) and independent colleges and universities will all have the opportunity to develop tax-free communities.

Bars to Entry in START-UP NY

Under the START-UP NY program, businesses that might compete unfairly with other local businesses outside the tax-free area would be ineligible to participate. The program also includes strong provisions to protect against fraud. Businesses will have to submit certification to ESD, and falsifying certifications will be considered a felony. The legislation also includes strict provisions to guard against abuses such as shifting jobs among related entities or “shirtchanging,” when a company simply reincorporates under a new name and claims its existing employees are now new jobs.

About the Author

Spire Group, PC Spire Group, PC
Spire Group, PC, one of the region’s leading full-service CPA and consulting firms, was built on the idea that you should be able to count on your CPA firm to provide sound, real-world financial advice that serves you now and into the future. Spire Group, PC is uniquely positioned to put our proven business expertise and dedication to work for you, offering an even more comprehensive set of solutions.

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