NEW YORK STATE BUSINESS TAX CREDITS: ANALYSIS AND EVALUATION

NEW YORK STATE BUSINESS TAX CREDITS: ANALYSIS AND EVALUATION
NEW YORK STATE BUSINESS TAX CREDITS:
ANALYSIS AND EVALUATION
A Report Prepared for the
New York State Tax Reform and Fairness Commission
H. Carl McCall and Peter J. Solomon, Co-Chairpersons
Marilyn M. Rubin
and
Donald J. Boyd
Made possible by support from Peter G. Peterson and the Peter J. Solomon Family Foundation
November 2013
About the Authors
Marilyn Marks Rubin is a professor at John Jay College of the City University of New York
where she teaches courses in Fiscal Policy and Research methods and is director of the College’s
MPA Program. She has served as a consultant on fiscal policy; revenue forecasting; economic
development; and strategic planning for municipal, state, and federal entities. She has authored
several publications on fiscal policy and budget-related issues and has served as an advisor to the
Korean Woman’s Development Institute on gender budgeting and to the government of Thailand
on performance evaluation. Rubin is a fellow in the National Academy of Public Administration
(NAPA) and winner of a Distinguished Research Award from the American Society for Public
Administration. She holds a Ph.D. in Public Administration from New York University.
Donald J. Boyd is a senior fellow at the Rockefeller Institute of Government and the former
director of the Institute’s State and Local Government Finance research group. Boyd has over
three decades of experience analyzing state and local fiscal issues, and has written or coauthored
many of the program’s reports on the fiscal climate in the 50 states. His previous positions
include executive director of the State Budget Crisis Task Force created by former Federal
Reserve Board Chairman Paul Volcker and former New York Lieutenant Governor Richard
Ravitch, director of the economic and revenue staff for the New York State Division of the
Budget, and director of the tax staff for the New York State Assembly Ways and Means
Committee. Boyd holds a Ph.D. in managerial economics from Rensselaer Polytechnic Institute.
The authors gratefully acknowledge analysis, data, and information provided by staff of the New
York State Department of Taxation and Finance; by Catherine Collins, research associate at the
George Washington Institute of Public Policy; and by Lucy Dadayan, senior policy analyst at the
Rockefeller Institute of Government. Any errors remain the responsibility of the authors.
Contents
I.
Executive Summary
I.1
Business Tax Incentives in NYS
I.2
Fiscal Impact of NYS Business Tax Credits
I.3
Cost Trends of Business Tax Credits
I.4
A Snapshot of NYS Business Tax Credits in 2013
I.5
Concentration of Tax Credit Claimants
I.6
Pros and Cons of Business Tax Incentives: What the Research Tells Us
I.7
Concerns About Business Tax Credits
I.8
The Brownfield and Film Credits
I.9
Options for Restructuring New York State Business Tax Credits
I.10 Transition Issues
I.11 Recommendations for Monitoring, Review, and Evaluation
1
4
4
5
7
9
11
12
13
16
21
21
II.
Introduction
25
III. Pros and Cons of Tax Incentives: What the Research Tells Us
26
IV. NYS Business Tax Credits: An Overview
IV.1 NYS Business Tax Credits to Promote Economic Development
IV.2 Geographically Targeted Business Tax Credits
IV.3 Business Tax Credits to Support NYS Social, Housing,
and Environment Policies
30
31
39
V.
Fiscal Impact of NYS Business Tax Credits
V.1
Trends in NYS Business Tax Credits Costs
V.2
A Snapshot of New York State Business Tax Credits in 2013
V.3
Concentration of Tax Credit Claimants
V.4
Tax Credit Users
V.5
Concentration of Credit Users
45
51
51
56
56
57
59
VI. An Analysis of the Brownfield Credits and the Film Credits
VI.1 The Brownfield Tax Credit Program
VI.2 The Film Tax Credit Program
62
62
71
VII. Evaluating Business Tax Credits
VII.1 Tax Evaluation Principles
VII.2 Evaluating Business Tax Credits: the GAO Framework
VII.3 Managing Tax Incentives
VII.4 Best Practices in Evaluating Tax Credits: Experiences from the States
83
83
85
86
88
VIII. Options for Business Tax Credit Reform
VIII.1 Modifying Credits
VIII.2 Recommendations for Monitoring, Review, and Evaluation
91
91
95
I.
EXECUTIVE SUMMARY
In the 2013 tax year,1 New York State (NYS) provided an estimated $1.7 billion in 50
business tax credits to encourage taxpayers to engage in specific activities.2 The $1.7 billion
includes the dollar value of credits taken by corporate entities as well as by sole proprietorships,
members of partnerships, and S Corporation shareholders liable for the personal income tax
(PIT).3 Business tax credits and other incentives have laudable goals such as encouraging
economic development statewide; promoting job growth in distressed areas; and furthering the
state’s social, housing, and environmental policies.
Economic development officials value business tax incentives as tools needed to compete
with other states. There is, however, no conclusive evidence from research studies conducted
since the mid-1950s to show that business tax incentives have an impact on net economic gains
to the states above and beyond the level that would have been attained absent the incentives. In
addition, business tax incentives violate principles of good tax policy and tenets of good
budgeting.
Six widely accepted principles against which to judge tax policies are economic
neutrality, equity, adequacy, simplicity, transparency, and competitiveness. An economically
neutral tax does not influence economic behavior — individuals and businesses make decisions
based on economic merit rather than tax implications. An equitable system treats similarly
situated taxpayers similarly. An adequate tax system raises enough revenue to support desired
government services and investments. A simple and transparent system is easy to understand,
relatively inexpensive for taxpayers to comply with, and relatively inexpensive for the
government to administer. A competitive tax system does not impede the ability of companies to
compete with those located outside the state and does not limit the state’s ability to attract new
business.
1
2
3
A “tax year” is an annual accounting period for keeping records and for reporting income and expenses. It can be either a
calendar year or a fiscal year. All data for tax year 2013 included in this report are estimated and subject to revision.
The count of tax expenditures is based on the individual credits or discrete components within broader incentive programs.
For example, each of the four components of the Excelsior Jobs Program is counted as a separate incentive. Two additional
tax credits are scheduled to take effect after 2013, bringing the total to 52.
Although partnerships and S Corporations file NYS tax returns, partnerships do not compute and pay an entity level tax and S
Corporations are liable for a fixed dollar tax based on NYS receipts. Credits are earned at the entity level, but are passed
through proportionally to partners and shareholders to apply against their PIT tax liability.
1
Almost by definition, business tax incentives violate these principles. Their explicit goal
is to alter decisions, encouraging more of a particular activity in a state or a given area than
private markets would undertake absent the incentives. Depending on the activity, this may be
appropriate, but it places great responsibility on public officials to understand how the market is
“wrong” and how the tax system can fix it. By lowering taxes for some taxpayers while keeping
them higher for others, incentives may treat similarly situated taxpayers differently and can make
it harder to raise adequate revenue with minimum public resistance. Finally, myriad eligibility
rules and credit calculations violate the simplicity principle for taxpayers and tax collectors.
In 2009, the latest year for which detailed data on credit users are available, just over 1
percent of general corporation tax filers, 0.6 percent of S Corporation filers,4 and 1.2 percent of
partnerships claimed one or more business tax credits. For S Corporations and partnerships,
credits earned at the entity level are passed through proportionally to shareholders and partners to
apply against their PIT tax liability. In 2009, there were more than five million partnership
members and S Corporation shareholders. Less than 0.5 percent of all shareholders and partners
used the credits.
Lower taxes for some taxpayers require higher effective tax rates for the vast majority of
taxpayers for a given level of revenue. This is the “innocent bystander” effect of business tax
incentives — those not benefiting pay higher taxes. If all NYS business tax credits were
eliminated, the potential revenue gain could be used to reduce the top personal income tax rate,
cut both personal and corporate income tax rates, lower the sales tax rate or reduce other tax
rates. To the extent that credits are replaced by direct spending programs, less of the revenue
gain from eliminating tax credits would be available for tax rate reductions.
Many business tax incentives also violate tenets of good budgeting. Refundable tax
credits operate much like spending programs, in effect providing cash grants to recipients. A
refundable credit entitles the taxpayer to a cash payment if the credit exceeds tax liability. If a
taxpayer qualifies for a refundable credit and the amount of the credit exceeds tax liability, the
government pays the difference to the taxpayer and treats it as an overpayment. These cash
4
For U.S. federal income tax purposes, an S Corporation is a corporation that makes an election to be taxed under Subchapter S
of Chapter 1 of the Internal Revenue Code. In general, S corporations do not pay any federal income taxes. In New York
State, the income of S Corporations is not taxed until it is distributed to owners/shareholders with the exception of a fixed
dollar minimum tax ranging from $25 to $4,500.
2
payments are made even if the taxpayer has not paid taxes in the past or will not pay taxes in the
future.
Most credits are uncapped, whereas spending programs are limited by annual
appropriations. Tax credits rarely are evaluated rigorously and independently against their goals.
That is also true of many spending programs, but unlike tax credits they are subject to the annual
budget process in which they compete against other priorities and need annual appropriations to
continue. Some tax credits have sunsets, but most continue indefinitely. Also, because they are
part of the tax code and not subject to the appropriations process, tax credits impose automatic
budget obligations that constrain policymakers and reduce resources for other priorities,
particularly in times of fiscal distress. Credit costs can only be curtailed with extraordinary
measures, such as the temporary credit deferral program enacted by the state in 2010 in response
to a fiscal crisis.
Because of the flaws in business tax credits discussed in this report and concerns with
their escalating number and costs, the Commission has asked us to provide options for it to
consider in its efforts to restructure them. In response, we have developed three broad categories
of options: (1) major reform, (2) moderate reform, and (3) targeted reform. Major reform would
eliminate all business tax credits. Moderate reform would scale back individual credits and
eliminate most refundability provisions. Targeted reform is generally designed to eliminate
underused credits and improve the workings of remaining credits. We provide a more detailed
discussion of these reforms later in this executive summary and in the body of the report.
The reforms are directed at the credits, themselves, not at the underlying stated objectives
that they address. The question is thus not whether the activity that is the subject of the credit is
worthy, but whether it is best implemented through the tax code. In addition to the policy flaws
inherent in the tax credits, there are indications, such as low tax credit utilization rates,
unintended consequences, and compliance complexity that suggest few objectives are best
addressed by tax credits in lieu of direct spending. Additionally, the decisions about whether to
support a given activity and at what level through a tax credit are subjective. Without a
mechanism to compel this discussion, such as that which occurs in the annual state
appropriations process for spending programs or might occur with sunsets or specific annual
allocations, credits begin to multiply as interested parties promote new credits for favored
activities.
3
I.1
Business Tax Incentives in NYS
New York provides approximately $2 billion in business tax incentives through tax
credits, tax exclusions, exemptions, deductions, and preferential tax rates. Although all tax
incentives reduce the costs of doing business, they do not all work through the tax code in the
same way.
Exclusions, exemptions, and deductions reduce income subject to taxes. Their
monetary value to the taxpayer depends on the prevailing tax rate and the proportion
of taxable income allocated to the taxing jurisdiction. In NYS, for example, where the
current corporation franchise tax rate is 7.1 percent, the value of a $1,000 exemption
or deduction is equal to $71 ($1,000 x .071) of taxable income for a corporation
allocating all of its income to the state.5
Credits directly reduce taxes on a dollar-for-dollar basis, e.g., a $1,000 tax credit
reduces taxes by $1,000.
Tax incentives and other preferential treatment of taxpayers are referred to as “tax
expenditures” and can be thought of as government spending channeled through the tax code.
They are directed at policy objectives similar to those of many state spending programs. Unlike
direct spending, however, credits (and other tax incentives) are generally not scrutinized or
subject to debate during the government’s annual budget review because no affirmative action,
such as an appropriation, is required unless the tax incentives include a legislated sunset
(expiration) date. At present, there are 52 enacted business tax credits in New York State — the
50 referred to earlier plus the two that take effect in later years (see Table 1.1 for listing of
credits). Of the 52 credits, there are 32 that have no sunset provisions that would compel the
legislature to review whether they are worthy of statutory reauthorization and continued state
funding.
I.2
Fiscal Impact of NYS Business Tax Credits
In this report, the fiscal impact on NYS of business tax credits is calculated using data
published in the New York State Annual Report on Tax Expenditures that include estimates of the
5
For taxpayers that have a presence in NYS as well as other states, taxable income will be divided or apportioned among the
states. The value of the exemption will be apportioned in the same manner.
4
costs (lost revenues) to the state of tax credits that have been or will be claimed.6 Tax credits can
also have indirect effects on state tax revenues through their impact on the economy. If the
economic activity for which the taxpayer takes the credit would have occurred absent the credit,
the result is foregone tax revenues for the state with no offsetting increases in economic activity
and tax revenue. If a credit creates new economic activity, tax revenues generated by the activity
may partially offset the direct cost to the state of the credit. The Annual Report on Tax
Expenditures does not include estimates of whether, and by how much, a change in tax policy
would affect the overall economy — i.e., the estimates in the report do not account for what is
referred to as “dynamic scoring.”
Table 1.1: NYS Business Tax Credits Enacted as of 2013
Economic Development Credits
Geographically Targeted Credits
Investment Tax Credits (ITCs)*
a. Investment Tax Credit
b. Retail Enterprise Tax Credit
c. Rehabilitations Credit for Historic Barns
d. Employment Incentive Credit
Empire Zone (EZ) Credits
a. Investment Tax Credit*
b. Employment Incentive Credit*
c. EZ/ZEA Wage Tax Credit*
d. EZ Capital Credit
e. QEZE Real Property Tax Credit*
f. QEZE Reduction Credit
g. Financial Services ITC
h. Financial Services EIC
Brownfield Redevelopment Tax Credits*
a. Brownfield Redevelopment Tax Credit
b. Remediated Brownfield Credit from Real Estate Taxes
c. Environmental Remediation Insurance Credit
Empire State Film Credit*
a. Film Production Credit
b. Film Post Production Credit
c. Commercial Production Credit
· Incremental Cost Component
· MCTD Component
· Outside MCTD Component
Economic Transformation/ Facility
Redevelopment Program Credits*
a. Job Tax Credit Component
b. Tax Credit Component
c. Job Training Tax Credit Component
d. Real Property Tax Credit Component
Credits to Support NYS Social, Housing, and Environment
Policies
New York Youth Works Tax Credit*
Credit for Employment of Persons with Disabilities
Minimum Wage Reimbursement Credit**
Hire a Vet Credit**
Credit for Purchase of an Automated External Defibrillator
Farmers’ School Property Tax Credit*
Low-Income Housing Credit
Credit for Servicing SONYMA Mortgages
Empire State Jobs Retention Program Credit* Special Additional Mortgage Recording Tax Credit*
a. Jobs Tax Credit
b. ITC
Green Buildings Credit
Investment Tax Credit for Financial Services*
Biofuel Production Credit*
Employment Incentive Credit for Financial Services
Land Conservation Easement Credit*
Excelsior Job Credits*
a. Excelsior Job Credit
b. Excelsior Investment Credit
c. Excelsior R&D Credit
d. Excelsior Real Property Tax Credit
Clean Heating Fuel Credit*
Rehabilitation of Historic Properties Credit*
Alternative Fuel Vehicle Refueling Property and Electric
Vehicle Recharging Property Credit
Beer Production Credit*
Handicapped Accessible Taxicab Credit
Qualified Emerging Technology Company (QETC) Credit
a. QETC Capital Tax Credit
b. QETC Employment Credit*
Security Officer Training Tax Credit*
*Refundable credit. There may be some restrictions regarding which taxpayers are eligible for a refund.
** Credit enacted in 2013 but effective in subsequent years.
I.3
Cost Trends of Business Tax Credits
The number and costs of NYS tax credits available to businesses have increased
significantly in recent decades (see Figure 1.1). In 1994, nine business tax credits were available
6
These estimates are before considering the effect of the deferral program enacted in 2010.
5
to taxpayers with a cost to the state of about $200 million. By 2005, there were 33 credits costing
the state $673 million. In 2009, there were 38 credits costing the state $821 million. By 2013, the
number of credits available to taxpayers had jumped to 50, costing the state an estimated $1.7
billion, close to triple the cost in 2005.
Figure 1.1: NYS Tax Credit Costs - 1994-2013*
($ in millions)
$2,000
Total credit used & refunded ($ in millions)
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
Note: Data for 2010 to 2013 are estimated jointly by the NYS Department of Taxation and Finance and the NYS
Division of the Budget and are subject to revision.
Source: Annual Report on New York State Tax Expenditures: 2013-14 State Fiscal Year. New York State Division
of the Budget and New York State Department of Taxation and Finance, February 2013.
Part of the cost increase from the mid-1990s to 2005 is due to the expansion in the total
number of business tax credits, averaging more than two per year. The growth is also attributable
to the addition of a few large new business tax credits, particularly the Qualified Empire Zone
Enterprise (QEZE) real property tax credit (which is in the process of being phased out). The
dramatic jump in estimated costs between 2009 and 2013 is largely explained by increases in
three credit programs (see Figure 1.2) — film production, brownfield, and the Excelsior Jobs
Program. These credits were initially made available to taxpayers in 2004, 2005, and 2010,
respectively.
6
In 2009, brownfield tax credits cost the state $142.1 million, increasing to an estimated
$503 million by 2013. Film credit costs more than tripled from $111.2 million in 2009 to an
estimated $374.0 million in 2013. The Excelsior Jobs program credit is estimated to have cost
the state $150 million in 2013. (Note: The cap on the film credit is $420 million annually; the
cap on the Excelsior Jobs Program is $500 million per year when fully effective.)
Figure 1.2: Cost to NYS for Business Tax Credits
Selected Years 2005 - 2013 ($ in millions)
$2,000
$1,800
Other Credits
$1,600
$1,400
Excelsior Jobs Program Tax
$1,200
Brownfield Tax Credits
$1,000
$800
Empire State Film Credits
$600
Empire Zone Credits
$400
$200
Investment Tax Credits
including Financial Services
$0
2005
2006
2007
2008
2009
2013
Forecast
Note: Data for 2013 are estimated jointly by the NYS Department of Taxation and Finance and the NYS Division of
the Budget, included in the annual tax expenditure report, and are subject to revision.
Source: Annual Report on New York State Tax Expenditures: 2013-14 State Fiscal Year. New York State Division
of the Budget and New York State Department of Taxation and Finance, February 2013.
I.4
A Snapshot of NYS Business Tax Credits in 2013
Another way to look at NYS’s spending on tax credits is to compare it to an alternative
standard. One question to be asked, for example, is: “Does the current allocation of tax credit
costs reflect the best use of state resources given desired policy outcomes and the geographic
distribution of results?” Looking at the distribution of the costs attributable to NYS’s 50 business
tax credits available in 2013 helps to answer this question. In 2013, of the estimated $1.7 billion
the state provided in tax credits, over half was committed to two purposes — cleaning up and
redeveloping brownfield sites and promoting the film industry (see Figure 1.3). More than 20
7
percent of the fiscal impact of the business tax credits was accounted for by the Empire Zones
Program (EZ) that has been roundly criticized and has technically expired. Yet the state
continues to commit over a fifth of its tax credit spending to the program because of legislatively
required benefit periods that will not end until 2020. Taken together, these three programs —
brownfield, film, and Empire Zones — constituted almost 75 percent of the state’s spending on
business tax credits in 2013.
Figure 1.3: Percentage Distribution of the Costs of NYS Tax Credits in 2013
Brownfield redevelopment
EZ/QEZE
Film credit
22.4%
ITC/EIC
Excelsior
29.6%
ETFRP
21.5%
0.1%
Historic properties, SLIHC, GBTC, biofuel
production
Farmers' SPTC
Financial Services ITC/EIC
0.7%
Special Add'l Mortgage Recording Credit
1.7%
1.8%
6m-10m (6 credits)
1.8%
4.5%
2.1%
2.8%
3.2%
7.7%
2m-5m (4 credits)
0m-1m (11 credits)
Notes: EZ/QEZE — Empire Zone/Qualified Empire Zone Enterprise
ITC/EIC — investment tax credit/employment incentive credit
ETFRP — Economic Transformation and Facility Redevelopment Program
Farmers’ SPTC — school property tax credit
SLIHC — state low-income housing credit; GBTC — green buildings tax credit
6m-10m credits — Brownfield real property tax credit; mortgage servicing credit; film post production credit; commercial
production credit (3 components)
2m-5m credits — Youth Works; beer production credit; Qualified Emerging Technology Company (QETC) employment credit;
conservation easement credit
0m-1m credits — EZ capital credit; QETC capital credit; clean heating fuel credit; EZ Financial Services Investment Tax
Credit/Employment Incentive Credit (FS-ITC/EIC); employees with disabilities credit; defibrillator credit; security training tax
credit; brownfield environmental remediation insurance credit; handicapped-accessible taxis credit; jobs retention credit (two
components); historic barns and retail rehabilitation components of the ITC.
Source: Annual Report on New York State Tax Expenditures: 2013-14 State Fiscal Year. New York State Division of the Budget
and New York State Department of Taxation and Finance, February 2013.
New York’s two largest tax credits — brownfield credits and film production credits —
disproportionately benefit economic activity in New York City (NYC) and other parts of what is
8
referred to as “Downstate” New York.7 Close to 60 percent of brownfield credits claimed
between 2008 and 2012 were for projects in NYC where 44 percent of the state’s nonfarm jobs
are located. Seventeen percent of brownfield credits were for projects in Westchester where
(together with Putnam and Rockland Counties) 6 percent of NYS’s nonfarm jobs are located.
The remaining 24 percent of brownfield credits were claimed for projects in the rest of the state
where 50 percent of the jobs are located.8 For film credits, in 2011, more than 90 percent of
qualified film production spending and tax credits were claimed for projects in NYC.9 Even
though the credits may have had a positive effect on the level of film and television production in
the state, this raises the question of whether scarce economic development dollars are being
spent where they are most needed.10 Employment in NYC increased by 2.3 percent over the last
year, accounting for 75 percent of the state’s job growth; jobs in the rest of the state grew by 0.6
percent.
I.5
Concentration of Tax Credit Claimants
The latest information available on NYS taxpayers using business tax credits is for 2009
when there were 38 credits available to businesses.11 The 2009 data show that not only are the
NYS business tax credits concentrated among a few industries, they are also concentrated among
a small number of taxpayers.
More than 260,000 corporation franchise tax returns were filed; just over 1 percent
claimed one or more business tax credits.
Nearly 390,000 corporations filed as S Corporations; fewer than 2,500, or 0.6 percent,
claimed one or more business tax credits. Credits are earned at the entity level but
passed through proportionally to shareholders to apply against their PIT tax liability
7
8
9
10
11
The term Downstate usually refers to NYC, Long Island, and the northern suburbs of NYC, generally consisting of
Westchester and Rockland Counties. The northern boundary is extended by some definitions to include all or some of Putnam,
Orange, and Dutchess Counties. Upstate refers to all other parts of New York.
The authors’ analysis of data from the New York State Department of Taxation and Finance.
Economic and Fiscal Impacts of the New York State Film Production Credit (New York, NY: HR&A Advisors, Inc.,
December 3, 2012), http://www.mpaa.org/Resources/f83bf36c-04cb-44fe-aaa4-c06449eb5ec7.pdf.
The authors’ analysis of data from the New York State Department of Labor,
http://labor.ny.gov/stats/pressreleases/pruistat.shtm.
While the 2009 data are the best that are available to shed light on the concentration of credit takers, the distribution of tax
credit claimants for 2009 may not be fully comparable to the 2013 distribution since the earlier data (1) do not include
claimants for the Excelsior Jobs Program and (2) do not reflect the growth in brownfield and film production credits from
2009 to 2013.
9
More than 217,000 partnership returns were filed; slightly over 2,600, or 1.2 percent,
claimed one or more business tax credits that were earned at the entity level but
passed through proportionally to partners to apply against their PIT tax liability.
In 2009, corporation franchise tax and other business taxpayers claimed 3,122 credits,
including those that had been carried forward from previous years.12 In addition, there were more
than five million partnership members and S Corporation shareholders. Close to 25,000 credit
claims were submitted on PIT returns related to these entities — less than 0.5 percent of all
shareholders and partners. The average value of a credit for a PIT filer was $11,210, compared
with the average of $189,846 for a corporate tax filer. A prime reason for this differential is that
most PIT filers who take credits are one of several members of a partnership or Limited Liability
Company (LLC) or are shareholders in an S Corporation. Each partner or shareholder filing a
PIT return is eligible to claim a share of the total credit earned by the business entity.
Table 1.2: NYS Business Tax Credit Users, 2009
Corporation Franchise Tax &
Total
Other Business Taxes*
Fiscal
Fiscal
Fiscal
Average
Average
Average
Number Impact on
Number Impact on
Number Impact on
Claim per
Claim per
Claim per
of Claims
NYS
of Claims
NYS
of Claims
NYS
Taxpayer **
Taxpayer **
Taxpayer **
($ m)
($ m)
($ m)
Personal Income Tax
Type of Credit
Credits to Promote
Economic Development
Geographically Targeted
Credits
Credits for Social, Housing,
and Environmental Policies
7,740
$109
$14,134
1,370
$332
$242,409
9,110
$442
$48,463
11,079
$157
$14,207
1,390
$216
$155,683
12,469
$374
$29,978
6,113
$13
$2,078
362
$44
$122,099
6,475
$57
$8,788
All Credits
24,932
$280
$11,210
3,122
$593
$189,846
28,054
$872
$31,090
*Other business taxes include the corporation and utilities tax, the bank tax, and the insurance company tax.
** Average based on taxpayers claiming the credits.
Source: Calculated by authors from data supplied by NYS Department of Taxation and Finance.
Although almost half of the number of business tax credit claims in 2009 were targeted
geographically at the state’s distressed areas, credits for programs to promote economic
development statewide accounted for the majority of credits in dollar terms.
12
Other corporate business taxes include the corporation and utilities tax, the bank tax, and the insurance tax. The count of
taxpayers includes S corporations that pay only a fixed minimum tax under the corporation franchise tax. This number is
extrapolated from the 2007 New York State Corporate Tax Statistical Report (Albany, NY: NYS Department of Taxation and
Finance, August 2011),
http://www.tax.ny.gov/pdf/stats/stat_corp/corp_stat/2007_new_york_state_corporate_tax_statistical_report.pdf.
10
The brownfield redevelopment credit was claimed by 16 corporate taxpayers for an
average benefit of over $4.2 million and by 92 PIT filers for an average benefit of
$763,000.
The film production credit was claimed by 36 corporate taxpayers for an average $2.8
million benefit and by 67 PIT filers for an average benefit of $116,716.
The QEZE Real Property Tax credit was claimed by 471 corporate taxpayers for an
average benefit of just under $300,000 and by 3,777 PIT filers for an average benefit
of $22,000.
Corporate tax filers claimed a $103,000 average ITC credit; PIT filers claimed an
average $2,937 ITC credit. The ITC was the credit most widely used by corporate
taxpayers (1,027) and by PIT filers (6,680).
I.6
Pros and Cons of Business Tax Incentives: What the Research Tells Us
New York is not unique in its use of tax incentives to promote economic development.
All 50 states offer at least one tax incentive to businesses; most offer several, primarily to attract
businesses from other states. As stated in a recent report by the Pew Center on the States,
business tax incentives are often used “…as part of a bidding war between states over firms
seeking to relocate or expand. If one state offers a tax credit, others often feel compelled to
match it or risk being left behind.”13 This is especially true when states react to claims by
businesses that taxes are a major factor in their location and expansion decisions. As mentioned
earlier, there is no conclusive evidence from research studies conducted since the mid-1950s to
show that business tax incentives create net economic gains to the states above and beyond what
would have been attained in the absence of the incentives. Nor is there conclusive evidence from
the research that state and local taxes, in general, have an impact on business location and
expansion decisions.
In addition, almost by definition, business tax incentives violate widely accepted
principles of good tax policy: economic neutrality, equity, adequacy, simplicity, transparency,
and competitiveness.
13
Evidence Counts: Evaluating State Tax Incentives for Jobs and Growth (Washington, DC: Pew Center on the States, April
2012, http://www.pewstates.org/uploadedFiles/PCS_Assets/2012/015_12_RI%20Tax%20Incentives%20Report_web.pdf.
11
No tax system can satisfy all good tax policy principles, but systems with broad tax bases
and low rates can come closest. The broad base avoids complicated, distorting, and inequitable
distinctions among similar activities and helps to keep overall rates low. Low rates reduce the
extent to which taxes distort taxpayer choices and can contribute to the government’s ability to
raise sufficient revenue with the least public resistance.
I.7
Concerns About Business Tax Credits
New York’s business tax credits often have flaws that are specific to their design or
intent; all contain a common set of inherent flaws.
They may reward activity that would have been undertaken absent the credit.
They are similar to direct spending programs, but without the public visibility and
legislative scrutiny of appropriated spending programs. Multiyear credits impose
future spending obligations on the state that can be seen as the equivalent of
“untouchable contractual obligations” in contrast to appropriations for spending
related, for example, to education and Medicaid that is subject to annual legislative
review and potential reductions.
They require no annual appropriation so that they tend to remain on the books
indefinitely with little or no evaluation of their benefits and costs. Refundable credits,
in particular, potentially expose the state to significant unanticipated costs because the
amount of the credit earned can exceed taxpayer liability, sometimes substantially.
They may be subject to aggressive interpretation by taxpayers that can expand the use
of credits beyond their original intent.
It is difficult to evaluate their impacts on jobs and the economy because information
on individual credit beneficiaries rarely is disclosed, often protected by taxpayer
confidentiality rules.
A small percentage of taxpayers benefit from business tax credits, and a small fraction of
those that claim them receive a disproportionate share of the benefits. The brownfield credits and
the film credits, the state’s two largest credit programs, embody several of the weaknesses
identified above and are the subject of particular focus in this report.
12
I.8
The Brownfield and Film Credits
Brownfield Credits. A brownfield property is a site that is, or may be, contaminated by
previous industrial or related uses but has reuse potential once remediated. Brownfield sites are
located in cities with long histories of manufacturing activity and also in small towns and rural
areas. Originally available in 2005, the NYS brownfield redevelopment tax credit was amended
by the state in 2008, primarily out of concern for increasing program costs. The reforms limited
credits for redevelopment for nonmanufacturing projects to the lesser of $35 million or three
times the site preparation and groundwater remediation costs. For manufacturing projects,
redevelopment credits were limited to the lesser of $45 million or six times the site preparation
and groundwater costs. The reforms also increased the credit rates for clean-up activity. The caps
on redevelopment credits and the increased rates for clean-up activity were intended to reduce
the extent to which the credit was an incentive or reward for redevelopment, and increase
emphasis on clean-up.
The three refundable brownfield tax credits are:
a redevelopment credit dependent on remediation level, location, and type of taxpayer
(personal or corporate);
a credit for real property taxes for remediated brownfield properties based on the
number of employees at the location. This credit can be equal to as much as 100
percent of real property taxes; and
a one-time environmental remediation insurance credit for remediation insurance
premiums.
Because information on credit-takers is disclosed under the brownfield program, it is
possible to examine specific credits. Our analysis of this information revealed that the largest
brownfield credit taken to date was the $114 million used to build a Ritz-Carlton Hotel in
White Plains, for which the reported remediation costs were zero. The largest credit taken
Upstate — an area in need of economic revitalization — was $87 million for a private power
generation plant in Rensselaer. This project had been approved in substantial form by the
Public Service Commission years before the brownfield program was enacted into law,
suggesting that development was not induced by availability of the credit.
13
The combined costs of these two projects exceeded the initial annual cost estimate for
the entire program. Both projects relied primarily upon local demand and likely needed little or
no incentive to be built in their region. Although both credits were claimed prior to the 2008
amendments to the brownfield program, and would not be as large under the new rules, they
illustrate many of the flaws discussed above that are inherent in business tax credits. The
brownfield credits also present a cautionary tale about the consequences of trying to influence
business behavior through the tax code, without sufficiently stringent rules to prevent
unintended outcomes and to limit costs to the state.
The brownfield credits were intended to remediate and restore blighted land, but they
have functioned more as a real estate development program.
The program’s costs were initially estimated at $135 million annually, but increased
to an estimated $503 million by 2013.
Fewer sites have been remediated under the brownfield program than under the
earlier Voluntary Cleanup Program that did not offer tax credits. In almost ten years,
133 sites have been remediated at a cost of more than $900 million, compared with
212 sites remediated under the voluntary program.
Despite reforms that were enacted in 2008, the credit will continue to cost hundreds of
millions of dollars annually. The amount of expected credits not yet used exceeds $3.3 billion
and will be a drag on future budgets. Credit-claiming is likely to remain highly concentrated and
disproportionately focused in the downstate region.
The brownfield program is scheduled to sunset in 2015. A direct spending program might
be a more effective way to clean up brownfield sites. Absent that, linking the credit more closely
to the cost of clean-up would help refocus the program on its environmental goals and could
contribute to upstate economic development efforts.
Film Credits. The Empire State film production tax credit, initially available in 2004, is
designed to increase film production and post-production industry activities in the state.
Expanded significantly in 2006 and in 2010, the credits provide incentives to qualified
companies that produce feature films, television series, relocated television series, television
pilots, television movies, and commercials and/or incur post-production costs associated with the
original creation of these film productions. The three refundable film production credits are:
14
The film production credit, which is the production credit available for companies
that film a substantial portion of their project in NYS.
The post-production credit is available for film production companies that film
outside of NYS but contract their post-production work to a NYS company.
There are three component commercial production credit programs — an upstate
program, a downstate program, and a growth program
The film production credit, now generally 30 percent of qualifying costs, is large relative
to industry profits and tax liability. Based on IRS industry-specific data, a 30 percent credit
would equal about 55 percent of taxable income of a typical film production firm. In 2008 (the
latest year for which detailed data are available), the credits received by 31 film production
industry taxpayers exceeded the combined tax liability of the entire industry — all 1,600+ firms
— in nine of the ten previous years. Because the credit exceeds tax liability many times over and
is refundable, in effect it is a program of cash payments by the state to credit recipients.
The credit has caused film production to locate in NYS, as might a credit of similar
magnitude for any potentially mobile industry. If a credit for 30 percent of costs were provided
to other industries, it would eliminate tax liability many times over:
For a company in the manufacturing sector that has been declining for several
decades in New York State, such a credit could approximate 40 times the annual state
tax liability — the equivalent of more than $12 billion annually for the sector.
Whether credits of this size would be large enough to revive manufacturing in the
state is not known.
For companies providing professional, technical, and scientific services, such a credit
could exceed 100 times annual tax liability — the equivalent of more than $23 billion
annually.
Although the film credits do appear to boost in-state production, that does not mean that
they “pay for themselves,” as two recent consultant studies reported.14 To reach their
conclusions, both studies made several questionable assumptions, including:
14
The two studies are Ernst & Young, Estimated Impacts of the New York State Film Credit: Prepared for the New York State
Governors Office of Motion Picture and Television Development and the Motion Picture Association of America February
2009, http://www.southwindsor.org/pages/swindsorct_IT/ct_studios/Credit_Study.pdf, and Economic and Fiscal Impacts of
the New York State Film Production Credit.
15
no credit-qualifying film would have been produced in NYS absent the credit despite
the long-standing existence of a well-developed film production industry in the state;
and
credit-qualifying film productions would cause substantial credit-ineligible film
production activity to locate in New York to take advantage of a film production
industry cluster that would not exist but for the credit.
Using these assumptions, both studies concluded that the NYS film credits generated
enough additional economic activity, and taxes on that activity, to offset the revenue loss to the
state associated with the credits. It must, however, be noted that no determination can be made as
to what level of film production activity and its associated impact is attributable to the credits.
As Section VI discusses, only under such assumptions would the economic activity
created by the film production credit exceed the cost to the state in foregone revenues. The credit
might, however, be judged appropriate if it contributes to the state’s employment base. The film
production credit accounts for 22 percent of the total cost of New York’s business tax credits, but
the industry accounts for less than one percent of the state’s employment.15 Even using the
criterion of job creation, it is worth noting that many of the film industry jobs are temporary.
It is not clear from our analysis that there is sufficient justification for the size of the film
credits. The state should consider scaling back the credits and monitoring the film industry
closely to determine the impact on its activities of such a cutback. This appears to be the
conclusion of other states such as Connecticut where state lawmakers voted in 2013 to put a
moratorium on tax credits for the movie industry. Other states have not renewed film credits with
sunset provisions or have suspended or declined to fund the credits.
I.9
Options for Restructuring New York State Business Tax Credits
Because of the flaws discussed above and concerns with their escalating number and
costs, the Commission has asked us to provide options to restructure NYS’s business tax credits.
In response, we have developed three broad categories of options: (1) major reform, including
the elimination of all business tax credits; (2) moderate reform, including significant scaling back
of individual credits and elimination of most refundability provisions; and (3) targeted reform
15
Source: Quarterly Census of Employment and Wages — Industry, Bureau of Labor Statistics, U.S. Department of Labor,
Washington, DC, http://data.bls.gov/cgi-bin/dsrv?en.
16
generally designed to eliminate underused credits and improve the workings of remaining
credits.
Major Reform
1) Eliminate all business tax credits: Even if elimination of all business tax credits is
unlikely, it is worth understanding how much this would allow overall tax rates to be
reduced. In one sense, higher rates on the majority of taxpayers are the “price” for
lower taxes for relatively few taxpayers. If NYS were to eliminate all business tax
credits and use the resulting revenue to lower tax rates, it would be able to reduce the
extent to which the tax system distorts economic decisions and simplify compliance
for taxpayers and administration for tax collectors.
If all New York State business tax credits were eliminated, the increase in tax
revenues would approach $2 billion, when fully in effect (but see the discussion
below of transition issues). The potential revenue gain could be used to reduce the
corporate tax rate, cut the top personal income tax rate, cut both personal and
corporate income tax rates, lower the sales tax rate or reduce other tax rates. To the
extent that credits are replaced by direct spending programs, less of the revenue gain
from eliminating tax credits would be available for tax rate reductions.
Moderate Reform
Moderate reform would include significant scaling back of individual business tax credits
and the elimination of most refundability provisions. Options for moderate reform include:
1) Make “sunsets” the standard practice for credits. Just as spending programs are
time-limited, credits should be as well so that periodic reviews are, in essence,
required. At a minimum, the state should do this for newly enacted credits.
2) Cap additional credits. To increase visibility of the budgetary impact of business tax
credits and to limit budgetary exposure from uncontrolled growth in their cost, the
state could move further toward an aggregate budget for all business tax credits. This
would involve extending the concept of a credit cap, currently used for the film,
Excelsior, and several other credits, to additional credits where practical. At a
minimum, a first-come, first-served cap could be established for brownfield credits.
17
3) Eliminate refundability for most credits. The state could eliminate tax credit
refundability for most or all of the credits that are currently refundable, with transition
rules to minimize restrictions on credits where taxpayers have made commitments,
such as binding contracts, in the expectation of receiving the credits.
4) Provide time limitations on refundability. The state could limit the extent to which
credits may be refunded in any single year so that a refundable credit might be paid
out, for example, over five years rather than all in a single year.
5) Further reform the brownfield credits.As mentioned earlier, the brownfield credit
program is currently scheduled to sunset in 2015. If the state decides to continue
encouraging brownfield remediation, it has several options. The most radical would
be to convert the tax credit program to a direct spending program directed at
remediation of sites that are, or that may be, contaminated. Such a reform would
mean that an annual appropriation from the legislature would be required as part of
the state’s yearly budget process.
A second option would be for the state to extend the brownfield tax credit program,
but to limit the credits specifically to clean-up costs. This would put NYS more in
line with other states that focus their brownfield programs on clean-up. For example,
New Jersey provides a reimbursement to companies for up to 75 percent of clean-up
costs to be paid by new state taxes generated by the brownfield project. If New York
were to limit brownfield credits to a percentage of clean-up costs, it could focus the
program more effectively on environmental protection, changing it from its current
focus on economic development.
If the tax credit program is extended, a third option is for the state to curtail the
lengthy period of project eligibility (currently 10 years) for redevelopment activity to
qualify for the credits. Credit for redevelopment could be limited to costs incurred in
a preapproved redevelopment plan to reduce the potential for awarding credit for
“overdevelopment.”
A fourth option would be for the state to extend the tax credit program, but to impose
further restrictions on the tangible property credit — the portion that is not related to
18
remediation — so that it is limited to economically depressed areas. This could
encourage a greater share of brownfield-related redevelopment upstate.
6) Reduce the film production credit. To limit the costs of the film credits, New York
could reduce their annual allocation. For example, it could reduce the $420 million
annual allocation currently allowed by $50 million. If New York were to implement
this reform, we suggest that it monitor film industry activities to determine whether
the level of production is affected
7) Restructure the Investment Tax Credit (ITC). There are several possible options to
restructure the ITC. Given, however, the vast inventory of unused ITC carried
forward from prior years (more than $1.2 billion), savings to the state from these
options could take several years to materialize unless the carry-forwards are directly
addressed. Options include:
a) Target the ITC. Target the ITC to job-creating investments by requiring
employment increases as a condition for credit qualification, by imposing an entity
eligibility test instead of a property eligibility test, limiting or eliminating credit for
used property, and/or by adding a requirement that ITC-eligible equipment must
produce goods for final sale.
b) Repeal the financial services investment tax credit. This credit is complicated, has
multiple employment tests, few users (of the 25 corporate taxpayers taking $18.6
million in the ITC in 2009, six accounted for $17.4 million), and frequent property
turnover requiring repeated recapture.
c) Eliminate the refundable provisions in the ITC for new businesses. The
definition of new business should exclude those that solely purchase the assets of an
existing business.
Targeted Reform
Targeted reforms generally are designed to eliminate underused credits and improve the
workings of remaining credits. The suggested options for targeted reform are as follows.
1) Repeal rarely used credits. The state has several credits that cost less than $5 million
annually and are claimed by few taxpayers. Each of these rarely utilized credits
requires an administrative structure, including guidance from the tax department, tax
19
forms, and training of tax auditors. Their success in achieving policy goals appears
quite limited in relation to the costs of administering them. The main credits in this
group are: Youth Works ($5 million), alternative fuel/electric vehicle refueling
property credit ($3 million), historic home rehabilitation credit ($3 million),
conservation easement credit ($2 million), Qualified Emerging Technology Company
(QETC) employment credit ($1 million), QETC capital credit ($1 million), clean
heating fuel credit ($0.5 million), defibrillator credit ($0.5 million), security officer
training ($0.1 million), credit for employment of persons with disabilities ($0.1
million), handicapped accessible taxi credit ($0.1 million), brownfield environmental
remediation credit ($0.1 million), and jobs retention credit ($0.1 million). Repealing
these credits would generate about $15 million in revenue, while also delivering
compliance and administration savings. Repeal of the recently enacted Hot Spots
Program would add another $5 million in savings, bringing the total to $20 million;
however, this program is too new to estimate its usage.
2) Repeal certain highly targeted tax credits. The state has a set of small and highly
targeted credits that the Tax Commission may wish to consider as candidates for
elimination. These include: the historic properties rehabilitation credit ($15 million),
the Certified Capital Company Credit ($10 million), biofuel production credit ($10
million), the PIT solar credit ($10 million), and the brownfield real property tax credit
($8 million), which is in addition to the already generous brownfield redevelopment
tax credit. In addition, the Economic Transformation and Facility Redevelopment
credit ($55 million) has been narrowly targeted, had one known participant as of
2013, and is complex to comply with and administer.
It should be noted that these proposed reforms are directed at the credits themselves, not
at the underlying stated objectives that they address. The question is thus not whether the activity
that is the subject of the credit is worthy, but whether it is best implemented through the tax
code. In addition to the policy flaws inherent in tax credits, there are indications, such as low tax
credit utilization rates, unintended consequences, and compliance complexity that suggest few
objectives are best addressed by tax credits in lieu of direct spending. Moreover, decisions as to
whether to support a given activity and at what level through a tax credit are subjective. Without
a mechanism to compel this discussion, such as that which occurs in the annual state
20
appropriations process for spending programs, or might occur with sunsets or specific annual
allocations, credits begin to multiply as interested parties promote new credits for favored
activities.
I.10
Transition Issues
Taxpayers have made commitments, such as binding contracts, based on their ability to
use credits. Transition rules and phase-ins will be desirable to allow taxpayers to take advantage
of credits for which they have already qualified and upon which they may have made business
decisions. Further, taxpayers who previously earned nonrefundable credits should be entitled to
carry them forward as under present law.
This means that the amount of cash revenue available for an overall tax rate reduction
could be limited in the early years of a reform, as alluded to in the ITC proposal. Full rate
reduction would have to wait until many taxpayers had exhausted much of their “legacy” claim
to credits. There are options the Commission could consider to ensure that more cash revenue is
available for overall rate reduction in the early years, such as instituting a minimum tax so that
credits cannot reduce liability by more than a certain percentage or amount, with credits that go
unused as a result of this change presumably carried forward to future years. This would increase
the amount of revenue generated for rate reduction in early years, but extend the time it would
take for the reformed system to generate its full potential for rate reduction.
I.11
Recommendations for Monitoring, Review, and Evaluation
Whether reforms are adopted or not, the state should strengthen its monitoring and
evaluation of business tax credits so that it is better informed about the impacts of this substantial
use of state resources. Our review of brownfield credits made clear the power of disclosure.
When information about projects qualifying for the credits was made public, it was possible to
examine them closely to estimate their impact on state resources.
Wherever practical, information on individual state business tax credits, but not on
unrelated tax return data, should be made publicly available. Where detailed tax credit
information is too closely tied to tax return data to be disclosed publicly, the data should be made
available to government reviewers for purposes of evaluation, under nondisclosure agreements.
Legislation should be developed that would expand upon the disclosure rules for existing credits
21
such as brownfield and Excelsior, extending credit disclosure to all credits on a prospective
basis.
Periodic review of credits. It is not practical to review every credit in depth every year,
but the state should establish a schedule for review that keeps the resource demands reasonable.
One approach might be to review the two largest credits — brownfield credits and film credits —
every year, other large credits every other year, and smaller credits every five years on a
staggered schedule. As discussed in Section VII, Arizona and Washington have adopted
staggered schedules for reviewing credits.
In the review, credits should be subject to rigorous evaluation criteria and state
policymakers should consider eliminating credits that cannot meet the criteria. Several questions
should be asked, including:
What is the purpose of the tax credit?
Assuming the purpose is achieved, is the tax credit good policy?
How does the credit relate to other state programs? Is a credit more effective at
meeting its goals than a spending program would be? Is a credit more effective at
meeting those goals than more-general tax reduction would be?
What are the consequences for the state budget of the credit?
The evaluation of business tax credits should not only be conducted on a credit-by-credit
basis but also using a holistic approach. This will allow policymakers to see how spending on tax
credits is being used to promote overall state objectives. For example, a frequently stated state
policy objective is the economic revival of upstate New York, especially its manufacturing
sector. Does the current allocation of tax credit spending address this objective? Does it make
sense for the state to spend less than 10 percent of the total costs of business tax credits on the
ITC, the one credit that is directly targeted towards manufacturing companies?
As described earlier, certain kinds of reviews, such as economic impact analyses, can
result in widely varying conclusions depending upon assumptions and methods used. A quality
control process should be created that (1) establishes model standards for these kinds of studies;
(2) institutes a peer-review process for draft studies, including review by academic and industry
experts; and (3) allows the public to have access to the results of the peer review process.
22
Determining the most appropriate agency to review most credits would be challenging.
At the present time, in the executive branch, neither the Department of Taxation and Finance
(DTF) — the agency with primary responsibility for administering tax credits — nor any other
NYS agency administering one or more tax credits has the responsibility for evaluating the
efficacy of the state’s tax incentives. There are several reasons why DTF is not currently in a
position to perform this function. Structural and data issues in the tax system and in the way
businesses organize themselves complicate even basic evaluation.
To conduct a complete evaluation would require a retooling of how tax returns are
processed including, for example, making data for evaluation available in a timely manner. At
the present time, DTF generally does not have final, verified data until two or three years after
the conclusion of a given tax year. Other reasons include:
The level of resources needed to add additional functions to those already in place has
not been made available to DTF.
The expertise to evaluate all tax expenditures does not reside in DTF, especially for
those incentives that are the responsibility of other agencies.
•
If the credit is as-of-right with no external agency involved (e.g., the investment
tax credit), DTF monitors compliance.
•
If the credit is fully administered by an agency other than DTF, the agency that
awards actual credit certificates (e.g., film credits and Excelsior credits) handles
compliance.
•
When an agency other than DTF certifies eligibility, but DTF monitors
compliance with the tax laws, administration is more complicated. An example is
brownfield credits. DTF defers to the Department of Environmental Conservation
(DEC) on all environmental criteria required to get a certificate of completion.
Once the taxpayer files the credit, DTF ensures compliance with tax rules.
Even with the suggested staggered reviews, the state will need to reallocate resources for
this purpose to ensure that the entity responsible for evaluation has sufficient staff time available.
That agency will also have to strengthen its evaluation tools and expertise, both of which will
take time. In addition, because of multiple agency coadministration of certain credits, evaluation
23
will require cross-agency cooperation. In addition, as discussed in Section VI, because tax data
systems often do not provide information that is ideal for evaluation, the reviewing entity will
have to either work within the limits of available data or, where warranted, collect additional
data for purposes of evaluation.
24
II.
INTRODUCTION
This report provides a review and analysis of the business tax credits provided by NYS as
of 2013. The report begins with a brief summary of research studies relating to the pros and cons
of tax incentives. This is followed by a description of NYS’s 52 enacted business tax credits
grouped by three implicit state objectives for offering tax incentives: (1) to promote economic
development throughout New York; (2) to help revitalize economies in distressed areas
throughout the state; and (3) to support the state’s social, housing, and environmental policies
(see Appendix Table X.1.1 for summary characteristics of the 52 credits). The following parts of
the report look at the fiscal impact of NYS business tax credits; analyze the state’s two largest
business tax credits in depth — the brownfield credits and the film production credits; and
compare NYS incentives against widely used tax policy evaluation standards. The final section
of the report provides options for the Commission to consider that would reform New York
State’s business tax credits.
25
III.
PROS AND CONS OF TAX INCENTIVES: WHAT THE RESEARCH TELLS US
NYS is not unique in its use of tax incentives to promote economic development. All 50
states offer at least one tax incentive to businesses; most offer several, primarily to attract
businesses from other states.16 Tax incentives are often used “as part of a bidding war between
states over firms seeking to relocate or expand. If one state offers a tax credit, others often feel
compelled to match it or risk being left behind.”17 This is especially true when states react to
vociferous claims by businesses that taxes are a major factor in their location and expansion
decisions. There is, however, no conclusive evidence from research studies conducted since the
mid-1950s to show that business tax incentives have an impact on net economic gains to the
states above and beyond the level that would have been attained in the absence of the incentives
(see Appendix Table X.1.2 for illustrative studies). Nor is there conclusive evidence from the
research that taxes, in general, have an impact on business location and expansion decisions.
Estimating the economic impacts of tax credits is difficult. First, it is necessary to
estimate the extent to which the credit stimulates the activities that qualify for the credit as
opposed to subsidizing activity that would have occurred in the absence of the credit. Second, it
is necessary to determine how much of this activity replaces other, nonqualifying activity that
would otherwise have taken place. For example, expansion by one business may come at the
expense of attracting customers or workers away from other businesses, producing no increase in
the size of the economic pie. It also difficult to estimate the so-called multiplier effects, i.e., the
extent to which an initial increase in economic activity ripples through the economy as the
additional income is spent on goods and services provided by other businesses in a state.
Researchers have used different methods to estimate the efficacy of tax incentives. Some,
for example, have assumed that none of the economic activity for which a credit was claimed
would have occurred in the absence of the credit. Almost by definition, these kinds of studies —
and they are common — will conclude that the incentive has a significant economic impact.
They assume the answer at the start. Other studies may not take into account the fact that lower
taxes on one industry may require higher taxes on other industries or lower government spending
on services. Studies may also look at the economic impact on the targeted industry, but ignore
16
17
Terry Buss, “The Effect of State Tax Incentives on Economic Growth and Firm Location Decisions: An Overview of the
Literature. Economic Development Quarterly 15, 1(February 2001): 90-105.
Evidence Counts: Evaluating State Tax Incentives for Jobs and Growth, 2012.
26
the costs to the state. Some researchers assume that the labor and capital used in the targeted
activity would otherwise have been unemployed so that no adjustment need be made for reduced
economic activity in unrelated industries. Instead, they typically assume that economic activity in
the targeted industry creates a multiplier effect that increases economic activity in unrelated
industries.
Using a wide range of assumptions and methodological approaches, research has thus led
to mixed results. A few studies have reported a positive relationship between tax incentives and
job growth, particularly when companies are deciding where to locate within a specific region.18
Most, however, have found that tax incentives are a zero sum game for the states in aggregate
and have little to no effect on aggregate job creation or other metrics of economic development.19
A 2008 review of research on business location decisions, for example, reported that
most research shows incentives not to be worth the money spent by state and local
governments.20 One example describes Chicago’s effort to attract the headquarters of Boeing, the
world’s leading aerospace company and the largest manufacturer of commercial jetliners and
military aircraft. Included in the $63 million incentive package were $41 million in state tax
credits and local property tax abatements. Boeing did locate its headquarters in Midway with
Chicago’s mayor declaring: “Today’s decision confirms to the world that Chicago is a great
place to live, work and do business.”21 There was, in fact, no evidence of local job creation
associated with the Boeing relocation to Midway and the multiplier effect — the creation of
additional jobs and income as spending from the Boeing headquarters rippled through the
economy — was not significant.22
Even when different studies look at the same business incentive or set of incentives
offered in a particular state, findings have been mixed. Studies of film credits in Louisiana and
New Mexico — two states often cited as success stories with film incentives — illustrate this
point. In Louisiana, according to a consultant’s study prepared for the department of economic
18
19
20
21
22
See, for example, Peter S. Fisher and Alan H. Peters, “Tax and Spending Incentives and Enterprise Zones.” New England
Economic Review (March/April 1997): 109-37, http://geography.tamu.edu/class/bednarz/neer297f.pdf.
See, for example, Robert S. Chirinko and Daniel J. Wilson, State Investment Tax Incentives: A Zero-Sum Game? Working
Paper 2006-47 ((San Francisco, CA: Federal Reserve Bank of San Francisco, July 2008), http://www.frbsf.org/economicresearch/files/wp06-47bk.pdf.
Martin Saiz and Susan E. Clarke, “Economic Development and Infrastructure Policies,” Politics in the American State: A
Comparative Analysis, 9th ed. Virginia Gray and Russell Hanson, eds. (New York: Congressional Quarterly Press, 2008).
Jack Lyne, “$63 Million in Incentives, Last-Second Space Deal Help Chicago Land Boeing,” Site Selection Web Site, No
Date, http://www.siteselection.com/ssinsider/incentive/ti0106.htm.
Saiz and Clarke, 2008.
27
development, the credits have been successful, generating $4.80 of private sector sales in related
industries for each dollar spent on the tax credit and 15,184 jobs from spending in related
industries.23 In contrast, a 2013 performance audit by the state’s Legislative Auditor’s Office
reported that the incentive program was riddled with problems and resulted in a net cost to the
state of close to $170 million.24 In New Mexico, a report prepared by the University of New
Mexico found that the state’s film incentives were responsible for creating about 2,400 jobs at a
net cost of about $13,400/job.25 In contrast, a consultant’s study of the same credits showed that
about 9,200 jobs were created at a net cost of about $300 per job.26 The conflicting findings for
New Mexico and Louisiana point up an interesting outcome regarding the studies themselves —
consulting firms generally report that the film production incentives pay for themselves;
academic studies and reports prepared by the states are less sanguine.
Inconclusive and incongruent research results are explained by several factors including,
but not necessarily limited to, the following.
Other costs of doing business generally take precedence over taxes in business
location/expansion decisions. These include the cost/quality of labor; the
cost/reliability of utilities; proximity to markets, suppliers, and/or other company
facilities; site availability; access to/cost of transportation; access to financing; the
regulatory environment; and “quality of life” issues such as school quality and the
availability/cost of housing.
Tax incentives that reduce the costs of doing business are not offered in isolation
from other state and local fiscal policies. When businesses make location/expansion
decisions, they consider all state and local taxes, e.g., personal income taxes, and the
availability/quality of government services. A company’s decision to locate or expand
23
24
25
26
Loren C. Scott & Associates, Inc., The Economic Impact of Louisiana’s Entertainment Tax Credit Program (Baton Rouge,
LA: Loren C. Scott & Associates, Inc., April 2003),
http://louisianaentertainment.gov/docs/main/2013_OEID_Program_Impact_Report_(FINAL).pdf.
Louisiana Legislative Auditor, Louisiana Department of Economic Development and Louisiana Department of Revenue
Motion Picture Tax Credit Program Performance Audit (Baton Rouge, LA: Louisiana Legislative Auditor, April 24, 2013,
http://app1.lla.la.gov/PublicReports.nsf/5A685258D794067E86257B57005B8D58/$FILE/00032357.pdf.
Anthony V. Popp and James Peach, The Film Industry in New Mexico and the Provision of Tax Incentives, a report submitted
to the Legislative Finance Committee of the State of New Mexico. (Las Cruces, NM: Arrowhead Center, Office of Public
Policy Analysis, New Mexico State University, August 26, 2008),
http://arrowheadcenter.nmsu.edu/sites/default/files/uploadecd/filmindustryfinal.pdf.
Ernst & Young, Economic and Fiscal Impacts of the New Mexico Film Production Tax Credit. Prepared for the New Mexico
State Film Office and State Investment Council. (No Location: Ernst & Young, January 2009), http://www.frsm.se/wpcontent/uploads/2012/07/NMFilmCreditImpactAnalysis.pdf.
28
can therefore be affected by the totality of state and local fiscal policy, not just tax
incentives.
If taxes imposed on a business can be passed on to consumers via higher prices or
back to owners of the resources that it purchases (including wages paid to workers),
they may not be a deciding factor in business location/expansion decisions.
A sufficiently large tax incentive may have positive effects on the growth of a targeted
area or industry, but its overall impact on the state’s budget and on its economic development
may not be positive. If the incentive improves conditions for a single industry or location, the
overall result may not be economic growth for the state. If it does not pay for itself, the incentive
must be paid for by cuts in services/investment or increases in other taxes. In addition, an
incentive that favors one industry or one region may undermine several “good tax policy” goals
such as tax efficiency and simplicity, as discussed in Section VII of this report.
29
IV.
NYS BUSINESS TAX CREDITS: AN OVERVIEW
NYS provides business tax credits to meet
three implicit state objectives. They are: (1) to
Statutory vs. Discretionary Business Tax
Credits
promote economic development throughout the
state by reducing the costs to businesses of
investing and creating jobs in NYS; (2) to help
revitalize economies in the state’s distressed areas;
and (3) to support the state’s social, housing, and
environmental policies. In 2013, NYS business tax
credits cost the state an estimated $1.7 billion, of
Statutory credits, often referred to as
“as-of-right” credits, are based on a
statute or regulation. Taxpayers who
meet the qualifications in the law are
eligible to receive the credit.
For discretionary tax credits, there
is some type of negotiation and approval
process between the taxpayer and the
government offering the credit. This
type of credit is often referred to as a
negotiated credit.
which credits to promote economic development
cost the state $1.16 billion, or 69.5 percent of the total. Targeted credits cost the state an
estimated $428 million, or 25 percent of the total, and credits to support state social and related
policies cost an estimated $126 million, or 7.3 percent of the total.
Most credits are available “as-of-right”; other credits are discretionary. Until recently,
NYS business tax credits have generally been as-of-right with virtually no negotiation between
the state and taxpayers claiming the credit. A few newly created credit programs, including the
Excelsior Jobs program, are discretionary. In some cases, the discretionary credits, again
including the Excelsior Jobs program, are subject to statutory dollar caps to limit their costs.
Taxpayers must demonstrate eligibility for some credits before claiming them. For other
credits, such as those that require employment increases, at the time of claiming taxpayers must
show the calculations that support the credits claimed. Some credits have recapture provisions if
certain requirements are not maintained even after the credit was granted. For example, if
investment tax credit (ITC) property is disposed of prior to the end of its useful life, taxpayers
must add back a proportionate share of the credit previously claimed to their tax liability. With
certain credits based on property taxes paid, if the assessment is reduced during the life of the
credit, the amount of the credit that was based on the higher assessment value will be recaptured.
Limitations on Credits
In some cases, NYS law limits the costs of individual credits taken by a single taxpayer,
limits the aggregate cost of specific credits, and/or limits or stretches out over time total credit30
taking by individual taxpayers. For example, the state has imposed caps on individual brownfield
credits so that the tangible property (development) component may not exceed $45 million for
manufacturing projects and $35 million for other projects. The state has also established an
annual allocation for film production credits and for Excelsior Jobs credits, so that the aggregate
amount granted for all projects in a single year cannot exceed $420 million and $500 million,
respectively.
New York limits usage of credits for individual taxpayers in other ways. For example, the
state historically has tried to ensure that credits and other incentives do not completely eliminate
tax liability for individual taxpayers so that businesses pay at least some taxes annually. The state
has done this by creating “minimum taxes” to make certain that credit-taking does not reduce
taxes in the current year below a minimum level, with unused credits carried forward to future
years.
The dollar value of a credit used by a taxpayer in a given year includes both credits
earned in prior years and carried forward as well as credits earned in the current tax year. Time
limits on carry-forward provisions depend on the rules associated with each credit. In 2013, of
the 50 tax credits available to businesses filing for New York’s Corporation Franchise Tax
(CFT), related business taxes, or the Personal Income Tax (PIT), 16 have carry-forward
provisions. Ten of the 16 allow taxpayers an unlimited time horizon in applying the credit
against future tax liability.
NYS has also placed limitations on overall usage of tax credits in response to budgetary
problems. For example, in 2010, the state enacted a temporary provision as part of its annual
budget that required taxpayers filing in tax years 2010, 2011, and 2012 to defer the use of most
credits to tax years 2013 and later. The numbers used in this report reflect estimates of credits
before considering the impact of any deferrals.
IV.1
NYS Business Tax Credits to Promote Economic Development
Most of New York’s business tax credits were enacted in an attempt to make companies
more competitive with their counterparts in other states where taxes and other costs of doing
business are perceived to be lower. NYS began to use business tax credits to spur economic
development in 1969 when it enacted the investment tax credit (ITC) for manufacturers as a
replacement for an earlier tax deduction. Since then, the state has created 21 other tax credits to
31
stimulate statewide economic activity. Each is described below.
In 2013, the 22 NYS business tax credits to promote economic development cost the state
an estimated $1.2 billion and accounted for 69.5 percent of the total cost of all business tax
credits (see Table 4.1). Of the 22 credits,
21 are refundable. Of the 21 refundable credits, 15 are refundable to all businesses.
For the remaining six, refundability is limited to new businesses as defined in each
credit’s enabling legislation;
All the nonrefundable credits have carry-forward provisions that allow taxpayers to
apply their unused credits against tax liability in later years; however, the carry-over
periods vary by credit.
Table 4.1: NYS Business Tax Credits to Promote Economic Development, 2013*
Credit
Initial Year
$ in Millions
% of Total
Number of
Business Tax
Refundable Years for Carry
Credits
Forward
100.0%
69.5%
29.4
28.9
Yes
0.5
Yes
0.0
Yes
21.8
21.0 Yes over 3 yrs
0.4 Yes over 2 yrs
0.4 Yes over 2 yrs
7.5
n.a. New Bus. ***
15 yrs
n.a. New Bus. ***
15 yrs
n.a. New Bus. ***
15 yrs
n.a.
PIT New
PIT 10 yrs
1.8 New Bus. ***
15 yrs
n.a New Bus. ***
15 yrs
8.7
****
Yes
****
Yes
****
Yes
****
Yes
0.2
Yes
0.1
0.1
No
Unlimited
0.1
Yes
0.0
Yes
Total Business Tax Credits
$1,714.9
Total Economic Development Tax Credits
$1,191.7
Brownfield Redevelopment Tax Credits
503.0
a. Brownfield Redevelopment Tax Credit
2005
495.0
b. Remediated Brownfield Credit from Real Estate Taxes
2005
8.0
c. Environmental Remediation Insurance Credit
2005
0.0
Empire State Film Credits
374.0
a. Film Production Credit
2004
360.0
b. Film Post Production Credit
2010
7.0
c. Commercial Production Credit
2007
7.0
Investment Tax Credits
129.0
a. Investment Tax Credit
1969
n.a.
b. Retail Enterprise Tax Credit
1981
n.a.
c. Rehabilitations Credit for Historic Barns
1997
n.a.
Employment Incentive Credit
1987
n.a.
Investment Tax Credit for Financial Services
1998
30.4
Employment Incentive Credit for Financial Services
1998
n.a
Excelsior Jobs Programs Tax Credits
150.0*
a. Excelsior Jobs Tax Credit
2010
****
b. Excelsior Investment Tax Credit
2010
****
c. Excelsior R&D
2010
****
d. Excelsior Real Property Tax Credit
2010
****
Beer Production Credit
2012
3.0
Qualified Emerging Technology Company (QETC) Credits
2.2
a. QETC Capital Tax Credit
1999
1.0
b. QETC Employment Credit
1999
1.2
Security Training Tax Credit
2005
0.1
*Forecast estimates.
*** New businesses are specifically defined within the respective credit statutes.
**** New Program. Distribution of credit among the components is not available.
n.a. Data not available for individual programs but are included in Investment Tax Credit and Investment Tax Credit for Financial Services.
Source : Compiled by authors from New York State Division of Budget and Department of Taxation and Finance Annual Report on New York
State Tax Expenditures 2013-14 State Fiscal Year and from information provided by Department of Taxation and Finance.
In 2013, the two largest credits — brownfield credits and film production credits — cost
32
NYS government an estimated $503 million and $374 million, respectively, and accounted for
51 percent of the cost to the state of all business tax credits. Both are analyzed in more detail in
Section VI of this report.
Investment Tax Credit (ITC). The 1969 ITC permitted a manufacturing company to
claim a stated percentage of its investment in capital goods as a credit against its NYS
corporation franchise or personal income tax liability. It was modeled in many respects after the
investment credit under the federal income tax, which had been enacted in 1962 and repealed in
1986. However, unlike its federal counterpart, the New York State ITC is available to plants as
well as equipment, can be claimed for an unlimited amount of used property, and can be claimed
for only certain kinds of investments made by public utilities. The ITC is available for certain
nonmanufacturing activities such as the use of films stored in New York to generate television
revenue regardless of whether the films were made in New York. The objective of the credit was
to encourage capital investment by manufacturing businesses.
Because the ITC applies equally to new or used equipment, there was concern that it
would provide benefits to taxpayers who did not modernize facilities but merely bought existing
assets. Unlike the federal government, New York never adopted a provision to limit the amount
of used property eligible for the credit. New York subsequently expanded its ITC to cover certain
expenses of retail enterprises, rehabilitation of historic barns, and property used in qualified film
production. It also enacted a separate ITC for certain physical investments of companies in the
financial services industry. The volume and nature of the changes to the ITC demonstrate the
tendency of governments to expand both the scope and cost of tax credits once enacted (see
Appendix Table X.1.3 for a history of ITC changes). As of 2013, the ITC provided for:
a credit equal to 5 percent of investment up to $350 million in buildings and tangible
personal property acquired by purchase, with a useful life of four years or more and
used in production,27 qualified film production facilities, waste treatment and
pollution control property, or research and development property (4 percent rate on
amounts over $350 million and for PIT taxpayers); and
an optional R&D rate of 9 percent of qualified investment (7 percent rate for PIT
taxpayers).
27
Industries include manufacturing, processing, assembling, agriculture, refining, mining, extracting, farming, horticulture,
viticulture, and commercial fishing.
33
The ITC is recaptured with interest if the property for which the credit was claimed is
withdrawn from qualified use during a recapture period, which varies with the useful life of the
property. It is generally not refundable; however, refunds are provided for an ITC generated by
“new businesses.” New businesses for this purpose include taxpayers who have not previously
done business in New York who buy the assets of an existing business and may, therefore, claim
an ITC on the eligible property owned by the target business.
ITC for the Financial Services Industry. Brokers or dealers in securities are eligible for
an ITC for equipment and buildings used in broker/dealer activity. The credit is available to
qualified general business corporations, banks, and insurance companies. To be eligible for this
credit, the taxpayer’s property must be principally used in qualifying activities and must be
placed in service prior to October 1, 2015.
Although the property must be located in NYS, it is not necessary for the users of the
property to be located in the state. For example, a computer system placed in service in NYS
would qualify for the credit, even if the brokers accessing the system are located outside the
state. Taxpayers must also meet one of three employment tests:
the 80 percent current year test — 80 percent or more of the employees performing
the administrative and support functions resulting from or related to the qualifying
uses of the property must be located in NYS; or
the 95 percent three-year back office test — the average number of back office
employees resulting from or related to the qualifying uses of the property and are
located in NYS during the tax year the credit is claimed is equal to or greater than 95
percent of the average number of back office employees that perform these functions
and are located in NYS during the 36 months immediately preceding the tax year for
which the credit is claimed.
The number of NYS employees employed during the current tax year must be equal
to or greater than 90 percent of NYS employees as of the end of 1998.
The credit rate and rules are generally the same as for the ITC described above. The
most significant claims for financial services ITC are situations where a broker/dealer
builds or purchases an office building.
34
Employment Incentive Credit (EIC). In 1975, NYS enacted an employment ITC separate
from the more general ITC. In 1987, this credit was replaced by the employment incentive credit
(EIC) that is still in effect. The value of the EIC is based on the same qualifying investment as
the ITC and is allowed for each of the two years immediately following the year the ITC was
allowed. Currently, the EIC provides for:
a credit from 1.5 percent to 2.5 percent of investment based on increased employment
within NYS over the year prior to the investment (1.5 percent rate if less than 2
percent employment increase; 2 percent rate if less than 3 percent employment
increase; 2.5 percent rate if 3 percent or greater employment increase).
Unlike the ITC, there is no recapture if the equipment for which the EIC is claimed is
removed from qualified use or if employment subsequently falls below the threshold levels. The
EIC employment test is based only on the New York employment growth for the specific
corporation claiming the credit regardless of employment growth of certain other corporations in
the same corporate family.
Employment Incentive Credit for the Financial Services Industry. In 1998, NYS
enacted a credit for financial services taxpayers that qualified for the ITC and are taxed as
general business corporations and under the personal income tax. (Banks and insurance firms are
not allowed to claim the EIC even when they are eligible for ITC.) The rules for this credit are
generally similar to the rules for the EIC.
Brownfield Credits. A brownfield property can be defined as a site that is, or may be,
contaminated by previous industrial or related uses but has reuse potential once remediated.
Brownfield sites are located in cities with long histories of manufacturing activity and also in
small towns and rural areas. Originally available in 2005, the brownfield redevelopment tax
credit was amended in 2008 primarily out of concern for its cost. While the remediation of
brownfield sites contributes to NYS’s objective to promote a cleaner environment, their reuse for
revenue producing activities has made them a prime economic development tool. In addition,
experience has shown that the overwhelming majority of the credit generating activity is for
redevelopment rather than cleanup. Accordingly, they are classified in this report as economic
development incentives.
The NYS brownfield program provides three refundable tax credits:
35
a redevelopment credit dependent on remediation level, location, and type of taxpayer
(personal or corporate);
a credit for real property taxes for remediated brownfield properties based on number
of employees at the location. This credit can be equal to as much as 100 percent of
real property taxes; and
a one-time environmental remediation insurance credit for remediation insurance
premiums.
The brownfield program is the most expensive NYS tax credit program and one of its
most controversial. Proponents of the program see it as a tool to help revitalize local economies.
Critics contend that it has not worked as intended, with the main problem being the way in which
credits are awarded and the types of reuses of the qualified properties. A detailed analysis of the
brownfield credits is presented in Section VI of this report.
Film Production Credits. The Empire State film production tax credit, initially available
in 2004, is designed to increase the film production and post-production industry activities in the
state. Amended in 2006 (to add the commercial production credit) and in 2010 (to add the postproduction credit), the credits provide incentives to qualified companies that produce feature
films, television series, relocated television series, television pilots and television movies and
commercials and/or incur post-production costs associated with the original creation of these
film productions. There are three refundable film production credits. They are:
The film production credit: The production credit is available for companies that film
a substantial portion of their project in NYS.
The post-production credit: The post-production credit is available for film
production companies that film outside of NYS but contract their post-production
work to a NYS company.
The commercial production credit: The commercial production credit is available to
qualified commercial production companies shooting commercials within NYS.
There are three component credit programs — an upstate program, a downstate
program, and a growth program.
The credits are awarded on a first come, first served basis with the total value of annual
awards for film and post-production activity limited to $420 million between 2014 and 2019. Of
36
the annual amount available, $7 million was initially allotted to post-production credits, but the
amount was increased to $25 million, effective in 2015. The separate commercial production
credits are capped at $7 million a year and are available through 2014.
Film production credits are the second most expensive NYS tax credit program.
Proponents of the credits see film production activities as job creators and assume that these jobs
and the employment growth of businesses interacting with the film industry would not have
occurred absent the credits. Critics see the jobs created by film producers as temporary with
many going to out-of state residents. They believe that the credits (and other incentives) reward
companies for film production that they would have done absent the credits. Further analysis of
NYS’s film credits is presented in Section VI of this report.
Excelsior Jobs Program Credits. The Excelsior Jobs Program was introduced in 2010 to
replace the repealed Empire Zone Program (discussed below) and amended in spring 2013 to
reduce the job creation thresholds required for companies to participate in the program. Excelsior
provides incentives to firms in what are called strategic industries. The industries and the
minimum employment requirements to participate in the program include:
scientific research and development (R&D) firms creating at least five net new jobs;
software development firms creating at least five net new jobs;
agriculture firms creating at least five new jobs;
manufacturing firms creating/retaining at least ten net new jobs;
financial services (customer service) back office operations creating at least 50 net
new jobs;
back office firms creating at least 50 net new jobs; and
distribution firms creating at least 75 net new jobs.
Also eligible for Excelsior credits are firms creating at least 300 net new jobs and
investing at least $6 million and those in strategic industries that make significant capital
investment and employ at least 25 people. Credits are offered in two tracks: a job growth track
and an investment track. The job growth track comprises 75 percent of the program and is
available to all firms in strategic industries that create new jobs in NYS. The remaining 25
percent is set aside for investment track companies with at least 50 employees that make
37
significant new capital investments in a NYS facility and meet a benefit-cost threshold of at least
$10 of investment and new wages for every $1 of tax credits.
All four Excelsior credits are refundable. One is geographically targeted — the Excelsior
real property tax credit — and is available to companies locating in certain distressed areas and
to companies in targeted industries that meet higher employment and investment thresholds
(referred to as Regionally Significant Projects). The other three credits are available to firms
statewide. They are:
a wage credit of 6.85 percent per new job to cover a portion of the associated payroll
cost;
a 2 percent credit for qualified investments; and
a credit of 50 percent of the Federal Research and Development credit for up to 3
percent of research expenditures in NYS.
In addition to income tax credits, the Excelsior Program also authorizes utilities to offer
discounted gas and electric rates.
Participation in the Excelsior Program and the amount of credits authorized is at the
discretion of the Empire State Development (ESD), the state agency responsible for the program.
Qualification for the program is based on the company’s plan for job and investment growth. The
value of the credit is stipulated in the agreement between the company and ESD and businesses
are permitted to take the credits only after they have met annual program requirements. This preapproval process was developed in an effort to ensure that the credits would be used for new,
measurable activity. The 2013 amendments to the Excelsior Program mentioned above provided
that if a business creates fewer than the contractually agreed number of net new jobs, the credits
will be proportionately reduced based on actual performance provided that at least 75 percent of
the net new jobs have been created. The total cap on excelsior program costs is set at $500
million annually. It was not yet reached in 2013, when credits taken by eligible companies
totaled an estimated $150 million.
Qualified Emerging Technology Company Credits. The qualified emerging technology
company (QETC) tax credits became effective in 1998 to encourage location/expansion in NYS
of companies in emerging technology industries. Two tax credits are available:28
28
The QETC facilities, operations, and training credit expired on January 1, 2012.
38
an employment credit for job creation; and
a capital tax credit for investors in QETCs.
Beer Production Credit. Effective in 2012, the beer production credit replaced an earlier
excise tax exemption that was ruled unconstitutional. The purpose of the credit (and of the
previous exemption) is to encourage the growth of small breweries in the state. Businesses are
eligible for the beer production credit if they are registered distributors under the NYS tax law
for alcoholic beverages and produce 60,000,000 or fewer gallons of beer in NYS in the tax year
for which the credit is claimed.
The credit is $0.14 cents/gallon for the first 500,000 gallons produced in NYS in a tax
year plus $0.45 cents/gallon for each additional gallon over 500,000 (up to
15,000,000 additional gallons) produced in NYS in the same tax year.
Security Officers Training Tax Credit. The security officers training tax credit, effective
as of 2005, provides a refundable credit for owners of large commercial buildings.
The credit is $3,000 for each security guard who has taken training certified by the
New York Division of Homeland Security and Emergency Services.
IV.2
Geographically Targeted Business Tax Credits
New York began to use geographically targeted business tax credits in 1968 when it
enacted the Urban Job Incentive Program. Since then, the state created four other tax credit
programs to encourage investment and job creation in economically distressed areas. They are:
(1) the Economic Development Zones Credit Program that became the Empire Zones (EZ)
Program in 2000 that, in turn, was phased out in 2010; the Economic Transformation and
Facility Redevelopment Program Tax Credits; and the Empire State Jobs Retention Program
Credits.
In 2013, the costs of the 14 geographically targeted credits totaled an estimated $428
million, accounting for 25.0 percent of the costs of all NYS business tax credits (see Table 4.2).
Of these, Empire Zone credits valued at $374 million were attributable to a program that was
phased out beginning in 2010. Businesses, however, are permitted to take their credits until 2020.
The costs to the state of EZ credits will decline as companies complete their benefit periods. Of
the 14 geographically targeted credits, five are refundable for new businesses; seven are
39
refundable for all businesses; and six of the credits have carry-forward provisions with an
indefinite time horizon.
Table 4.2: NYS Geographically Targeted Business Tax Credits, 2013*
Credit
Initial Year
Total Business Tax Credits
$ in million
$1,714.9
% of Total
Bus. Tax
Credits
Refundable
Number of
Years for Carry
Forward
100.0%
Total Geographically Targeted Business
$428.0
25.0%
Tax Credits
Empire Zone Credits ***
374.0
21.8
a. Investment Tax Credit
1986
42.0
2.4 New Business 50%
Unlimited
b. Employment Incentive Credit
1986
****
PIT New Business
Unlimited
c. EZ/ZEA Wage Tax Credit
1986
38.0
2.2 New Business 50%
Unlimited
d. EZ Capital Credit
1986
1.0
0.1
No
Unlimited
e. QEZE Real Property Tax Credit
2001
212.0
12.4
Yes
f. QEZE Tax Reduction Credit
2001
81.0
4.7
No
None
Economic Transformation and Facility
54.0
3.1
Redevelopment Program Tax Credit
a. Job Tax Credit Component
2011
54.0
3.0
Yes
b. Tax Credit Component
2011
**
**
Yes
c. Job Training Tax Credit Component
2011
**
**
Yes
d. Real Property Tax Credit Component
2011
**
**
Yes
Empire State Jobs Retention Program
2012
**
**
Yes
Credit
a. Jobs Tax Credit Component
2012
*****
*****
Yes
b. Investment Tax Credit Component
2012
*****
*****
Yes
* Forecast estimates.
**Less than $0.1 million.
*** Empire Zone program expired on June 30, 2010; existing participants can continue to earn credits.
**** Estimates for ITC and EIC include amounts of Empire Zone financial service ITC and EIC.
***** New Program. Distribution of credit among the components is not available.
Source: Compiled by the authors from the NYS Division of Budget and Department of Taxation and Finance Annual Report on
NYS Tax Expenditures 2013-2014 State Fiscal Year and information provided by Department of Taxation and Finance.
Urban Job Incentive Program. Originally proposed as a pilot effort limited to the six
largest cities in NYS, in 1971, the Urban Job Incentive Program was made available to
businesses located in nine more cities and in 22 low-income rural counties. In 1975, the credit
was extended to businesses in the entire state. The Urban Job Incentive Board (JIB), created to
administer the program, gave the credit the name by which is has been known — the JIB credit.
To qualify for the credit, businesses were required: (1) to build or expand a job producing facility
in a targeted area; (2) to employ at least five people from the eligible area and provide a job
training program approved by the JIB; and (3) to service an area larger than the eligible area. The
third requirement was intended to limit eligibility to manufacturing and wholesaling firms and to
exclude retail and hospitality businesses.
Despite these eligibility criteria, controversies surrounded the credit and its broad
40
availability. It came under fire after a series of newspaper articles exposed some credit recipients,
notably Tiffany & Co. and several large foreign and domestic financial firms, and identified
other cases where the credit did not function as intended. In the wake of the controversies caused
by this and other negative publicity and general dissatisfaction with results of the credit, it was
repealed by the state in 1983.
Economic Development Zone Credits. In 1986, NYS restarted its efforts to target tax
incentives to economically distressed areas when it established the Economic Development Zone
(EDZ) program. New York’s EDZ Program was similar to zone programs being created in more
than half the states in the U.S. and abroad in efforts to revitalize distressed urban and rural
areas.29
In New York, EDZ legislation provided for 10 zones to be created in Census tracts with
high poverty and unemployment rates. Benefits for qualified businesses located in the zones
included tax credits on their personal income, corporate franchise, bank, insurance, and Article 9
corporation taxes. In 1993, the EDZ program was expanded to permit counties to create an
economic development zone if they perceived a threat of “sudden and severe” job loss in the
upcoming three years. The 1993 amendments also allowed for designation of land contiguous to
existing zones if it had business development and job creation potential. As a result of these
changes, the number of zones increased to 40 by 1995.
Empire Zones. In 2000, the name of the Economic Development Zone Program was
changed to the Empire Zone (EZ) Program and new eligibility rules were adopted that facilitated
the creation of additional zones and made it easier for businesses to qualify for benefits. Changes
reflected, in part, the perception that existing benefits had not created the anticipated level of
economic activity. The new criteria for zone designation completely eliminated the need for local
jurisdictions to identify the threat of job loss when they were applying for zone designation. This
change made just about all areas in NYS eligible for zone designation.
As of 2008, there were close to 10,000 qualified businesses in the program in 82 zones.
Once certified by Empire State Development, businesses located in the EZs could claim tax
benefits and other incentives as-of-right, such as an ITC and wage tax credit. Taxpayers meeting
29
An enterprise zone is a government-designated geographic area in which qualified businesses are entitled to receive various
types of financial aid (including tax benefits) to encourage job and capital creation in the zone.
41
additional job creation criteria could be designated as qualified Empire Zone enterprises, or
QEZEs, and be eligible for additional benefits including:
a refundable credit to be applied against business tax or PIT liability for real property
taxes paid, later amended to be based on wages and benefits for net new jobs in the
zone and capped at the amount of real property taxes paid;
a credit equal to a percentage of income taxes associated with their economic activity
in the zone; and
a sales tax exemption for property used in the zone.
A key feature of the two new QEZE credits was that they were calculated on the basis of
a taxpayer’s job creation in the zone. If the base value was zero, any job creation was calculated
as a 100 percent increase and made the taxpayer eligible for a full refund of property taxes. What
resulted was a multitude of companies changing their business structure, e.g., from corporation
to partnership, to create zero-base employment in the “new” enterprise to maximize the tax
credit, a process known as “shirt-changing.” This situation resulted in previously existing
businesses generating few or no new jobs, but receiving millions of dollars in credit. Another
problem was the redrawing of zone boundaries to include businesses located outside of the
original zone area, disconnecting the program from its initial objective of creating jobs in
economically distressed areas, and leading to accusations that zones were being gerrymandered
to benefit well-connected taxpayers.
Repeated efforts to reform the Empire Zone program failed to address these and other
flaws and loopholes adequately and instead created a complex set of rules and calculations. A
2007 consultant report referred to Empire Zones as:
the best example of good economic development intentions gone
wrong. Its original mission has been morphed by political
patronage, legislative revision, and commercial manipulation,
effectively repositioning it from a program primarily helping
42
distressed communities to one routinely offering tax relief for
ongoing businesses.30
A 2008 audit by the NYS Comptroller showed that job targets were often not met and
recommended that “…New York should take another look at the Empire Zones program…. If
officials can’t demonstrate that the program is working, and if local governments and taxpayers
are not benefiting from a program that’s supposed to generate economic development and create
jobs, it calls into question the value of the program.”31 As was the case with the state’s repeal of
the JIB credit, in the wake of controversies and general dissatisfaction with results, the EZ
Program was discontinued in 2010. While the phase-out legislation stipulated that no new
businesses were to be accepted after June 2010, current program participants were permitted to
continue using their EZ wage and ITC credits until the second half of 2014, and their QEZE tax
incentives until 2020.
The history of the Empire Zone program illustrates two common issues associated with
business tax credit programs. First, geographically targeted programs tend to expand in size as
previously excluded communities make the case that they should be included in the program.
Second, unless they are carefully drafted, tax credit programs can generate excessive benefits, as
illustrated by the situations where substantial QEZE real property credits were generated for
businesses that employed few people.
Economic Transformation and Facility Redevelopment Program Tax Credits. This
program was initiated in 2011 to mitigate the economic consequences associated with the closing
of state government facilities. Four refundable credits offer incentives to redevelop the closed
facilities and to attract new businesses to impacted areas. To qualify, a company must: (1) be a
new business located within one of the state’s Economic Transformation Areas32 and create at
least five net new jobs; and (2) be in a high-tech, clean-tech, manufacturing, or other strategic
30
31
32
AT Kearney, Delivering on the Promise of New York State: A Strategy for Economic Growth & Revitalization. Prepared for
Empire State Development (Albany, NY: Empire State Development, 2007),
http://www.esd.ny.gov/Resources/atkearneyreport2007.pdf.
Office of the NYS Comptroller. The Effectiveness of Empire Zones: Follow-Up Report (Albany, NY: Office of the NYS
Comptroller, February 11, 2008), http://www.osc.state.ny.us/localgov/audits/swr/empirezones.pdf.
An Economic Transformation Area is defined as an area limited to the site of a closed facility or an area within a certain
radius of the facility. The size of the area depends on several factors including the facility’s location, population density,
poverty and unemployment rates, and job loss at the facility and in the region. Special rules apply for areas within the
Metropolitan Commuter Transportation District and the Port Authority District.
43
industry identified in the applicable Regional Economic Development Council’s strategic plan.33
Retail, real estate development, and professional services may be included if located in a closed
correctional or juvenile justice facility pursuant to a reuse plan. The program provides:
a credit for each new job created;
an ITC for investments made at the closed facility or within the economic
transformation area;
a credit for providing training for displaced facility employees; and
a property tax credit for taxes on the property within the grounds of the facility and
within the economic transformation area.
Empire State Jobs Retention Program. This program was established in 2012 to retain
jobs in what are called strategic businesses that are at risk of leaving NYS due to the impact of
an event leading to an emergency declaration by the governor for the county in which the
business is located. To participate in the program, a company must be in certain industries.34
They must demonstrate substantial damage and economic damage resulting from the event
leading to the emergency declaration. It must also have had at least 100 full-time equivalent jobs
in the county as of a specified date prior to the emergency declaration and retain at least that
level of employment in NYS. Incentives include:
A refundable credit for 6.85 percent of the gross wages paid for the impacted jobs.
The business receives a certificate from the Empire State Development Corporation
each year specifying the amount of the tax credit. The credit may be claimed for up to
10 consecutive tax years provided that the business continues to meet eligibility
requirements.
A 2 percent ITC for costs in excess of costs recovered by insurance.
Not included in Table 4.2 are costs attributable to the two geographically targeted
programs adopted by NYS in 2013 — Innovation Hot Spots and START-UP NY. Although both
are tax expenditures that channel state spending through the tax code, neither function as tax
33
34
In 2011, Governor Cuomo created 10 Regional Councils to develop long-term strategic plans for economic growth for their
regions.
Specified industries include financial services data center or a financial services back office operation; manufacturing
software development and new media; scientific research and development; and agriculture. Also eligible are companies
engaged in the creation or expansion of back office operations in the state or located in a distribution center.
44
credits as discussed in this report, i.e., as subtractions from taxpayer liability.35 Innovation Hot
Spots will designate 10 high-tech innovation incubators at locations affiliated with higher
education institutions. Companies in the incubators will be exempt from business and sales taxes
for five years.36
The START-UP NY program will provide tax incentives for businesses locating on, or
close to, college campuses throughout the state. College campuses and Empire State
Development (NYS’s chief economic development agency) will work together to designate
eligible sites and certify participants. Participating companies will pay no taxes (e.g.,
business/corporate taxes, sales taxes, and property taxes) for 10 years. Employees in
participating companies will pay no income taxes for the first five years. For the second five
years, they will pay no taxes on income up to $200,000 of wages for individuals, $250,000 for a
head of household, and $300,000 for taxpayers filing a joint return. The aggregate number of net
new jobs eligible for personal income tax benefits cannot exceed 10,000 per year. Benefits will
be available to new companies, out-of-state companies relocating to NYS, and in-state
companies expanding into a new line of business or into a new facility. Companies must create
and maintain new jobs and demonstrate that they are not relocating existing jobs from other parts
of the state.
IV.3
Business Tax Credits to Support NYS Social, Housing, and Environment Policies
NYS provides tax incentives to businesses to encourage their support of the state’s social,
housing, and environmental policies. Once in place, however, these tax incentives are not
reviewed in the annual budget process as is direct spending to fund state policies with similar
social, housing, and environmental objectives.
In 2013, the cost to NYS of the credits to encourage businesses to support the state’s
social, housing, and environmental policies were an estimated $125 million, accounting for 7.3
percent of the total costs of NYS business tax credits (see Table 4.3). Of the 14 credits available
in 2013, five have refundable provisions with no limitations; two have limitations. One is
35
36
START-UP NY utilizes a credit as an alternative way to deliver a complete tax exemption rather than waiving the tax filing
requirement.
Innovation Hot Spots exempts corporate taxpayers from all tax bases except the fixed dollar minimum tax. Combined groups
containing an Innovation Hot Spot client and businesses subject to tax under the PIT receive a subtraction modification equal
to the income generated by the Hot Spot entity.
45
available for certain taxes paid (mortgage recording tax on residential properties) and one will be
available beginning in 2015 (historic property restoration). Seven of the 14 have unlimited carryforward provisions.
Table 4.3: NYS Business Tax Credits to Support Social, Housing, and Environment Policies, 2013*
Credit
Initial Year
$ in Million
% of Total
Number of
Bus. Tax
Refundable Years for Carry
Credits
Forward
100.0%
Total Business Tax Credits
$1,714.9
Total Credits to Support State Social, Housing, and
$125.6
7.3%
Environment Policies
Social Policies
5.1
0.3
New York Youth Works Tax Credit
2012
5.0
0.3
Yes
Credit for Employment of Persons with Disabilities
1998
**
No
Unlimited
Credit for Companies Who Provide Transportation
2006
**
No
Unlimited
to Individual with Disabilities
Minimum Wage Reimbursement Credit
2014
Yes
Hire a Vet Credit
2015
No
3 yrs
Credit for Purchase of an Automated External
2001
0.1
0.0
No
None
Defibrillator
Housing Policies
83.0
4.8
Farmers' School Property Tax Credit
1997
35.0
2.0
Yes
Low-Income Housing Credit
2000
11.0
0.6
No
Unlimited
Credit for Servicing SONYMA Mortgages
1972
7.0
0.4
No
None
Special Additional Mortgage Recording Tax Credit
1979
30.0
1.7 Residential
Unlimited
Environmental Policies
37.5
2.2
Green Buildings Credit
2001
10.5
0.6
No
Unlimited
Biofuel Production Credit
2006
10.0
0.6
Yes
Land Conservation Easement Credit
2006
1.5
0.1
Yes
Clean Heating Fuel Credit
2006
0.5
0.0
Yes
Rehabilitation of Historic Properties Credit
2007
15.0
0.9
***
Unlimited
Alternative Fuel Vehicle Refueling Property and
2013
**
0.0
No
Unlimited
Electric Vehicle Recharging Property Credit
* Forecast estimates.
**Less than $0.1 million.
*** Refund available for qualified rehabilitations placed in service on or after January 1, 2015.
Source: Compiled by the authors from the NYS Division of Budget and Department of Taxation and Finance Annual Report
on NYS Tax Expenditures 2013-2014 State Fiscal Year and information from Department of Taxation and Finance.
IV.3.1 Social Policy
New York Youth Works Tax Credit. This fully refundable credit, effective in 2012 and
expanded in 2013, was enacted to encourage businesses to hire low-income or at-risk youth. The
NYS Department of Labor can grant $25 million for 2012 hires and $6 million annually for 2014
through 2017 hires. New hires must be paid equivalent wages for similar jobs with appropriate
adjustments for experience; they cannot be used to replace terminated workers. Employers are
ineligible if they replace their workforce solely for the purpose of accessing the tax credits.
46
Preference may be given to employers who offer advancement and employee benefit packages to
qualified employees. Credits include:
$500 per month for up to six months for each qualified employee in a full-time job;
$250 per month for up to six months for each qualified employee in a part-time job,
defined as 20 hours per week;
$1,000 for each qualified employee who is employed for at least an additional six
months by the employer in a full-time job; and
$500 for each qualified employee retained an additional six months by the qualified
employer in a part-time job of at least 20 hours per week.
Credit for Employment of Persons with Disabilities. This credit represents an effort by
the state since 1998 to encourage businesses to hire workers with disabilities.
The credit is 35 percent of the first $6,000 in first year wages paid for all qualified
workers. There is no limit to the number of workers eligible for the credit.
Hire a Vet Credit. Enacted in 2013 but effective in 2015, businesses that hire recent
veterans or encourage the employment of service members returning from combat will be
eligible for this credit.
Employers are eligible for a $5,000 maximum credit for hiring a veteran released
from active duty by general or honorable discharge after September 11, 2001; a
$15,000 maximum tax credit is provided for hiring a disabled veteran.
Credit for Companies Providing Transportation to Individual with Disabilities. Since
2006, businesses providing taxicab or livery services can claim a credit equal to the incremental
costs associated with the purchase of a handicapped accessible vehicle or the conversion of a
conventional vehicle to a handicapped accessible vehicle.
The maximum credit is $10,000 per vehicle.
Minimum Wage Reimbursement Credit. Effective 2014, this credit is available to
employers for wages paid to eligible employees between the ages of 16 and 19. Eligible
employees must be students employed in NYS who are paid the minimum wage rate.
The credit is equal to the number of hours worked by eligible employees multiplied
by a rate that increases over time from $0.75 in 2014 to $1.35 in 2016-2018.
47
This credit has been criticized for discouraging employers from paying student
employees more than the minimum wage and for giving employers an incentive to replace
nonstudent employees with student employees.
Credit for Purchase of an Automated External Defibrillator. Since 2001, businesses
purchasing automated external defibrillators (other than for resale) are eligible for this credit.
The credit is equal to the lesser of the purchase cost of the unit or $500.
IV.3.2 Housing Policy
Farmers’ School Property Tax Credit. The credit was initially enacted in 1996 and
amended several times to encourage farmers to maintain their land for agricultural uses. It
entitles taxpayers to receive a refundable credit if they are engaged in the business of farming
and pay school district property taxes on qualified agricultural property.
The size of the credit depends on the number of qualified acres and the amount of
school district property taxes paid. Phase-out of the credit occurs if the farmer’s
modified NYS adjusted gross income (AGI) or modified entire net income (ENI) is
between $200,000 and $300,000, with no credit allowable if the taxpayer’s modified
AGI or ENI is over $300,000.
State Low-Income Housing Credit (SLIHC). Signed into law in 2000, the SLIHC
provides a tax incentive to developers who acquire, build, or rehabilitate low-income rental
housing.
Credits are awarded competitively by the NYS Division of Housing and Community
Renewal based on a number of factors such as the extent of community impact and
revitalization, the use of other development funding sources, and developer
experience.
Credit for Servicing State of New York Mortgage Agency (SONYMA) Mortgages. This
credit has been available since 1972 to institutions that service mortgages of SONYMA. It was
amended in 2013 to permit institutions to take advantage of the credit when the mortgage loan is
not acquired by SONYMA directly from the originating lenders but is acquired pursuant to a
SONYMA program that would involve Fannie Mae.
48
The credit is 2.93 percent of the total principal and interest collected for each
SONYMA mortgage secured by a one-to-four family residence and interest collected
on each SONYMA mortgage secured by a five or more family residence.
Special Additional Mortgage Recording Tax Credit. Enacted in 1979, business taxpayers
are entitled to the credit if their company paid a special additional mortgage recording tax other
than on residential mortgages where the real property is located in Erie County or any of the
counties within the Metropolitan Commuter Transportation District — New York, Bronx,
Queens, Kings, Richmond, Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and
Westchester.
The amount of the credit is the qualifying special additional mortgage recording tax
paid.
IV.3.3 Environmental Policy
Green Buildings Credit. In 2000, NYS enacted the country’s first green building tax
credit. It provided a credit for the design, construction, and operation of environmentally
responsible buildings with a minimum of 20,000 square feet. Eligible types of buildings included
multiple dwellings, business, assembly (e.g., religious), and institutional. Period I authorized $25
million for projects that were completed by 2004; Period II allowed for an additional $25 million
in total credit with the size of the credit on any one project limited to $2 million. The amount of
credit is determined by the Department of Environmental Conservation and allowed for five
years.
Biofuel Production Credit. Businesses are entitled to this credit if they produced biofuel
on or after January 1, 2006, and before January 1, 2020, at a biofuel plant located in NYS.
Biofuel is generally biodiesel, ethanol, or any other alternative fuel meeting standards established
by the New York State Energy and Research Development Authority.
The credit is $0.15 per gallon of biofuel produced at a biofuel plant located in NYS
after the production of the first 40,000 gallons per year presented to market. The
credit limit is $2.5 million per entity per tax year and can be claimed for four
consecutive tax years per biofuel plant.
Land Conservation Easement Credit. Effective 2006, this refundable credit is available
to owners of conservation easement-restricted land, regardless of when the easement was
49
created, provided that the easement was wholly or partially donated to a public or private
conservation agency (a governmental body or any qualified private or not-for-profit charitable
corporation or trust). The credit is bound to the land so that successor owners will benefit from it
as well as the original easement donors.
The credit is 25 percent of the property taxes paid on the easement-restricted land up
to $5,000 per year.
Clean Heating Fuel Credit. Starting in 2006, businesses that purchase bioheat to be used
for space heating or hot water production for residential purposes within NYS are eligible for the
credit.
The credit is $.01/gallon for each percent of biodiesel included in the bioheat. The
credit cannot exceed $0.20/gallon.
Rehabilitation of Historic Properties Credit. Effective 2007, businesses are allowed a
tax credit for the rehabilitation of a certified historic structure if all or part of the rehabilitation
project is either a targeted area residence or is located within a Census tract with family income
at or below 100 percent of the NYS median family income.
For tax years beginning on or after January 1, 2010, and before January 1, 2020, the
credit is 100 percent of the federal credit amount allowed. The total amount of the
NYS credit allowed may not exceed $5 million dollars per structure. Starting in 2015,
the credit is refundable.
Alternative Fuel Vehicle Refueling Property and Electric Vehicle Recharging Property
Credit. Effective 2013, the credit is for the installation of alternative fuel vehicle refueling
property and electric vehicle recharging property placed in service in NYS before January 2018.
The credit for each installation of alternative fuel vehicle refueling property and
electric vehicle recharging property is the lesser of $5,000 or 50 percent of the cost of
the property.
50
V.
FISCAL IMPACT OF NYS BUSINESS TAX CREDITS
As mentioned earlier, unlike direct spending by government, credits (and other tax
incentives) are generally not scrutinized or subject to debate during the annual budget review
process because no affirmative action, such as an appropriation, is required. One possible way to
focus legislative attention would be to incorporate sunset provisions, i.e., expiration dates, in the
legislation authorizing or reauthorizing tax credits and other tax incentives. At the present time,
of NYS’s 52 enacted business tax credits, 32 have no sunset provisions that would compel the
legislature to review whether they are worthy of statutory reauthorization and continued state
funding.
If increased economic activity takes place that would have occurred absent the credit, the
result is needlessly foregone tax revenues for the state. If a credit generates new economic
activity, that activity will generate revenue for the state. Discerning where a credit falls on this
spectrum is difficult; however, only under extreme assumptions does a credit “pay for itself” by
generating revenues in excess of the amount of the credit. In this report, the costs to NYS of
business tax credits are based on data published in the New York State Annual Report on Tax
Expenditures. These data do not attempt to estimate whether, and by how much, a change in tax
policy would affect the overall economy (i.e., they do not account for what is referred to as
“dynamic scoring”).
V.1
Trends in NYS Business Tax Credit Costs
The number and costs of NYS tax credits available to businesses have increased
significantly in recent decades (see Figure 5.1). In 1994, nine business tax credits were available
with a cost to the state of about $200 million. By 2005, there were 33 credits costing the state
$673 million; in 2009 there were 38 credits costing the state $821 million. By 2013, the number
of active credits had jumped to 50, costing the state an estimated $1.7 billion, close to triple the
cost in 2005.
51
Figure 5.1: NYS Tax Credit Costs - 1994-2013*
($ in millions)
$2,000
Total credit used & refunded ($ in millions)
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
Note: Data for 2010 to 2013 are estimated jointly by the NYS Department of Taxation and Finance and the NYS
Division of the Budget and are subject to revision.
Source: NYS Department of Taxation and Finance.
Part of the cost increase from the mid-1990s to 2005 is due to the expansion in the total
number of business tax credits, averaging more than two per year. The growth is also attributable
to the addition of a few large new business tax credits, particularly the Qualified Empire Zone
Enterprise (QEZE) real property tax credit (which is in the process of being phased out). The
dramatic jump in estimated costs between 2009 and 2013 is largely explained by increases in
three credit programs (see Figure 5.2) — film production, brownfield, and the Excelsior Jobs
Program. These credits were initially made available to taxpayers in 2004, 2005, and 2010,
respectively. In 2009, brownfield tax credits cost the state $142.1 million, increasing to an
estimated $503 million in 2013. Film credit costs more than tripled from $111.2 million in 2009
to an estimated $374.0 million in 2013. The Excelsior Jobs program credit is estimated to have
cost the state $150 million in 2013. (Note: The cap on the film credit is $420 million annually;
the cap on the Excelsior Jobs Program is $500 million per year when fully effective.)
52
Figure 5.2: Cost to NYS for Business Tax Credits
Selected Years 2005 - 2013 ($ in millions)
$2,000
$1,800
Other Credits
$1,600
$1,400
Excelsior Jobs Program Tax
$1,200
Brownfield Tax Credits
$1,000
$800
Empire State Film Credits
$600
Empire Zone Credits
$400
$200
Investment Tax Credits
including Financial Services
$0
2005
2006
2007
2008
2009
2013
Forecast
Note: Data for 2013 are estimated jointly by the NYS Department of Taxation and Finance and the NYS Division of
the Budget, included in the annual tax expenditure report, and are subject to revision.
Source: Annual Report on New York State Tax Expenditures: 2013-14 State Fiscal Year. New York State Division
of the Budget and New York State Department of Taxation and Finance, February 2013.
A major reason for the rapid growth in the cost of business tax credits in recent years is
the increase in credits that have refundable provisions. Of the 11 credits that became effective
between 1997 and 2000 and are still available today, one — the farmers’ school tax credit — is
refundable. Of the 29 credits that became effective after 2000, 22 are refundable. In 2013, of
NYS’s 50 available business tax credits, $1.2 billion (92%) of total costs to the state were from
refundable credits (see Figure 5.3). Although six refundable credits cost $2 million or less,37
three refundable credits cost over $200 million each.38
37
38
QETC employment credit ($1.2 million); conservation easement tax credit ($1.5 million); clean heating fuel credit (less than
$1 million); security officer training tax credit (less than $1 million); brownfield environmental remediation insurance credit
(less than $1 million); Empire State jobs retention program credit (less than $1 million).
Brownfield redevelopment credit ($495 million); Empire State film production credit ($360 million); QEZE real property tax
credit ($212 million).
53
Figure 5.3: Refundable and Nonrefundable NYS Business Tax Credit Costs 2013*
(millions of dollars)
Nonrefundable
Credits, 8%
Refundable Credits,
92%
Note: Costs for 2013 are estimated jointly by the NYS Department of Taxation and Finance and the NYS Division
of the Budget and are subject to revision. Excluded are credits that are “partially” refundable such as the ITC and EZ
wage tax credit.
Source: NYS Department of Taxation and Finance.
In 2013, two credit programs — the brownfield redevelopment credits and the Empire
State film production credits — accounted for more than half of the estimated $1.7 billion in
costs associated with the 50 available business tax credits. Five credits accounted for 75 percent
of the $1.7 billion — brownfield redevelopment, film, the QEZE real property tax credit, ITCrelated credits, and the QEZE tax reduction credit. Twenty credits accounted for over 90 percent
of the total costs. Of the remaining credits for which 2013 estimates are available, 17 cost NYS
less than $5 million, with 14 (half refundable) costing $1 million or less (see Figure 5.4).
54
Figure 5.4: Distribution of NYS Business Tax Credits by Size, 2013*
16
14
Number of credits
12
10
8
6
4
2
0
0m-1m
2m-4m
5m-9m
10m-29m
30m-49m
50m-99m 100m-299m
300m+
Size of Credit (in millions)
Note: Data for 2013 data are estimated jointly by the NYS Department of Taxation and Finance and the NYS
Division of the Budget and are subject to revision.
Source: NYS Department of Taxation and Finance.
In 2013, the two largest credit programs — brownfield and film production —
disproportionately benefited economic activity in New York City and other parts of “Downstate”
New York. Approximately 59 percent of brownfield credits claimed between 2008 and 2012
were for projects in NYC where 44 percent of the state’s nonfarm jobs are located. Seventeen
percent of brownfield credits were for projects in Westchester where (together with Putnam and
Rockland Counties) six percent of NYS’s nonfarm jobs are located. The remaining 24 percent of
brownfield credits were claimed for projects in the rest of the state where 50 percent of the jobs
are located.39 For film credits, in 2011, approximately 92 percent of qualified film production
spending and tax credits were claimed for projects in NYC.40 Given that employment in NYC
increased by 2.3 percent over the last year, accounting for 75 percent of the state’s job growth,
39
40
The authors’ analysis of data from the New York State Department of Taxation and Finance.
Economic and Fiscal Impacts of the New York State Film Production Credit (New York, NY: HR&A Advisors, Inc.,
December 3, 2012), http://www.mpaa.org/Resources/f83bf36c-04cb-44fe-aaa4-c06449eb5ec7.pdf.
55
while jobs in the rest of the state grew by 0.6 percent, the question arises as to whether the state
is putting scarce economic development dollars where they are most needed.41
V.2
A Snapshot of New York State Business Tax Credits in 2013
Another way to look at New York’s spending on tax credits is to compare it to an
alternative standard. One question to be asked, for example, is: “Does the current allocation of
tax credit costs reflect the best use of state resources given desired policy outcomes and the
geographic distribution of results?” A way to address this question is to look at the distribution of
the costs attributable to New York’s 50 business tax credits available in 2013.
More than half of the state’s spending on business tax credits is committed to two
purposes — cleaning up and redeveloping brownfield sites and promoting the film industry (see
Figure 5.5). More than 20 percent of the fiscal impact of credits is accounted for by the Empire
Zones Program that has been roundly criticized and has technically expired. Yet the state
continues to commit over a fifth of its tax credit spending to the Program because of lengthy
benefit periods; the last credits will end in 2020. Taken together, these three programs —
brownfield, film, and Empire Zones — constitute almost 75 percent of the state’s spending on
business tax credits.
V.3
Concentration of Tax Credit Claimants
Not only are the NYS business tax credits concentrated among a few industries that are
granted preferential treatment, they are also concentrated among a small number of taxpayers
who account for the vast majority of tax credits claimed. The latest information available on
taxpayers using business tax credits is for 2009 when there were 38 credits available to
businesses. Although the number of credits increased substantially between 2009 and 2013, the
2009 data are the best that are available to shed light on the concentration of taxpayers taking
advantage of the credits. It should be noted that the distribution of tax credit claimants for 2009
may not be fully comparable to the 2013 distribution of tax credit claimants. The 2009 data do
not include claimants for the Excelsior Jobs Program and do not reflect the growth in brownfield
and film production credits from 2009 to 2013.
41
The authors’ analysis of data from the New York State Department of Labor,
http://www.labor.ny.gov/stats/pressreleases/prtbjd.pdf, accessed October 31, 2013.
56
Figure 5.5: Percentage Distribution of the Costs of NYS Tax Credits in 2013
Brownfield redevelopment
EZ/QEZE
Film credit
22.4%
ITC/EIC
Excelsior
29.6%
ETFRP
21.5%
0.1%
Historic properties, SLIHC, GBTC, biofuel
production
Farmers' SPTC
Financial Services ITC/EIC
0.7%
Special Add'l Mortgage Recording Credit
1.7%
1.8%
6m-10m (6 credits)
1.8%
4.5%
2.1%
2.8%
3.2%
7.7%
2m-5m (4 credits)
0m-1m (11 credits)
Notes: EZ/QEZE — Empire Zone/Qualified Empire Zone Enterprise
ITC/EIC — investment tax credit/employment incentive credit
ETFRP — Economic Transformation and Facility Redevelopment Program
Farmers’ SPTC — school property tax credit
SLIHC — state low-income housing credit; GBTC — green buildings tax credit
6m-10m credits — Brownfield real property tax credit; mortgage servicing credit; film post-production credit;
commercial production credit (3 components)
2m-5m credits — Youth Works; beer production credit; QETC employment credit; conservation easement credit
0m-1m credits — EZ capital credit; QETC capital credit; clean heating fuel credit; EZ FS-ITC/EIC; employees with
disabilities credit; defibrillator credit; security training tax credit; brownfield environmental remediation insurance
credit; handicapped-accessible taxis credit; jobs retention credit (2 components); historic barns and retail
rehabilitation components of the ITC.
Source: Annual Report on New York State Tax Expenditures: 2013-14 State Fiscal Year. New York State Division
of the Budget and New York State Department of Taxation and Finance, February 2013.
V.4
Tax Credit Users
The latest information available on taxpayers using business tax credits is for 2009 when
there were 38 credits available to businesses.42 The 2009 data show that not only are the NYS
business tax credits concentrated among a few industries, they are also concentrated among a
small number of taxpayers.
42
While the 2009 data are the best that are available to shed light on the concentration of credit takers, the distribution of tax
credit claimants for 2009 may not be fully comparable to the 2013 distribution since the earlier data (1) do not include
claimants for the Excelsior Jobs Program and (2) do not reflect the growth in brownfield and film production credits from
2009 to 2013.
57
More than 260,000 corporation franchise tax returns were filed; just over 1 percent
claimed one or more business tax credits.
Nearly 390,000 corporations filed as “S corporations; fewer than 2,500, or 0.6
percent, claimed one or more business tax credits. Credits are earned at the entity
level but passed through proportionally to shareholders to apply against their PIT tax
liability
More than 217,000 partnership returns were filed; slightly over 2,600, or 1.2 percent,
claimed one or more business tax credits that were earned at the entity level but
passed through proportionally to partners to apply against their PIT tax liability.
In 2009, there were more than five million partnership members and S Corporation
shareholders. Close to 25,000 credit claims were submitted on PIT returns related to these
entities — less than 0.5 percent of all shareholders and partners. Corporation franchise tax and
other business taxpayers 43 claimed 3,122 credits, including those that had been carried-forward
from previous years. The average value of a credit for a PIT filer was $11,210 compared with the
average of $189,846 for a corporate tax filer. A prime reason for this differential is that most PIT
filers who take credits are one of several members of a partnership or Limited Liability Company
(LLC) or are shareholders in an S Corporation. Each partner or shareholder filing a PIT return is
eligible to claim a share of the total credit earned by the business entity.
43
Other corporate business taxes include the corporation and utilities tax, the bank tax, and the insurance tax. The count of
taxpayers includes S corporations that pay only a fixed minimum tax under the corporation franchise tax. This number is
extrapolated from the 2007 New York State Corporate Tax Statistical Report (Albany, NY: NYS Department of Taxation and
Finance, August 2011),
http://www.tax.ny.gov/pdf/stats/stat_corp/corp_stat/2007_new_york_state_corporate_tax_statistical_report.pdf.
58
Table 5.1: NYS Business Tax Credit Users, 2009
Corporation Franchise Tax & Other
Total
Business Taxes*
Fiscal
Fiscal
Fiscal
Average
Average
Average
Number Impact on
Number Impact on
Number Impact on
Claim per
Claim per
Claim per
NYS
of Claims
NYS
of Claims
NYS
of Claims
Taxpayer **
Taxpayer **
Taxpayer **
($ m)
($ m)
($ m)
Personal Income Tax
Type of Credit
Credits to Promote
Economic Development
Geographically Targeted
Credits
Credits for Social, Housing,
and Environmental Policies
7,740
$109
$14,134
1,370
$332
$242,409
9,110
$442
$48,463
11,079
$157
$14,207
1,390
$216
$155,683
12,469
$374
$29,978
6,113
$13
$2,078
362
$44
$122,099
6,475
$57
$8,788
All Credits
24,932
$280
$11,210
3,122
$593
$189,846
28,054
$872
$31,090
*Other business taxes include the corporation and utilities tax, the bank tax, and the insurance company tax.
** Average based on taxpayers claiming the credits.
Source: Calculated by authors from data supplied by NYS Department of Taxation and Finance.
Almost half of the number of business tax credit claims was for credits targeted at the
state’s distressed areas. The largest fiscal impact on the state, however, was for programs to
promote economic development statewide.
The brownfield redevelopment credit was claimed by 16 corporate taxpayers for an
average benefit of over $4.2 million and by 92 PIT filers for an average benefit of
$763,000.
The film production credit was claimed by 36 corporate taxpayers for an average $2.8
million benefit and by 67 PIT filers for an average $116,716 benefit.
The QEZE Real Property Tax credit was claimed by 471 corporate taxpayers for an
average benefit of just under $300,000 and by 3,777 PIT filers for an average benefit
of $22,000.
Corporate tax filers claimed a $103,000 average ITC credit; PIT filers, an average
$2,937 ITC credit. The ITC was the credit most widely used by corporate taxpayers
(1,027) and by PIT filers (6,680).
V.5
Concentration of Credit Users
Of the 38 credits available in 2009, there were five that accounted for 85 percent of total
costs to the state — the brownfield redevelopment credit, the film production credit, the ITC, and
the two credits associated with the now expired Empire Zone program — the QEZE real
property tax credit and the QEZE tax reduction credit. As mentioned earlier, taxpayers can claim
59
QEZE credits until 2020. Excelsior jobs credits, the fifth largest NYS business tax credit in 2013,
was not yet available in 2009.
Brownfield redevelopment credits. Of the 108 claims, 92 (85%) were made by PIT
filers and 16 (15%) by corporate taxpayers. The largest five PIT claimants and the
five largest business tax claimants together accounted for 97 percent of the total cost
to the state of the brownfield credits.
Film production credits. Of the 103 claims, 67 (65%) were made by PIT filers and 36
(33%) by corporate taxpayers. The 10 taxpayers claiming the largest dollar value of
the credits accounted for 63 percent of its total cost to the state.
Investment Tax Credits. Of the 7,516 claims, 6,489 (86%) were PIT filers and 1,027
(14%) corporate taxpayers. The 10 taxpayers with the largest claims accounted for 44
percent of its total costs to the state.
QEZE real property tax credit. Of the 4,248 claims, 3,777 (89%) were PIT filers and
471 corporate taxpayers (11%). The ten largest claims for the QEZE Real Property
Tax Credit represented 31 percent of the total credit costs to the state
QEZE Tax Reduction credit. Of the 2,658 claims, 2,382 (90%) were PIT filers and
276 corporate taxpayers (10%), with the largest 10 claims accounting for 31 percent
of the total cost of these credits.
The above analysis shows that the benefits of the credit programs are highly concentrated
in a relatively small number of taxpayers, both corporate and personal. In fact, fewer than 1
percent of businesses claim any tax credits at all. In the next section of this report, a detailed
analysis will be presented of the two largest credit programs — brownfield and film production
credits.
The high concentration of the credit programs raises the issue of whether they represent
an effective economic development policy for New York State and, specifically, whether New
York’s economic development objectives would be better served if the money spent on the credit
programs should be redeployed to general tax reductions that could improve the climate for all
businesses. With the credits, New York is picking winners and losers. With tax reduction
targeted to all businesses, the marketplace would determine which businesses expand and which
do not.
60
Table 5.2: Major NYS Business Tax Incentives: Claims by Top 5 CFT
and Top 5 PIT Taxpayers, 2009*
Claims in Millions
PIT
Corp
Total
Investment Tax Credit (ITC)
$17
$107
$124
Amount Claimed by Top 5
$1
$53
$54
Share of Credit for Top 5 Claims
5.9%
49.5%
43.5%
Total Number of Claims
6,489.0
1,027.0
7,516.0
Brownfield Redevelopment Tax Credit
$70
$68
$138
Amount Claimed by Top 5
$67
$67
$134
Share of Credit for Top 5 Claims
95.7%
98.5%
97.1%
Total Number of Claims
92.0
16.0
108.0
QEZE Real Property Tax Credit
$83
$140
$223
Amount Claimed by Top 5
$8
$61
$69
Share of Credit for Top 5 Claims
9.6%
43.6%
30.9%
Total Number of Claims
3,777.0
471.0
4,248.0
QEZE Tax Reduction Credit
$41
$40
$81
Amount Claimed by Top 5
$4
$21
$25
Share of Credit for Top 5 Claims
9.8%
52.5%
30.9%
Total Number of Claims
2,382.0
276.0
2,658.0
Empire State Film Production Credit
$8
$103
$111
Amount Claimed by Top 5
$3
$67
$70
Share of Credit for Top 5 Claims
37.5%
65.0%
63.1%
Total Number of Claims
67.0
36.0
103.0
Source: Calculated by authors from data supplied by NYS Department of
Taxation and Finance.
Tax Credit
61
VI.
AN ANALYSIS OF THE BROWNFIELD CREDITS AND THE FILM CREDITS
The Commission has asked us to review the state’s two largest business tax incentive
credits, the brownfield credits and the film credits.
The brownfield and film credits together accounted for half of the cost to the state
associated with the 50 business tax credits available in 2013. The two credit programs are similar
in some ways, but different in others (see Table 6.1). Both are large and refundable. Brownfield
credits have limits for individual projects44 but no statewide cap, whereas the film credits are
subject to an annual statewide allocation cap. Both programs are scheduled to expire under
current law, but previous scheduled expirations have been extended. Policy changes have been
moving in opposite directions for the two credit programs — the state imposed limits on the
brownfield credits while expanding the film credits.
Table 6.1: Comparison of New York State Brownfield Credits and Film Credits
Credit Characteristic
Estimated fully effective annual
cost
Enacted and effective dates
Refundable?
Caps?
Expiration date
Disclosure of information on
recipients
VI.1
Brownfield credits
Film credits
$503 million in 2013
$420 million annually through 2019
Enacted 2003, effective for projects
completed April 2005 or later
Yes
Enacted 2004, effective for tax years
beginning on/after January 1, 2004
Yes
No caps on individual credits, but utilization
Portions of credit for individual projects
is spread over 1, 2, or 3 years depending on
accepted on/after June 23, 2008 are capped, credit size; aggregate credits are subject to a
but no aggregate cap
first-come, first-served annual allocation of
$420 million.
Project must be certified and completed by
Annual allocations expire after tax year 2019
December 31, 2015
Restricted release required by 2013
Required by 2008 legislation
legislation
The Brownfield Tax Credit Program
A brownfield is generally defined as an abandoned industrial or commercial property that
is contaminated, or perceived to be contaminated, in a way that complicates redevelopment.45
Typical examples of brownfield sites include former gas stations, dry cleaners, and abandoned
factory sites. They often are located in the industrial sections of cities and towns, frequently in
poorer neighborhoods. While estimates of the number of brownfield sites vary, there does not
44
45
Caps apply to the tangible property component of the redevelopment credit for projects accepted into the Brownfield Clean-up
Program on or after June 23, 2008.
See http://www.dec.ny.gov/chemical/brownfields.html.
62
appear to be an authoritative source. One estimate is that there are more than 10,000 brownfield
sites in NYS.46
In an effort to spur cleanup and redevelopment of brownfield sites and to reduce
development pressure on “greenfields,” such as farmland and other undeveloped land, many
states adopted comprehensive brownfield clean-up programs in the 1990s.47 These programs
often include expedited approval processes, flexible remediation standards, relief from liability
for nonresponsible parties, and financial incentives such as grants, technical assistance for
assessing contamination, and tax incentives. Every state now has one or more brownfield
programs; 23 states have tax incentives for clean-up and, in some cases, redevelopment.48
VI.1.1 New York’s Brownfield Cleanup Program
New York’s first brownfield program was the Voluntary Cleanup Program (VCP) that the
Department of Environmental Conservation (DEC) created administratively in 1994. It offered
liability protection and clean-up standards based on the proposed use of a site, but no tax credits
or grants.49 In October 2003, New York adopted the Brownfield Cleanup Program (BCP) to be
administered by the DEC. 50 BCP was intended to mitigate threats from contamination, promote
redevelopment of contaminated property to help revitalize blighted communities, and create an
alternative to greenfield development by removing barriers to brownfield redevelopment.51,52
The BCP created more streamlined procedures for selecting remedies, provided potential legal
liability protection for program participants, and tax credits for clean-up and redevelopment —
46
47
48
49
50
51
52
Daniel Schlesinger, “Revisiting New York’s Brownfield Cleanup Program: An Analysis of a Voluntary Cleanup Program
That Lost Its Way,” Albany Government Law Review 3 (2010): 403.
Michael B. Gerrard, “N.Y. Brownfields Program Buffeted by Legislature, Courts,” New York Law Journal 240, 18 (July 25,
2008): 1-2, http://aporter.net/resources/documents/NYLJ_Article_072508.pdf.
See State Brownfields and Voluntary Response Programs: 2013 (Washington, DC: United States Environmental Protection
Agency, March 2013), http://www.epa.gov/brownfields/state_tribal/2013_brownfields_state_report_508_web_050913.pdf.
Three states do not have formal brownfield programs (Nebraska, Tennessee, and West Virginia — pp.142-3), but have
programs that apply to brownfield sites.
Gerrard, “N.Y. Brownfields Program Buffeted by Legislature, Courts.”
Al Baker, “Senate Approves Plan to Clean Polluted Sites, Ending 10-Year Impasse,” The New York Times, September 17,
2003, accessed September 19, 2013, http://www.nytimes.com/2003/09/17/nyregion/senate-approves-plan-to-clean-pollutedsites-ending-10-year-impasse.html.
Brownfield Restoration in New York State: Program Review and Options (Albany, NY: NYS Office of the State Comptroller,
April 2013): 6, http://www.osc.state.ny.us/reports/environmental/brownfields_restoration13.pdf; Gerrard, “N.Y. Brownfields
Program Buffeted by Legislature, Courts.”
Gerrard, “N.Y. Brownfields Program Buffeted by Legislature, Courts.”
63
arguably a stronger incentive than the release from liability and streamlined procedures provided
under the earlier VCP, under which 212 sites had been cleaned up.53
The DEC announced that “the new Brownfield Cleanup Program (BCP) will foster
cleanup of thousands of contaminated properties while encouraging new investment and
redevelopment of these sites across New York State.”54 Cleaning up thousands of contaminated
properties, however, remains an elusive goal. As of September 2013, DEC reported issuing 133
certificates of completion for sites remediated under the BCP since its inception 10 years
earlier.55
The BCP established substantial corporate and personal income tax credits for brownfield
redevelopment and lesser credits for real property taxes and environmental remediation
insurance. To qualify for tax credits, property owners are required to enter into the Brownfield
Cleanup Program, comply with a Brownfield Cleanup Agreement, and ultimately receive a
Certificate of Completion (COC) from DEC that attests to successful clean-up. The brownfield
redevelopment credit has three components, originally structured as follows:
Credit for groundwater remediation: calculated as a percentage of capital costs related
to a site’s qualification for a COC, remediation of on-site groundwater contamination,
and implementation of requirements in the remedial work plan.
Credit for site preparation: calculated as a percentage of capital costs for items such
as excavation, temporary electric wiring, scaffolding, demolition, and fencing and
security facilities. These costs need not be related to site clean-up, although in
practice many of the costs may be related to cleanup and some may not.
Credit for tangible property costs: calculated as a percentage of costs that generally
are for depreciable buildings, structures, and equipment placed in service on a site
that has received a COC.
Initially, each component had the same credit rate structure. The basic credit percentage
was 12 percent for corporate tax filers and 10 percent for PIT filers who qualified for credit by
53
54
55
Brownfield Restoration in New York State: Program Review and Options.; Gerrard, “N.Y. Brownfields Program Buffeted by
Legislature, Courts.”
According to Schlesinger, “Revisiting New York’s Brownfield Cleanup Program,” which cited DEC Accepting Applications
for New Brownfield Cleanup Program, ENVIRONMENT DEC (Albany, NY:: NYS Department of Environmental
Conservation, January 2004), http://www.dec.ny.gov/environmentdec/18548.html. The cited link no longer appears to work.
Brownfield Site Certificates of Completion: One Hundred and Thirty-Three Sites in New York State’s Brownfield Cleanup
Program Deemed Complete, http://www.dec.ny.gov/chemical/30360.html, accessed September 19, 2013.
64
virtue of being partners in a partnership, shareholders in an S Corporation, or sole proprietors.
Sites located primarily in high-poverty “EnZones” qualified for an 8 percent credit bonus, and
sites remediated to the highest environmental standard qualified for an additional 2 percent
bonus. If combined, these could bring the maximum credit rate to 22 percent for corporate filers
and 20 percent for PIT filers.
The credit as enacted was entirely refundable: If a taxpayer did not have sufficient
liability to use the full credit, it was eligible for a cash payment from the state, reported as a
refund of tax (although tax might not, in fact, have been paid).
VI.1.2 Amendments to Control Costs of the Brownfield Credits
The NYS credits as originally structured made it likely that they would become
expensive:
Eligibility for credits was not limited to economically struggling areas of the state, or
to projects that seemed unlikely to occur without the credits.
Actual contamination was not required; the perception of contamination was
sufficient, if it might complicate redevelopment. The advantage was that properties
would qualify if fear of liability would hamper redevelopment, but it contributed to
expense.
Unlike credits in most other states, they were not limited to a percentage of clean-up
costs, but instead extended to virtually all site preparation costs and costs of buildings
and equipment.
There was no requirement that the credit be deemed necessary for the redevelopment
of a site.
There were no caps on individual credits or on credits in aggregate.
The credits were refundable.
Not long after the credit program was enacted, the press noted instances of large credits
associated with little remediation, or in areas that were healthy economically, or that were used
by firms or people believed to be well connected, or that appeared unnecessary to induce
redevelopment. For example, the retailer Ikea redeveloped a former Navy shipyard in Brooklyn
and received a $19.8 million credit. The head of real estate for the company was quoted as
65
saying, “From the Ikea point of view, it didn’t really change anything for us. We were going to
do the cleanup anyway, the tax breaks are just a nice bonus.”56
In 2008, the Office of the NYS Comptroller compared the New York brownfield credits
to those in Connecticut, Massachusetts, New Jersey, Pennsylvania, and Vermont. Each of these
states, except Connecticut, limited its credit to clean-up costs and did not provide a
redevelopment credit specifically for brownfields. The state offered a generous redevelopment
credit for 100 percent of costs, with a $100 million cap, but it was not refundable. None of the
other states’ credits was refundable.57
The governor’s proposed budget submitted in January 2008 included legislation to scale
back the credit. Among other things, the legislation would have: (a) authorized DEC to reject an
application if reuse or redevelopment would likely occur without tax credits, (b) limited the
tangible property credit to $15 million for any single site, and (c) enriched the credit percentages
(but with the tangible property credit capped). The memorandum in support said that the
structure of the credit “has resulted in excessively large tangible property credits for developers
who invest relatively little to remediate a site, or would redevelop a site in the absence of tax
credits.… Even with these reforms, the State’s BCP will still be among the most generous
brownfield remediation programs in the nation.”58 In June 2008 a report by the NYS Comptroller
noted that the potential costs of the brownfield credit, while quite uncertain, were likely to be
large, and that the “outstanding tax credit liability for all projects currently enrolled in the BCP is
estimated to be potentially as high as $3.1 billion.”59
56
57
58
59
Julie Satow, “Skeptics Charge Misuse of Tax Incentive Program,” The New York Sun, September 30, 2004, Real Estate
section.
Overview of the New York State Brownfields Cleanup Program (Albany, NY: New York State Office of the State
Comptroller, June 2008), http://www.osc.state.ny.us/reports/environmental/brownfields08.pdf.
“2008-09 New York State Executive Budget, Revenue Article VII Legislation, Memorandum in Support,
http://www.budget.ny.gov/pubs/archive/fy0809archive/eBudget0809/fy0809artVIIbills/REVENUEConsBMwtoc.htm,
accessed September 19, 2013.
Overview of the New York State Brownfields Cleanup Program.
66
The legislature did not adopt the
governor’s proposed amendments but it
The Difficulty of Controlling Tax Credit
Costs
imposed
The governor’s proposed brownfield
legislation in 2008 illustrated a technical issue
that contributes to the political difficulty of
controlling all tax credit costs. The legislation
assumed that the bill would have no impact on
tax receipts in its first year because of the
effective date, although it would generate
substantial savings in future years. Put
differently, legislators were being asked to incur
the political cost of cutting the credit in 2008,
but would not receive any fiscal benefit —
resources that could be used for other priorities
— until future years. In tax programs it is
tradition, and in some cases, constitutionally
required, to make changes that are adverse to
taxpayers fully prospective. Combined with lags
between tax law changes and tax payments, it is
difficult for cuts in tax credits to increase tax
revenue in the year in which they go into effect.
By contrast, when elected officials cut an
appropriated spending program, they incur the
political cost but also typically free up resources
right away for other purposes. This political
incentive in favor of keeping tax credits also
works in favor of adopting them: a new credit
usually will have little cash impact on the
budget in the year it is adopted; most of the
fiscal impact will occur after tax credits are
applied for and tax returns are filed.
a
90-day
moratorium
on
accepting new sites into the BCP and
subsequently passed legislation to scale
back the credit for sites admitted into the
program on June 23, 2008 or later:
For any given commercial and
residential site the tangible
property
component
was
capped at the lesser of $35
million or three times the
combined
value
of
the
groundwater remediation and
site preparation costs
For
manufacturing
sites
the
tangible property component was
capped at the lesser of $45 million
or six times the combined value of
the groundwater remediation and
site preparation costs.
The 2008 legislation also restructured credit percentages with different and generally
higher rates for the cleanup relative to the redevelopment components. It created seven new
credit rates for the groundwater and site preparation components, ranging from 22 percent to 50
percent depending upon intended site use and level of clean-up achieved.60 It maintained the
existing rates for the redevelopment component, but added a new 2 percent bonus rate for the
tangible property component for sites located in a “brownfield opportunity area,” or BOA,
established by the Department of State.61
60
61
Gerrard, “N.Y. Brownfields Program Buffeted by Legislature, Courts.”
Brownfield Restoration in New York State: Program Review and Options.
67
VI.1.3 Costs of the Brownfield Credits and Their Distribution
A provision of the 2008 reforms required the DTF to produce a brownfield credit report
by January 31st of each year that includes information identifying brownfield projects and their
related costs and credit. This makes it possible to know more about brownfield credits and their
distribution than is possible for most other business tax credits.62 Data from reports available for
the five years from 2008 through 2012 are summarized below, focusing on the redevelopment
credit, which is by far the largest of the brownfield credits. Although the analysis is based on the
2008 through 2012 filing years, most of the credits are likely to have been approved under the
pre-2008 law since it takes about three years on average for a project to move from application to
certificate of completion.
Table 6.2 summarizes information on credits based on the public reports filed with DTF
for 2008 through 2012. The total credit value of $839 million shown in the table is a subset of the
total credit cost to date — at least an additional $71 million in credits were granted before the
public reporting mandate was enacted; detailed data on those claimants are not publicly
available.63 The table shows credit-eligible costs and the credit amount for the three main
components of the redevelopment credit: groundwater remediation, site preparation, and tangible
property As discussed earlier, groundwater remediation costs are clearly for site clean-up,
tangible property costs usually are for buildings and equipment and generally will be for
development costs rather than clean-up, and site preparation costs may include clean-up costs
and other costs to prepare a site for development.
Table 6.2: Brownfield Redevelopment Credits, Eligible Costs, and
Projects, 2008 Through 2012, Millions of Dollars
Credit Eligible
Credit Component as %
Costs Credit Amount
of Credit Total
Groundwater Remediation
$22
$4
0.4%
Site Preparation
350
49
5.9%
Tangible Property
5,472
786
93.7%
Total
$5,844
$839
100.0%
Source: Authors’ analysis of Brownfield Credit Report, Department of Taxation and
Finance, for credit years 2008 through 2012.
62
63
The data should be used with care. As the Department notes in the report, “The data appear exactly as reported by the
taxpayer. No validations or error corrections were performed by the Department.”
For the $71 million, see p.12 of Brownfield Restoration in New York State: Program Review and Options.
68
The first conclusion from the table is that for the $839 million the state “spent” over five
years, $22 million of groundwater remediation was reported. Site preparation costs were $350
million, but it is not possible to know from these data how much of the $350 million was for
clean-up and how much was for other expenses for development. The vast bulk of credit-eligible
costs, and of credit granted, was for tangible property. The credit does not appear to be an
efficient means of achieving remediation. Even if all site preparation costs were related to cleanup, the redevelopment component of the credit would have been more than twice as large as
clean-up costs. A direct expenditure program reimbursing a portion of remediation and other
clean-up costs might be a more effective way of maximizing remediation of brownfield sites.
In some respects, brownfield credits may be more problematic in upstate NYS than
downstate. Higher property values downstate mean that sites are more likely to be valuable
enough after clean-up to justify the costs of remediation, relative to upstate where property
values generally are lower. In 2003, two state senators from Buffalo made exactly this argument
with one saying that 40 percent of downtown Buffalo is brownfields.
Table 6.3 shows the distribution of credits for the counties that had the most credits.
Approximately 58 percent of brownfield credits claimed between 2008 and 2012 were for
projects in NYC where 44 percent of the state’s nonfarm jobs are located. Seventeen percent of
brownfield credits were for projects in Westchester where (together with Putnam and Rockland
Counties) six percent of NYS’s nonfarm jobs are located. The remaining 24 percent of
brownfield credits were claimed for projects in the rest of the state where 50 percent of the jobs
are located.
69
Table 6.3: Brownfield Redevelopment Credits
2008 Through 2012, Millions of Dollars
Total Credit
% of Total
New York City
485.7
57.9%
Westchester County
144.7
17.2%
Subtotal
630.4
75.1%
Rensselaer County
87.0
10.4%
Onondaga County
60.7
7.2%
Erie County
33.9
4.0%
Rest of State
27.0
3.2%
Subtotal
208.6
24.9%
Total
839.0
100.0%
Source: Authors’ analysis of Brownfield Credit Report, Department
of Taxation and Finance, for credit years 2008 through 2012.
The credit is also concentrated among a few projects. For the 2008-2012 period as a
whole, seven projects (8 percent of credit users) claimed $529 million, or 63 percent of the total.
The largest projects achieved relatively less clean-up than did smaller projects. The top 10
percent of projects (each claiming more than $21 million of credit) had combined costs for
groundwater remediation and site preparation combined — the upper limit for clean-up costs —
equal to 2.9 percent of total project costs. For the bottom 10 percent of projects, these costs were
7.9 percent of total project costs.64
VI.1.4 Brownfield Credit Policy Conclusions
The brownfield credits present a cautionary tale about the dangers of trying to influence
behavior through the tax code without stringent rules to prevent unintended consequences and to
limit costs.
The credit as designed was almost destined to grow out of control. It was available to
projects regardless of whether they were likely to occur absent the credits. It was not limited or
targeted to economically struggling areas of the state. Actual contamination was not required; the
perception that contamination might complicate redevelopment was sufficient. Unlike
brownfield credits in most other states, New York’s credit was based not just on clean-up costs,
but instead extended to most site preparation costs and costs of buildings and equipment. The
credits were refundable, even for projects that might never generate tax revenue. The estimated
annual costs of the program have more than tripled from the initial estimate of $135 million.
64
The authors’ analysis of brownfield tax credit reports from the Department of Taxation and Finance.
70
Despite an early goal of cleaning up thousands of sites, only 133 sites have been
completed in nearly 10 years — fewer than the 212 sites completed under the previous program,
which did not offer tax credits. The brownfield credits program, instead, has become an
expensive incentive for real estate development with little relationship to the cost of clean-up; 94
percent of the brownfield redevelopment credit has been for the costs of buildings, equipment,
and other tangible property, rather than for remediation or site preparation.
Three quarters of the brownfield redevelopment credits have been claimed in New York
City and Westchester, two areas that are among the fastest growing economies in the state; only
one-quarter of brownfield credits were claimed for projects in upstate, where economic
development needs are greatest. The credits have been highly concentrated among a few
projects. Seven projects accounting for 8 percent of credit claimants received $529 million, or 63
percent, of all brownfield credits claimed in the 2008-2012 period. Recipients of the largest
credits did much less clean-up relative to project size than did recipients of smaller credits. The
two projects we examined in detail, a luxury hotel and a power generation plant amounting to
more than a fifth of all brownfield credits claimed, appear likely to have been undertaken in their
respective regions even in absence of the credit. Planning for the power plant had been long
underway before the credit was even enacted.
Despite reforms that were enacted in 2008, the credit will continue to cost the state
hundreds of millions of dollars annually. The value of expected credits not yet used exceeds $3.3
billion and will be a drag on future budgets. Unless changes are made to the program, credits are
likely to remain highly concentrated and disproportionately focused in the downstate region.
The brownfield program is scheduled to sunset in 2015. A direct spending program might
be a more effective way to clean up brownfield sites. Absent that, linking the credit more closely
to the cost of clean-up would help refocus the program on its environmental goals and could
contribute to economic development efforts in upstate New York.
VI.2
The Film Tax Credit Program
New York State enacted its film production tax credit in 2004 and has increased and
broadened it several times. Under current law, film production and post-production credits are
the state’s second most expensive credit and will cost approximately $420 million per year on
average through 2019, after which they are scheduled to sunset. These credits are large compared
71
to industry activity. Because they are refundable, they are akin to cash grants for film-making
activities. This section recounts the history of New York’s film credit program and considers
claims that the film credit “pays for itself.”
VI.2.1 Film Production as a Potentially Mobile Activity
Governments often target economic development efforts on mobile industries and
activities that produce goods or services for national or international markets and do not rely
primarily on local demand. These activities generally locate where labor force, infrastructure,
utility costs, government services, taxes, and other factors are most attractive. Manufacturing
industries are a common target of economic development efforts. A single manufacturing plant
may produce goods sold all over the world, may employ many local residents, and may spur a
network of in-state suppliers and activities. One benefit of attracting a manufacturing plant is that
once opened, it is likely to remain operating and employing workers for years.
Some nonmanufacturing industries, particularly film production, have also been targeted
by the states. Many film productions are developed for national and international audiences, and
may be produced in a location with the best combination of support services and costs, making
film production relatively mobile. This has been made easier by the decline decades ago of the
studio system that gave Hollywood near monopolistic control over movie making, and more
recently by technology that makes it increasingly possible to shoot outside of large Hollywood
studios. Substantial film production incentives by other countries and most states have further
encouraged “runaway production,” the industry term for film production flight. Unlike
manufacturing plants, film production tends to be quite episodic, so that attracting production is a
year-by-year endeavor. After a film is produced, more credits are needed in subsequent years to
retain and attract new activity.
California and New York have long dominated film production, and continue to do so. In
2012, California was home to 52 percent of United States film production employment, and New
York had 21 percent, accounting for over 47,000 jobs. Florida was a distant 3rd with only 2
percent of U.S. film production jobs.65
65
The authors’ analysis of the Quarterly Census of Employment and Wages, from the U.S. Bureau of Labor Statistics. The film
production industry was defined as motion picture and video production (NAICS 51211), motion picture and video
distribution (NAICS 51212), and post-production and other motion picture and video industries (NAICS 51219).
72
VI.2.2 The Rise of Film Production Incentives
Other countries and many states have enacted incentives in an effort to capture the mobile
film production industry. Louisiana was the first state to adopt a film tax credit incentive, in
1992, for “investment losses in films with substantial Louisiana content,” but it was relatively
small.66 The real competition began in 2002 when Louisiana enacted a tax credit of up to 15
percent of certain expenditures plus an additional 20 percent based on Louisiana payroll.67,68
New Mexico adopted a major credit in 2004, as did Pennsylvania and New York. By 2009, 44
states had adopted some form of film production credit, up from five in 2002.69
The competition appears to have peaked and may even have waned slightly as some
states scaled back credits in response to the 2007 recession, accompanied by reports challenging
the credits’ benefits. Arizona’s tax credit expired in 2010, Iowa repealed its film credit in 2012,
and Connecticut suspended its credit earlier this year.70
VI.2.3 The New York Film Production Credit
One impetus for the NYS film production credit was the March 2003 announcement that
Steiner Studios would build a $118 million studio complex in the Brooklyn Navy Yard,
significantly expanding production capacity in New York and addressing industry concerns that
NYC did not have adequate soundstage or post-production facilities.71 The studio, which opened
in November 2004, was reported to have received an investment tax credit under August 2005
legislation that extended the ITC to qualified film production facilities.72 According to press
66
67
68
69
70
71
72
William Luther, “Movie Production Incentives: Blockbuster Support for Lackluster Policy,” Tax Foundation Special Report
173 (January 2010), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1538687.
Loren C. Scott & Associates, The Economic Impact of Louisiana’s Entertainment Tax Credit Programs.
Tim Mathis, Louisiana Film Tax Credits: Costly Giveaways to Hollywood (Louisiana Budget Project, August 2012),
http://www.labudget.org/lbp/wp-content/uploads/2012/08/LBP-Report.Louisiana-Film-Tax-Credits.pdf.
Luther, “Movie Production Incentives.”
See “Entertainment Partners-Result,” http://www.entertainmentpartners.com/result/?nid=7072 and “FilmUSA,”
http://www.filmusa.org/index.php/news?start=42, both accessed September 22, 2013. Also, Austin John and Lyman Stone,
“Connecticut Hits Pause on Film Tax Credit,” Tax Foundation, The Tax Policy Blog, June 20, 2013,
http://taxfoundation.org/blog/connecticut-hits-pause-film-tax-credit.
Brooklyn: Economic Development And the State of Its Economy (Albany, NY: New York State Office of the State
Comptroller, February 2004), http://www.osc.state.ny.us/press/releases/feb04/bkln2050rpt.pdf.
Investment tax credit was described in Rosemary Scanlon and Catherine Lanier, Arts as an Industry: Their Economic Impact
on New York City and New York State (New York: Alliance for the Arts, December 2006), http://www.nycarts.org/pdfs/ArtsIndustry_2007.pdf.) For additional incentives in support of the studio, see New York City Regional Center,
“Brooklyn Navy Yard — Steiner Studios Expansion Project, n.d., http://www.nycrc.com/pdf/NYCRC-BNYSteinerProjectSummary.pdf and Jill Goldsmith, “N.Y. Welcome Mat,” Daily Variety, August 13, 2004,
http://www2.steinerstudios.com/wp-content/uploads/Variety.NYWelcomeMat.8.13.04.pdf.
73
accounts and an interview with the chairman of the studio, the company helped design the film
production credit.73
In August 2004, NYS adopted a credit against the corporate franchise tax and the
personal income tax for 10 percent of qualifying film production costs in the state, effective for
tax years beginning in 2004.74 The credit applied to feature films, television films, and TV series.
Documentaries, news shows, talk shows, commercials, and certain other productions did not
qualify.75 Qualifying costs were limited primarily to what the industry terms below-the-line
costs, and did not include above-the-line costs for story rights, producers, actors (except for onlocation shooting), and various preproduction costs. Generally, employee compensation expenses
must be for jobs in NYS and purchases of goods and services must be from registered NYS sales
tax vendors. In this regard it is less broad than credits in some other states, although the credit
rate applied to production costs is competitive with credits in other states.
The credit was refundable over a two-year period — if it exceeded tax liability, the state
would pay the taxpayer the excess over two years. The total credit was capped at $25 million
annually and was scheduled to expire on August 30, 2008.76 The cap is implemented by making
the credit available to taxpayers on a first-come, first-served basis.
Amended in 2006 to add the commercial production credit and in 2010 to add the postproduction credit, other significant amendments to the original film credit legislation were:
2006: The annual cap was raised to $60 million and extended through 2011.
2008: (a) The credit rate was increased from 10 percent to 30 percent; (b) the $60
million cap was increased to $65 million in 2008, gradually reaching $110 million by
2013; and (c) it was made fully refundable in a single year (the requirement to stretch
refunds over two years was eliminated).
73
74
75
76
The chairman reported, “Our studio spearheaded the programme. The tax break was designed in part by Steiner Studios and
structured with the city in mind.” Heather-Annie McCalden, “The BIG Interview: Still Running... (Interview with Douglas C.
Steiner, Chairman of Steiner Studios),” Regional Film & Video, August 2008, http://www2.steinerstudios.com/wpcontent/uploads/FilmVideo-Still-Running.8.08.pdf. A report in Variety also noted that the film production credit was
“spearheaded by the folks behind the Brooklyn Navy Yard’s new Steiner Studios.” See Goldsmith, “N.Y. Welcome Mat.”
Report on the Empire State Film Production Tax Credit (Albany, NY: New York State Department of Taxation and Finance
and New York State Governor’s Office for Motion Picture & TV Development, December 2011),
http://www.nylovesfilm.com/tax/report_on_the_empire_state_film_production_credit_december_2011.pdf.
In 2012, New York adopted a commercial production tax credit.
The description of the credit and subsequent amendments are based primarily on Ibid.
74
2009: (a) An additional $350 million for 2009 was authorized; and (b) taxpayers were
required to claim the credit over one, two, or three years depending upon the size of
the credit.
2010: $420 million per year was made available under the cap for 2010 through 2014.
2013: (a) the $420 million annual allocation was extended through 2019; (b) an
additional 10 percent credit was established for certain upstate counties raising the
potential total credit to 40 percent; (c) the credit was expanded to cover relocated talk
or variety shows; and (d) the post-production credit was liberalized and increased to
35 percent for upstate New York.
To understand the significance of a credit equal to 30 percent of a film production’s
operating costs, consider the impact a similar credit would have for other industries. Based on
Internal Revenue Service data and analysis from the Department of Taxation and Finance, if a
credit of the magnitude of the film credits were provided to taxpayers in other industries, it
would eliminate tax liability for companies in most industries many times over:
For manufacturing companies, such a credit could approximate 40 times the annual
state tax liability — the equivalent of more than $12 billion annually.
For companies providing professional, technical, and scientific services, such a credit
could exceed 100 times annual tax liability — the equivalent of more than $23 billion
annually.
As with the brownfield credit, it is a misnomer to call film credits refundable: payment
will be made to the qualifying business even if it never paid any taxes and never will. The credit
is essentially a spending program subsidizing the costs of producing films in New York. In 2008,
the latest year for which detailed data are available, the motion picture and sound recording
industries had New York corporate franchise tax liability of $6.7 million after credits.77 Of the
$137 million in film credits available to firms that year, they used $10.3 million to reduce tax
liability directly.78 The remaining $127 million of credits were taken as refunds.
77
78
2008 New York State Corporate Tax Statistical Report (Albany, NY: New York State Department of Taxation and Finance,
December 2012),
http://www.tax.ny.gov/pdf/stats/stat_corp/corp_stat/2008_new_york_state_corporate_tax_statistical_report.pdf.
Analysis of Article 9-A General Business Corporation Franchise Tax Credits for 2008 (Albany, NY: New York State
Department of Taxation and Finance, June 2012), http://www.tax.ny.gov/pdf/stats/stat_corp/article_9a/analysis_of_article_9a_general_business_corporation_franchise_tax_credits_for_2008.pdf.
75
Payments to 31 firms in the film production industry were so large that they exceeded
the entire tax liability of all 1,600+ firms in the industry in nine out of 10 previous
years.79 Thus, it is unlikely that the payments were truly refunding past payments of
tax. As stated earlier in this report, refundable credits are best thought of as cash
payments made through the tax system that avoid the need for an annual
appropriation that ordinary spending programs require, rather than as refunds of taxes
paid.
VI.2.4 Other Film Production Incentives in New York
In addition to the film production credits, NYS has several other incentives for film
production in New York. The cost of creating program master tapes stored in New York can
qualify for the investment tax credit (ITC), based on costs capitalized into these master tapes,
which can be extensive.80 The ITC is available for films that produce recurring revenue if those
films are stored in New York, regardless of whether the films were actually made in New York.
Because the film production credit subsidizes film production within New York, it is redundant
to make the ITC available for film master tapes. Furthermore, as noted above, in 2005 the ITC
was expanded to include property used in a qualified film production facility by taxpayers who
provide three or more services, such as a studio lighting grid, lighting and grip equipment, or
industrial scale electrical capacity to qualified film productions, essentially film studios.81
Finally, there is a sales tax exemption for tangible personal property used or consumed
directly and predominantly in the production of a film for sale, including feature films,
documentary films, shorts, television films, television commercials, and similar productions. The
exemption also applies to services performed in relation to the exempt property and to fuel and
utility services used directly and exclusively in production.82
79
80
81
82
Refundable film credits to firms in the film production industry (NAICS 522) were $58 million, according to data from DTF
(the remaining refundable film credits were paid to diversified firms classified in other industries). This exceeded the liability
reported for firms in industry 512 in nine of 10 previous years. Depending on the year, the number of firms ranged from 1,789
to 1,592. See New York State Corporate Tax Statistical Report (Albany, NY: New York State Department of Taxation and
Finance, Various Years).
Office of Tax Policy Analysis Technical Services Division, Advisory Opinion Petition No. 020206A (Albany, NY: State of
New York Commissioner of Taxation and Finance, July 26, 2006) states that eligible costs can include production studio
costs, production and post-production services, graphics costs, news-gathering costs and equipment, studio rents and
equipment rental costs, print costs, stock footage costs, props, and travel, salaries and benefits for talent and production
employees, telecommunication costs, music license fees, and various other costs.
Annual Report on New York State Tax Expenditures: 2013-14 State Fiscal Year.
Ibid.
76
VI.2.5 The Impact of Film Production Incentives on Film Industry Employment
One reason that tax incentives often have little impact on the location of economic
activity is because interstate differences in state and local taxes, and by extension differences in
tax incentives, generally are small compared to interstate differences in labor costs, energy costs,
and harder to measure characteristics such as quality of workforce and infrastructure.
Even though costs of production are high in New York, film production incentives are so
large, it is not surprising that they affect where activity is located. Industry employment and
production appears to have increased, and sometimes decreased, when states make big changes
in credits. Since state-specific film production employment is well measured, while the number
of productions and their value are not as well measured, the analysis focuses on employment.83
Evidence from several states suggests that film tax credits do have a discernible impact on film
industry employment.84 Furthermore, ongoing film production employment appears to vary in
response to states’ changing the generosity of their credits. These observations also highlight
another unique aspect of a credit targeted to a potentially mobile industry. Unlike credits based
on capital investment, which reward more permanent activity, film credits must be granted
repeatedly to maintain the state’s level of activity. Moreover, states must adopt successive
increases in credits in an effort to avoid losing industry share in response to credit developments
in competing states.
Next, we turn to New York, focusing on its actual level of film production employment.
Figure 6.1 shows the level of film production employment for the roughly 14 years before the
credit became effective and the subsequent eight years. NYS film production employment grew
considerably during the 1990s, and then fell sharply between 2001 and 2004. One study
suggested the decline was related to the 2001 recession and the September 11th terrorist attacks.85
After the initial 10 percent credit was enacted, film production employment began to rise and
several studies attributed the increase to the film incentive and to a smaller New York City
incentive that also was temporarily available.86 New York, however, was recovering from the
September 11th attacks and some production that appears to have retreated to California may
83
84
85
86
The data source is the U.S. Bureau of Labor Statistics’ Quarterly Census of Employment and Wages. We define the film
production industry as motion picture and video production (NAICS 51211), motion picture and video distribution (NAICS
51212), and post-production and other motion picture and video industries (NAICS 51219).
Analysis available upon request.
Scanlon and Lanier, Arts as an Industry.
The number of films produced in New York increased as well. For example, see Ibid.
77
have begun to return to NYS. Later in the decade, following several dramatic increases in the
New York credit, film production employment rose much more substantially, and again
anecdotal evidence strongly suggests that the credits spurred much of this growth.
Figure 6.1: Film Production Employment in New York State
50
45
Decline following
September 11 attacks
& 2001 recession
40
Thousands of jobs
35
30
10% NY credit,
$25m cap, takes
effect
25
30% NY credit,
higher caps,
take effect
20
15
10
5
0
Source: The authors’ analysis of Quarterly Census of Employment and Wages, U.S. Bureau of Labor.
The drop in NYS employment between 2001 and 2004 was accompanied by similar but
smaller declines in other states outside of California, and by a sharp rise in film production
employment in California, suggesting that the New York decline probably was not the result of
credit enhancements in other states.
From the above discussion, several points are clear:
Film production employment in individual states appears to have responded to tax
incentives; film credits are large enough to influence production location. Other costs
of production, including labor costs, also have an impact on these decisions.
Despite large swings in film production employment from state to state over the last
decade, overall national employment has changed little. Since the credit competition
started, NYS, and other states to a lesser extent, have gained share at the expense of
California.
78
NYS has had a sizeable film production industry for decades, and remains the second
largest in the nation by far. It grew rapidly prior to 2001, fell sharply for three years,
and then rose after the film production credit was enacted in 2004. Industry
employment rose significantly after credits were extended and enhanced in 2008 and
later years.
Film production is potentially mobile. States that do not maintain their incentives are
likely to lose some production to other states.
VI.2.6 Geographic Distribution of Film Production in New York
Film production in New York is dominated by New York City. In 2011, approximately
92 percent of qualified film production spending and tax credits were in NYC.87 Approximately
88 percent of industry employment in 2012 that the Bureau of Labor Statistics assigned to
individual counties was in NYC.88 Nassau County accounted for 35 percent of employment
outside of New York City, followed by Suffolk, Westchester, and the upstate counties that have
large cities or urbanized areas, including Erie, Monroe, and Albany.
VI.2.7 Does the Film Credit Pay for Itself? Two Earlier Analyses
Does the New York film production credit boost in-state film industry production enough
to pay for itself as a 2009 study by Ernst and Young and a 2012 study by HR&A Advisors
argued, in contrast to most other studies of film credits?89 The Ernst & Young study concluded
that the film production credit generated $1.13 in state tax revenue for every dollar granted in tax
credits, and the HR&A study concluded that it generated $1.09 per dollar of credit.90 (Neither
study analyzed the impact of reducing New York’s credit rate to a percentage lower than the
current 30 percent.) It is unknown what the impact of a lower credit rate would be.
Both studies assumed that substantial film production activity that was ineligible for the
credit was nonetheless attracted or retained by credit-eligible projects. Ernst & Young described
87
88
89
90
Economic and Fiscal Impacts of the New York State Film Production Credit.
Source: United States Department of Labor, Bureau of Labor Statistics, Quarterly Census of Employment and Wages,
http://data.bls.gov/cgi-bin/dsrv?en.
Ernst & Young, Estimated Impacts of the New York State Film Creditand Economic and Fiscal Impacts of the New York State
Film Production Credit.
Both studies also estimated that the tax credits would generate substantial additional local government tax revenue, mostly in
New York City. This is certainly relevant for examining the overall benefits of the credit, particularly if a policy goal is for the
entire state to subsidize New York City, but it is excluded here to focus on the narrower question of whether from a state
budget perspective the tax credit pays for itself.
79
this as (1) post-production activity that would have left New York if not for the credit-eligible
projects, and (2) general film production declines that would have occurred if not for an industry
cluster supported by credit-eligible projects. The HR&A study described it as nonqualifying
productions, such as commercials, music videos, and reality television shows, that take
advantage of the clustering effect of film and television production incentivized by the credit,
including production facilities, equipment, service suppliers, and industry labor.
Other studies rarely make such assumptions. The effect of this assumption on the
numbers is large, nearly doubling the spending by eligible projects in the Ernst & Young study,
and more than doubling it in the HR&A study. Because New York had a vibrant film production
industry prior to enactment of the credit, the assumption that no activity in the industry would
have occurred in the absence of the credit is implausible. Again, however, it is now known what
the impact would be on a reduction in the NYS credit rates.
To estimate how much new revenue would be raised by credit-caused economic activity,
the studies assume that all income will be taxed at the highest marginal rate in New York, which
overstates the case because many film employees are paid wages that fall below the top tax
bracket. Also, they overstate the sales tax paid on film activity because they do not take into
account the sales tax exemption for goods used predominantly in film production. As a result,
both studies use effective tax rates for state government taxes that are about 25 to 50 percent too
high.
Organizations that often disagree about tax-related issues are in agreement about the
conclusions of the consultants’ film tax credit studies. The John Locke Foundation, a think tank
in North Carolina focused on individual liberty and limited, constitutional government, examined
11 economic impact studies of film credits, three by Ernst & Young (New York, New Mexico,
and North Carolina) and eight by other organizations including four state government revenue or
fiscal offices, two economic development offices, one university, and one private consultant. The
average state fiscal impact estimate for the Ernst & Young studies was 90 cents of revenue raised
per dollar of credit granted; the average for the non-Ernst & Young studies was 17 cents raised
per dollar of credit granted (in other words, 83 cents of revenue lost per dollar of credit).91 A
report by the Center on Budget and Policy Priorities, a Washington, D.C., think tank focused on
91
Coletti and Burgdorf, Not the Best of Both Worlds.
80
the needs of low-income families and individuals, examined a similar set of studies, with some
overlap, and concluded “estimates of revenue gains range from $0.07 to $0.28 cents per dollar of
awarded subsidy. The only studies claiming that a state film subsidy pays for itself were financed
by the Motion Picture Association of America and/or a state office of film and tourism.92 Finally,
the Federal Reserve Bank of Boston examined New Mexico and New York Ernst & Young
studies and concluded that several problems led them to question their accuracy. They also
concluded that assuming all credit-eligible projects were induced by the credit may be least
justifiable in New York, given that New York City is a long-established film production center.93
Ernst & Young has since published a report commissioned by the Motion Picture
Association of America, Evaluating the Effectiveness of State Film Tax Credit Programs: Issues
That Need to be Considered. It argues, among other things, that “From an economic
development perspective, the relevant policy question in evaluating film credits should be, ‘Do
the residents of the state get a good return for their investment?’ and not simply, ‘Does the
investment pay for itself in terms of additional state tax collections?’ Film credit programs could
still be relatively effective economic development programs even though the public sector is not
a net beneficiary.”94
VI.2.8 Film Credit Policy Conclusions
The film credit, under which the state essentially shares in 30 percent of qualifying film
production costs without sharing in the profits from those films, is large enough to equal 55
percent of net taxable income of a typical firm in the industry. The magnitude of the credit is
illustrated by the fact that 31 credit recipients in the film production industry received credits in
2008 that exceeded the combined tax liability of the more than 1,600 firms in the industry for
nine out of the 10 previous years.
As a practical matter, the “refundable” credit is so large that it eliminates tax liability and
amounts to a program of cash payments by the state to credit recipients. It has definitely caused
film production to locate in New York, as would a credit of similar magnitude for any potentially
92
93
94
The studies referred to were the New Mexico and New York Ernst & Young studies. Tannenwald, “State Film Subsidies: Not
Much Bang for Too Many Bucks.”.
Weiner, Memorandum to Shelley Geballe.
Andrew Phillips, Robert Cline, and William Fox, Evaluating the Effectiveness of State Film Tax Credit Programs: Issues That
Need to Be Considered, Commissioned by the Motion Picture Association of America (Ernst & Young, May 9, 2012),
http://www-deadline-com.vimg.net/wp-content/uploads/2012/05/Motion-Picture-assoc.-film-creditstudy__120510071748.pdf.
81
mobile industry. Nonetheless, that activity is not large enough to cause the credit to pay for itself.
It would take implausible assumptions to reach that conclusion. Furthermore, it likely will take
more and more credit-spending to maintain this activity, given the tendency of states to increase
their own credits in response to increases in other states.
Whether a credit pays for itself should not be the only criterion to judge it and few, if any,
credits could pass such a test. But if a credit does not pay for itself, policymakers need other
good reasons to select an industry for favorable treatment. Because film credits involve
substantial expenditure of state resources they deserve special evaluation. It is possible, for
example, that the use of New York as a backdrop for films encourages tourism, or that the
existence of a film industry contributes to New York’s reputation as a place where prominent
people like to live or visit. A positive tourism effect is not necessarily a direct result of
subsidized films. For instance, depending on the subject matter, a film could make New York
appear less attractive. Furthermore, even though another city may be a stand-in for New York,
viewers may not notice and still be drawn to the state.
In the case of the film production credit, the growth in the industry comes at the expense
of higher taxes for other taxpayers or lower spending on state services and investments, possibly
reducing activity in other sectors of the economy. There are also other problems with the credits.
For example, many of the jobs involved in film production are temporary and the state can only
maintain those jobs and the level of activity in the industry if it continues to offer the credits.
Retaining the jobs could become more of a challenge if other states were to increase their credits
and other incentives.
If New York were to reduce the film credit allocation by, for example, $50 million, it
could monitor the effect on film production and the impact on the state’s competitive standing. In
fact, states collectively would benefit if they engaged in multilateral reduction or elimination of
their film credit programs since they do not appear to have increased overall film production and
employment in the U.S., but rather affect its location within the U.S. The fundamental policy
issue underlying New York’s film credit is whether such a large expenditure should be devoted
to a single industry that is predominantly located in the most prosperous region of the state.
82
VII.
EVALUATING BUSINESS TAX CREDITS
A 2012 report by the Pew Center on the States assesses how states evaluate their tax
incentives for jobs and growth. The report emphasizes that: “Tax incentives are policy choices
with significant implications…. If states do not base decisions on evidence, they could have less
money to spend on other critical services.”95 Evidence comes from evaluation. This section of
our report summarizes principles for evaluating tax credits and looks at examples of best
practices in the states to provide evidence of the worth of the incentives. Information from this
section will be used to make recommendations to be used by the Commission in reforming
business tax credits.
VII.1 Tax Evaluation Principles
Several widely accepted principles of sound tax policy can be used to evaluate business
tax credits. They include:
Equity: Similarly situated taxpayers should be taxed similarly.
Neutrality: A tax should not encourage taxpayers to make economic decisions
based solely upon tax consequences.
Revenue Adequacy: An adequate tax system raises enough money to pay for
public services and investments.
Simplicity: A simple tax system is one that is relatively straightforward and easy
to comply with for the taxpayer and relatively easy and inexpensive for
government to administer.
Transparency: A good tax system requires informed taxpayers who can clearly
see how tax assessment, collection, and compliance works.
Competitiveness: A competitive tax system does not impede the ability of
companies to compete with those located outside the state and does not limit the
state’s ability to attract new business.
Business tax credits undermine all of these principles (see Table 7.1) with the exception
of competitiveness, where their impact is more ambiguous. As discussed in Section III of this
95
Evidence Counts: Evaluating State Tax Incentives for Jobs and Growth.
83
report, taxes — and, by extension, tax credits — are but one of several factors considered by
businesses in their expansion/location decisions.
Table 7.1: Business Tax Credits: Their Effect on Tax Policy Principles
Tax Principle
Effect on Tax Policy Principles
Equity
Tax credits and other tax incentives undermine equity. They favor one set of
taxpayers over another, and, in industries producing similar products, one set
of companies over another. For example, an incentive for solar energy panels
would be perceived as inequitable by producers of wind turbines.
Geographically targeted tax credits favor otherwise identical taxpayers solely
on the basis of location.
Tax credits and other tax incentives undermine economic neutrality when
they distort economic decisions that would have been made absent the tax
credit. For example, a business may decide to install solar power if there is a
tax credit to do so, rather than insulate their building, which might be more
efficient.
Because tax incentives narrow government’s revenue base — rarely with a
compensating rate increase — they undermine revenue adequacy. By
narrowing the tax base, tax incentives may make the tax more volatile, further
undermining revenue adequacy. Tax credits (and other incentives) also “lock
in” state spending regardless of economic conditions. For example, during the
economic downturn in 2008, NYS could not prevent revenue losses due to tax
credits without resorting to extraordinary measures. To mitigate revenue
losses from the credits, the state implemented a tax credit deferral plan that,
although it resulted in short-term savings, increased administrative
complexity, as well as fiscal impacts in later years.
Tax incentives undermine simplicity. Tax credits (and other incentives) make
the tax code more complex for taxpayers to understand and more difficult for
government to administer. The incentives also create opportunities for
avoidance, e.g., a business could characterize its investment as one that
qualifies for the ITC even if it would not do so but for the credit.
Tax incentives undermine transparency. Taxpayers and the general public
should know that a tax incentive exists, how it is imposed, and who receives
it. With few exceptions, there is limited publicly available information as to
who is getting the incentives and how much each is costing the government.
In the case of negotiated credits, special arrangements made between the state
and individual taxpayers are usually not revealed to other taxpayers or to the
public.
It is unclear how tax credits affect a state’s competitive position since
business location/expansion decisions are made based on several factors,
including the mix of taxes and the provision of public services.
Neutrality
Revenue adequacy
Simplicity
Transparency
Competitiveness
84
VII.2 Evaluating Business Tax Credits: the GAO Framework
Every year, after extensive review of the governor’s budget, the NYS legislature decides
how much to allocate to education, health care, infrastructure, and other public services. Tax
incentives, however, once in place are rarely reviewed as part of this process. But, unless an
incentive “pays for itself,” it reduces revenues available for government to use to fund direct
spending or to lower overall tax levels. This is true for the federal government as well as for
NYS and other states.
The U.S. Government Accountability Office (GAO) has created a framework to evaluate
federal tax expenditures that closely resembles its approach to evaluating spending programs.96
The mandate to evaluate spending programs is predicated on the Government Performance and
Results Act (GPRA) of 1993 and its 2010 update. The 1993 act established a statutory
framework for performance management and accountability, including the requirement that
federal agencies set goals and report annually on progress towards those goals and program
evaluation findings. In response to this and related management reforms, federal agencies have
increased their attention to conducting program evaluations. The GPRA Modernization Act of
2010 (GPRAMA) raised the visibility of performance information by requiring quarterly reviews
of progress towards meeting agency and government-wide priority goals. GPRAMA also
requires that tax expenditures be included in reports where activities contribute to goals that cut
across agency lines.
In response to the need to evaluate the effectiveness of tax expenditures in meeting
agency and government goals, the GAO has suggested questions to be asked in assessing tax
expenditures. An adaptation of these questions can be applied to the evaluation of NYS’s
business tax credits.
1. What is the purpose of the tax credit?
For some credits, the purpose is clear from the enabling legislation; for others, the
purpose is not clear and may need to be inferred.
Are there performance measures established to monitor success in achieving the
intended purpose of the credit? Performance measures should be part of the
96
Tax Expenditures: Background and Evaluation Criteria and Questions, GAO-13-167SP (Washington, DC: United States
Governmental Accountability Office, November 29, 2012).
85
enabling legislation and should be monitored annually and included in budget
reviews and deliberations.
2. Even if the purpose is achieved, is the tax credit good policy?
Is the credit fair and equitable? Who benefits from it?
Are similarly situated taxpayers treated similarly?
Is the credit simple and transparent? Is there periodic public reporting of credit
recipients?
3. How does the credit relate to other state programs?
Does the credit duplicate or overlap other state objectives?
Is the credit coordinated with other state activities?
Is the incentive a cost-effective way of achieving the policy goal?
4. What are the consequences for the state budget of the credit?
Are there options for limiting the credit’s revenue loss?
Can taxpayer’s eligibility be limited?
For eligible taxpayers, can the value of the credit be reduced?
Are there sunset provisions for the credit?
5. How should evaluation of the credit be managed?
What agency or agencies should evaluate the credits?
How often should the credit be evaluated?
What data are needed to evaluate the credit?
VII.3 Managing Tax Incentives
In New York State, the DTF is responsible for the administration of credits and all other
business tax incentives by accepting and processing tax credit claim forms, applying payments
against liability, and/or issuing refund checks. DTF is also generally responsible for interpreting
the law and providing assistance to taxpayers. There are some credits that are predominantly
administered by another NYS agency that reviews credit applications, determines eligibility, and
issues credit certificates filed with tax returns.
86
Credits predominantly administered by other agencies are:
the low-income housing credit (Division of Housing and Community Renewal —
DHCR);
the brownfield credits and the green buildings credit (Department of Environmental
Conservation — DEC);
the film, commercial, and post-production credits (Governor’s Office for Motion
Picture and Television Development — MP/TV);
the security officer training credit (Division of Homeland Security and Emergency
Services — DHSES);
the Excelsior Jobs Program credits; the Empire State Jobs Retention Program credit;
and the Economic Transformation and Facility Redevelopment Program credits
(Empire State Development — ESD); and
the New York youth works credit (Department of Labor — DOL).
Neither DTF nor any other NYS agency responsible for one or more tax credits has the
responsibility for evaluating the efficacy of the state’s tax incentives. There are several reasons
why DTF is not currently structured to perform this function.
The level of resources needed to add additional functions to those already in place has
not been made available to DTF. This is because DTF’s core mission is processing
over 25 million tax returns, not administering tax incentives. Therefore, resources are
devoted to ensuring returns are calculated and processed properly and the correct
amount of tax or refund is computed.
The expertise to evaluate all tax expenditures does not reside in DTF, especially for
those incentives that are the responsibility of other departments.
•
If the credit is as-of-right with no external agency involved (e.g., ITC), DTF
monitors compliance.
•
If the credit is fully administered by an agency other than DTF and that agency
awards actual credit certificates (e.g., film credits and Excelsior credits), that
agency handles compliance.
87
•
When an agency other than DTF certifies eligibility, but DTF monitors
compliance with the tax laws, administration is more complicated. An example is
brownfield credits. DTF defers to DEC on all the environmental criteria required
to get a certificate of completion. Once taxpayers file for the credit, DTF ensures
that they are in compliance with tax rules.
Structural and data issues in the tax system and in the way businesses organize
themselves complicates even basic evaluation. To do a complete evaluation would
require a retooling of how tax returns are processed including, for example, making
data for evaluation available in a timely manner.
Taxpayer filing timelines complicate when information is received. The PIT and
corporate taxes have different filing dates and many taxpayers obtain extensions, file
late returns, or amend returns. Further, many businesses have multiple locations, only
some of which may earn a credit, and they use various structures and pass-throughs
that complicate the analysis of who benefits from the credit.
VII.4 Best Practices in Evaluating Tax Credits: Experiences from the States
According to the 2012 report by the Pew Center on the States referred to above, states
that successfully use tax incentives to promote job creation and economic growth do so because
they know whether or not their efforts are working. Pew recommended that evaluations of tax
incentives for businesses achieve four key objectives:
Inform policy choices. States should incorporate evaluation of tax incentives into
policy and budget deliberations to ensure that policymakers use the information in
their decision-making process.
•
Pew Best Practices: In Oregon, tax credits expire every six years unless
lawmakers extend them. In 2011, during budget deliberations, leaders of the state
legislature established a spending cap on some incentives so that decisions had to
be made based on evaluations as to which incentives should be subject to the
caps.
Evaluate all major tax incentives. States should establish a schedule so that all
incentives are reviewed periodically.
88
•
Pew Best Practices: The state of Washington began a 10-year process in 2007 to
review every tax incentive it offers. Currently, nonpartisan analysts work with a
citizen commission each year to analyze some incentives and to make
recommendations as to whether and how they should change. Lawmakers review
the recommendations at hearings.
•
Arizona has a schedule for reviewing tax incentives on a five-year cycle. The
Joint Legislative Income Tax Credit Review Committee has reviewed tax credits
every year since 2002 and made formal recommendations to the Legislature.
Measure the economic impact of incentives. States should ask the relevant questions
and use the best data and analysis.
•
Pew Best Practices: In calculating the number of jobs a tax incentive was
creating, Louisiana’s economic development agency took into account that some
businesses receiving the incentives competed with other businesses in the state.
The agency concluded that some newly created jobs merely displaced existing
positions.
Draw clear conclusions. States should determine whether tax incentives are achieving
the state’s goals.
•
Pew Best Practices: In 2010, Connecticut’s economic development agency
assessed the state’s major tax credits, using sophisticated analysis techniques. The
agency concluded that although some incentives were not meeting the state’s
goals, others were beneficial and cost-effective. In 2013, state lawmakers voted to
put a moratorium on tax credits for the movie industry.
The evaluation of business tax credits should not only be conducted on a credit-by-credit
basis but also using a holistic approach. This will allow policymakers to see how spending on tax
credits is being used to promote overall state objectives. For example, a state objective is the
revival of upstate New York, especially its manufacturing sector. Does it then make sense for the
state to spend less than 10 percent of the total costs of business tax credits on the ITC, the one
credit that is used to a great extent by manufacturing companies? Even the ITC is not without its
weaknesses. A taxpayer does not have to be a manufacturer to qualify for the ITC if the property
89
generating the credit is employed in a processing capacity. This standard allows the ITC to be
claimed by many types of nonmanufacturing businesses.
90
VIII.
OPTIONS FOR BUSINESS TAX CREDIT REFORM
VIII.1 Modifying Credits
Because of the flaws in film, brownfield, and other business tax credits discussed earlier
in this report and concerns with the escalating number and costs of credits, the Commission has
asked us to provide options for restructuring New York State’s business tax credits. In response,
we have developed three broad categories of options: (1) major reform, including the elimination
of all business tax credits; (2) moderate reform, including significant scaling back of individual
credits and elimination of most refundability provisions; and (3) targeted reform generally
designed to eliminate underused credits and improve the workings of remaining credits.
VIII.1.1 Major Reform
1) Eliminate all business tax credits: Even if elimination of all business tax credits is
unlikely, it is worth understanding how much this would allow overall tax rates to be
reduced. In one sense, higher rates on the majority of taxpayers are the “price” for
lower taxes for relatively few taxpayers. NYS could eliminate all business tax credits
and use the resulting revenue to lower tax rates, thus reducing the extent to which the
tax system distorts economic decisions and simplifying compliance for taxpayers and
administration for tax collectors.
If all New York State business tax credits were eliminated, the increase in tax
revenues would approach $2 billion, when fully in effect (but see discussion below of
transition issues). The state could offset the potential revenue gain by reducing the
corporate tax rate, cutting the top personal income tax rate, cutting both personal and
corporate income tax rates, lowering the sales tax rate, or reducing other tax rates.
VIII.1.2 Moderate Reform
Moderate reform would include significant scaling back of individual business tax credits
and the elimination of most refundability provisions. Options for moderate reform include:
1) Make “sunsets” the standard practice for credits. Just as spending programs are
time-limited, credits should be as well so that periodic reviews are, in essence,
required. At a minimum, the state should do this for any newly enacted credits.
91
2) Cap additional credits. To increase visibility of the budgetary impact of business tax
credits and to limit budgetary exposure from uncontrolled growth in their cost, the
state could move further toward an aggregate budget for all business tax credits. This
would involve extending the concept of a credit cap, currently used for the film,
Excelsior, and several other credits, to additional credits where practical. At a
minimum, a first-come, first-served cap could be established for brownfield credits.
3) Eliminate refundability for most credits. The state could eliminate tax credit
refundability for most or all of the credits that are currently refundable, with transition
rules to minimize restrictions on credits where taxpayers have made commitments,
such as binding contracts, in the expectation of receiving the credits. When a tax
credit is refundable, it becomes in effect a state spending program — the state must
send a check to taxpayers if they do not have enough tax liability to offset the credit.
The state thus shares in the cost of the subsidized activity even if it may never
become profitable in absence of tax credits and even if the business never did or will
pay taxes.
4) Provide time limitations on refundability. The state could limit the extent to which
credits may be refunded in any single year so that a refundable credit might be paid
out, for example, over five years rather than all in a single year.
5) Further reform the brownfield credits. As mentioned earlier, the state reformed the
brownfield credit program in 2008 to slow its increasing costs. Further reforms may
be warranted. The most radical reform would be to convert the brownfield tax credits
to a direct spending program directed at remediation of sites that are contaminated or
that may be contaminated. Such a reform would mean that an annual appropriation
from the legislature would be required as part of the state’s budget process.
A second option is for the state to limit the brownfield credits specifically to
clean-up costs, thus reducing the cost of the program. This would put New York more
in line with other states that generally focus their brownfield programs on clean-up.
For example, New Jersey provides a reimbursement for up to 75 percent of clean-up
costs, from new state taxes generated by the project. If NYS were to limit brownfield
credits to a percentage of clean-up costs, it could focus the brownfield program more
92
effectively on environmental protection, changing it from its current focus on
economic development.
A third option is for the state to curtail the lengthy period of project eligibility
(currently 10 years) for redevelopment activity to qualify for the credits. Credit for
redevelopment could be limited to costs incurred in a preapproved redevelopment
plan to reduce the potential for awarding credit for “overdevelopment.”
A fourth option is for the state to place further restrictions on the tangible property
credit — the portion that is not related to remediation — so that it is limited to
economically depressed areas. This would likely encourage a greater share of
brownfield-related redevelopment upstate.
6) Reduce the film production credit. To limit the costs of the film credits, NYS could
reduce their annual allocation. For example, it could reduce the annual allocation
from the $420 million currently allowed to $300 million, which would still be about
$200 million more than the generous credits in Louisiana and Massachusetts. In
recent years, some states have not renewed film credits that had sunset provisions;
others have suspended or declined to fund the credits.
7) Restructure the Investment Tax Credit (ITC). There are several possible options to
restructure the ITC. Given, however, the vast inventory of unused ITC carried
forward from prior years (more than $1.2 billion), savings to the state from these
options could take several years to materialize unless the carry forwards are directly
addressed. Options include:
a. Target the ITC. Target the ITC to job-creating investments by requiring
employment increases as a condition for credit qualification, by imposing an
entity eligibility test instead of a property eligibility test, limiting or eliminating
credit for used property, and/or by adding a requirement that ITC-eligible
equipment must produce goods for final sale.
b. Repeal the financial services investment tax credit. This credit is complicated,
has multiple employment tests, few users (of the 25 corporate taxpayers taking
$18.6 million in the ITC in 2009, six accounted for $17.4 million), and frequent
property turnover requiring repeated recapture.
93
c. Eliminate the refundable provisions in the ITC for new businesses. The
definition of new business should exclude those that solely purchase the assets of
an existing business.
VIII.1.3 Targeted Reform
Targeted reforms generally are designed to eliminate underused credits and improve the
workings of remaining credits. The suggested options for targeted reform are as follows.
1) Repeal rarely used credits. The state has several credits that cost less than $5 million
annually and are claimed by few taxpayers. Each of these rarely utilized credits
requires an administrative structure, including guidance from the Tax Department, tax
forms, and training of tax auditors. Their success in achieving policy goals appears
quite limited in relation to the costs of administering them. The main credits in this
group are: Youth Works ($5 million), alternative fuel/electric vehicle refueling
property credit ($3 million), historic home rehabilitation credit ($3 million),
conservation easement credit ($2 million), Qualified Emerging Technology Company
(QETC) employment credit ($1 million), QETC capital credit ($1 million), clean
heating fuel credit ($0.5 million), defibrillator credit ($0.5 million), security officer
training ($0.1 million), credit for employment of persons with disabilities ($0.1
million), handicapped accessible taxi credit ($0.1 million), brownfield environmental
remediation credit ($0.1 million), and jobs retention credit ($0.1 million).
Repealing these credits would generate about $15 million in revenue while also
delivering compliance and administration savings. Repeal of the recently enacted Hot
Spots would add another $5 million in savings, bringing the total to $20 million;
however, this credit is too new to estimate its utilization.
2) Repeal certain highly targeted tax credits. NYS has a set of relatively small and
highly targeted credits that the Tax Commission may wish to consider as candidates
for elimination. These include: the historic properties rehabilitation credit ($15
million), the Certified Capital Company Credit ($10 million), biofuel production
credit ($10 million), the PIT solar credit ($10 million), and the brownfield real
property tax credit ($8 million), which is in addition to the already generous
brownfield redevelopment tax credit. In addition, the Economic Transformation and
94
Facility Redevelopment credit ($55 million) has been narrowly targeted, had one
known participant as of 2013, and is complex to comply with and administer.
VIII.1.4 Transition Issues
Taxpayers have made commitments, such as binding contracts, based on their
ability to use credits. Transition rules and phase-ins will be desirable to allow taxpayers to take
advantage of credits for which they have already qualified. Further, taxpayers who previously
earned nonrefundable credits should be entitled to carry them forward as under present law.
This means that the amount of cash revenue available for overall tax rate
reduction could be limited in the early years of a reform, as alluded to in the ITC option
described above. Full rate reduction would have to wait until many taxpayers had exhausted
much of their “legacy” claim to credits. There are options the Commission could consider to
ensure that more cash revenue is available for overall rate reduction in early years, such as
instituting a minimum tax so that credits cannot reduce liability by more than a certain
percentage or amount, with credits that go unused as a result of this change presumably carried
forward to future years. This would increase the amount of revenue generated for rate reduction
in early years, but extend the time it would take for the reformed system to generate its full
potential for rate reduction.
VIII.2 Recommendations for Monitoring, Review, and Evaluation
Whether reforms are adopted or not, the state should strengthen its monitoring and
evaluation of business tax credits so that it is better informed about the impacts of this substantial
use of state resources. Our review of brownfield credits made clear the power of disclosure:
because information about projects qualifying for the credits was made public, it was possible to
examine them closely and conclude that their use of state resources is questionable.
Wherever practical, information on individual state business tax credits, but not on
unrelated tax return data, should be made publicly available. Where detailed tax credit
information is too closely tied to tax return data to be disclosed publicly, the data should be made
available to government reviewers for purposes of evaluation, under nondisclosure agreements.
Legislation should be developed that would expand upon the disclosure rules for existing credits
such as brownfield and Excelsior, extending credit disclosure to all credits on a prospective
basis.
95
Periodic rigorous review of credits. It is not practical to review every credit in depth
every year, but NYS should establish a schedule for review that keeps the resource demands
reasonable. One approach might be to review the largest five credits every other year and to
evaluate smaller credits every five years on a staggered schedule. As discussed in Section VII,
Arizona and Washington have adopted staggered schedules for reviewing credits.
In the review, credits should be subject to rigorous evaluation criteria and state
policymakers should consider eliminating credits that cannot meet the criteria. Several questions
should be asked including:
What is the purpose of the tax credit?
Assuming the purpose is achieved, is the tax credit good policy?
How does the credit relate to other state programs? Is a credit more effective at
meeting its goals than a spending program would be? Is a credit more effective at
meeting those goals than more-general tax reduction would be?
What are the consequences for the state budget of the credit?
The evaluation of business tax credits should not only be conducted on a credit-by-credit
basis but also using a holistic approach. This will allow policymakers to see how spending on tax
credits is being used to promote overall state objectives. For example, a frequently stated state
policy objective is the economic revival of upstate New York, especially its manufacturing
sector. Does the current allocation of tax credit spending address this objective? Does it make
sense for the state to spend less than 10 percent of the total costs of business tax credits on the
ITC, the one credit that is directly targeted toward manufacturing companies?
Still looking at the objective to revitalize upstate, does it make sense for NYS to allocate
over 50 percent of its total spending on business tax credits to brownfield and film credits? Both
have been almost entirely focused on NYC and other downstate localities and have had little
impact on upstate. In addition, as shown in Section VI, brownfield credits have failed to produce
significant clean-up, in terms of numbers of sites remediated and remediation spending. Some of
the largest claims have been for retail and hospitality projects, both industries that tend to choose
locations based on consumer location. The NYS film credits subsidize much activity that is
transitory and does not contribute to the growth of a long-term base of economic activity.
96
As described earlier, certain kinds of reviews, such as economic impact analyses, can
result in widely varying conclusions depending upon assumptions and methods used. To ensure
that these reviews are of the highest practical quality and are transparent, a quality control
process should be created that (1) establishes model standards for these kinds of studies; (2)
institutes a peer-review process for draft studies, including review by academic and industry
experts; and (3) allows the public to have access to the results of the peer review process.
Determining the most appropriate agency to review most credits would be challenging.
At present in the executive branch, neither the Department of Taxation and Finance (DTF) — the
agency with primary responsibility for administering tax credits — nor any other NYS agency
administering one or more tax credits has the responsibility for evaluating the efficacy of the
state’s tax incentives. There are several reasons why DTF is not currently in a position to
perform this function. Structural and data issues in the tax system and in the way businesses
organize themselves complicate even basic evaluation.
To conduct a complete evaluation would require a retooling of how tax returns are
processed including, for example, making data for evaluation available in a timely manner. At
present, DTF generally does not have final, verified data until two or three years after the
conclusion of a given tax year. Other reasons include the following.
The level of resources needed to add additional functions to those already in place has
not been made available to DTF.
The expertise to evaluate all tax expenditures does not reside in DTF, especially for
those incentives that are the responsibility of other Departments.
•
If the credit is as-of-right with no external agency involved (e.g., the investment
tax credit), DTF monitors compliance.
•
If the credit is fully administered by an agency other than DTF, the agency that
awards actual credit certificates (e.g., film credits and Excelsior credits) handles
compliance.
•
When an agency other than DTF certifies eligibility, but DTF monitors
compliance with the tax laws, administration is more complicated. An example is
brownfield credits. DTF defers to the Department of Environmental Conservation
97
(DEC) on all environmental criteria required to get a certificate of completion.
Once the taxpayer files the credit, DTF ensures compliance with tax rules.
Even with the suggested staggered reviews, the state will need to reallocate resources for
this purpose to ensure that the entity responsible for evaluation has sufficient staff time available.
That agency will also have to strengthen its evaluation tools and expertise, both of which will
take time. In addition, because of multiple agency coadministration of certain credits, evaluation
will require cross-agency cooperation. Finally, as discussed in Section VI, because tax data
systems often do not provide information that is ideal for evaluation, the reviewing entity will
have to either work within the limits of available data or, where warranted, collect additional
data for purposes of evaluation.
98
IX.
APPENDICES
IX.1
Selected Tables
99
IX.1.1 History of Business Tax Incentive Credits in New York
Tax Credit
Year Enacted
Tax Law
Section(s)
Effective
Last
Legislative
Action
Investment tax
credit (ITC)
1969
210(12)
606(a)
TYBOA 1/1/69
Ch. 393 of the
Laws of 2005
Retail
Enterprise Tax
Credit (ITC
component)
1981
210(12)(k)
606(a)
Expenses
incurred on/
after 6/1/81
Ch. 103 of the
Laws of 1981
Rehabilitation
Credit for
Historic Barns
(ITC
component)
1996
210(12)(l)
606(a)
TYBOA 1/1/97
Chapter 309 of
the Laws of
1996
Employment
Incentive
Credit (EIC)
1987
210(12-D)
606(a-1)
Property
acquired on/
after 1/1/1987
for corp; 1/1/97
for PIT
Ch. 817 of the
Laws of 1987
Ins: property
placed in
service
between 1/1/02
and before
10/1/15;
Others:
Property
placed in
service on or
after 10/1/98
and before
10/1/15
Part E of
Chapter 61 of
the Laws of
2011
ITC/EIC for
the Financial
Services
Industry
Ins: 2000
Others:
1998
210(12)
606(a)(2)(A)
1456(i)
1511(q)
Description of
Last
Legislative
Action
Extended the
ITC to property
owned by a
qualified film
production
facility and
used by
another for
film production
activity.
Extended ITC
to
rehabilitation
expenditures
for buildings
employed in
retail sales.
ITC expanded
to allow a tax
credit for the
rehabilitation
of historic
barns.
Replaced prior
3 year
employment
incentive credit
Extended the
credit to apply
to property
placed in
service before
October 1,
2015
Benefit Period
Allocation or
As-of-Right
Limitations
Refundable /
Carryforward
(CF)
Employment
Requirement
External
Agency
Involved
Year property
placed in
service
As-of-right
AMT/FDM
Refundable to
new business
only/15y CF
No
No
Year rehab
expenditures
incurred
As-of-right
AMT/FDM
No
No
Year rehab
expenditures
incurred
As-of-right
AMT/FDM
No
No
2 years
following ITC
year if
employment
test is met
As-of-right
AMT/FDM
No
Year property
placed in
service; EIC
available in
succeeding 2y
following ITC
year if
employment
test is met (see
EIC above)
As-of-right
101%-102%,
102%-103%,
103%+ of
employment in
year prior to
ITC for rates of
1.5%, 2%, or
2.5%,
respectively
Taxpayers
must pass 1 of
3 eligibility
tests based on
average
number of
employees
performing
administrative
and support
functions
CFT:
Nonrefundable/
15y CF
PIT:
Refundable to
new business
only/10y CF
AMT/FDM
Refundable to
new business
only/15y CF
No
100
Tax Credit
Year Enacted
Tax Law
Section(s)
Effective
Last
Legislative
Action
Credit for
servicing
SONYMA
mortgages
Bank:
1972
210(21-a)
1456(a)
Bank: TYBOA
4/25/72
CFT: TYBOA
1/1/95
Chapter 151 of
the Laws of
2013
Special
additional
mortgage
recording tax
credit
PIT: 2005
PIT: TYBOA
1/1/04
Part I of
Chapter 61 of
the Laws of
2005
EZ ITC
Art. 9:
2005
187
210(17)
210(21)
606(f)
1456(c)
1511(e)
187-k
210(12-B)
606(j)
CFT: 1995
Others: 1979
Art. 9:
TYBOA 1/1/04
Others:
1986
EZ
employment
incentive credit
(EIC)
Art. 9:
2005
Others:
1986
Others:
TYBA
12/31/78
CFT/PIT:
TYBOA 1/1/86
187-l
210(12-C)
606(j-1)
CFT/PIT:
TYBOA 1/1/86
Art. 9:
TYBOA 1/1/04
Part R of
Chapter 57 of
the Laws of
2010
Part R of
Chapter 57 of
the Laws of
2010
Description of
Last
Legislative
Action
Allows credit
when the
mortgage loan
is not acquired
by SONYMA
directly from
the originating
lenders, but is
acquired
pursuant to a
SONYMA
program that
would involve
Fannie Mae.
Credit
extended to
personal
income
taxpayers.
Benefit Period
Allocation or
As-of-Right
Limitations
Refundable /
Carryforward
(CF)
Employment
Requirement
External
Agency
Involved
Principal &
interest
collected
during tax year
As-of-right
None
Nonrefundable/
Non-CF
No
SONYMA
reports credit
amounts to
taxpayers by
letter
MRT paid
during tax year
As-of-right
AMT/FDM
Refundable for
residential
mortgages
only/unlimited
CF
No
No
Created a
period during
which
additional EZITC and EZEIC can be
earned,
notwithstandin
g the expiration
of the EZ
Program.
Created a
period during
which
additional EZITC and EZEIC can be
earned,
notwithstandin
g the expiration
of the EZ
Program.
3/31/14 is last
date for
property to be
placed in
service for EZITC
As-of-right
AMT/FDM
50%
refundable to
new business/
unlimited CF
No
Empire State
Development
(ESD) certifies
EZ businesses
3 years
following EZITC year
As-of-right
FDM
CFT:
Nonrefundable/
unlimited CF
At least 101%
employment in
year before
ITC
ESD certifies
EZ businesses
Limited to
amount of tax
paid
PIT: 50%
refundable to
new business/
unlimited CF
101
Tax Credit
Year Enacted
Tax Law
Section(s)
Effective
Last
Legislative
Action
EZ/ZEA wage
tax credit
Art. 9:
2005
187-m
210(19)
606(k)
1456(e)
1511(g)
Art. 9:
TYBOA
1/1/04; Others:
TYBOA 1/1/86
Part Z-1 of Ch.
109 of the
Laws of 2006
Others:
1986
ZEA WTC —
expired
6/30/04
EZ capital
credit
QEZE real
property tax
credit (RPTC)
1986
Art. 9:
2004
Others:
2000
QEZE tax
reduction
credit
2000
210(20)
606(l)
1456(d)
1511(h)
TYBOA 1/1/86
Part R of
Chapter 57 of
the Laws of
2010
14
15
187-j
210(27)
606(bb)
1456(0)
1511(r)
Art. 9:
TYBOA
1/1/04; Others:
TYBOA 1/1/01
Part R of
Chapter 57 of
the Laws of
2010
14
16
210(28)
606(cc)
1456(p)
1511(s)
TYBOA 1/1/01
Part Z-1 of Ch.
109 of the
Laws of 2006
Description of
Last
Legislative
Action
Established an
exception to
the
requirement
that employees
must receive
EZ wages for
more than half
the taxable
year to qualify
for credit
Extended the
credit through
March 31,
2014 for
contributions
certified by the
Commissioner
of ESD to
community
development
projects in
fulfillment of a
pledge made to
the project
before the EZ
Program
expired.
Benefit Period
Allocation or
As-of-Right
Limitations
Refundable /
Carryforward
(CF)
Employment
Requirement
External
Agency
Involved
5 years;
no claims for
TYBOA 7/1/14
As-of-right
AMT/FDM
50%
refundable to
new business
only/ unlimited
CF
Current
employment in
NYS & zone >
4 yr. base
period
employment
ESD certifies
EZ businesses
Tax year
contribution
were made
As-of-right
Nonrefundable/
unlimited CF
No
ESD certifies
EZ businesses
Clarified that
real property
taxes for
purposes of the
QEZE RPTC
do not include
charges for
local benefits
that inure to
specific
properties.
Established
alternative
employment
number
computation
for purposes of
credit.
15y or 10y
depending on
date of 1st
certification;
EZ Program
sunset 6/30/10,
so last claims
in 2020
As-of-right
Refundable
Annual test &
employment
increase factor
computation
ESD certifies
EZ businesses
15y or 10y
depending on
date of 1st
certification;
EZ Program
sunset 6/30/10,
so last claims
in 2020
As-of-right
Nonrefundable/
noncarryforward
Annual test &
employment
increase factor
computation
ESD certifies
EZ businesses
Limited to 50%
of tax before
MTA
surcharge or
credit
AMT/FDM
Credit cannot
exceed
$300,000 for
all years; total
amount for
each
contribution
type cannot
exceed
$100,000
Limited to 50%
of tax before
MTA
surcharge and
credits
AMT/FDM
FDM; no limit
if zone
allocation
factor equal to
100%
102
Tax Credit
Year Enacted
Tax Law
Section(s)
Effective
Last
Legislative
Action
Farmers’
school property
tax credit
1996
210(22)
606(n)
TYBOA 1/1/97
Chapter 297 of
the Laws of
2010
Credit for
employment of
persons with
disabilities
1997
187-a
210(23)
606(o)
1456(f)
1511(j)
TYBOA 1/1/98
for individuals
who began
work on or
after 1/1/97
Chapter 142 of
the Laws of
1997
Qualified
emerging
technology
company
(QETC) capital
tax credit
CFT:
1998
210(12-F)
606(r)
CFT: TYBOA
1/1/99
Part D of
Chapter 59 of
2004
QETC
employment
credit
PIT: 1999
CFT:
1998
PIT: TYBOA
1/1/00
210(12-E)
606(q)
PIT: 1999
Low-income
housing credit
2000
CFT: TYBOA
1/1/99
PIT: TYBOA
1/1/00
18
210(30)
606(x)
1456(l)
1511(n)
TYBOA 1/1/00
Description of
Last
Legislative
Action
Clarified that
payments from
the Farmland
Protection
Program,
administered
by NYS
Department of
Agriculture
and Markets,
should be
disregarded
when
determining
whether or not
a taxpayer is
eligible for the
credit.
Credit enacted.
Credit
expanded to
cover
businesses
engaged in
biotechnology.
Benefit Period
Allocation or
As-of-Right
Limitations
Refundable /
Carryforward
(CF)
Employment
Requirement
External
Agency
Involved
Payments
made during
the tax year
As-of-right
AMT/FDM
Refundable
No
No
1st year wages;
2nd year instead
if federal WOC
in effect
As-of-right
FDM
Nonrefundable/
unlimited
carryforward
No
Investments
made during
the tax year; 4
or 9 year
holding period
requirement
As-of-right
Only available
for hiring
qualified
employees; no
base level
employment
No
Employment
must be at least
101% of baseyear
employment
number
No
No
$2,100/
employee
AMT/FDM
Credit cannot
exceed 50% of
tax
Part U of
Chapter 61 of
the Laws of
2005
Credit made
fully
refundable.
3 years
As-of-right
Part J of
Chapter 59 of
the Laws of
2012
Aggregate
statewide
credit amount
increased
10 years
Aggregate
allocation is
$48 million in
SFY 2013-14
$150k max for
credit
computed at
10% rate;
$300k max for
credit
computed at
20% rate
AMT/FDM
AMT/FDM
Nonrefundable/
unlimited
carryforward
Refundable
Nonrefundable/
unlimited
carryforward
No
NYS DHCR
determines
eligibility and
allocates credit
103
Tax Credit
Year Enacted
Tax Law
Section(s)
Effective
Last
Legislative
Action
Credit for
purchase of an
automated
external
defibrillator
Green
buildings credit
1999
210(25)
606(s)
1456(j)
1511(l)
TYBOA 1/1/01
Part J of
Chapter 407 of
the Laws of
1999
2000
19
187-d
213(31)
606(y)
1456(m)
1511(o)
TYBOA 1/1/01
Chapter 61 of
the Laws of
2005
Empire State
film production
tax credit
2004
24
606(gg)
210(36)
TYBOA 1/1/04
Part B of
Chapter 59 of
the Laws of
2013
Empire State
film postproduction
credit
2010
31
210(41)
606(qq)
TYBOA
8/11/10
Part B of
Chapter 59 of
the Laws of
2013
Empire State
commercial
production
credit
Security
training tax
credit
2006
28
210(38)
606(jj)
TYBOA 1/1/07
and before
1/1/15
2005
26
187-n
210(37)
606(ii)
1456(t)
1511(x)
TYBOA 1/1/05
Part I of
Chapter 59 of
the Laws of
2012
Chapter 537 of
the Laws of
2005
Description of
Last
Legislative
Action
Credit enacted.
Benefit Period
Allocation or
As-of-Right
Limitations
Refundable /
Carryforward
(CF)
Employment
Requirement
External
Agency
Involved
Annual
purchases
As-of-right
AMT/FDM
Nonrefundable/
non-CF
No
No
Lesser of cost
of unit or $500
Second
allocation of
green buildings
tax credit
authorized and
minor technical
fixes made.
Credit
extended to
relocated talk
or variety
shows;
maximum
allocation
extended and
modified; and
upstate credit
enhancements
added.
5 years
$25m each for
Periods 1 & 2
(DEC is no
longer issuing
component
certificates)
AMT/FDM
Nonrefundable/
unlimited CF
No
NYS DEC
issues credit
component
certificate
Credit claimed
over 1, 2, or 3
years
depending on
size
$420m/year
through 2019
(portion is
dedicated to
post-prod.
credit, see
below)
FDM
Annual amount
allowed under
trifurcation
rules is fully
refundable
No
MP/TV
determines
eligibility and
allocates credit
Credit
allocation
extended and
modified;
upstate credit
enhancements
added; and
visual effects
and animation
incentive
created.
Credit
reauthorized
and extended.
Credit claimed
over 1, 2, or 3
years
depending on
size
2013 & 2014
allocations are
$7m; 2015-19
allocations are
$25m; funded
from film
allocations
FDM
Refundable
over two years
No
MP/TV
determines
eligibility and
allocates credit
Costs incurred
during the tax
year
$7 million in
credit annually
through 2014
FDM
Refundable
over two years
No
Credit enacted.
3 years
$5 million
annually
AMT/FDM
Refundable
Only available
for hiring
qualified
security
guards; no base
level
employment
increase
required
MP/TV
determines
eligibility and
allocates credit
DHSES
determines
eligibility and
allocates credit
$3,000/
qualified
security guard
104
Tax Credit
Year Enacted
Tax Law
Section(s)
Effective
Last
Legislative
Action
Brownfield
Redevelopment
Tax Credit
2003
21
187-g
213(33)
606(dd)
1456(q)
1511(u)
TYBOA 4/1/05
and COCs
issued before
1/1/16
Chapter 474 of
the Laws of
2012
Remediated
Brownfield
Credit for Real
Property Taxes
2003
22
187-h
213(34)
606(ee)
1456(r)
1511(v)
TYBOA 4/1/05
and COCs
issued before
1/1/16
Chapter 474 of
the Laws of
2012
Environmental
Remediation
Insurance
Credit
2003
23
187-i
213(35)
606(ff)
1456(s)
1511(w)
TYBOA 4/1/05
and COCs
issued before
1/1/16
Chapter 474 of
the Laws of
2012
Biofuel
production
credit
2006
28
187-C
210(38)
606(jj)
TYBOA 1/1/06
and before
1/1/20
Part K of
Chapter 59 of
the Laws of
2012
Land
conservation
easement credit
2006
210(38)
606(kk)
TYBOA 1/1/06
Part F of
Chapter 62 of
the Laws of
2006
Credit enacted.
Clean heating
fuel credit
2006
Chapter 193 of
the Laws of
2012
PIT credit
extended
606(mm)
210(39)
Purchases
made on 7/1/06
- 6/30/07 & on/
after 1/1/081/1/17
Description of
Last
Legislative
Action
The eligibility
time frame for
issuing a
certificate of
completion
(COC)
brownfield tax
credits was
extended.
Benefit Period
Allocation or
As-of-Right
Limitations
Refundable /
Carryforward
(CF)
Employment
Requirement
External
Agency
Involved
5 years for
cleanup costs;
10 years for
redevelop.
costs after
COC is issued
As-of-right
AMT/FDM
Refundable
No
DEC issues
COC
The eligibility
time frame for
issuing a
certificate of
completion
(COC)
brownfield tax
credits was
extended.
The eligibility
time frame for
issuing a
certificate of
completion
(COC)
brownfield tax
credits was
extended.
Sunset date
extended.
10 years
As-of-right
Post June 08
sites cap redev.
credit at lesser
of:
3x cleanup
costs or $35m
or 6x/$45m for
manu. sites
AMT/FDM
Refundable
Minimum 25
FTEs on site;
employment
number factor
can increase
with more
DEC issues
COC
Refundable
No
DEC issues
COC
Refundable
No
No
Limited to
$10,000
multiplied by
the average
number of
FTEs
1 time
As-of-right
AMT/FDM
Lesser of $30k
or 50% of
premiums paid
4 years
As-of-right
AMT/FDM
Limited to
$2.5m/entity/yr
(Ch. 591 of
2011 extended
the credit in
CFT only; Ch.
193 was a
conforming
amendment)
Property taxes
paid during the
year
As-of-right
AMT/FDM
Refundable
No
No
Purchases
during the tax
year
As-of-right
Max allowable
credit is
$5,000/yr
AMT/FDM
Refundable
No
No
Cannot exceed
$0.20/gallon
105
Tax Credit
Year Enacted
Tax Law
Section(s)
Effective
Last
Legislative
Action
Credit for
rehabilitation
of historic
properties
CFT/PIT
2006
210(40)
606(oo)
1456(u)
1511(y)
PIT/CFT —
TYBOA 1/1/07
Part F of
Chapter 59 of
the Laws of
2013
Excelsior Jobs
Program tax
credits
2010
31
210(41)
606(qq)
1456(u)
1511(y)
TYBOA 1/1/10
Part C of
Chapter 68 of
the Laws of
2013
Credit for
companies who
provide
transportation
to individuals
with
disabilities
2011
210(44) 1
606(tt) 1
TYBOA 1/1/11
and before
1/1/17
Chapter 604 of
the Laws of
2011
Economic
Transformation
and Facility
Redevelopment
Program tax
credit
NY youth
works credit
2011
Bank/Ins
2009
2011
35
187-r
210(43)
606(ss)
1456(x)
1511(aa)
210(44) 1
606(tt) 1
Bank/Ins:
TYBOA 1/1/10
3/31/11 and
before
12/31/21
Part V of
Chapter 61 of
the Laws of
2011
TYBOA 1/1/12
Part DD of
Chapter 59 of
the Laws of
2013
Description of
Last
Legislative
Action
Extended the
enhanced
credit through
2019; made
refundable
starting in
2015.
Benefit Period
Allocation or
As-of-Right
Limitations
Refundable /
Carryforward
(CF)
Employment
Requirement
External
Agency
Involved
Tax year
property is
placed in
service
As-of-right
AMT/FDM
Refundable for
qualified
rehabilitations
placed in
service on or
after 1/1/15
No
Not directly property must
have National
Parks Service
project # and
claimed federal
credit
Reduces job
creation
requirements
by half; allows
taxpayers
meeting 75%
of job targets
to receive
proportional
credit; allows
unallocated
credit to be
carried forward
for future
awards
Credit
enacted*
10 years
$500m in
2011-2015;
$2.25b total
program cap
Refundable
Yes —
standards vary
by
industry/activit
y
ESD issues
certificate of
tax credit
Tax year costs
incurred
As-of-right
Nonrefundable/
unlimited CF
No
No
Credit cannot
exceed
$10,000/
vehicle
FDM
Refundable
Must create
and maintain 5
net new jobs
ESD issues
certificate of
eligibility
FDM
Refundable
Only available
for hiring at
risk youths; no
overall base
employment
requirement
DOL issues
certificate of
eligibility with
max amount of
credit that
employer can
claim.
*Similar credit
existed for
TYBOA 1/1/06
and before
1/1/11
Credit enacted.
Credit
expanded and
extended.
5 years
As-of-right
Subject to NYS
Department of
Labor (DOL)
award
Allocated by
DOL: $25m for
hires in 2012;
$6m annually
for hires in
2014 through
2017
Max
credit/project
cannot exceed
$5m for
TYBOA 1/1/10
thru ‘19,
$100K for
TYBOA 1/1/20
AMT/FDM
None-can
reduce tax to
zero
106
Tax Credit
Year Enacted
Tax Law
Section(s)
Effective
Last
Legislative
Action
Empire State
jobs retention
program credit
2011
36
210(44)1
606(tt) 1
1456(y)
1511(bb)
TYBOA 1/1/12
pertaining to
emergencies
declared on or
after 1/1/11
Part E of
Chapter 56 of
the Laws of
2011
Beer
production
credit
2012
37
210(45)
606(uu)
TYBOA 1/1/12
for production
on/after 4/1/12
Minimum
wage
reimbursement
credit
2013
38
187-s
210(46)
606(aaa)
1456(z)
1511(cc)
Hire a vet
credit
2013
Alternative
fuel vehicle
refueling
property and
electric vehicle
recharging
property credit
2013
Description of
Last
Legislative
Action
Credit enacted.
Benefit Period
Allocation or
As-of-Right
Limitations
Refundable /
Carryforward
(CF)
Employment
Requirement
External
Agency
Involved
10 years
Allocated by
ESD
(part of
funding for
Excelsior Jobs
Program)
FDM
Refundable
ESD issues
certificate of
tax credit
Chapter 109 of
the Laws of
2012
Credit enacted.
Gallons
produced
during the tax
year
As-of-right
FDM
Refundable
Must have had
at least 100
FTEs in the
county prior to
emergency and
must retain or
exceed that
number of jobs
No
TYBOA 1/1/14
and before
1/1/19
Part EE of
Chapter 59 of
the Laws of
2013
Credit enacted.
Hours worked
by eligible
employees
during the tax
year
As-of-right
Max amount of
credit is
$745,000 per
year
FDM
Refundable
No
210(23-a)
606(a-2)
1456(e-1)
1511(g-1)
TYBOA 1/1/15
and before
1/1/17
Part AA of
Chapter 59 of
the Laws of
2013
Credit enacted.
Wages paid
during first full
year of
employment
As-of-right
FDM
187-b
210(24)
606(p)
TYBOA 1/1/13
and before
1/1/18
Part G of
Chapter 59 of
the Laws of
2013
Credit enacted.
Property
placed in
service during
tax year
As-of-right
Credit is
capped at
$5K/vet or
$15K/disabled
vet
AMT/FDM
Only available
for hiring of
eligible
employees; no
overall base
employment
requirement
Only available
for hiring of
qualified vets;
no overall base
employment
requirement
*This credit
replaces the
alternative
fuels credit that
expired in
2010.
Nonrefundable/
3 year CF
Nonrefundable/
unlimited CF
No
No
No
No
Lesser of $5K
or 50% of the
cost of the
property
107
IX.1.2 Tax Incentive Impact: Findings from Illustrative Studies
Tax Incentive Impact: Findings from Illustrative Studies
Article
Incentive
Research Method
Results
Tax credit for
Loren C. Scott &
Associates, Inc. (2013) investment in statecertified entertainment
Louisiana Department of productions.
Economic Development,
Office of Entertainment
Industry
Development. The
Economic Impact of
Louisiana’s
Entertainment Tax
Credit Programs. Baton
Rouge, LA Retrieved
from
http://louisianaentertain
ment.gov/docs/main/201
3_OEID_Program_Impa
ct_Report_(FINAL).pdf
Input/Output model to
estimate effect of
Louisiana’s
entertainment
incentives on growth
and employment in
relevant
industries.(2012)
POSITIVE
$4.80 of private sector
sales in relevant
industries per dollar of
tax credit.
Tax credit for
investment in statecertified entertainment
Louisiana Department of productions.
Economic Development
and Louisiana
Department of Revenue.
(2013). Motion Picture
Tax Credit Program:
Performance Audit.
Retrieved from
Louisiana Legislative
Auditor
http://app1.lla.la.gov/Pu
blicReports.nsf/5A6852
58D794067E86257B570
05B8D58/$FILE/00032
357.pdf
Audit of fiscal impact
of Louisiana motion
picture tax credit
program. (2010)
NEGATIVE
Net loss to state
government of $169.8
million for calendar
year 2010.
Purpera, D., et al.
(2013)
HR&A Advisors, Inc. Massachusetts film tax Input/Output model to
incentive program:
estimate effect of film
(2013)
15,184 jobs from
certified spending in
relevant industries.
POSITIVE
2,200 full time
108
Tax Incentive Impact: Findings from Illustrative Studies
Article
Incentive
Research Method
Results
payroll credit,
tax incentives on
economic growth and
Economic Impacts of the production expense
Massachusetts Film Tax credit, sale and use tax employment. (2011)
Incentive Program.
exemption
Retrieved from Motion
Picture Association of
America
http://www.mpaa.org/Re
sources/8ee0a160-99534c29-bfa31f6bff6956d5.pdf
equivalent jobs
resulted from film tax
incentive program.
Massachusetts film tax
incentive program:
Commonwealth of
payroll credit,
Massachusetts,
production expense
Department of Revenue. credit, sale and use tax
(2011). A Report on the exemption
Massachusetts Film
Industry Tax Incentives.
Retrieved from
http://www.mass.gov/do
r/docs/dor/news/2011fil
mincentivereport.pdf
Input/Output model to
estimate effect of film
tax incentives on
economic growth and
employment.
Input/Output model to
estimate effect of state
spending and changes
in revenue from film
tax incentive on
economic growth and
employment. (2010)
NEGATIVE
Loss of 2 full time
equivalent jobs
resulted from film tax
incentive program.
Funderburg, R., et al. Property tax
abatements,
(2013)
investment tax credits,
“The impact of marginal and job tax credits
business taxes on state
manufacturing.” Journal
of Regional Science 53,
4 (October 2013): 55782. Retrieved from
http://onlinelibrary.wiley
.com/doi/10.1111/jors.12
031/abstract
Regression model used
to estimate effect of tax
credits on state
manufacturing valueadded in 20 states
(1990-1998)
NO EFFECT
No statistically
significant impact of
tax credits on
manufacturing valueadded.
State tax incentives to Regression model used
encourage film
to estimate effect of
production
film production tax
incentives on film
production related
employment trend in all
U.S. states (1997-2011)
MIXED
After adoption of
incentive: 16 states
had negative
employment trend.
13 states had positive
employment trend.
Pitter, A. (2011)
Adkisson, R. (2013).
“Policy convergence,
state film-production
incentives, and
employment: A brief
case study.” Journal of
$375.3 million in
economic output
resulted from film tax
incentive program.
Loss of $15.2 million
in economic output
from film tax incentive
program.
109
Tax Incentive Impact: Findings from Illustrative Studies
Article
Incentive
Research Method
Results
Economic Issues, 47, 2
(June 2013): 445-54.
Retrieved from
http://mesharpe.metapre
ss.com/app/home/contri
bution.asp
21 states had no
significant trend.
All Delaware state tax State used tax returns
Gregor, D., et al.
and state
Delaware Department expenditures
macroeconomic data to
of Finance, (2011)
estimate effect of
corporate tax incentives
Department of Finance
on location decision.
Tax Preference Report.
State of Delaware.
(2011)
Retrieved from
http://finance.delaware.g
ov/publications/taxpref.s
html
MIXED
4 of 16 corporate tax
incentives have
positive effect on firm
location decision.
10 of 16 corporate tax
incentives have no
effect on firm location
decision.
4 of 16 corporate tax
incentives act as
“bonus” not
“incentive.”
Gullickson, A. (2008)
Iowa Department of
Revenue, Iowa’s
Research Activities Tax
Credit: Tax Credits
Program Evaluation
Study. Des Moines,
2008. Retrieved from
http://www.iowa.gov/tax
/taxlaw/RAC2011.pdf
Research Activities
Tax Credit (RAC).
Regression model used
to estimate effect of
RAC on employment
and growth in Iowa and
neighboring states.
(2001-2008)
NO EFFECT
No statistically
significant impact
found on research or
research-related
employment.
Investment tax credits Regression model used
POSITIVE
(ITC).
to estimate effect on
2.34 percent decrease
Federal Reserve Bank of
manufacturing of
in capital stock
Chirinko, R. (2008)
110
Tax Incentive Impact: Findings from Illustrative Studies
Article
Incentive
Research Method
Results
San Francisco, State
investment tax
incentives: A zero-sum
game? (Working Paper
2006-47), July 2008.
Working Paper Series.
Retrieved from:
http://www.frbsf.org/eco
nomicresearch/files/wp0647bk.pdf
reducing the ITC in 48 associated with
contiguous states.
elimination of ITC.
(Panel Data from 1963
to 2004)
.08 percent decrease in
manufacturing
establishments for
elimination of ITC.
State economic
development
expenditures (state
State Economic
grants, loan
Incentives: Stimulus or guarantees, industrial
Reallocation? Public
development bonds
Finance Review 32, 6
and guarantees,
(November 2004): 651- customized industrial
65. Retrieved from
training, state-funded
http://pfr.sagepub.com/c venture capital
ontent/32/6/651
corporations, privately
sponsored
development credit
corporations)
Econometric model
used to estimate net
effect on value-added
in manufacturing
industries in 48
contiguous U.S. states
(1981 to 1989)
NEGATIVE
Slight negative on
state manufacturing
value-added.
Review of several
studies using
econometric, survey,
and hypothetical firm
techniques to estimate
effect of state
development incentives
on growth,
employment, and firm
location decision.
NO EFFECT
No significant effect
on firm location
decisions.
Calcagno, P. et al.
(2004)
Lynch, R. (2004).
Rethinking Growth
Strategies: How State
and Local Taxes and
Services Affect
Economic Development.
Washington DC:
Economic Policy
Institute. Retrieved from
http://epi.3cdn.net/f8224
6f98a3e3421fd_o4m6iik
lp.pdf
General tax incentives,
area-specific tax
incentives, firmspecific tax incentives
Gabe, T., et al. (2002). Job creation tax credit,
industrial training
“The Effect of State
program, development
Economic Development grants.
Modestly positive to
no effect on growth
and employment, only
when public services
spending is held
constant.
Regression model used
NEGATIVE
to estimate effect of
Firms receiving
incentives on
incentive experienced
employment growth for average -10.5 job
111
Tax Incentive Impact: Findings from Illustrative Studies
Article
Incentive
Incentives on
Employment Growth of
Establishments.”
Journal of Regional
Science 42, 4 (2002):
703-30. Retrieved from
http://agoregon.org/files/
gabe%20and%20kraybil
l%20in%20jrs.pdf
Faulk, D. (2002)
Research Method
366 Ohio businesses.
(1993-1995)
Results
growth
Firms not receiving
incentive experienced
average 6.5 jobs
growth
Job tax credit (JTC)
“Do State Economic
Development Incentives
Create Jobs? An
Analysis of Employment
Tax Credits. National
Tax Journal 55, 2 (June
2002). Retrieved from
http://connection.ebscoh
ost.com/c/articles/70285
96/do-state-economicdevelopment-incentivescreate-jobs-analysisstate-employment-taxcredits
Total tax liability, sales
tax deferral and
“The Effect of State Tax exemptions, industrial
Incentives on Economic revenue bonds,
Growth and Firm
targeted job tax
Location Decisions: An credits, industrial
Overview of the
development
Literature.” Economic
authorities, economic
Development Quarterly development spending.
15 (February 2001): 90105. Retrieved from
http://edq.sagepub.com/
content/15/1/90.refs
Buss, T. (2001)
Fisher, P., et al. (1997) Enterprise zones and
related incentives:
Regression model used
to estimate employment
effects on Georgia
firms receiving tax
credit and not receiving
tax credit.(1993-1995)
POSITIVE
23.5-27.9 percent
increase in
employment in all
firms tested explained
by JTC.
Review of several
studies using
econometric, survey,
hypothetical firm, and
case-study technique to
estimate effect of state
development incentives
on growth,
employment, and firm
location decision.
MIXED
Interregional/interstate
studies show
inconclusive effects on
growth and
employment.
Intraregional/intrametropolitan studies
show marginal, but
inconsistent positive
effect.
Studies show little to
no effect on firm
location decision.
Review of several
studies using
MIXED
Most econometric
112
Tax Incentive Impact: Findings from Illustrative Studies
Article
“Tax and Spending
Incentives and
Enterprise Zones.” New
England Economic
Review (March/April
1997), 109-137.
Retrieved from
http://geography.tamu.ed
u/class/bednarz/neer297f
.pdf
Incentive
property tax
abatements, job tax
credit, investment tax
credit, economic
development grants
and loans, tax
increment financing,
and single-factor
apportionment (sales
tax exemptions)
Wasylenko, M. (1997) All taxes.
“Taxation and economic
development: the state
of the economic
literature.” New England
Economic Review
(March 1997): 37-52.
Retrieved from
http://surface.syr.edu/cgi
/viewcontent.cgi?article
=1001&context=ecn
Research Method
Results
econometric, survey,
hypothetical firm, and
case-study technique to
estimate effect of state
development incentives
on growth,
employment, and firm
location decision.
studies find
statistically
insignificant effect on
growth and
employment.
Review of 74 studies
examining taxes and
interregional business
activity.
MIXED
Most studies found
taxes to be a
statistically significant
determinant of
economic activity, but
there was no
consistency in the
magnitude and
direction of tax
impact. Elasticities
ranged from -1.54 to
0.54*
Enterprise zones and
municipal and state tax
differentials have
marginal impact on
business location
decision.
113
IX.1.3 History of the Investment Tax Credit
Investment Tax Credit Structure History
Year
Rate and Applicable Investment Tax Credit Base
1969 - 1973
1%
Optional one-year depreciation write-off for research and development property.
Industrial waste treatment and air pollution facilities qualify for elective
deductions.
1974 - 1977
2%
Optional one-year depreciation write-off for research and development property.
Industrial waste treatment and air pollution facilities qualify for elective
deductions.
1978
3%
Optional one-year depreciation write-off for research and development property.
Industrial waste treatment and air pollution facilities qualify for elective
deductions.
1/1/79 5/31/81
4%
Optional one-year depreciation write-off for research and development property.
Industrial waste treatment and air pollution control facilities qualify for elective
deductions.
6/1/81 6/30/82
5%
10% rate on research and development property acquired after June 30, 1982.
Industrial waste treatment and air pollution control facilities qualify for elective
deductions.
Retail enterprises eligible for ITC on qualified rehabilitation expenditures made
on or after June 1, 1981
7/1/82 - 1986
6%
10% rate on research and development property.
Industrial waste treatment and air pollution control facilities qualify for elective
deductions.
Beginning in
1987,
1988, and
1989
5% of the first $500 million.
4% of the amount above $500 million.
10% rate on research and development property repealed — An optional 9% rate
on research and development property becomes effective in 1987 as a component
of ITC.
Investments in industrial waste treatment property, air pollution control facilities
114
Year
Rate and Applicable Investment Tax Credit Base
no longer qualify for elective deductions, but remain eligible for ITC.
Credit carryforward limited to 7 years.
Beginning in
1990
5% of the first $425 million.
4% of the amount above $425 million.
An optional 9% rate on research and development property.
Beginning
after 1990
5% of the first $350 million.
4% of the amount above $350 million.
An optional 9% rate on research and development property.
1994 law increased carryforward from 7 to 10 years.
1994 law extended pre-1987 ITC cutoff date from 1994 to 1997.
1997 law extended credit carryforward from 10 to 15 years.
1997 law extended pre-1987 ITC cutoff date from 1997 to 2002.
ITC for rehabilitation of historic barns effective 1997; 25% of qualified
rehabilitation expenditures.
ITC extended to broker/dealers. (Property placed in service on or after
October 1, 1998 and before October 1, 2003.)
Beginning
after 2000
2002 law extended ITC for financial services to October 1, 2008.
2005 law extended ITC to certain film production facilities.
SFY08-09 budget extended financial services ITC sunset to October 1, 2011.
2008 law codified financial services ITC employment tests and allowed certain
property usage to be aggregated for purposes of the principal use test.
SFY11-12 budget extended financial services ITC sunset to October 1, 2015.
115
IX.1.4 NYS Business Tax Credits: Number of Claims, 2009
Credits
Credits to Promote Economic Development
Brownfield Redevelopment
Brownfield Real Property Tax
Brownfield Environmental Remediation Insurance
Film Production
Commercial Production
ITC
Financial Services ITC
QETC Employment Credit
QETC Capital Credit
QETC FOTC
Security Training Credit
Geographically Targeted
EZ ITC and EZ FS-ITC
EZ and ZEA Wage Tax
EZ Capital
QEZE Real Property Tax
QEZE Tax Reduction
Credits to Support Social Policies
Hiring Disabled Employees
Handicapped Accessible Taxi Credit
Defibrillator Credit
Credits to Support Housing Policies
Farmers' School Tax
Low Income Housing
Mortgage Servicing Credit
Credit Special Additional Mortgage Recording Tax
Credits to Support Environmental Policies
Green Buildings Credit
Biofuel Production Credit
Clean Heating Fuel Credit
Rehabilitation of Historic Properties Credit
Alternative Fuel Vehicle t
d/ Fewer than 3 taxpayers
* Credits less than $100,000
Table 10.1.4: NYS Business Tax Credits: Number of Claims, 2009
Personal Income Tax
Corporation/Related Taxes
Costs to
Average
Costs to
Average
Number of
Number of
State ($
Claim per
State ($
Claim per
Claims
Claims
mln)
Taxpayer
mln)
Taxpayer
92
10
0
67
29
6,680
90
119
190
408
55
$70.2
1.3
0.0
7.8
4.3
19.6
*
*
*
6.2
*
$763,043
127,000
0
116,716
147,586
2,937
178
126
416
15,270
345
16
4
0
36
7
1,027
29
45
d/
206
d/
1,168
2,870
882
3,777
2,382
12.1
18.4
1.1
83.2
42.6
10,368
6,416
1,190
22,017
17,893
230
375
38
471
276
36
23
189
*
*
*
*
1,435
*
12
3
12
3
0
2,777
*
0.0
6.2
*
0
2,218
132
9
23
159
11
162
2,856
31
25
*
6.1
0.4
*
*
1,182
37,346
151
760
3
d/
4
d/
5
Number of
Claims
$67.7 $4,232,228
3
708,804
0
0
103
2,850,514
1
110,409
107
103,877
33
1,152,005
0
9,151
d/
d/
18
85,848
d/
d/
108
14
0
103
36
7,707
119
164
d/
614
d/
21.8
15.7
0.1
138.9
39.9
94,717
41,904
3,379
294,977
144,574
1,398
3,245
920
4,248
2,658
4,427
1,750
4,011
48
26
201
1.2
8.0
5.7
18.4
9,174
885,416
248,452
115,620
132
12
23
2,936
10.1
d/
*
d/
0.8
3,323,756
d/
1,922
d/
164,638
14
d/
2,860
d/
30
*
*
*
Total
Costs to
State ($
mln)
Average
Claim per
Taxpayer
$137.9 $1,276,997
4
293,230
0
0
110
1,072,218
5
140,357
126
16,388
*
280,875
*
2,603
d/
d/
24
38,949
d/
d/
33.9
34.1
1.2
222.1
82.5
*
*
*
1.2
8.0
5.7
24.6
*
d/
*
d/
*
24,245
10,517
1,281
52,282
31,047
1,107
1,471
239
9,174
664,062
248,452
8,360
713,162
d/
153
d/
28,073
116
X.1.5 Summary Table of State Incentives for Film Production
Summary Table of State Incentives for Film Production
as of May 2013
Refundable
Hawaii
Kentucky
Maryland
Massachusetts
Montana
New Mexico
New York
North Carolina
Ohio
Utah
Virginia
Wisconsin
Reimbursement or
Rebate
Alabama
Arkansas
Colorado
Maine
Michigan
Minnesota
Mississippi
Oklahoma
Oregon
South Carolina
Tennessee
Texas
Utah
Washington
Wyoming
Carry
Forward/Transferrable
Alaska
California
Connecticut*
Florida
Georgia
Illinois
Louisiana
Massachusetts
Missouri
Montana
Nevada**
New Jersey
Pennsylvania
Rhode Island
West Virginia
States with Sunset
and sunset date
Arizona (2010)
Arkansas (2019)
California (2017)
Colorado (2013)
Florida (2016)
Hawaii (2015)
Idaho (2014)
(Unfunded since
2012)
Illinois (2021)
Indiana (2011)
Iowa(Repealed 2012)
Kansas (2013)*
(Unfunded 2009 and
2010)
Kentucky (2014)
Maryland (2016)
Massachusetts(2023)
Missouri (2013)
Nevada (2023)
New Jersey (2015)
North Carolina (2014)
Wyoming (2016)
* Two-year moratorium effective July 1, 2013; Credits to qualified production companies approved prior to moratorium are
“grandfathered “( credits will still be available in “exceptional” cases)
** Available as of January 2014.
Sources: Thomson Reuters Checkpoint; state statutes; state websites; http://www.sagaftra.org/state-film-incentives; Film
Production Capital U.S. Tax Incentive Inforhttp://www.filmproductioncapital.com/taxincentive.html
117
X.1.6 State Incentives Provided to Film Industry
State Incentives Provided to Film Industry
as of November 2013
Program Name and
Year Adopted and
Expiration, if
applicable
Incentive
Eligibility
Requirements
Entertainment Industry
Incentive 2009
Rebate of 25% of state
certified production
expenditures excluding
payroll paid to Alabama
residents, plus 35% of all
payroll paid to Alabama
residents. for expenditures.
Expenditures must
be at least $500,000
but not more than
$20 million per
project; lesser
amounts for
production of only
soundtrack or music
video
Alaska
Film Production Tax
Credit 2012
Base amount of the credit is
30% of the production's
qualified expenditures with
additional 20% of wages
paid to Alaska residents;
6% of expenditures made in
rural areas; and 2% of
expenditures made between
October 1 and March 30
Arizona
Entertainment Tax
Credit
Expired in 2010
State
Alabama
To be eligible,
production cost
must be at least
$75,000.
Type of
Program
Limitations
Rebate
State limited total
claims to $10 million in
2011 and 2012; $15
million in 2013 and
2014; and $20 million in
subsequent years.
Transferrable
with no limits as
to how many
times, carry
forward for 3
years,
nonrefundable
The aggregate amount
of tax credits cannot
exceed $200 million for
productions qualified
before 1 July 2023.
(There was an earlier
program that expired 1
July 2013, at such a
time the $100 million
limit was fully claimed.)
Sunset Date
Expired in
2010
118
State Incentives Provided to Film Industry
as of November 2013
State
Arkansas
California
Program Name and
Year Adopted and
Expiration, if
applicable
Digital Product and
Motion Picture
Development 2009
Motion Picture
Production Credit
2009
Incentive
Eligibility
Requirements
Rebate up to 20% of
qualified expenditures;
additional 10% rebate of
payroll paid to certain types
of employees
Company must
spend at least
$200,000 within a 6
month period.
A credit of 20% of qualified
expenditures of qualified
motion picture in California
or 25% of qualified
expenditures of a television
series that relocated to
California or an
independent film.
At least 75% of the
production days or
75% of the
production budget
must occur in the
state. Feature film
budget must be
between $1 and $75
million and
miniseries,
$500,000; new TV
series $1 million.
There is no
minimum budget for
independent films or
TV series that
relocate to
California.
Type of
Program
Limitations
Sunset Date
Rebate,
Nontransferable
Rebates are capped at
$5 million annually on a
first-come, first-serve
basis. Funds are subject
to legislative funding.
2019
May assign
credit to one or
more affiliated
corporation;
credits attributed
to an
independent film
may be sold;
unused credits
may be carried
over up to 6
years.
State will allocate $100
million each year during
FY 2010 and 2017. Ten
percent of the allocation
is reserved for
independent films and
unallocated amounts
may be rolled over.
2017
119
State Incentives Provided to Film Industry
as of November 2013
State
Colorado
Program Name and
Year Adopted and
Expiration, if
applicable
Incentive
Eligibility
Requirements
Film Incentives 2010
Incentive up to 20% cash
rebate of expenditures;
investment must be more
than $100,000 for Colorado
companies or $1 million for
out-of-state companies.
Production of TV
commercials or video
games not originating
production activities in
Colorado employing 50%
Colorado residents may
claim 20% if total
expenditures are $250,000
or more.
Minimum
expenditures must
be at least $100,000
if production
activities originate
in Colorado.
Otherwise, a
production
company's total
expenditures must
equal or exceed $1
million. Minimum
expenditures are
only $250,000 if
production is for
commercials or
video game.
Type of
Program
Rebate,
Nontransferable
Limitations
Sunset Date
Limited by the amount
appropriated to the
Colorado Office of
Film, Television, and
Media. Appropriation is
for both program and
administrative costs and
comes from the Gaming
Fund. $240,054 was
available in FY 20112012.
For FY 2012-13 the
legislature also made an
initial one-time
appropriation of $3
million
120
State Incentives Provided to Film Industry
as of November 2013
State
Connecticut
Program Name and
Year Adopted and
Expiration, if
applicable
Digital Media and
Motion Picture Tax
Credit 2006
Incentive
Eligibility
Requirements
Credits range from 10% to
30% of budgets depending
on budget levels, ranging
from more than $100,000 to
more than $1 million.
A company must
conduct not less
than 50% of
principal
photography days in
Connecticut or
expend not less than
50% of
postproduction costs
in the state or spend
at least $1 million in
the state.
Effective October
27, 2011, a
relocated television
production is
eligible for the
credit provided it is
created at a
qualified production
facility in
Connecticut at
which on or after
January 1, 2012, the
eligible production
company makes a
minimum
investment of $25
million and creates
at least 200 new
jobs in Connecticut.
Type of
Program
Transferrable up
to three times.
Insurance
companies can
use credits to
offset only 55%
of Connecticut
tax liability.
Only 25% of tax
credits may be
transferred per
year with some
exceptions,
Nonrefundable,
carry over for no
more than 3
years.
Limitations
Sunset Date
Moratorium
for 2014 and
2015,except
qualified
production
companies
approved prior
to July 1,2013
(credit is still
available if
movie
company
agrees to shoot
at least ¼ of
their movie at
a studio that
opens for
business after
July 1, 2013
with $25
million in
private
funding)
121
State Incentives Provided to Film Industry
as of November 2013
State
Program Name and
Year Adopted and
Expiration, if
applicable
Delaware
None
District of
Columbia
None
Florida
Entertainment Industry
Credit 2012
Incentive
A tax credit of 20% of
qualified expenditures, up
to a maximum of $8 million
is available, with additional
5% bonus for off-season
production, 5% for family
friendly productions, and
5% for independent film or
TV series is eligible for an
additional 5%. If 85% of
the production is a region
designated as underutilized,
an additional credit of 5% is
available. If the production
employs media students, an
additional credit of 15% of
those students' wages is
available.
Eligibility
Requirements
Type of
Program
To qualify, in the
first 2 years, at least
50% of the positions
must be filled by
Florida residents
and 60% in the
subsequent years.
A minimum of
$625,000
expenditures is
required of general
production, such as
film and television,
commercials and
music videos. For
commercial and
music video
productions,
$100,000
expenditures per
commercial and
$500,000 are
required within a
fiscal year, and
$100,000 for
Limitations
Sunset Date
Total amount of credits
may not exceed for FY
2011, $53.5 million; FY
2012 $74.5 million and
for each of AFY 2013,
2014, and 2015, $38
million.
Transferable tax
credit may be
carried forward
for 5 years.
A maximum incentive
for general production is
$8 million, for
commercial and video
the maximum incentive
is $500,000, and for
independent and
emerging media
production the
maximum is $125,000.
2016
122
State Incentives Provided to Film Industry
as of November 2013
State
Program Name and
Year Adopted and
Expiration, if
applicable
Incentive
Eligibility
Requirements
Type of
Program
Limitations
Sunset Date
independent and
emerging media.
Georgia
Entertainment Industry
Investment Act 2005
Credit of 20% of in-state
expenditures with an
additional 10% credit for
embedding Georgia logo.
Credit on
expenditures in
excess of $500,000
Transferable
once in tranches
of at least
$100,000,
Nonrefundable
123
State Incentives Provided to Film Industry
as of November 2013
State
Program Name and
Year Adopted and
Expiration, if
applicable
Eligibility
Requirements
Type of
Program
Limitations
Credit of 15% of qualified
production costs while
filming on Oahu and 20%
filming on neighboring
island.
A minimum
expenditure of
$200,000 is
required.
Refundable
There is a $8 million
cap per production.
Media Production
Rebate
Unfunded since 2012
The program provides a
20% rebate for qualifying
productions on all goods
and service purchased in
Idaho.
A minimum
expenditure of
$200,000 and at
least 20% of the
crew are Idaho
residents are
required are
required.
Unfunded since
2012
There is a $500,000 cap
per production.
Illinois
Film Tax Credit 2008
A credit of 30% of the
qualified spending and a
30% credit on Illinois
salaries up to $100,000 per
worker. An addition 15%
tax credit on salaries of
individuals living in
economically
disadvantaged area.
For productions less
than 30 minutes,
minimum spending
is $50,000 and
$100,000 for
productions of 30
minutes or longer, is
required.
Credit can be
carried forward 5
years.Within 1
year of issuance,
an applicant can
transfer credit to
no more than 10
taxpayers.
Indiana
Media Production
Expenditure Tax
Credit
Credit up to 15% of
expenditures totaling
$50,000 or more
Expenditures must
total $50,000.
Expired 31
December 2011
Refundable,
Nontransferable
Hawaii
Idaho
Motion Picture,
Digital Media, and
Film Production
Income Tax Credit
2006
Incentive
Expired 2011
Sunset Date
2015
Unfunded
since 2012
Sunsets 2014
2021
The maximum amount
of credits that may be
claimed in a state fiscal
year if $2.5 million
2011
124
State Incentives Provided to Film Industry
as of November 2013
State
Program Name and
Year Adopted and
Expiration, if
applicable
Incentive
Eligibility
Requirements
Type of
Program
Limitations
Sunset Date
Film Industry Credits
Iowa
Transferrable,
carry forward
Repealed 2012
Film Production Credit
Kansas
Kentucky
Louisiana
Maine
Carry forward
for 3 taxable
years after the
year the costs
were incurred
Sunset 2013.
Suspended 2009 and
2010
Film Office Tax Credit
2009
Motion Picture
Investor Tax Credit
Certified Visual Media
Production Credit
2005
Credit of 20% of in-state
expenditures minimum of
$500,000
Credit of 30% of
investment and an
additional 5% payroll tax
credit for in-state labor.
Tax rebates equal to 12% of
qualified wages paid to
Maine residents and 10%
paid to non-residents,
capped at $50,000. A tax
credit of 5% of nonwage
production expenses.
Minimum spending
$500,000 for feature
films, $200,000 for
commercials, and
$50,000 for
documentaries
Refundable
Minimum spending
$300,000.
Carry forward;
Transferable, can
sell back to state
at discount.
Nonrefundable,
Film, television and
commercial
production
companies spending
$75,000 or more are
eligible for the
incentive.
Rebate for
wages; Credit
available only in
year media
production is
completed,
nonrefundable,
nontransferable
credits for
expenditures.
2012
The amount of credits
allowed shall not exceed
$2 million a year.
2013.
$7.5 million allocated
for FY 2012
2014
Individual cap of
$50,000
125
State Incentives Provided to Film Industry
as of November 2013
State
Maryland
Massachusetts
Program Name and
Year Adopted and
Expiration, if
applicable
Film Production
Activity Tax Credit
2013
Film Incentive Credit
2005
Incentive
Eligibility
Requirements
Credit of up to 25% of film
production expenditure and
up to 27% of qualified
television expenditures.
Total direct costs
incurred in state
must exceed
$500,000
Minimum of 50%
filming in Maryland
Refundable
$50,000 minimum
expenditures; 50%
budget and shooting
time in state.
Credits may be
carried forward
or transferred,
for up to 5 years.
Credits received
after 2007 may
be refunded with
certain
limitations, up to
90% of
remaining credit.
Minimum tax
must be paid.
A credit of 25% of the total
qualifying payroll is
available.
Type of
Program
Limitations
Funding for fiscal year
2014 was $25 million,
annual credits cannot
exceed $7.5 million in
future years.
No annual or production
cap
Sunset Date
2016
2013 sunset
has been
extended to 1
January 2023.
Credits may be
carried
forward
beyond 2023.
126
State Incentives Provided to Film Industry
as of November 2013
State
Michigan
Minnesota
Program Name and
Year Adopted and
Expiration, if
applicable
Film Production
Incentive 2011
replacing prior
program adoped in
2008
Snowbate 2013 after
prior program expired
Incentive
Eligibility
Requirements
Type of
Program
Incentive of 32% on
personnel expenditures paid
to Michigan residents
(reduced to 27% beginning
1 January 2015). An
incentive of 25% on
expenditures to nonresident and a 27%
incentive on eligible
expenditures with an
additional 3% for
expenditures at a qualified
facility or post production
facility, from 2012 to 2015.
Eligible production
companies must
have a minimum of
$100,000 of direct
production
expenditures and
personnel
expenditures.
2013 incentive is
a reimbursement.
Pre-2012 credits
are refundable or
transferable on
business tax;
nonrefundable
nontransferable
as income tax
credits.
A rebate of 20% to 25% of
state production
expenditures.
Lower rebate for
production less than
$5 million; 20% for
productions more
than $5 million or if
3 of 5 identified
positions filled by
Minnesota residents
or 60% or more of
production
expenditures or
principle
photography days
take place in rural
area. Minimum for
documentaries;
$200,000; $50,000
rebate
Limitations
Sunset Date
Payments to Michigan
producers shall not
exceed 10% of
expenditures, 5% for
non-Michigan
$25 million allocated for
FY2011 (Oct-Sep);
$5 million per project
127
State Incentives Provided to Film Industry
as of November 2013
State
Program Name and
Year Adopted and
Expiration, if
applicable
Incentive
Eligibility
Requirements
Type of
Program
Limitations
Sunset Date
music videos;
feature films must
be 80 minutes
Mississippi
Missouri
Motion Picture Rebate
2004
Rebate based on investment
and payroll. The rebate is
25% of base spending in
Mississippi and 30%of
payroll paid to resident up
and 25% on non-resident
payroll. A bonus rebate of
5% is available for payroll
paid to veterans.
Total direct costs
incurred in state
must exceed
$50,000 per project.
rebate
There is a $10 (one
source says $8) million
per project rebate cap
and $20 million annual
cap.
Film Production Tax
Credit 1998
Credit up to 35% of the
amount expended in
Missouri for production
activities, with 30% out of
state cast and crew
Film production
company must have
expenditures at least
$100,000 for film
over 30 minutes and
at least $50,000 for
films under 30
The credits are
transferrable or
may be carried
forward for 5
years.
Entire film production
credit program is capped
at $4.5 million
2013
128
State Incentives Provided to Film Industry
as of November 2013
State
Program Name and
Year Adopted and
Expiration, if
applicable
Incentive
Eligibility
Requirements
Type of
Program
Limitations
Sunset Date
$6 million per
production; $20 million
annually
2023
minutes.
Montana
Film Employment
Production Credit
2005
Nebraska
None
Nevada
Film Credit 2014
New Hampshire
None
A one-time
election,
taxpayer may
apply credit
against income
tax liability and
carry forward
any unused
amount or may
have any unused
credit refunded.
The credit is equal to the sum
of 14% of the first $50,000 or
less that was compensated to
each Montana resident who
was employed in a statecertified production.
Additional credit of 9% of instate certified expenditures.
Credit of 15% with an
additional 2% if more than
50% of crew are Nevada
residents; 2% if more than
50% of the filming days in
Nevada
Minimum
production
$500,000; 60% in
state
Transferable
129
State Incentives Provided to Film Industry
as of November 2013
State
New Jersey
New Mexico
Program Name and
Year Adopted and
Expiration, if
applicable
Incentive
Film Tax Credit
Program 2004
A 20% tax credit for
qualified production
expenses is available.
Film Production Tax
Credit
A 25% credit on direct and
post-production
expenditures is available for
audiovisual project intended
for commercial exploitation
and exhibition. An addition
5% credit on direct
production expenditures for
qualifying television series
and on for resident wages.
Eligibility
Requirements
Minimum digital
content production
expenses must be at
least $2 million and
at least 60% of total
expenses of a
project must occur
in New Jersey.
To be eligible for
the 5% a TV series
with at least 6
episodes in a single
season must have a
per episode budget
of $50,000 or more
or that the wages
paid to New Mexico
residents on a
production with a
budget not more
than $30 million
that shoots at least
10 principal days or
with a budget over
$30 million that
shoots at least 15
principal days.
Type of
Program
Limitations
Sunset Date
Credit cannot
exceed 50% of
tax liability;
Carry forward 7
years;
Transferrable
Only application
received by September
14, 2011 will be
considered. Each year
$10 million is available.
FY 2015
(suspended in
FY 2011 but
now available)
Refundable
A $50 million "rolling
cap" was implemented
in July 2011, with up to
$10 million "rolled
over" to the next year.
130
State Incentives Provided to Film Industry
as of November 2013
State
New York
Program Name and
Year Adopted and
Expiration, if
applicable
Empire State Film
Production Credit
2004
Incentive
Eligibility
Requirements
A 30% refundable credit is
available for qualified
production costs for
filming.
To be eligible work
must be carried on
at a production
facility in New
York. For small
independent
productions with
budgets no more
than $15 million,
(Level 1
productions), the
production must
shoot at least 1 full
day on a set built
expressly for the
production and at
least 75% of the
total expenses must
be done at a
qualified production
facility. For larger
productions (Level
2 productions) if
done in New York
City, must be a
Level 2 Qualified
Facility, with at
least 10% of the
total principal
photography
shooting days done
Type of
Program
Refundable
Limitations
Sunset Date
Funding enacted in
August 2010 created an
additional pool of
funding. The new
funding allocates $420
million for 2010-2014.
Of this amount, $7
million is available for
the Post Production
Credit.
131
State Incentives Provided to Film Industry
as of November 2013
State
Program Name and
Year Adopted and
Expiration, if
applicable
Incentive
Eligibility
Requirements
Type of
Program
Limitations
Sunset Date
in a Qualified
Production Facility
and at least 75% of
all expenses must be
related to work done
at a Qualified
Facility.
132
State Incentives Provided to Film Industry
as of November 2013
State
New York
Program Name and
Year Adopted and
Expiration, if
applicable
Empire State Post
Production Credit
2010
New York
Commercial
Production Tax Credit
2012
North Carolina
Interactive Digital
Media Tax Credit
2005
Incentive
Eligibility
Requirements
A credit of 30% or 35% is
available for qualified costs
incurred in post production.
If the post production
occurs in the Metropolitan
Commuter Transportation
District, the credit is 30%.
If the work occurs
elsewhere in the state, the
credit is 35%.
A tax credit for shooting
commercials in New York.
There are 3 components:
Upstate (non-Metropolitan
Commuter Transportation
District), Downstate
(MCTD), and Growth
programs. The Upstate and
Downstate credits are 5% of
qualified production costs.
The Growth credit is 20%
of the increase in qualified
costs.
Credit is based on 15% of
compensation and wages
and 20% of research
expenses paid to North
Carolina university or
community colleges.
Type of
Program
Limitations
Refundable (paid
out in 1 year if
under $1 million;
over 2 years if
between $1-5
million; over 3 if
over $5 million)
An annual amount of $7
million is available
between 2010 and 2014.
Amounts not used in
one year will be rolled
over to the next.
$420 million for 20102014; NYC capped at
$30 million
To be eligible for
Upstate credit,
production costs
must be more than
$200,000. For
Downstate credits,
production costs
must be more than
$500,000.
Refundable
The annual cap for these
credits is $7 million; $1
million for the Upstate
Program, $3 million for
the Downstate Program
and $3 million for the
Growth Program.
Credits are based on
expenses that
exceed $250,000
and may not exceed
$7.5 million.
Refundable
$20 million per project
cap
Sunset Date
2014
133
State Incentives Provided to Film Industry
as of November 2013
Program Name and
Year Adopted and
Expiration, if
applicable
Incentive
Eligibility
Requirements
Ohio Motion Picture
Tax Incentive 2009
The tax credit is equal to 25
percent of nonresident wage
cast and crew and eligible
production expenditures
and 35 percent of Ohio
resident cast and crew wage
production expenditures.
Eligible productions
must spend a
minimum of
$300,000 in Ohio.
Refundable
Oklahoma
Oklahoma Film
Enhancement Rebate
Program 2001
A rebate of up to 30% of
qualified expenditures made
in Oklahoma directly
related to film, television
production and theater. 2%
bonus for using Oklahoma
produced music.
The minimum
budget for the
project shall be
$50,000 with a
minimum of
$25,000 spent in
Oklahoma.
Rebate
Oregon
Oregon Production
Investment Fund and
Greenlight Oregon
Labor Rebate 2005
Projects must spend
a minimum of
$750,000 in Oregon
for any single
project or season.
Rebate
Program is limited to
$7.5 million a year.
A project is eligible
if at least 60% of
the project's total
production budget is
used for
Pennsylvania
expenditures.
Unused credits
may be carried
forward for 3
years or
transferred.
$60 million allocated
through FY 2015-16;
$12 million cap per
project
State
North Dakota
Ohio
Pennsylvania
Type of
Program
Limitations
Sunset Date
None
Film Production Tax
Credit 2007
A rebate of 20% of good
and service and 10% of
Oregon-based payroll is
provided. Additional 6.2%
available for wages subject
to state withholding.
A credit is equal to 25% of
qualified Pennsylvania
production expenses. An
additional 5% credit is
available for productions
intended for a national
audience.
$5 million production
cap; $20 million cap for
FY 2013-14
$5 million production
cap;
2014
134
State Incentives Provided to Film Industry
as of November 2013
Program Name and
Year Adopted and
Expiration, if
applicable
Incentive
Motion Picture
Production Tax Credit
2005
A tax credit of 25% of all
qualified expenses
associated with film, video,
video games, television
series and commercials is
provided.
To be eligible, the
budget must be at
least $100,000 and
at least 51% of the
principal
photography days
must be in Rhodes
Island.
South Carolina
Motion Picture
Wage/Payroll and
Expenditure/Supplier
Rebates
For qualifying productions
there is a 30% rebate on
total in-state expenditures
as well as a 25% rebate on
resident wages and a 20%
rebate on non-state resident
wages.
Eligible companies
must incur total
production costs in
South Carolina of
$1 million or more
in a taxable year.
South Dakota
None
Tennessee
Tennessee Film
Entertainment and
Music Production
Incentive 2012 (Prior
program repealed)
State
Rhode Island
A rebate, or grant, is
available, not to exceed
25% of total expenses. The
grant may be high if so
deemed by the state.
Eligibility
Requirements
Budgets over
$200,000 are
eligible.
Type of
Program
Unused credits
may be carried
forward for 3
years or
transferred.
Limitations
Sunset Date
$15 million annual cap
Rebate
The total rebate for all
qualifying projects is
generally at least $15
million each year.
Rebate
The amount available
for such grants is
subject to annual
appropriation. The
anticipated funding is $2
million a year.
135
State Incentives Provided to Film Industry
as of November 2013
State
Program Name and
Year Adopted and
Expiration, if
applicable
Incentive
Moving Image
Industry Incentive
Program
Rebates range from 5% to
17.5% of Texas spending or
8% to 29.25% of wages
paid to Texas residents,
depending on budget levels
and type of production.
Utah
Motion Picture
Incentive 2009
Rebates range from 15% to
25% of budgets depending
on budget levels and type of
production. Maximum
rebates based on in-state
spending of $7.5 million or
more in Utah with no less
than 51% spent in rural
areas or significant
promotional opportunity.
Vermont
None
Texas
Eligibility
Requirements
Minimum spending
of $250,000 with
60% of the shooting
days completed in
Texas with 70% of
paid crew and cast
being Texas
residents is
required. Maximum
rebates based on instate spending of $5
million or more in
underutilized areas.
15% rebate:
minimum $200,000;
85% in state crew
20% rebate or
credit: Minimum $1
million
25% rebate or
credit: $1 million
with 85% in state
crew or $7.5 million
with 70% crew or
51% spent in rural
areas or promote
Utah
Type of
Program
Limitations
Rebate
$15 million annual
funding for FY 2012-13
Rebate or
refundable tax
credit
Cash rebate at 15%
capped at less than
$150,000; 20% and 25%
rebates capped at
$500,000$6.7 million
for tax credit program
FY 2013 Tax Credits:
$12,635,940
FY2013 Cash Rebate
$540,778
Sunset Date
136
State Incentives Provided to Film Industry
as of November 2013
State
Virginia
Washington
Program Name and
Year Adopted and
Expiration, if
applicable
Incentive
Eligibility
Requirements
Motion Picture
Production Tax Credit
2011
Tax credits of 15% of
qualifying expenses is
available, with a 5% bonus
if the production is filmed
in an economically
distressed area of the state.
An additional credit of 10
to 20% of the payroll is
available for all state
residents employed with the
production, with the higher
percentage for companies
that spend over $1 million.
A bonus of 10% is added
for the payroll of first time
actors or production crew.
Companies that
spend at least
$250,000 quality for
the resident credit.
Refundable
The aggregate amount
of credits available for
the 2010-2012 biennium
is $2.5 million and $5
million for any
biennium after.
Washington
Filmworks 2006
Reimbursement of in-state
expenditures of up to 30%
for motion pictures and
episodic series with less
than 6 episodes and up to
35% for episodic series
with at least 6 episodes.
Funding assistance is
available through the
Commercial Business
Development Plan.
Each movie
production must
meet the $500,000
in-state spending
threshold; episode
series a $300,000
threshold and
commercials, a
$150,000 threshold.
Rebate
Annual rebate capped at
$3.5 million a year.
Type of
Program
Limitations
Sunset Date
2017
137
State Incentives Provided to Film Industry
as of November 2013
State
West Virginia
Wisconsin
Program Name and
Year Adopted and
Expiration, if
applicable
Incentive
Eligibility
Requirements
Type of
Program
West Virginia Film
Industry Investment
2008
A credit up to 27% with a
4% bonus for in-state hiring
for instate spending is
available for production and
post-production for
commercial film.
A minimum of
$25,000 must be
spent in-state.
Projects included
theatrical or motion
pictures, TV shows,
commercials, music
videos and
commercial still
photography.
Carry forward 2
years;
Transferable
Film Production
Services and
Investment Credits
2009
Credit equal to 25% of
the first $20,000 of salary
on residents and 25% of
production expenditures
paid to produce an
accredited production.
An additional credit of
15% of the investment in
real or personal property
or spent to construct,
rehabilitate, remodel or
repair real estate.
Eligible productions
include film, video,
broadcast
advertisement or
television
production for
which salaries
exceed $50,000 for
the 12 months after
production begins or
$100,000 in the 3
years for production
of electronic games.
Refundable
Limitations
Sunset Date
Annual credit capped at
$5 million.
2013
138
State Incentives Provided to Film Industry
as of November 2013
State
Wyoming
Program Name and
Year Adopted and
Expiration, if
applicable
Film Industry
Financial Incentive
2007
Incentive
The program provides
production companies with
a rebate between 12 and
15% of expenditures. Full
15% is provided if the
storyline is set in Wyoming;
up to 14% highlighting
Wyoming locations; up to
13% using Wyoming props
and product placement.
Eligibility
Requirements
The production
company must
spend at least
$200,000
Type of
Program
Rebate
Limitations
Sunset Date
The appropriation shall
be $1 million a year
which may be rolled
over.
2016
Sources: Thomson Reuters Checkpoint; state statutes; state websites; http://www.sagaftra.org/state-film-incentives; Film Production Capital U.S. Tax Incentive Info
http://www.filmproductioncapital.com/taxincentive.html.
139
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