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camoin associatesECONOMIC DEVELOPMENT

Empire Zone Basics

WATERTOWN EMPIRE ZONE

March 2007

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AGENDA

• Empire Zone program history

• 2006 boundaries

• Empire Zone benefits and incentives

• Eligibility

• Certification process and timeline

• Tips on leveraging the program

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RECENT CHANGES

• Origins of the program

- Upstate urban redevelopment

• Recent changes

- Development vs. Investment Zones

- New benefit formulas

- New boundaries

Important:Your benefit formulas depend on your date of certification and what zone you are located in.

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2006 BOUNDARIES

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2006 boundaries of the Watertown Empire Zone

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BENEFITS

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BENEFITS

Prior to Certification

• 485(e) tax abatement

• Sales tax refund on construction/renovation materials

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BENEFITS

Property Tax Abatement

• 485(e) abatement

• Shelters increases in assessment for 7 years, phases out until year 10

Example:Current taxable value

$100,000Improvements $50,000New taxable value

Without 485-e: $150,000With 485-e:

$100,000

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BENEFITS

Sales Tax Refund

• 100% refund of all sales taxes paid for renovation/construction materialsExample:Improvements $50,000Materials$25,000Sales tax rate 8%Sale tax refund$2,000

AU-11

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BENEFITS

All other benefits require Empire Zone certification.

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BENEFITS

Tax Reduction Credit

• Credit against NYS income taxes

• Calculated as “New Employment” divided by “Base Employment”

• Could reduce NYS tax burden to zero

• Good for ten years

“Base Employment” – average employment for the four years prior to certification.

CT604

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BENEFITS

Tax Reduction Credit

Example

• Year of certification: 2007

• 2006 (base employment) – 5 employees

• 2007 – 8 employees

• “New employment” is 3

• Employment increase factor is 3/5 or 60%

• 60% reduction in NYS income tax

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BENEFITS

Wage Tax Credit

• $1,500 per employee, per year, for five years

• “Targeted Employees” count for $3,000 WTC

• Employees paid over $40,000 eligible for additional $500 WTC

• New businesses can apply for 50% refund of unused credits

“New business” – filed NYS income tax return for fewer than 5 years.

CT601

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BENEFITS

Wage Tax Credit

Example

• New employment is 3

1. $20,000 salary, not targeted

2. $20,000 salary, targeted

3. $60,000 salary, not targeted

WTC = $1,500 + $3,000 + $2,000 = $6,500

“New business” – filed NYS income tax return for fewer than 5 years..

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BENEFITS

Real Property Tax Credit

• Property taxes, PILOTs and payments of property taxes made by leasee

• Up to the full amount of property tax paid

• Limited to the greater of:

25% of wages and benefits paid to “new” employees

Investment calculation

CT606

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BENEFITS

Real Property Tax Credit

• Wages calculation – 25% of wages and benefits paid to “new employees” capped at maximum benefit of $10,000 per employee.

Example:

$20,000 = $5,000 RPTC (x2 employees)

$60,000 = $10,000 RPTC

Total RPTC = $20,000

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BENEFITS

Real Property Tax Credit

Investment Calculation is the product of:

• Federal basis

• x 10%

• X % of the federal basis attributable to renovation or construction, or, % physical occupancy

Example:

$150,000 building with $50,000 in renovations.

$150,000 x 10% x 33% = $5,000

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BENEFITS

Real Property Tax Credit

• Is a 100% refundable credit• Lasts 10 years

Bottom line: You pay your property taxes, NYS pays you back.

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BENEFITS

Sales Tax Exemption

• Exemption of state portion of sales tax for all taxable purchases (4%)

Example:

Your business purchases utilities, phone and internet service, office supplies, etc. for a total of $10,000 per year - exemption is worth $400.

DTF-84ST-

121.6

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BENEFITS

Utility Rate Reduction

• 50% reduction on delivery charges of electricity (applies to “new usage”)

• Reduces utility costs by about 20%

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BENEFITS

Investment Tax Credit (ITC & EITC)

• ONLY applies to manufacturers and equivalents

• Up to a 19% tax credit on new investments in buildings (purchase, construction or renovations) and production equipment.

• ITC: Year of acquisition = 10% (8% for certain taxpayers)

• EITC: Year 1, 2 & 3 = 3%

• New businesses are eligible for a 50% refund of any unused portion of ITC

CT603

“New business” – filed NYS income tax return for fewer than 5 years.

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BENEFITS

Other Benefits

• Zone Capital Credits

• You must request an allotment of ZCCs from the zone

• If awarded, can be used to attract equity investment into your company

• Your business can give a new investor $0.25 in personal or business income tax credits for every $1.00 they invest

* Restrictions apply. ZCCs are awarded solely at the discretion of the board.

CT602

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BENEFITS

Other Benefits

• Verizon reductions

• Access to other programs, including financing through the Statewide Zone Capital Corporation.

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BENEFITS

Statewide Zone Capital Corporation

http://www.tax.state.ny.us/forms/corp_credit_forms.htm

Tax Forms

http://www.tax.state.ny.us/sbc/empire_zone.htm

Publications

http://www.nybdc.com/empirezone.htm

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ELIGIBILITY

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ELIGIBILITY

Requirements For Certification:

• Located (or soon to be located) in the current boundaries of the zone

• Project minimum job creation and investment

• 1 job and $10,000 for most areas of the zone

• 10 jobs and $100,000 for the business parks

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ELIGIBILITY

Requirements For Certification:

• No violations of NYS Labor Laws

• Need federal identification number and unemployment insurance registration

• Maintain disability and workers comp insurance if you have employees or will be hiring within 90 days

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CERTIFICATION PROCESS

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CERTIFICATION PROCESS

Process:

• Located (or soon-to-be located) in the Empire Zone boundaries

• Call me to discuss project and see if the Empire Zone is a good fit

• Fill out application – may need assistance from accountant, bookkeeper, small business development center and zone coordinator

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CERTIFICATION PROCESS

Process:

• Fax your draft application to me for review and we can discuss any edits

• Sign, notarize and send original

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CERTIFICATION PROCESS

Process:

• Application reviewed by local Zone Administrative Board (last Wednesday of every other month)

• Signed by local Zone Certification Official and sent to Albany

• Approval by Empire State Development in Albany (can take 1-6 months)

• Business to receives benefits retroactive to local approval by Zone Certification Official

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CERTIFICATION PROCESS

Process:

• Albany sends Empire Zone certificate

• Fill out sales tax exemption forms and send in (turnaround 1-2 months)

• Request utility rate reductions

• Notify your accountant about benefits – most are schedules that you attach to your NYS tax returns

• Your only requirement – submit “Business Annual Report” each year

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TIPS FOR MAXIMIZING ZONE BENEFITS

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TIPS TO MAXIMIZE BENEFITS

For new businesses:

• Talk to me and small business development center as soon as possible

• Incorporate as an LLC where possible

• Get certification the year you begin hiring

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TIPS TO MAXIMIZE BENEFITS

For new businesses:

• EZ defines a “new business” as one that has filed fewer than 5 NYS tax returns

• Therefore, make sure you incorporate and are certified in the same calendar year (esp. important near end of year)

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TIPS TO MAXIMIZE BENEFITS

For existing businesses:

• If you are a renter, you can now renegotiate your lease so that any property taxes you pay (through triple net) can be eligible for the Real Property Tax Credit

• Make sure you get your construction/renovation sales taxes refunded to you

• Apply to assessor for 485-e after construction is complete

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TIPS TO MAXIMIZE BENEFITS

For existing businesses:

• If you are expanding your business into a totally new domain, consider incorporating a brand new entity for maximum EZ benefits and term of benefits

• Note: you can not reincorporate the same business (under the same ownership) to get access to more benefits

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TIPS TO MAXIMIZE BENEFITS

For new or existing businesses:

• For anything to do with manufacturing, incorporate the manufacturing elements of the business into a new entity

• This will give you access to ITC and EITC credits (and the refund as a new business)

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TIPS TO MAXIMIZE BENEFITS

For existing businesses:

• Remember – you only get Empire Zone benefits for employment you create and investment you make in a certified Empire Zone company

• If you have multiple entities, make sure the certified company:

• Has the employees on its payroll

• Makes any investments in real property

• Incurs the NYS tax burden

• Pays for taxable goods

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TIPS TO MAXIMIZE BENEFITS

For new or existing businesses:

• If you want to have a holding company and an operating company (for liability reasons,) it may be to your advantage to have them both get certification.

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TIPS TO MAXIMIZE BENEFITS

For new or existing businesses:

• Use the Statewide Zone Capital Corporation to get access to low-interest financing

• Use Zone Capital Credits to attract investment equity into your business to create jobs

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Questions?

juliana@camoinassociates.com

(315) 782-1167

www.watertownempirezone.com

camoin associatesECONOMIC DEVELOPMENT