New York State Tax Credits and Incentives Available for Manufacturers
There are several tax credit and tax incentive programs for manufacturers available from New York State which can help offset both New York State Article 9-A (corporate taxpayers) and New York State Article 22 (individual taxpayers, including individual partners, LLC members, S corporation shareholders and trust beneficiaries) taxes. The following are common tax credits and incentives available for New York manufacturers
Reduced Corporation Franchise Tax for Qualified New York Manufacturers
For tax years beginning on or after January 1, 2014, New York State has lowered (or in some cases eliminated) some of the tax rates applicable to qualified New York Manufacturers.
The rate on entire net income (ENI) for qualified New York Manufacturers is 0% for tax years beginning on or after January 1, 2014, while the tax rate on the capital base tax for qualified New York Manufacturers is reduced from 0.15% to 0.132% for taxable years beginning on or after January 1, 2015 and before January 1, 2016. From there the capital base tax rate for qualified manufacturers decreases every year until it becomes 0% for tax years beginning on or after January 1, 2021.
Manufacturer’s Real Property Tax Credit (Form CT-641)
Beginning with tax years starting on or after January 1, 2014 qualified New York State manufacturers may qualify for a credit equal to twenty (20) percent of the eligible real property taxes paid by the taxpayer during the year. This credit can be used to offset both Article 9-A and Article 22 taxes.
To qualify for the credit, the real property taxes must be paid by the taxpayer in the year the taxes become a lien on the real property and must be for real property owned or leased by the manufacturer, located in New York and principally used during the tax year for manufacturing.
The term real property tax includes taxes paid by the taxpayer on real property principally used during the tax year by the taxpayer in manufacturing where the taxpayer leases such real property from an unrelated third party if the following conditions are satisfied:
1. The tax must be paid by the taxpayer as lessee pursuant to explicit requirements in a written lease, and
2. The taxpayer as lessee has paid such taxes directly to the taxing authority and has received a written receipt for payment of taxes from the taxing authority.
The term real property tax does not include a payment made by the taxpayer in connection with an agreement for the payment in lieu of taxes on real property, whether such property is owned or leased by the taxpayer.
It is important to note that there are other limitations on this credit. For Article 9-A taxpayers, the credit is nonrefundable and cannot reduce the tax due to an amount less than $25. For Article 22 taxpayers, the credit may reduce the tax to zero, if the credit allowed exceeds the tax due, the excess may be treated as an overpayment of tax to be credited to next year’s tax or refunded.
In addition, the credit will not be allowed if the real property taxes that are the basis for this credit are included in the calculation of another credit claimed by the taxpayer.
Investment Tax Credit (Form CT-46)
Manufacturers who acquire certain property that is located in New York State and is principally used by the taxpayer in manufacturing or research and development may qualify for the New York State Investment Tax Credit. This credit is equal to a certain percentage (see below) of the cost basis of tangible property, including buildings and structural components of buildings that is depreciable under Internal Revenue Code Section 167 or 168, has a useful life of four (4) years or more and was not expensed under Internal Revenue Code Section 179(a).
For C corporations the respective percentage is five (5) percent of the cost basis of the qualifying property used in manufacturing and nine (9) percent of the cost basis of qualifying property used in research and development. For S corporations, partnerships and LLCs the percentage is four (4) percent of the cost basis of qualifying property used in manufacturing and seven (7) percent of the cost basis of qualifying property used in research and development.
For Article 9-A taxpayers the Investment Tax Credit is nonrefundable and cannot reduce the taxpayer’s tax liability to less than the greater of the tax on minimum income (MTI) or the fixed dollar minimum tax. For Article 22 taxpayers the Investment Tax Credit is also nonrefundable and can reduce the taxpayer’s tax to zero. Any credits generated in a tax year but not used due to the limitations can be carried forward for fifteen (15) tax years for C corporations and ten (10) tax years for other entities. However, there is a provision whereby “new businesses”, defined as any business in operation for five (5) years or less, can elect to have any excess credit refunded instead of carried forward.
Employment Incentive Credit (Form CT-46)
For manufactures who took advantage of the Investment Tax Credit there is available an Employment Incentive Credit. The Employment Incentive Credit is allowed for two (2) years following any claim for the Investment Tax Credit. In order to qualify for the credit the taxpayer’s average number of employees in New York State must be at least 101% of the employees in New York State during the employment base year (the year prior to the year when the Investment Tax Credit was claimed).
The amount of the Employment Incentive Credit is a percentage of the original investment credit base and will vary depending on the level of employment increase ranging from 1.5% to 2.5%.r.
For Article 9-A taxpayers the Employment Incentive Credit is nonrefundable and cannot reduce the taxpayer’s tax liability to less than the greater of the tax on minimum income (MTI) or the fixed dollar minimum tax. For Article 22 taxpayers the Employment Incentive Credit is also nonrefundable and can reduce the taxpayer’s tax to zero. Any credits generated in a tax year but not used due to the limitations can be carried forward for fifteen (15) tax years for C corporations and ten (10) tax years for other entities. However, there is a provision whereby “new businesses”, defined as any business in operation for five (5) years or less, can elect to have any excess credit refunded instead of carried forward.
Hire a Veteran Credit
Beginning with tax years starting on or after January 1, 2015, but before January 1, 2017, manufacturers may be able to claim a nonrefundable tax credit for the hiring and employing of qualified veterans. This credit can be used to offset both Article 9-A and Article 22 taxes.
In order to claim this credit, the taxpayer must hire a qualified veteran who begins his or her employment on or after January 1, 2014 but before January 1, 2016; and employ said qualified veteran in New York State for one year or more for at least thirty-five (35) hours each week. In addition, the employer must have the qualified veteran complete Form DTF-75 – Employee Affidavit for the Hire a Veteran Credit on or before he or she begins employment.
The amount of the credit allowed depends on whether the qualified veteran is also a disabled veteran. If the qualified veteran is not a disabled veteran, the amount of the credit is equal to ten (10) percent of the total wages paid to the veteran during his or her first full year of employment, but not more than $5,000. If the qualified veteran is a disabled veteran, the amount of the credit is equal to fifteen (15) percent of the total wages paid to the veteran during his or her first full year of employment, but not more than $15,000.
The credit is nonrefundable, however any amount of the credit not used in the current year tax year may be carried forward to the following three (3) years. For Article 9-A taxpayers, the credit cannot reduce the tax below the fixed dollar minimum tax. For Article 22 taxpayers, the amount of the credit may reduce the tax to zero.
It is important to note that a taxpayer who discharges or terminates an employee and hires as a replacement a qualified veteran solely for the purpose of qualifying for this credit is not eligible to claim the credit for any qualified veteran.
To ensure you are taking advantage of tax credits available to manufacturers contact Tax Partner John Martin, CPA/PFS, CFP® or Tax Manager Alex Nitka, CPA.