Accountant discusses tax incentives for N.Y. manufacturers

SYRACUSE — New York manufacturers are benefitting from the state new tax-reform legislation and the Excelsior Jobs program, which the state enacted more than four years ago.

The two topics were part of a presentation Joseph Hardick, a certified public accountant (CPA) and a partner at Dannible & McKee, LLP, delivered at the firm’s annual manufacturing conference held Oct. 21 at the Holiday Inn Syracuse-Liverpool at 441 Electronics Parkway in Salina.

Dannible & McKee, LLP is a Syracuse–based accounting firm.

Hardick’s colleague, Richard Maxwell, also a partner in the firm and a CPA, addressed the same topics in an interview with the Business Journal News Network on Oct. 20. 

Corporate tax reform 
Gov. Andrew Cuomo on March 31 signed a bill enacting “the most significant reform of New York State’s corporate-tax system since the 1940s,” which will mean changes that will apply to tax years beginning on or after Jan. 1, 2015.

That’s according to the website of New York State Department of Taxation and Finance and its page dedicated to corporate-tax reform.

Part of the tax-reform legislation addresses a manufacturer’s economic nexus, or its range of economic presence. That nexus for a New York firm could include a company’s physical presence, employees, or assets in New York, which make it subject to state taxation.

The new law creates a new economic-nexus standard linked to sales in New York.  It’s a “bright line,” or clearly defined, economic standard for taxation for corporations deriving at least $1 million of receipts from activities in New York beginning Jan. 1.

“Out-of-state corporations that are conducting business in New York, [are] now subject to that bright-line test whereby if you have at least a $1 million in gross receipts from sales in New York state after [Jan. 1, 2015], then those out-of-state corporations will now be subject to tax,” says Maxwell.

Before the bright-line test, he says a firm either had to have property or payroll in the state. The bright-line test, which focuses on sales, makes it “a little more expansive and expands the tax base for out-of-state companies.”

The same legislation also includes a new zero tax rate on business income for qualified manufacturers, which became effective for tax years beginning on or after Jan. 1, 2014.

Maxwell cites a 2007 law on the same topic as having the original definition of a qualified manufacturer as one with more than 50 percent of its gross receipts coming from the sale of goods produced.

That was called the “receipts test,” he added.

A firm also qualified if it either had at least $1 million of qualified property in New York, or all of its property in the state. That was called the “property test,” he says.

The 2014 tax-reform law expands the definition of a qualified manufacturer to include a corporation or a combined group with at least 2,500 employees engaged in manufacturing in New York and having in-state property used in manufacturing with an adjusted basis for federal tax purposes of at least $100 million at year’s end.

“…then you’re also going to be subject to that zero percent tax rate,” says Maxwell.

The zero tax rate only applies to corporate taxes (C-corporation); therefore, all other forms of entity S-Corporations, LLCs, partnerships, and sole proprietors, which are taxed at the individual level, do not benefit from the zero tax rate.

The legislation also includes a real property tax credit for manufacturers, which became effective for tax years beginning on or after Jan. 1, 2014. 

Qualified New York manufacturers can claim a credit equal to 20 percent of their real property taxes paid during the taxable year on property it owns and principally uses in New York. 

“And that property has to also be principally used in manufacturing, so it just can’t simply be … an office building that’s not principally engaged in manufacturing,” says Maxwell. 

Excelsior Jobs program 
Former New York Gov. David Paterson on June 22, 2010, signed the bill creating the Excelsior Jobs program under the New York State Economic Development Law. 

The state created the program to provide job creation and investment incentives to firms in certain industries, including manufacturers. 

Eligible companies can apply for up to four, fully refundable tax credits.  

The program is available to qualifying businesses for a 10-year period. 

A manufacturer must meet certain job and investment thresholds to satisfy the program requirements. 

The available tax credits are the Excelsior jobs tax credits, which allows a firm to claim a credit of 6.85 percent of wages, per new job. 

“So, it’s by position effectively,” says Maxwell.

The 6.85 percent credit is designed to assist with offsetting a portion of the associated payroll costs for hiring new employees. 

Firms can also claim the Excelsior investment tax credit, which is equal to 2 percent of qualified investments.  

The credit is “very similar to the old investment tax credits that New York state has had for years,” says Maxwell.

A qualified investment generally means an investment of tangible property, which includes equipment and machinery, office furniture, computer and related office equipment, and a building and related structural components. 

Firms can also claim Excelsior research and development credit, a claim of 50 percent of federal R&D. The credit is limited to 3 percent of total research expenditures in New York. 

The Excelsior real-property tax credit is available to businesses located in certain distressed areas, which have been labeled as an investment zone; or to businesses in targeted industries that meet higher employment and investment thresholds that the state would consider a “regionally significant project,” according to the program outline on the website for Empire State Development. 

A firm can claim a credit of 50 percent of eligible real property taxes in the first year. The credit is then phased out over the next remaining nine years at 5 percent per year.   

For example, the allowable real property credit in year-2 would be 45 percent, and the credit for year-3 would be 40 percent.         

Contact Reinhardt at ereinhardt@cnybj.com