Empire Zones Overview
SFY 2009-10 Final Budget
Staff Contact: Ken Pokalsky
April 4, 2009
The final budget agreement contains a number of major changes to the Empire Zone program. These are set forth in S.57-B/A.157-B, Part S-1. Bill text is available here.
The following describes these key changes:
All existing Empire Zone businesses will be subject to review during 2009, based on:
- whether a business certified prior to 8/1/02 transferred employees or real estate to a business “with similar ownership” (so-called “shirt-changers” provision);
- whether the business' ratio of economic returns (wages, benefits and investments) to tax credits used exceeded 1:1 (Note: this test will be based on data included in at least 3 business annual reports filed by the taxpayer);
- de-certifications will be made by the ESDC Commissioner, with a limited appeal to the zone designation board. The Commissioner can forego decertification based on unspecified "economic, social or environmental factors;"
- businesses not decertified under these provisions will be issued a re-certification certificate (Note: this certificate is required to receive interest payments on tax overpayments).
Existing decertification language is amended to:
- allow decertification of businesses that failed to create or retain jobs, even if such failure was due to economic factors the employer could not have anticipated or controlled;
- to consider material misrepresentations made in a business annual reports; and failure for a business to make in-zone investments.
Allow decertification if business changed ownership or moved operations out of state.
All de-certifications are effective immediately once made by ESDC.
New applicants must show a projected ratio of economic returns (wages, benefits, capital investments) versus tax credits that “may be used” of at least 10:1 for manufacturers and 20:1 for other businesses. (Note that this provision overturns current regulatory provisions for an across the board 20:1 test, with flexibility for ESDC to use a 5:1 ratio based on other economic factors.)
ESDC is directed to adopt regulations establishing additional criteria to be considered in certifying business, including job creation and retention, enhancement of local economic conditions, compliance with labor laws and sufficient cost/benefit ratio (Note, these factors are similar to existing ESDC regulatory provisions.)
New certifications will be made exclusively by ESDC; local zone administrative board will recommend businesses for certification; the position of local zone certification officer is eliminated.
These new provisions governing certification are effective upon adoption of the FY 2010 budget.
Tax Credit Changes
Decertified business will loose the ability to carry forward tax credits, effective for tax years beginning on or after 1/1/08.
For business certified on or after 4/1/09, the QEZE real property tax credit will be limited to 75 percent of the value calculated under existing statute.
The current sales tax exemption for the purchase of tangible property and services, and the construction and maintenance of buildings within Empire Zones, is replaced with a sales tax credit/refund, applicable to state-imposed sales taxes and, as an option, to locally imposed sales tax.
For business certified on or after 4/1/09, the Empire Zone sales tax credit will only be available for QEZEs located in a county or city that has adopted local Empire Zone sale tax exemption.
For 2008 tax year, interest payment on tax overpayments apply only after 180 days after taxpayer files a “retention certificate” with DT&F.
Expiration of the program is moved up by 18 months, from 12/31/2011 to 6/30/2010. (Note: this affects the ability to create/modify zones and certify new QEZEs; it does not affect ongoing tax credits for already-certified businesses.)
The existing requirement for an independent review of Empire Zone program and individual zones, due 12/31/09, is repealed.
The Department of Tax and Finance is required to issue an annual report on zone tax benefits, with the first report due 1/31/13; this report will identify individual taxpayers receiving benefits and the level of benefits claimed by each taxpayer. The existing requirement for an annual DT&F report on Empire Zones is repealed.
Requirements for “business annual reports” are changed to require reporting on “total investments” rather than investment in depreciable assets; and to require reporting on Empire Zone credits “used and refunded” rather than credits claimed.
The program adopts existing Executive Law definitions of “minority owned business enterprise,” “woman owned business enterprise,” and “minority group member.”
Executive Budget proposals not adopted: Several major changes proposed in the Executive Budget were not adopted by the state legislature. These include:
- the proposed re-certification of all existing Empire Zone businesses based on 20:1 ratio of impacts to tax credits;
- restrictions on new QEZE certifications to manufacturing and financial service enterprises, and to “extraordinary projects,” to be defined in regulation;
- the proposal that de-certifications affect tax credits for tax years beginning on or after 1/1/08; and
- requirements that newly certified business be subject to expanded annual reporting requirements on employment, wages and benefits, total capital investments and total empire zone tax benefits used and refunded.