Can an LLC's members still claim New York's empire zone wage tax credit for 2003 and 2004 if the credit's five-year window already began back in 1998?

Plain-English summary

Pearl St. Brewing Co. LLC, treated as a partnership for federal income tax purposes, began doing business at its downtown Buffalo location in 1997. On December 22, 1997, it was certified under Article 18-B of the General Municipal Law as a business enterprise eligible for zone equivalent area (ZEA) program benefits. For tax years 1998 and 1999, Petitioner met the requirements of the empire zone (EZ) wage tax credit, and its members claimed the credit under Tax Law § 606(k) for ZEA wages paid.

In 2000, Petitioner learned its location had become part of an economic development zone (later renamed an empire zone), and it received a new Article 18-B certification on June 2, 2000, as an EZ business enterprise. For tax years 2000, 2001, and 2002, Petitioner again met the EZ wage tax credit requirements, and its members claimed the credit for EZ wages paid during those years. Petitioner asked the Department whether its members could keep claiming the credit for tax years 2003 and 2004.

The Department first confirmed that because Petitioner is treated as a partnership for federal purposes, it is likewise treated as a partnership - not a taxable entity - under Article 22 of the Tax Law. Its individual members, not the LLC itself, claim their allocable share of the EZ wage tax credit computed by the LLC. Turning to the credit's mechanics, Tax Law § 606(k)(3) allows the credit for only five consecutive taxable years, starting with the first taxable year that qualifying wages are paid and the employment-increase conditions are met. Critically, a later recertification under Article 18-B - even at a different location, or in what is later renamed a different zone - does not extend or restart that five-year clock.

Applying that rule, the Department found that Petitioner's members' first year of eligibility was 1998, based on ZEA wages. Counting five consecutive years from 1998 (1998, 1999, 2000, 2001, and 2002) meant the credit period ended with the 2002 tax year. Because Petitioner's later EZ recertification did not reset the clock, its members were not eligible for the EZ wage tax credit for tax years 2003 or 2004.

What this means for you

LLCs and their members claiming zone-based credits

If your LLC is treated as a partnership for federal tax purposes, it is treated the same way under Article 22 of the Tax Law - the LLC itself doesn't pay income tax or claim credits, but computes the credit and passes each member's allocable share through to that member's personal return. Track carefully which tax year your members first claimed an empire zone wage tax credit, because that year starts the five-consecutive-year clock, and it runs regardless of who claims the pass-through share in later years.

Businesses recertified in a renamed or different zone

If your zone equivalent area is later redesignated an empire zone, or your business is recertified under Article 18-B at the same or a different location, do not assume that recertification gives you a fresh five-year credit period. The Department treats the original certification's first credit year as the start of the clock, and a subsequent certification - even in a technically different zone - does not extend the five-year limit on the EZ wage tax credit.

Common questions

Q: Does getting recertified under Article 18-B in a renamed or different empire zone restart the five-year credit period?
A: No. Tax Law § 606(k)(3) states that subsequent certifications - whether at the same or a different location in the same zone, or at a location in a different empire zone or zone equivalent area - do not extend the five-taxable-year limit on the credit.

Q: Why do the LLC's individual members claim the credit instead of the LLC?
A: Because Petitioner is treated as a partnership for federal income tax purposes, it is treated as a partnership under Article 22 of the Tax Law - a pass-through entity, not a taxable entity. Where the LLC meets the requirements of Tax Law § 606(k), each individual member is allowed an EZ wage tax credit based on that member's allocable share of the credit the LLC computes.

Q: How is the empire zone wage tax credit amount calculated?
A: Under Tax Law § 606(k)(4), the credit equals $3,000 times the average number of full-time targeted employees who received EZ wages for more than half the taxable year and an hourly wage at least 135% of the minimum wage under Labor Law § 652, plus $1,500 times the average number of other full-time employees who received EZ wages for more than half the taxable year.

Q: What's the difference between a "zone equivalent area" and an "empire zone" for purposes of this credit?
A: Tax Law § 606(k)(2)(A) defines "empire zone wages" to include wages paid in an area designated - or previously designated - as either an empire zone or a zone equivalent area under Article 18-B of the General Municipal Law, so both designations can generate the credit, subject to the same overall time limits.

Q: Why weren't Pearl St. Brewing's members eligible for the credit in 2003 and 2004?
A: Their first credit year was 1998 (based on ZEA wages), so the five consecutive taxable years ran from 1998 through 2002. Since the later EZ recertification in 2000 did not restart that clock, 2003 and 2004 fell outside the allowable five-year period.

Citations and references

• Tax Law § 606(k) - empire zone wage tax credit for taxpayers certified under Article 18-B of the General Municipal Law
• Tax Law § 606(k)(2)(A) - defines "empire zone wages" and "targeted employee"
• Tax Law § 606(k)(3) - limits the credit to five consecutive taxable years, not extended by subsequent Article 18-B certifications
• Tax Law § 606(k)(4) - computes the credit as $3,000 or $1,500 per qualifying full-time employee, depending on targeted-employee status
• General Municipal Law Article 18-B - governs certification of businesses in empire zones and zone equivalent areas
• Labor Law § 652 - minimum wage rate used in the 135%-of-minimum-wage test for targeted employees
• TSB-M-94(6)I and (8)C (New York Tax Status of Limited Liability Companies and Partnerships, Oct. 25, 1994) - LLC classification follows federal tax treatment for Article 22 purposes
• TSB-A-01(1)C (Sutherland Asbill & Brennan, Jan. 9, 2001) - analogous pass-through treatment for the EZ investment tax credit under Tax Law § 210.12-B

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_2004.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a04_3i.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-04(3)I
Income Tax
May 25, 2004

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I030806A

On August 6, 2003, a Petition for Advisory Opinion was received from Pearl St. Brewing
Co. LLC, 72 Pearl Street, Buffalo, New York 14202.
The issue raised by Petitioner, Pearl St. Brewing Co. LLC, is whether wages paid by
Petitioner for full-time employment in an area designated as a zone equivalent area (ZEA) are
considered in determining whether Petitioner’s members are eligible for an empire zone wage tax
credit under section 606(k) of the Tax Law for tax years 2003 and 2004 for wages paid by Petitioner
for full-time employment in an area designated as an empire zone (EZ).
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is treated as a partnership for federal income tax purposes. It began doing business
at its downtown Buffalo, New York location in 1997. On December 22, 1997, Petitioner was
certified under Article 18-B of the General Municipal Law as a business enterprise eligible to
receive ZEA program benefits. For tax years 1998 and 1999, Petitioner met the requirements of the
EZ wage tax credit and its members claimed the credit under section 606(k) of the Tax Law for ZEA
wages paid.
In 2000, Petitioner was informed that its business was located in an economic development
zone (EDZ) (later renamed EZ). Petitioner filed and received its certification under Article 18-B
of the General Municipal Law on June 2, 2000, as a business enterprise eligible to receive EZ
program benefits. For tax years 2000, 2001, and 2002, Petitioner met the requirements of the
EZ wage tax credit and its members claimed the credit under section 606(k) of the Tax Law for
EZ wages paid.
Applicable law
Section 606(k) of the Tax Law provides for an EZ wage tax credit as follows:
(1) 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 18-B of the general municipal law. The amount of such credit shall be as prescribed
in paragraph four of this subsection.
(2) For the purposes of this subsection, the following terms shall have the following
meanings: (A) “Empire zone wages” means wages paid by the taxpayer for full-time
employment during the taxable year, in an area designated or previously designated as an

-2­
TSB-A-04(3)I
Income Tax
May 25, 2004
empire zone or zone equivalent area pursuant to article eighteen-B of the general municipal
law, where such employment is in a job created in the area (i) during the period of its
designation as an empire zone, (ii) within four years of the expiration of such designation,
or (iii) during the ten year period immediately following the date of designation as a zone
equivalent area, provided, however, that if the taxpayer’s certification under article 18-B of
the general municipal law is revoked with respect to an empire zone or zone equivalent area,
any wages paid by the taxpayer, on or after the effective date of such decertification, for
employment in such zone shall not constitute empire zone wages.
(B) “Targeted employee” means a New York resident who receives empire zone
wages and who is (i) an eligible individual under the provisions of the targeted jobs tax
credit (section fifty-one of the internal revenue code), (ii) eligible for benefits under the
provisions of the job training partnership act ... (iii) a recipient of public assistance benefits
or (iv) an individual whose income is below the most recently established poverty rate
promulgated by the United States department of commerce, or a member of a family whose
family income is below the most recently established poverty rate promulgated by the
appropriate federal agency.
*

*

*

(3) The credit provided for herein shall be allowed only where the average number
of individuals employed full-time by the taxpayer in (i) the state and (ii) the empire zone or
area previously constituting such zone or zone equivalent area, during the taxable year
exceeds the average number of such individuals employed full-time by the taxpayer in (i)
the state and (ii) such zone or area subsequently or previously constituting such zone or such
zone equivalent area, respectively, during the four years immediately preceding the first
taxable year in which the credit is claimed with respect to such zone or area. Where the
taxpayer provided full-time employment within (i) the state or (ii) such zone or area during
only a portion of such four-year period, then for purposes of this paragraph the term “four
years” shall be deemed to refer instead to such portion, if any.
The credit shall be allowed only with respect to the first taxable year during which
payments of empire zone wages are made and the conditions set forth in this paragraph are
satisfied, and with respect to each of the four taxable years next following (but only, with
respect to each of such years, if such conditions are satisfied), in accordance with paragraph
four of this subsection. Subsequent certifications of the taxpayer pursuant to article
eighteen-B of the general municipal law, at the same or a different location in the same
empire zone or zone equivalent area or at a location in a different empire zone or zone
equivalent area, shall not extend the five taxable year time limitation on the allowance of the
credit set forth in the preceding sentence. Provided, further, however, that no credit shall be
allowed with respect to any taxable year beginning more than four years following the

-3­
TSB-A-04(3)I
Income Tax
May 25, 2004
taxable year in which designation as an empire zone expired or more than ten years after the
designation as a zone equivalent area.
(4) The amount of the credit shall equal the sum of
(i) the product of three thousand dollars and the average number of
individuals employed full-time by the taxpayer, computed pursuant to the provisions
of subparagraph (C) of paragraph two of this subsection, who
(I) received empire zone wages for more than half of the taxable year,
(II) 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
(III) are targeted employees; and
(ii) the product of fifteen hundred dollars and the average number of
individuals (excluding individuals described in subparagraph (i) of this paragraph)
employed full-time by the taxpayer, computed pursuant to the provisions of
subparagraph (C) of paragraph two of this subsection, who received empire zone
wages for more than half of the taxable year.
Opinion
With respect to LLCs, the classification accorded an LLC for federal income tax purposes
will be followed for purposes of Article 22 of the Tax Law. (See Technical Services Bureau
Memorandum, New York Tax Status of Limited Liability Companies and Partnerships, October 25,
1994, TSB-M-94(6)I and (8)C.) An LLC that is treated as a partnership for federal income tax
purposes is treated as a partnership for purposes of Article 22 of the Tax Law. A partnership is not
a taxable entity for purposes of Article 22 of the Tax Law, but partners who are individuals, estates,
or trusts reflect their distributive share of items of the partnership’s income, gain, loss and deduction
in their New York State tax returns.
In Sutherland Asbill & Brennan, Adv Op Comm T&F, January 9, 2001, TSB-A-01(1)C, it
was held that where an LLC that is treated as a partnership is certified pursuant to Article 18-B of
the General Municipal Law, purchases tangible property that is principally used by the LLC and the
LLC meets the employment increase requirements under section 210.12-B of the Tax Law for
qualifying for the EZ investment tax credit, a corporate member of the LLC is allowed an EZ
investment tax credit pursuant to such section 210.12-B of the Tax Law, for its allocable share of
the cost or other basis of such qualifying tangible property.

-4­
TSB-A-04(3)I
Income Tax
May 25, 2004
Likewise, for purposes of the EZ wage tax credit under section 606(k) of the Tax Law, where
an LLC that is treated as a partnership is certified pursuant to Article 18-B of the General Municipal
Law and the LLC meets the requirements of section 606(k) for qualifying for the EZ wage tax credit,
an individual member of the LLC is allowed an EZ wage tax credit under section 606(k) of the Tax
Law based on the member’s allocable share of the credit computed by the LLC.
Section 606(k) of the Tax Law provides for an empire zone wage tax credit where a taxpayer
has been certified pursuant to Article 18-B of the General Municipal Law and meets certain
increased employment levels in New York State.
If eligible, the amount of the credit, pursuant to section 606(k)(4) of the Tax Law, is the sum
of:
(1) $3,000 multiplied by the average number of full-time employees who are targeted
employees, received EZ wages for more than one-half of the taxable year, and received an
hourly wage that was at least 135% of the minimum wage specified in section 652 of the
Labor Law for more than half of their period of employment by the taxpayer during the
taxable year; and
(2) $1,500 multiplied by the average number of full-time employees of the taxpayer
who received EZ wages for more than one-half of the taxable year, other than an individual
described in the preceding paragraph.
Pursuant to section 606(k)(3) of the Tax Law, an EZ wage tax credit is allowed for up to five
consecutive taxable years. The five consecutive taxable years (including taxable years of less than
12 months) begin with the first taxable year that EZ wages are paid and the level of employment
requirement is met. The EZ wage tax credit will continue to be allowed if EZ wages continue to be
paid and the level of employment requirement continues to be met in each of the next four following
taxable years. EZ wages are defined pursuant to section 606(k)(2)(A) and include wages paid by
a taxpayer during the taxable year in an area designated or previously designated as an EZ or ZEA,
provided that the employment was created in the EZ or ZEA during certain time periods as required
by section 606(k)(2)(A). Subsequent certifications of the taxpayer pursuant to Article 18-B of the
General Municipal Law at the same or a different location in the same EZ or ZEA or at a location
in a different EZ or ZEA area shall not extend the five year time limitation on the allowance of the
EZ wage tax credit.
In this case, Petitioner’s first tax year that it qualified and its members claimed an EZ wage
tax credit as a result of EZ wages paid was tax year 1998 based on wages paid in a ZEA.
Petitioner’s members also claimed an EZ wage tax credit in 1999 for EZ wages paid by Petitioner
in a ZEA, and in 2000, 2001, and 2002 for EZ wages paid by Petitioner in an EZ. Therefore, the last
tax year that Petitioner’s members are eligible to receive an EZ wage tax credit is 2002.

-5­
TSB-A-04(3)I
Income Tax
May 25, 2004
Accordingly, Petitioner’s members are not eligible for an EZ wage tax credit for the tax years 2003
and 2004.

DATED: May 25, 2004

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.