Empire Zone Reform: Changes may effect your business

Are you, like many businesses in NYS, a participant in the Empire Development Zone program? The 2009-2010 state budget, enacted on April 3rd, includes reforms to the program that will affect every recipient of Empire Zone incentives. Companies throughout the state must be prepared to combat these changes. The Empire Zone program provides tax incentives and utility discounts to companies throughout N.Y. that meet certain qualifications. To participate in the program, a business must be located in one of the 85 Empire Zone locations throughout N.Y., or qualify as a regionally significant project. Businesses achieve Empire Zone certification by demonstrating the influx of jobs and investments that they will achieve in N.Y. The Empire Zone program has been modified many times. Originally, participants did not have to meet any specific benefit-to-cost standards. In 2005, new regulations required all new participants to demonstrate that they produced at least $15 in actual wages and investment for every $1 received in tax incentives. In 2008, this ratio was increased to 20:1 for new participants. In December, governor David Paterson submitted a proposal that would have retroactively required all participants to meet a 20:1 benefit-cost standard. This proposal could have resulted in more than 2,000 companies being ejected from the Empire Zone program. Instead of requiring all businesses to meet a 20:1 ratio, the reform that the legislature approved requires a less drastic 1:1 benefit-cost ratio. Companies will be decertified if they produce less than $1 in actual wages and investment for every $1 of received incentives. In addition, "shirt-changers," those who used paperwork gimmicks to qualify for undeserved tax breaks, also will be decertified. Notably, the Empire Zone program is now scheduled to end on June 30, 2010, one year earlier than originally stated in the law. Politicians in Albany have promised that this new sunset date will accelerate future reforms. One thing, however, is certain - if you receive Empire Zone benefits, you must prepare for an end to the current manifestation of the program sooner than planned. All Empire Zone businesses will be reviewed for decertification by the Empire State Development Corp. (ESD) during 2009. Businesses that are not decertified will receive an Empire Zone Retention Certificate (EZRC). An EZRC is required to claim Empire Zone incentives for tax years beginning on or after January 1. As stated in an April 15 tax policy, until an EZRC is received, the state will deny any credits claimed on tax returns. Affected businesses will be responsible for paying all resulting balances, plus interest. Across the state, companies are beginning to receive notices from the ESD regarding the future of their empire zone benefits. If your business receives written notification of decertification, there is an appeal process that you can commence. It is important that you meet all deadlines in this process and that you set forth strong arguments for continuation in the program. You must be prepared to back up your company's benefit-cost ratio and to justify your future receipt of Empire Zone incentives. By anticipating the changes to come, you may be able to avoid, or at least mitigate, the considerable costs that your business could incur. Reprinted courtesy of Hunt Commercial Real Estate. Horace Gioia, Esq., is a partner at Rupp, Basse. Pfalzgraf, Cunningham & Coppola, LLC, Buffalo, N.Y.