Manufacturing was considered for many years to be the backbone of the American and local economies. In recent years, these firms have faced steep competition from foreign firms as well as rising input costs, such as labor and rent, which have placed significant strain on their ability to grow. In order to relieve these increased burdens and to spur manufacturing growth within New York, the New York State Department of Taxation and Finance and Economic Development Council offer several incentives to New York manufactures in the form of tax breaks.
Who is an eligible or qualifying manufacturer?
In order to qualify for the below incentives, first the taxpayer must be considered a manufacturer per NYS regulations. Per TSB-M-15(3)C, a manufacturer is a taxpayer that is principally (more than 50% of gross receipts) engaged in the production of goods. The methods for which goods can be produced include processing, assembling, refining, mining, farming, agriculture, floriculture, viticulture and commercial fishing. The definition is somewhat intentionally vague; NYS wants to not exclude any industries which may qualify but that also leads to a facts and circumstances determination. Based on published guidance and precedent, construction does NOT qualify as a manufacturer for these credits (unlike the federal Domestic Production Activities Deduction).
What incentives are available?
1. Real Property Tax Credit 2. Investment Tax Credit 3. Preferential Tax Rates 4. Utilities Exemption
Real Property Tax Credit
The real property tax credit can be used to offset Article 9-A (Franchise Tax & NYS Corporation Tax) for real property taxes paid on property that is either owned or leased by the manufacturer and is principally used for manufacturing. The credit against state tax can be up to 20% of the property taxes paid on the space. In order to qualify, the taxpayer must either have all their property in NY or at least $1,000,000 of manufacturing property in NY. The credit is nonrefundable and is claimed on Form CT-641.
Investment Tax Credit
The investment tax credit can also be used to offset NYS Corporation Tax. The credit base is the cost of “qualified tangible property” which includes buildings and structural components, as well as equipment. The property must be used in manufacturing and have a life of longer than 4 years. The credit is up to 5% of the cost of the property and can be carried forward up to 15 years. The credit is claimed on Form CT-46 and is partially refundable for new businesses.
Preferential Tax Rates
As part of the large NYS Corporate Tax Reform, manufacturers were given a special provision which gives them preferential NYS tax rates, for tax years beginning after January 1, 2015. Taxpayers who qualify are eligible for a 0% rate on their Entire Net Income (ENI) as well as lower rates for Capital Base tax. There are still fixed dollar minimum taxes based on gross receipts. Prior to this reform these incentives were only for certain targeted regions – they have now been expanded to all of NYS.
The final manufacturer exemption relates to utilities used in the manufacturing process. To qualify for exemption, the utilities must be used directly and exclusively for 100% of the production phase. To be a Qualifier for the production phase, the utilities must be consumed or used while attempting to either operate exempt production machinery or equipment, create conditions necessary for production or perform an actual part of the production process. If there is a separate meter for the production facility, a taxpayer can use form ST-121 to be exempt from the charge from the utility provider. If there is not a separate meter, a taxpayer may either pay the tax and then request a refund or request to be fully exempt and then pay use tax.
There are other incentive programs which are not specifically targeted at manufacturers which they still may be eligible for. These include the NYS Excelsior Jobs program and Federal Work Opportunity Credits. Manufacturing firms should also investigate these programs as they can provide significant cost savings opportunities as well.