Does an out-of-state corporation moving into a New York empire zone qualify as a new business eligible for a refund of the empire zone wage tax credit?
Plain-English summary
Commodore Aviation, Inc., a Delaware corporation that ran an aircraft maintenance/overhaul facility in Florida, planned to move its operations to the former Griffiss Air Force Base in Rome, New York -- inside an empire zone -- and seek Article 18-B certification. It asked whether it would be a new business under Tax Law section 210.12(j), which is the gateway to electing a refund of the empire zone wage tax credit under section 210.19(e).
To be a new business, Commodore had to meet none of the three exceptions in section 210.12(j). The Department found, after a planned recapitalization:
- Ownership -- more than 50% of its voting stock would be owned by IAI and a foreign IAI subsidiary, neither subject to New York franchise tax (even though parent IAII would keep more than 80% of voting power for federal consolidation, IAII was not involved in day-to-day operations).
- Substantial similarity -- its New York-taxpayer affiliates did not conduct similar operations; IAII's New York activities were only marketing/administrative, not aircraft maintenance.
- Prior New York tax -- Commodore had never been subject to New York franchise tax.
Reading section 210.19(e) in light of its purpose (reviving distressed areas such as Rome after the base closure), the Department concluded Commodore will be a new business and may elect the refundable credit for the years it meets section 210.12(j)(3).
What this means for you
"New business" is the key to a refundable empire zone credit
The empire zone wage tax credit normally just carries forward. Only a corporation that qualifies as a new business under section 210.12(j) can elect under section 210.19(e) to treat half of the credit as a refundable overpayment -- cash back rather than a future offset.
The three section 210.12(j) exceptions
You are not a new business if (1) more than 50% of your voting stock is owned/controlled by a New York taxpayer, (2) you are substantially similar in operation and ownership to a business already (or previously) taxable here, or (3) you have been subject to Article 9-A for more than five years. Meeting any one disqualifies you.
Structure and purpose both count
A recapitalization that genuinely shifts majority voting ownership to non-New York entities can satisfy the ownership test, and the Department read the statute in light of its goal of reviving distressed communities like Rome.
Common questions
Q: What makes a corporation a "new business" for the empire zone wage tax credit?
A: It must meet none of the three exceptions in section 210.12(j): majority ownership by a New York taxpayer, substantial similarity to an existing/prior New York business, or more than five years of prior Article 9-A tax.
Q: Why does new-business status matter?
A: Only a new business may elect under section 210.19(e) to treat 50% of its empire zone wage tax credit carryover as a refundable overpayment.
Q: Did keeping the parent's 80% voting power disqualify it?
A: No. Because the recapitalization put more than 50% of voting stock with non-New York entities and the parent was not involved in operations, the ownership exception was not triggered.
Citations and references
Statutes, regulations, and authorities:
- Tax Law section 210.12(j) (new business definition; three exceptions)
- Tax Law section 210.19 (empire zone wage tax credit; section 210.19(e) refund election for a new business)
- General Municipal Law article 18-B (empire zone certification)
- Commodore Aviation, Inc., TSB-A-03(4)C (Apr. 11, 2003)
Source
- Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2003.htm
- Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a03_4c.pdf
Original ruling text
New York State Department of Taxation and Finance
Office of Tax Policy Analysis
Technical Services Division
TSB-A-03(4)C
Corporation Tax
April 11, 2003
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
PETITION NO. C030220A
On February 20, 2003, a Petition for Advisory Opinion was received from Commodore
Aviation, Inc., P.O. Box 661078, Miami, Florida 33266.
The issue raised by Petitioner, Commodore Aviation, Inc. is whether it will qualify as a new
business under section 210.12(j) of the Tax Law for purposes of claiming a refund of the empire
zone wage tax credit pursuant to section 210.19 of the Tax Law.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a Delaware corporation that currently operates a facility in Florida providing
aircraft maintenance, repair and overhaul services as well as other aviation related services.
Petitioner has no other locations and no other lines of business. During its corporate existence,
Petitioner has not conducted business in New York State.
Petitioner currently is a wholly-owned subsidiary of Israel Aircraft Industries International,
Inc., a Delaware corporation (“IAII”). IAII is a wholly-owned subsidiary of Israel Aircraft
Industries Limited, an Israeli corporation (“IAI”). IAII provides logistic and marketing support to
IAI in the United States for an arm’s length fee with respect to sales of commercial and private
aircraft. IAII maintains an administrative office in New York City, that, among other activities,
provides administrative services for Petitioner, such as preparing financial reports and acquiring
insurance policies, for a fee determined by using third party arm’s length pricing rates. IAII does
not have any other presence in New York State. IAII has other subsidiaries that are New York
taxpayers. Astra Jet Corporation consigns Astra spare parts for use in Gulfstream jets, and Israel
Aircraft Services Inc. is a holding company that is the single member of Aviation Services
International LLC which conducts marketing for sales of aircraft within the United States. These
entities do not conduct activities similar to those conducted by Petitioner.
IAI is a globally recognized leader in developing military and commercial aerospace
technology. IAI operates a division called the Bedek Group, which provides maintenance, overhaul,
modification, repair and testing of commercial airplanes for many of the leading airlines and
manufacturers worldwide. Petitioner is engaged in the same line of business as the Bedek Group,
i.e. providing aircraft maintenance, repair and overhaul services in the United States.
The Corporate Secretary of IAII is also the Corporate Secretary of Petitioner. No other
officer of IAII is an officer of Petitioner. Two of eight members of IAII’s Board of Directors are
also on Petitioner’s Board of Directors. Three members of Petitioner’s Board of Directors are
“outside directors” not affiliated with either IAI or IAII. In addition, Petitioner is managed
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independently and IAII has no involvement in the day to day operations of Petitioner. Petitioner’s
Chairman is the General Manager of the Bedek Group. Such Chairman as well as the Financial
Director of the Bedek Group and the General Counsel of IAI are three of the ten members of the
Board of Directors of Petitioner.
Petitioner is contemplating the transfer of its facility in Florida to the former Griffiss Air
Force Base in Rome, New York. The facility in Rome, New York is contained within an Empire
Zone, pursuant to Article 18-B of the General Municipal Law. Petitioner is negotiating a twenty
year sublease of the facility with the Griffiss Local Development Corporation with options for three
successive renewal terms of ten years each. The target date for Petitioner to commence operations
at the New York site is October 1, 2003. Petitioner will apply for certification pursuant to
Article 18-B of the General Municipal Law as a business enterprise eligible for Empire Zone
economic incentive benefits. Petitioner estimates that economic incentives and opportunities
available at the new facility may enable it to create an estimated five hundred jobs over the first five
years of operation.
Prior to October 1, 2003, in part to allow IAI to obtain a direct ownership interest in
Commodore and facilitate oversight of Petitioner, the equity ownership of Petitioner will be
recapitalized. Pursuant to the recapitalization, IAII (which now holds 150 shares of stock) will
exchange such stock for 100 shares of class A voting shares. IAI will guarantee portions of the
sublease obligations of Petitioner and will provide other consideration to Petitioner in exchange for
80 class B voting shares and the issuance to a foreign subsidiary of IAI of 21 class B voting shares,
whereby more than 50 percent of the total number of voting shares outstanding after the
recapitalization contributions will not be owned by IAII. Since the class A voting shares will entitle
the holder to five votes per share, versus one vote per share for the class B voting shares, IAII will
continue to have more than 80 percent of the voting power and value of Petitioner. This will allow
IAII to continue to file its federal income tax returns on a consolidated basis with Petitioner and
IAII’s other subsidiaries which constitute the United States group of entities owned by IAI.
Applicable Law and Regulations
Section 210.19 of the Tax Law provides for an empire zone wage tax credit, in part, as
follows:
(a) A taxpayer shall be allowed a credit, to be computed as hereinafter
provided, against the tax imposed by this article where the taxpayer has been
certified pursuant to article eighteen-B of the general municipal law. The amount of
such credit shall be as prescribed by paragraph (d) hereof.
*
*
*
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(d) The amount of the credit shall equal the sum of (1) the product of three
thousand dollars and the average number of individuals (excluding general executive
officers) employed full-time by the taxpayer, computed pursuant to the provisions
of subparagraph three of paragraph (b) of this subdivision, who
(A) received empire zone wages for more than half of the taxable year,
(B) received, with respect to more than half of the period of employment by
the taxpayer during the taxable year, an hourly wage which was at least one hundred
thirty-five percent of the minimum wage specified in section six hundred fifty-two
of the labor law, and
(C) are targeted employees; and
(2) the product of fifteen hundred dollars and the average number of
individuals (excluding general executive officers and individuals described in
subparagraph one of this paragraph) employed full-time by the taxpayer, computed
pursuant to the provisions of subparagraph three of paragraph (b) of this subdivision,
who received empire zone wages for more than half of the taxable year.
Provided, further, however, that the credit provided for herein with respect
to the taxable year, and carryovers of such credit to the taxable year, deducted from
the tax otherwise due, may not, in the aggregate, exceed fifty percent of the tax
imposed under section two hundred nine computed without regard to any credit
provided for by this article.
*
*
*
(e) The credit and carryovers of such credit allowed under this subdivision
for any taxable year shall not, in the aggregate, reduce the tax due for such year to
less than the higher of the amounts prescribed in paragraphs (c) and (d) of
subdivision one of this section. However, if the amount of credit or carryovers of
such credit, or both, allowed under this subdivision for any taxable year reduces the
tax to such amount, or if any part of the credit or carryovers of such credit may not
be deducted from the tax otherwise due by reason of the final sentence of paragraph
(d) hereof, any amount of credit or carryovers of such credit thus not deductible in
such taxable year may be carried over to the following year or years and may be
deducted from the tax for such year or years. In lieu of such carryover, any such
taxpayer which qualifies as a new business under paragraph (j) of subdivision twelve
of this section may elect, on its report for its taxable year with respect to which such
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credit is allowed, to treat fifty percent of the amount of such carryover as an
overpayment of tax to be credited or refunded in accordance with the provisions of
section ten hundred eighty-six of this chapter. Provided, however, the provisions of
subsection (c) of section ten hundred eighty-eight of this chapter notwithstanding,
no interest shall be paid thereon.
Section 210.12(j) of the Tax Law provides that:
For purposes of paragraph (e) of this subdivision, a new business shall
include any corporation, except a corporation which:
(1) over fifty percent of the number of shares of stock entitling the
holders thereof to vote for the election of directors or trustees is owned or
controlled, either directly or indirectly, by a taxpayer subject to tax under this
article; section one hundred eighty-three, one hundred eighty-four or one
hundred eighty-five of article nine; article thirty-two or thirty-three of this
chapter; or
(2) is substantially similar in operation and in ownership to a business
entity (or entities) taxable, or previously taxable, under this article; section
one hundred eight-three, one hundred eighty-four, one hundred eighty-five
or one hundred eighty-six of article nine; article thirty-two or thirty-three of
this chapter; article twenty-three of this chapter or which would have been
subject to tax under such article twenty-three (as such article was in effect on
January first, nineteen hundred eighty) or the income (or losses) of which is
(or was) includable under article twenty-two of this chapter whereby the
intent and purpose of this paragraph and paragraph (e) of this subdivision
with respect to refunding of credit to new business would be evaded; or
(3) has been subject to tax under this article for more than five taxable
years (excluding short taxable years).
Opinion
The empire zone wage tax credit under section 210.19 of the Tax Law was added by
Chapter 686 of the Laws of 1986. This provision was part of New York State’s economic
development program specifically designed to meet the needs of the communities that had failed to
participate fully in the economic resurgence and growth of New York State, by offering significant
tax incentives to spark development and revitalize those distressed areas and benefit both the
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economy of those communities as well as their residents. (Governor’s Mem approving L 1986,
ch 686, 1986 McKinney’s Session Laws of NY, at 3186).
The provision of the empire zone wage tax credit under section 210.19(e) of the Tax Law
that allows a taxpayer which qualifies as a new business to elect to treat 50 percent of the amount
of the credit carryover as an overpayment of tax to be refunded was added by Chapter 708 of the
Laws of 1993. The Governor, in his approval memorandum, stated, in part:
The bill, part of my 1993 Legislative Program, makes comprehensive reforms
to the Economic Development Zones Program by changing the program evaluation
process, eligibility criteria, administration and structure as recommended by the
Economic Development Zones Review Commission, and by enhancing the package
of tax and financial incentives and special program assistance measures designed to
encourage and stimulate business development in the zones.
The bill enables the State to respond to the present needs of communities
facing severe economic downturns brought on by substantial job loss, such as ... the
planned closing and realigning of military bases and facilities affecting the ... Rome
areas. The bill will ensure that the State can quickly provide additional tax resources
and programs to encourage new business development which will create new jobs....
(Governor’s Mem approving L 1993, ch 708, 1993 NY Legis Ann, at 549.)
In this case, Petitioner is contemplating the transfer of its facility in Florida to the former
Griffiss Air Force Base in Rome, New York which is contained within an Empire Zone pursuant to
Article 18-B of the General Municipal Law. Petitioner is negotiating a twenty year sublease of the
facility with the Griffiss Local Development Corporation with options for three successive renewal
terms of ten years each, and has a target date of October 1, 2003 for starting operations in New York
State.
With respect to the question of whether Petitioner would be considered to be a new business
under section 210.12(j) of the Tax Law for the purpose of being eligible for a refund, in lieu of a
carryover, of the empire zone wage tax credit under section 210.19(e) of the Tax Law, Petitioner
must not meet any of the three exceptions contained in such section 210.12(j).
First, Petitioner must not be a corporation in which over 50 percent of the number of shares
of stock entitling their holders to vote for the election of directors or trustees is owned or controlled,
either directly or indirectly, by a taxpayer subject to tax under Article 9-A; section 183, 184, or 185
of Article 9; Article 32 or 33 of the Tax Law. Petitioner is currently wholly owned by IAII which
is subject to tax under Article 9-A of the Tax Law. However, Petitioner states that prior to
October 1, 2003, the equity ownership of Petitioner will be recapitalized whereby IAI and a foreign
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subsidiary of IAI in return for providing sublease guarantees and other valuable consideration to
Petitioner will receive voting shares constituting more than 50 percent of voting shares outstanding
after such recapitalization, and IAII’s share of stock ownership, measured by voting shares, will be
reduced from 100 percent to less than 50 percent of the total number of voting shares of Petitioner.
Second, Petitioner must not be a corporation that is substantially similar in operation and in
ownership to a business entity or entities taxable, or previously taxable under Article 9-A; section
183, 184, or 185 of Article 9; Article 32 or 33; or Article 23 or that would have been subject to tax
under Article 23, as such article was in effect on January 1, 1980, or the income (or losses) of which
is (or was) includable under Article 22 of the Tax Law whereby the intent and purpose of sections
210.12(e) or 210.12B(d) of the Tax Law with respect to refunding of credit to new business would
be evaded. Petitioner and IAII have not and will not be substantially similar in operation. Petitioner
now provides and will provide maintenance, repair and overhaul services as well as other related
aviation services in New York State, and IAII provides, in New York State, logistic and marketing
support for IAI with respect to sales of commercial and private aircraft and administrative services,
in exchange for a third party arm’s length fee, for Petitioner. IAII’s subsidiaries that are New York
taxpayers do not conduct operations similar to those conducted by Petitioner.
Third, Petitioner must not be a corporation that has been subject to tax under Article 9-A for
more than five taxable years (excluding short taxable years) before each tax year during which the
taxpayer becomes eligible for the empire zone wage tax credit. Petitioner states that it has not been
subject to New York franchise tax.
The purpose of the empire zone wage tax credit under section 210.19 of the Tax Law was
to encourage and stimulate business development in empire zones in New York State, as part of the
empire zone program, to provide benefits for certain areas that continue to face persistent problems
of long-term unemployment and poverty, and to improve services to targeted workers and employee
benefits of the businesses within a zone. In particular, the purpose of section 210.19(e) of the Tax
Law, in allowing a taxpayer that is a new business to treat fifty percent of the amount of an empire
zone wage tax credit carryover as an overpayment of tax to be refunded, was to respond to the needs
of communities that faced severe economic downturns brought on by substantial job loss, such as
the closing of Griffiss Air Force Base in Rome, New York, by encouraging new business
development to create new jobs in these distressed areas, including the Rome area.
In order to give effect to the Legislature’s purpose, the statute should be interpreted to
recognize the unique circumstances of ownership and control of Petitioner by IAI through IAII,
when considering whether Petitioner is a new business for purposes of the refundable empire zone
wage tax credit. To do otherwise would defeat such purpose. (cf., Symphony Space v Tishelman,
60 NY2d 33; Brooklyn Union Gas v Commr of Dept of Fin., 108 AD2d 74, revd on other grounds
67 NY2d 1036). In this case, after the recapitalization:
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(1) Over 50 percent of the total number of shares of Petitioner’s stock entitling their holders
to vote for the election of directors or trustees will be owned or controlled, either directly or
indirectly by IAI and a foreign subsidiary of IAI neither of which are subject to New York State
franchise tax. While IAII will continue to have more than 80 percent of the voting power (and
value) of the total voting stock to facilitate the continuance of IAI’s United States affiliates’ ability
to file as a consolidated group for federal income tax purposes, IAII is not involved in the day to day
operations of Petitioner. IAI’s General Manager of the Bedek Group is the Chairman of Petitioner,
and is also on Petitioner’s Board of Directors along with the Financial Director of the Bedek Group
and the General Counsel for IAI. In addition, direct ownership by IAI of Petitioner will facilitate
oversight of Petitioner under the Bedek Group of IAI.
(2) Subsidiaries of IAI and IAII that are New York taxpayers do not conduct operations
similar to those conducted by Petitioner in providing maintenance, repair and overhaul services as
well as other aviation related services for IAI in New York. IAII will not be similar to Petitioner
in operations. IAII’s activities in New York State involve logistic and marketing support for IAI in
the United States with respect to sales of commercial and private aircraft, and providing
administrative services for Petitioner at third party arm’s length pricing. While IAII will be
providing some services for Petitioner in New York, those services are administrative only and not
similar to the activities of Petitioner in providing aircraft maintenance, repair and overhaul services
as well as other related aviation services in New York State.
(3) Petitioner has not been subject to franchise tax in New York State.
Accordingly, Petitioner will not meet any of the three exceptions contained in such section
210.12(j) of the Tax Law. Therefore, Petitioner will be considered a “new business” pursuant to
sections 210.12(j) and 210.19(e) of the Tax Law, for purposes of the refundable empire zone wage
tax credit, for those taxable years that it meets the requirements of section 210.12(j)(3) of the Tax
Law. However, this advisory opinion does not address the issue of whether Petitioner will, in fact,
qualify for the empire zone wage tax credit under section 210.19 of the Tax Law.
DATED: April 11, 2003
NOTE:
/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division
The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.