Tax credits are valuable to taxpayers as they provide dollar- for- dollar reductions in taxes which in turn can generate large tax savings and often cash back. New York State has enacted several real property tax credits that affect commercial properties which warrant consideration.
The 2014-2015 New York State Budget created a credit that is aimed at assisting New York State manufacturers by reducing the overall cost of their real property taxes. This credit is applicable for the 2014 tax year and applies to manufacturers who either own or lease a manufacturing facility. Qualified New York State manufacturers can receive a credit equal to twenty (20%) percent of the real property taxes paid during the taxable year on real property that is owned or leased by the taxpayer and principally used for manufacturing. To qualify for this credit, the manufacturer must have at least fifty (50%) percent of its business receipts from manufacturing (receipts test) and manufacturing property located in New York State with a federal adjusted basis of one million ($1,000,000) dollars or more (property test). If the business does not meet these requirements, it can still qualify for the credit if it has twenty-five hundred (2,500) employees working in manufacturing in New York State and manufacturing property with a federal adjusted basis of one hundred million ($100,000,000) dollars located within the State. If the manufacturer leases its facilities, the credit is available if the business is required to pay the real property taxes pursuant to a written lease agreement and paid directly to the State. The New York State Manufacturing Credit is a refundable credit to individual taxpayers who are members or partners of a pass-through entity that qualifies for the credit which can be utilized to reduce the NYS Corporate Franchise Tax (Article 9-A) to as low as $25.
Another credit that can be used against the NYS Article 9-A Corporate Franchise Tax is the Special Additional Mortgage Recording Tax Credit. This credit provides tax relief to businesses who pay the Special Additional Mortgage Recording Tax on mortgages obtained on non-residential properties. The Special Additional Mortgage Recording Tax is a tax paid on mortgages obtained on property located exclusively in the Metropolitan Commuter Transportation District and is equal to $0.25 per $100 of mortgage. If a business is required to pays this tax; the business will receive a credit against its franchise tax for the full amount of the taxes paid. However, this credit cannot be used against the NYS maintenance or license fees charged to non-resident corporations. Moreover, this credit is not available for residential mortgages. A residential mortgage is defined as a mortgage on real property that has been or will be principally improved by one or more structures containing a total of not more than six residential dwelling units, each with its own separate cooking facilities. Additional restrictions apply to New York S Corporations. A NYS S Corporation can claim this credit against its corporate franchise taxes but cannot pass through any portion of the credit to its shareholders. This is a refundable credit that can either be carried over to the following year or years, be treated as an overpayment of tax, or refunded to the taxpayer. However, a taxpayer cannot receive a refund of any credit carried over from a prior year. Thus, if a taxpayer decides to carry over the credit into the subsequent year rather than receiving a refund, the taxpayer cannot then claim a refund of that credit in the subsequent year.
New York State also offers a credit in conjunction with the Internal Revenue Service for the rehabilitation of historic buildings. The New York State Commercial Rehabilitation Credit allows a credit of 20% of the cost of qualified rehabilitation expenditures. The state tax credit is capped at five
million ($5,000,000) dollars per taxpayer and New York State requires the rehabilitation to occur in a building that is in a federal census tract and has a median family income at or below the State Family Median Income Level (2014: $84,839 for a family of four). Most interior and exterior work on the historic building is eligible for the tax credit. However, site work, new additions or other work outside the historic building generally do not qualify. Any person, firm, partnership, Limited Liability Company or other business entity that owns a historic commercial building can participate in the program. Additionally, any commercial, office, industrial or rental residential building qualifies if the building is listed on the State or National Register of Historic Places or has an approved Federal Tax Credit Part I certification. For property placed in service on or after January 1, 2015, the credit is refundable. Unused credits for projects placed in service before 2015 are not refundable, but can be carried forward indefinitely.
Similar to the Commercial Rehabilitation Tax Credit, the Conservation Easement Tax Credit promotes the preservation of designated types of property or resources. This credit is available to corporate taxpayers who own land that is subject to a Conservation Easement. However, this credit is not available to S Corporations. A Conservation Easement is a perpetual and permanent easement on land located in New York State which is held by a public or private conservation agency (any state, local or federal governmental body or not- for- profit charitable corporation or trust) and serves to protect open space, biodiversity or scenic, natural, agricultural, watershed or historic preservation resources. Land ownership is defined as fee simple title to real property located in NYS, with or without improvements. In order to qualify for the credit, the easement must be filed with the Department of Environmental Conservation and comply with the provisions of the Environmental Conservation Laws and IRC Section 170(h) (Charitable Contributions and Conservation Easements). The credit amount is 25% of the school district, county or town real property taxes paid during the tax year on the land subject to the Conservation Easement with a maximum credit of five thousand ($5,000) dollars per taxpayer in any given year. If the amount of credit exceeds the corporation’s tax for the year, the excess will be treated as an overpayment of tax that can be credited or refunded (without interest, which differs from the other credits discussed above).
The proper application of these credits can be quite complicated and requires due diligence in following all the proper procedures established by New York State. However, the benefits associated with these credits are substantial. If you have any questions or need assistance with utilizing these credits, please contact your Friedman LLP professional.