(as they apply to Qualified Empire Zone Enterprises)

New York State Tax Law

Article 1

§ 14 - Empire Zones Program

§ 15 - QEZE Credit for Real Property Taxes

§ 16 - QEZE Tax Reduction Credit

§ 14 - Empire Zones Program

(a) Qualified Empire Zone Enterprise

A business enterprise which is certified under article eighteen-B of the general municipal law prior to July first, two thousand five shall be a "qualified empire zone enterprise":

     (1) for purposes of articles nine-A, twenty-two, thirty-two and thirty-three of this chapter, for each of the taxable years within the "business tax benefit period," which period shall consist of (A) in the case of a business enterprise with a test date occurring on or before December thirty-first, two thousand one, the first fifteen taxable years beginning on or after January first, two thousand one, and (B) in the case of a business enterprise with a test date occurring on or after January first, two thousand two, the fifteen taxable years next following the business enterprise's test year, but only with respect to each of such fifteen years for which the employment test is met, and

     (2) for purposes of articles twenty-eight and twenty-nine of this chapter, during the "sales and use tax benefit period." Such period shall consist of one hundred twenty consecutive months beginning on the later of (A) March first, two thousand one, or (B) the first day of the month next following the date of issuance of a qualified empire zone enterprise certification by the commissioner under subdivision (h) of this section. Provided however, such period shall not include any month falling within a taxable year immediately preceded by a taxable year with respect to which the business enterprise did not meet the employment test.

(b) Employment Test

     (1) General. The employment test shall be met with respect to a taxable year if the business enterprise's employment number in empire zones for such taxable year equals or exceeds its employment number in such zones for the base period, and its employment number in the state outside of such zones for such taxable year equals or exceeds its employment number in the state outside of such zones for the base period. If the base period is zero years and the enterprise has

an employment number in such zone of greater than zero with respect to a taxable year, then the employment test will be met only if the enterprise qualifies as a new business under subdivision (j) of this section.

     (2) Change in zone boundaries or newly designated zones. Provided, however, where there has been one or more revisions of the boundaries of an empire zone that resulted in the inclusion of the business enterprise within such zone, the employment test shall be determined with respect to a taxable year as if the boundaries of the revised zone on the last day of the taxable year existed during the base period and test year and as if the enterprise had been located in the revised zone during its base period and test year. In addition, where an area has been newly designated as an empire zone, the employment test shall be determined with respect to a taxable year as if such newly designated zone existed during the base period and test year and as if the enterprise had been located in the newly designated zone during its base period and test year.

     (3) Relocation from a business incubator facility. Where a business enterprise relocates to an empire zone from a business incubator facility operated by a municipality or by a public or private not-for-profit entity which provides space or business support services or both space and business support services to newly established enterprises, the employment test shall be determined with respect to a taxable year as if such business enterprise was located in the empire zone during the base period.

(c) Base period

The term "base period" means the five taxable years immediately proceeding the test year. If the business enterprise has fewer than five such years, then the term "base period" means such smaller set of years.

(d) Test year

The term "test year" means the last taxable year of the business enterprise ending before the test date. If a business enterprise does not have a taxable year that ends on or before the test date, such enterprise shall be deemed to have a test year which shall be either the last calendar year ending on or before its test date, or if the enterprise has as its taxable year a fiscal year, the last such fiscal year ending on or before its test date (whether or not the enterprise in fact had a taxable year during that period).

(e) Test date

The term "test date" means the later of July first, two thousand or the date prior to July first, two thousand five on which the business enterprise was first certified under article eighteen-B of the general municipal law.

(f) Taxable year

The term "taxable year" means the taxable year of the business enterprise under section one hundred eighty-three, one hundred eighty-four, one hundred eighty-five or former section one hundred eighty-six of article nine, or under article nine-A, twenty-two, thirty-two or thirty-three of this chapter. If a business enterprise does not have a taxable year because it is exempt from taxation or otherwise not required to file a return under any of such sections of article  nine or under article nine-A, twenty-two, thirty-two or thirty-three, then the term "taxable year" means (i) the business enterprise's federal taxable year, or, (ii) if the enterprise does not have a federal taxable year, the calendar year.

(g) Employment number

The term "employment number" shall mean the average number of individuals, excluding general executive officers (in the case of a corporation), employed full-time by the enterprise for at least one-half of the taxable year. Such number shall be computed by determining the number of such individuals employed by the taxpayer in the thirty-first day of March, the thirtieth day of June, the thirtieth day of September and the thirty-first day of December during the applicable taxable year, adding together the number of such individuals determined to be so employed on each of such dates and dividing the sum so obtained by the number of such dates occurring within such applicable taxable year. Such number shall not include individuals employed within the immediately preceding sixty months by a related person to the QEZE, as such term "related person" is defined in subparagraph (c) of paragraph three of subsection (b) of section four hundred sixty-five of the internal revenue code.

(h) Sales and use tax

      (1) In addition to the other requirements of this section, in order for the exemptions described in subdivision (z) of section eleven hundred fifteen of this chapter or any like exemptions from taxes imposed pursuant to the authority of article twenty-nine of this chapter to apply with respect to a qualified empire  zone enterprise, such enterprise shall apply to the commissioner of taxation and finance for the issuance of a qualified empire zone enterprise certification, in the manner prescribed by such commissioner. If such commissioner grants such certification, such certification shall be subject to conditions specified by such commissioner. An enterprise to which the commissioner issues such certification may furnish a qualified empire zone enterprise exempt purchase certificate to a person required to collect sales and compensating use taxes imposed under or pursuant to the authority of article twenty-eight or twenty-nine of this chapter, which certificate shall be deemed to be an exemption certificate under subdivision (c) of section eleven hundred thirty-two of this chapter. Nothing herein or in any other law shall be construed to prohibit the disclosure, in such manner as the commissioner of taxation and finance deems appropriate, of the names and other appropriate identifying information of those persons holding qualified empire zone enterprise certifications pursuant to this subdivision, those persons  whose qualified empire zone enterprise certifications have been revoked or those persons whose qualified empire zone enterprise certifications have expired.

     (2) During the period that a business enterprise is eligible to apply, or is qualified, for exemptions from sales and compensating use taxes under this section, the commissioner of economic development shall, at the time such commissioner certifies or decertifies a business enterprise under article eighteen-B of the general municipal law, notify the commissioner of taxation and finance of such certification or decertification, which notification shall include the full legal name, address and federal employer identification number of such enterprise. The commissioner of economic development shall, at the time of any such certification, also advise such enterprise of the requirements in paragraph one of this subdivision.

(i) Cessation of status

A business enterprise shall cease to be a qualified empire zone enterprise:

     (1) for purposes of articles nine-A, twenty-two, thirty-two and thirty-three of this chapter, on the first day of the taxable year during which revocation of its certification under article eighteen-B of the general municipal law occurs, and

     (2) for purposes of articles twenty-eight and twenty-nine of this chapter, on the day such revocation occurs.

* (j) New business

     (1) A new business shall include any corporation, except a corporation which is substantially similar in operation and in ownership to a business entity (or entities) taxable, or previously taxable,  under  section  one  hundred  eighty-three, one hundred eighty-four, one hundred eighty-five or one hundred eighty-six of article nine; article nine-A, article thirty-two or thirty-three of this chapter; article twenty-three of this chapter or which would have been subject to tax under such article twenty-three (as such article was in effect on January first, nineteen hundred eighty) or the income (or losses) of which is (or was) includable under article twenty-two of this chapter.

     (2) For purposes of article twenty-two of this chapter, an individual who is either a sole proprietor or a member of a partnership shall qualify as an owner of a new business unless the business of which the individual is an owner is substantially similar in operation and in ownership to a business entity taxable, or previously taxable, under section one hundred eighty-three, one hundred eighty-four, one hundred eighty-five or one hundred eighty-six of article nine; article nine-A, thirty-two or thirty-three of this chapter; article twenty-three of this chapter or which would have been subject to tax under such article twenty-three (as such article was in effect on January first, nineteen hundred eighty) or the income (or losses) of which is (or was) includable under article twenty-two.

     (3) For purposes of article twenty-two of this chapter, a shareholder of a New York S corporation shall be treated as the owner of a new business with respect to such share if the corporation qualifies as a new business pursuant to paragraph one of this subdivision.

  * NB There are 2 sb (j)'s

* (j) If the designation of an area as an empire zone is no longer in effect because section nine hundred sixty-nine of the general municipal law was not amended to extend the effective date of such designation beyond July thirty-first, two thousand four, a business enterprise that was certified pursuant to article eighteen-B of the general municipal law on July thirty-first, two thousand four shall be deemed to continue to be certified under such article eighteen-B for purposes of this section, and sections fifteen, sixteen, subdivisions twenty-seven and twenty-eight of section two hundred ten, subsections (bb) and (cc) of section six hundred six, subdivision (z) of section eleven hundred fifteen, subsections (o) and (p) of section fourteen hundred fifty-six, and subdivisions (r) and (s) of section fifteen hundred eleven of this chapter. In addition, if the designation of an area as an empire zone is no longer in effect because section nine hundred sixty-nine of the general municipal law was not amended to extend the effective date of such designation beyond July thirty-first, two thousand four, all references to empire zones in the provisions of this chapter listed in the previous sentence shall be read as meaning areas designated as empire zones on July thirty-first, two thousand four.

  * NB There are 2 sb (j)'s

§ 15. QEZE Credit for Real Property Taxes

(a) Allowance of credit

A taxpayer which is a qualified empire zone enterprise (QEZE), or which is a sole proprietor of a QEZE or a member of a partnership which is a QEZE, and which is subject to tax under article nine-A, twenty-two, thirty-two or thirty-three of this chapter, shall be allowed a credit against such tax, pursuant to the provisions referenced in subdivision (f) of this section, for eligible real property taxes.

(b) Amount of credit

The amount of the credit shall be the product (or pro rata share of the product, in the case of a member of a partnership) of (i) the benefit period factor, (ii) the employment increase factor and (iii) the eligible real property taxes paid or incurred by the QEZE during the taxable year. However, the amount of the credit may not exceed the credit limitation set forth in subdivision (f) of this section.

(c) Benefit period factor

The benefit period factors are set forth in the following table:

 Taxable year of the benefit period:     Benefit period factor:

         1 – 10                                                  1.0

          11                                                       .8

          12                                                       .6

          13                                                       .4

          14                                                       .2

          15                                                        0

(d) Employment increase factor

The employment increase factor is the amount, not to exceed 1.0, which is the greater of:

     (1) the excess of the QEZE's employment number in the empire zones with respect to which the QEZE is certified pursuant to article eighteen-B of the general municipal law for the taxable year, over the QEZE's test year employment number in such zones, divided by such test year employment number in such zones; or

     (2) the excess of the QEZE's employment number in such zones for the taxable year over the QEZE's test year employment number in such zones, divided by 100.

     (3) For purposes of paragraph one of this subdivision, where there is an excess as described in such paragraph, and where the test year employment number is zero, then the employment increase factor shall be 1.0.

(e) Eligible real property taxes

The term "eligible real property taxes" means taxes imposed on real property which is owned by the QEZE and located in an empire zone with respect to which the QEZE is certified pursuant to article eighteen-B of the general municipal law, provided such taxes become a lien on the real property during a taxable year in which the owner of the real property is both certified pursuant to article eighteen-B of the general municipal law and a qualified empire zone enterprise. In addition, the term "eligible real property taxes" includes payments in lieu of taxes made by the QEZE to the state, a municipal corporation or a public benefit corporation pursuant to a written agreement entered into between the QEZE and the state, municipal corporation, or public benefit corporation. Provided, however, a payment in lieu of taxes made by the QEZE pursuant to a written agreement executed or amended on or after January first, two thousand one, shall not constitute eligible real property taxes unless such written agreement is approved by both the department of economic development and the office of real property services as satisfying generally accepted and recognized norms and standards of real property tax appraisals.

(f) The credit limitation shall be the greater of the employment increase limitation or the capital investment limitation.

     (1) The employment increase limitation shall be the product of (A) ten thousand dollars and (B) the excess of the QEZE's employment number in the empire zones with respect to which the QEZE is certified pursuant to article eighteen-B of the general municipal law for the taxable year, over the QEZE's test year employment number in such zones.

     (2) The capital investment limitation shall be the product of (A) ten percent of the greater of (i) the cost or other basis for federal income tax purposes, determined on the later of January first, two thousand one or the effective date of the QEZE's certification pursuant to article eighteen-B of the general municipal law, of real property, including buildings and structural components of buildings, owned by the QEZE and located in empire zones with respect to which the QEZE is certified pursuant to such article eighteen-B of the general municipal law, or (ii) the cost or other basis for federal income tax purposes of such real property described in clause (i) of this subparagraph on the last day of the taxable year, and (B) the greater of (i) the percentage of such real property described in clause (i) of subparagraph (A) of this paragraph which is physically occupied and used by the QEZE or by a related person to the QEZE, as the term "related person" is defined in subparagraph (c) of paragraph three of subsection (b) of section four hundred sixty-five of the internal revenue code, or (ii) the percentage of such cost or other basis which is attributable to the construction, expansion or rehabilitation of such property, rather than the acquisition of such real property, by the QEZE. Provided, however, if the percentage of such cost or other basis, which is attributable to the construction, expansion or rehabilitation of such real property equals or exceeds fifty percent, then the percentage described in clause (ii) of subparagraph (B) of this paragraph shall be deemed to be one hundred percent.

(g) Credit recapture

Where a QEZE's eligible real property taxes which were the basis for the allowance of the credit provided for under this section are subsequently reduced as a result of a final order in any proceeding under article seven of the real property tax law or other provision of law, the taxpayer shall add back, in the taxable year in which such final order is issued, the excess of (1) the amount of credit originally allowed for a taxable year over (2) the amount of credit determined based upon the reduced eligible real property taxes. If such final order reduces real property taxes for more than one year, the taxpayer must determine how much of such reduction is attributable to each year covered by such final order and calculate the amount of credit which is required by this subsection to be recaptured for each year based on such reduction.

(h) Definitions and cross-references

For definitions of terms used in this section see section fourteen of this article.  For application of the credit provided for in this section, see the following provisions of this chapter:

  (1) Article 9-A: Section 210: subdivision 27.

  (2) Article 22: Section 606: subsections (i) and (bb).

  (3) Article 32: Section 1456: subsection (o).

  (4) Article 33: Section 1511: subdivision (r).

§ 16. QEZE Tax Reduction Credit

(a) Allowance of credit

A taxpayer which is a qualified empire zone enterprise (QEZE), or which is a sole proprietor of a QEZE or a member of a partnership which is a QEZE, and which is subject to tax under article nine-A, twenty-two, thirty-two or thirty-three of this chapter, shall be allowed a credit against such tax, pursuant to the provisions referenced in subdivision (g) of this section, to be computed as hereinafter provided.

(b) Amount of credit

The amount of the credit shall be the product of (i) the benefit period factor, (ii) the employment increase factor, (iii) the zone allocation factor and (iv) the tax factor.

(c) Benefit period factor

The benefit period factor for the taxable year shall be as prescribed in subdivision (c) of section fifteen of this article.

(d) Employment increase factor

The employment increase factor for the taxable year shall be as prescribed in subdivision (d) of section fifteen of this article.

(e) Zone allocation factor

The zone allocation factor shall be the percentage representing the QEZE's economic presence in empire zones with respect to which the QEZE is certified under article eighteen-B of the general municipal law. This percentage shall be computed by:

     (1) ascertaining the percentage which the average value of the QEZE's real and tangible personal property, whether owned or rented to it, in empire zones with respect to which the QEZE is certified under article eighteen-B of the general municipal law during the period covered by the taxpayer's report or return bears to the average value of the QEZE's real and tangible personal property, whether owned or rented to it, within the state during such period; provided that the term "value of the QEZE's real and tangible personal property" shall have the same meaning as such term has in subparagraph one of paragraph (a) of subdivision three of section two hundred ten of this chapter; and

     (2) ascertaining the percentage of the total wages, salaries and other personal service compensation, similarly computed, during such period of employees, except general executive officers, of the QEZE in empire zones with respect to which the QEZE is certified under article eighteen-B of the general municipal law, to the total wages, salaries and other personal service compensation, similarly computed, during such period, of all the QEZE's employees within the state, except general executive officers; and

     (3) adding together the percentages so determined and dividing the result by the number of percentages.  For purposes of article twenty-two of this chapter, references in this subdivision to property, wages, salaries and other personal service compensation shall be deemed to be references to such items connected with the conduct of a business.

(f) Tax factor

     (1) General. The tax factor shall be, in the case of article nine-A of this chapter, the larger of the amounts of tax determined for the taxable year under paragraphs (a) and (c) of subdivision one of section two hundred ten of such article. The tax factor shall be, in the case of article twenty-two of this chapter, the tax determined for the taxable year under subsections (a) through (d) of section six hundred one of such article. The tax factor shall be, in the case of article thirty-two of this chapter, the larger of the amounts of tax determined for the taxable year under subsection (a) and paragraph two of subsection (b) of section fourteen hundred fifty-five of such article. The tax factor shall be, in the case of article thirty-three of this chapter, the larger of the amounts of tax determined for the taxable year under paragraphs one and three of subdivision (a) of section fifteen hundred two of such article.

     (2) Sole proprietors, partners and S corporation shareholders. (A) Where the taxpayer is a sole proprietor of a qualified empire zone enterprise, the taxpayer's tax factor shall be that portion of the amount determined in paragraph one of this subdivision which is attributable to the income of the qualified empire zone enterprise. Such attribution shall be made in accordance with the ratio of the taxpayer's income from the qualified empire zone enterprise allocated within the state, entering into New York adjusted gross income, to the taxpayer's New York adjusted gross income, or in accordance with such other methods as the commissioner may prescribe as providing an apportionment which reasonably reflects the portion of the taxpayer's tax attributable to the income of the qualified empire zone enterprise. In no event may the ratio so determined exceed 1.0.  (B)(i) Where the taxpayer is a member of a partnership which is a qualified empire zone enterprise, the taxpayer's tax factor shall be that portion of the amount determined in paragraph one of this subdivision which is attributable to the income of the partnership. Such attribution shall be made in accordance with the ratio of the partner's income from the partnership allocated within the state to the partner's entire income, or in accordance with such other methods as the commissioner may prescribe as providing an apportionment which reasonably reflects the portion of the partner's tax attributable to the income of the partnership. In no event may the ratio so determined exceed 1.0.  (ii) For purposes of article nine-A, thirty-two or thirty-three of this chapter, the term "partner's income from the partnership" means partnership items of income, gain, loss and deduction, and New York modifications thereto, entering into entire net income, minimum taxable income, alternative entire net income or entire net income plus compensation and the term "partner's entire income" means entire net income, minimum taxable income, alternative entire net income or entire net income plus compensation, allocated within the state. For purposes of article twenty-two of this chapter, the term "partner's income from the partnership" means partnership items of income, gain, loss and deduction, and New York modifications thereto, entering into New York adjusted gross income, and the term "partner's entire income" means New York adjusted gross income.  (C) Where the taxpayer is a shareholder of a New York S corporation which is a qualified empire zone enterprise, the shareholder's tax factor shall be that portion of the amount determined in paragraph one of this subdivision which is attributable to the income of the S corporation. Such attribution shall be made in accordance with the ratio of the shareholder's income from the S corporation allocated within the state, entering into New York adjusted gross income, to the shareholder's New York adjusted gross income, or in accordance with such other methods as the commissioner may prescribe as providing an apportionment which reasonably reflects the portion of the shareholder's tax attributable to the income of the qualified empire zone enterprise.  In no event may the ratio so determined exceed 1.0.

     (3) Combined returns or reports. (A) Where the taxpayer is a qualified empire zone enterprise and is required or permitted to make a return or report on a combined basis under article nine-A, thirty-two or thirty-three of this chapter, the taxpayer's tax factor shall be the amount determined in paragraph one of this subdivision which is attributable to the income of the qualified empire zone enterprise. Such attribution shall be made in accordance with the ratio of the qualified empire zone enterprise's income allocated within the state to the combined group's income, or in accordance with such other methods as the commissioner may prescribe as providing an apportionment which reasonably reflects the portion of the combined group's tax attributable to the income of the qualified empire zone enterprise. In no event may the ratio so determined exceed 1.0.  (B) The term "income of the qualified empire zone enterprise" means entire net income, minimum taxable income, alternative entire net income or entire net income plus compensation calculated as if the taxpayer was filing separately and the term "combined group's income" means entire net income, minimum taxable income, alternative entire net income or entire net income plus compensation as shown on the combined return or report, allocated within the state.

     (4) If the amount determined in paragraph one of this subdivision is less than zero, a taxpayer shall not be allowed a credit under this section.

(g) Definitions and cross-references

For definitions of terms used in this section see sections fourteen and fifteen of this article. For application of the credit provided for in this section, see the following provisions of this chapter:

  (1) Article 9-A: Section 210: subdivision 28.

  (2) Article 22: Section 606: subsections (i) and (cc).

  (3) Article 32: Section 1456: subsection (p).

  (4) Article 33: Section 1511: subdivision (s).