We often hear stories of businesses leaving New York to avoid its high income and property taxes. However, New York can be an attractive location for manufacturers because of reduced tax rates, tax credits, and property and sales tax relief.
Who Qualifies as a Manufacturer in New York?
Many of these benefits require a business to qualify as a Qualified New York Manufacturer (QNYM). A taxpayer is considered a manufacturer if it is principally engaged in producing goods through manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture, or commercial fishing. A business is principally engaged in these activities if more than 50% of its gross receipts come from the sale of goods produced through them.
To qualify as a QNYM, a taxpayer generally must also have either:
- At least $1 million of qualifying New York property used for the investment tax credit, or
- All of its real and personal property located in New York.
An alternative test applies to large employers that do not meet the principally engaged requirement. This test is met if the taxpayer has at least 2,500 New York employees engaged in qualifying production activities and at least $100 million of New York property used in those activities.
Reduced Tax Rates
Qualified New York manufacturers receive favorable tax treatment. New York C corporations generally pay tax based on the highest of the income base, capital base, or fixed dollar minimum tax.
For QNYMs, the income base tax rate is reduced to 0%. While manufacturers must still calculate tax under alternative bases and may owe the fixed dollar minimum tax, eliminating the income base tax can provide substantial savings.
New York’s capital base tax rate is currently 0%. Even before its elimination, tax paid by manufacturers under this base was capped at $350,000. Qualified manufacturers also benefit from lower fixed dollar minimum taxes.
Real Property Tax Credit for Manufacturers
Qualified manufacturers may claim a credit equal to 20% of New York real property taxes paid on property principally used for manufacturing, provided those taxes were not deducted in calculating New York income. The credit is dollar-for-dollar, although the related expense must be added back to New York income.
The credit can apply to owned property and certain leased property if:
- The property is leased from an unrelated third party;
- The lease requires the lessee to pay the tax; and
- The lessee pays the tax directly and receives a receipt.
Limitations include:
- PILOT payments do not qualify.
- Property taxes used for another credit cannot also be used here.
- The credit cannot reduce tax below $25.
- Credits must be adjusted if property taxes are later reduced.
Only taxes attributable to areas principally used in manufacturing qualify. Common areas, vacant land, and parking lots generally must be excluded.
Investment Tax Credit for Manufacturing Property
New York provides an investment tax credit (ITC) for qualifying tangible personal property, buildings, and structural components that:
- Are depreciable;
- Have a useful life of four years or more;
- Are purchased by the taxpayer;
- Are located in New York; and
- Are principally used in manufacturing.
The credit equals:
- 5% of the first $350 million of qualifying costs; and
- 4% of amounts above $350 million.
Property used in research and development may qualify for a 9% credit if elected.
For this purpose, manufacturing includes transforming raw or previously processed materials into usable goods and extends to machinery used to repair production equipment and facilities used for production-related storage. The credit may also be refundable for qualifying new businesses.
Employment Incentive Tax Credit
The Employment Incentive Tax Credit (EITC) extends the benefit of the ITC for businesses that increase employment. Eligibility requires first qualifying for the ITC.
A corporation may claim the credit during the two years following the ITC year if average employment is at least 101% of employment during the base year. Credit rates are:
- Less than 102% employment increase: 1.5%
- At least 102% but less than 103%: 2%
- At least 103%: 2.5%
The credit cannot reduce tax below the fixed dollar minimum but may be carried forward for 15 years.
Employee Training Incentive Program Credit
New York also offers an Employee Training Incentive Program credit for approved employee training costs. Subject to Empire State Development approval, the credit generally equals 50% of eligible training expenses, up to $10,000 per employee, for tax years before January 1, 2029. The credit is available to qualifying businesses in industries such as advanced manufacturing, semiconductors, clean energy, life sciences, and software development. Excess credit amounts are refundable.
Other Incentive Programs
Manufacturers may also qualify for broader New York incentives. The Excelsior Jobs Program may provide credits for investment, jobs, research and development, childcare services, and real property taxes. However, taxpayers must choose between the Excelsior investment tax credit and the regular ITC for the same property. New York also offers a Semiconductor Research and Development Tax Credit, which may be especially valuable for advanced manufacturers. Generally, the same property costs or taxes cannot be used to claim multiple overlapping credits.
Property Tax and Sales Tax Relief
Manufacturers may benefit from PILOT (Payment in Lieu of Taxes) agreements through local Industrial Development Agencies (IDAs). These agreements can replace regular property taxes with reduced, predictable payments and may provide property tax abatements and sales tax exemptions on project materials and equipment. Because PILOT programs vary by IDA and location, manufacturers undertaking significant projects should evaluate potential opportunities before investing.
Conclusion
New York recognizes the importance of retaining and attracting manufacturers. Through reduced tax rates, tax credits, and property and sales tax incentives, the state offers potentially significant benefits to qualifying businesses. Because eligibility rules are highly technical and depend on factors such as property use, entity structure, and annual operating results, manufacturers should work with a CPA familiar with New York manufacturing incentives to maximize available tax savings.