CLIENT ALERT: New York Launches “START-UP NY”; Creates Tax-free Zones to Attract Start-up Companies
New York State recently launched “STARTUP-NY”, a program offering start-up companies an opportunity to relocate to New York college campuses and enjoy a 10-year break on state and local taxes. Because of STARTUP-NY’s strict eligibility requirements, the program selectively benefits certain industries over others, including consumer and information technology, biotechnology and education (see information about eligibility below). Despite these limitations, STARTUP-NY should benefit qualifying emerging companies that form organically on college campuses within New York and presents a significant incentive to collaborate with the business opportunities arising out of these institutions.
Tax Benefits Provided by STARTUP-NY
Companies participating in STARTUP-NY will not pay any state or local (i) income tax; (ii) corporate tax; (iii) sales tax; (iv) property tax; and (v) franchise fees for 10 years. In addition, employees of participating companies will pay no state or local income taxes on income attributable to the participating company for the first five years of such company’s participation in the program. For the second five years of such company’s participation in STARTUP-NY, a company’s employees will pay no state or local taxes on income attributable to the participating company up to: (i) $200,000 of wages for individuals, (ii) $250,000 for a head of household, and (iii) $300,000 for taxpayers filing a joint return. Pursuant to a cap on the number of employees that are eligible for the personal income tax exemption, the number of net new jobs eligible for personal income tax benefits in New York will not exceed 10,000 new jobs each year. Employees of companies accepted into STARTUP-NY after the annual cap is met will be first in line to begin receiving the personal income tax exemption at the beginning of the following year.
Eligibility for STARTUP-NY
In order to qualify for the benefits of STARTUP-NY, a participating business needs to be aligned with or further the academic mission of a campus, college or university hosting a tax-free community under the program. A business may align itself with or further the academic mission of a particular college or university by integrating with the programs, research, applied learning opportunities, culture and curriculum at a participating college or university. In addition, every participating business must create and maintain “net new jobs”, a company may not simply move its New York operations and employees to a participating college, it must, instead, create additional jobs as a result of its participation in the program.
Participating businesses must also:
- 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 (for example, a company creating a new line of business or opening a new manufacturing facility) as long as it can demonstrate that it is creating new jobs and not moving existing jobs to a tax-free community.
In addition, start-up companies that have successfully graduated from a New York state business incubator will be eligible to enter tax-free communities and be eligible for the benefits under STARTUP-NY, regardless of whether such businesses may not be new start-up companies or may not be creating net new jobs.
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 STARTUP-NY until December 31, 2020.
Application for STARTUP-NY
Each participating university will develop a plan for the types of businesses it intends to attract. Businesses will apply directly to a participating college/university, and the participating college/university will have to sponsor the businesses’ applications to the State.
Participating Colleges and Universities
The State University of New York, the City University of New York and private colleges and universities will all have the opportunity to participate in STARTUP-NY and develop tax-free communities. A list of campus contacts is maintained here.
Please feel free to contact either of the attorneys listed below if you would like to discuss this matter.
This publication is issued by Olshan Frome Wolosky LLP for informational purposes only and does not constitute legal advice or establish an attorney-client relationship. To ensure compliance with requirements imposed by the IRS, we inform you that unless specifically indicated otherwise, any tax advice contained in this publication was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matter addressed herein. In some jurisdictions, this publication may be considered attorney advertising.
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