Start-Up NY Tax-Free Zones May Not be Totally Tax Free, Syracuse Lawyers Warn

Monday, December 2, 2013

Start-Up NY, New York's latest economic development program, is touted as creating zones where new companies and their employees will be 100 percent free of state taxes.

But that won't necessarily be the case, according to a Syracuse law firm that has studied the program's recently released regulations.

"This is a complicated program with extensive regulations and guidelines," said Kevin McAuliffe, a partner in the Hiscock & Barclay firm. "The benefits can be lucrative, but they will not necessarily eliminate all tax liability."

The program, proposed by Gov. Andrew Cuomo, will give companies and their employees potentially full exemptions from state income taxes for 10 years if the companies create new jobs in or near State University of New York campuses and some private colleges. It starts Jan. 1.

The program is designed to attract high-tech jobs to New York, particularly to Upstate New York, where most SUNY campuses are located. Some types of businesses, including retailers, law firms, hotels, medical offices and power plants, are excluded from the program.

McAuliffe, who was one of the area's leading experts on Empire Zones, one of the state's previous economic development programs, said companies applying to become part of Start-Up NY will have to be careful about any job-creation projections they make because they'll be held to them.

If a business fails to meet its employment projections, its tax exemptions will be reduced or eliminated, he said. And only income generated within the zone will be exempt. Income a company makes elsewhere in the state will not be exempted, McAuliffe said.

Unlike the state's other past or present economic development programs, employees of companies receiving tax exemptions under Start-Up NY will also be exempted from state income taxes. But Angela Orlandella, project development specialist at Hiscock & Barclay, said it's possible that not all of the people who work for a firm in one of the new zones will be exempted from state taxes.

To keep the cost of the program under control, each company will be allocated a set number of jobs for which the exemption will apply, she said. If a company creates more jobs than that number, the extra employees will not be eligible for the exemption, she said.

Employees of companies in Start-Up NY will pay no income taxes on their wages for the first five years. For the second five years, employees will pay no taxes on income up to $200,000 of wages for individual filers, $250,000 for a head of household and $300,000 for taxpayers filing a joint return.

Orlandella said employees must be hired before July 1 of any given year to get the exemption for that year. Anyone hired later in the year will have to wait until the following year to get the benefit, she said.

On the other hand, if a company loses its tax exemption for failing to meet its employment projections, its employees will not lose their exemption until the following years, she said.

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