When a related corporation merges into a new Empire Zone corporation, can the survivor count the predecessor's employees for the Empire Zone wage tax credit?
Plain-English summary
JML Optical Industries, Inc. was incorporated June 11, 2002, and on July 31, 2002 a related New York corporation (Corporation A) -- located at the same site, in an area designated an Empire Zone on June 6, 2002 -- merged into JML, with JML surviving and Corporation A ceasing to exist. JML became EZ-certified July 17, 2002. It asked, for the EZ wage tax credit (section 210.19), whether new jobs are "created" by forming the new EZ corporation and absorbing Corporation A, and whether it may count Corporation A's employees.
The Department held:
- Merged employees count. Corporation A's rights and obligations as to its employees transferred to JML in the merger and did not terminate, so its employees are counted. An individual employed full-time by both (Corporation A before, JML after) is counted only once in the year. If full-time employment in New York/the EZ existed only for part of the four preceding years, "four years" means that portion.
- Related-person employees (section 210.19(d)(3)). The survivor may include employees a related person employed in the EZ within the preceding 60 months only if the related person was never allowed an EZ wage tax credit for them. Because Corporation A never claimed the EZ wage credit for its employees, JML may include them in the qualified-employee count.
What this means for you
A merger carries the predecessor's employees to the survivor
When a related corporation merges into your Empire Zone corporation, its rights and obligations as to employees transfer to you and do not terminate. Those employees count for the EZ wage credit -- but an individual who worked for both before and after the merger is counted only once in the year.
The related-person 60-month rule has a key exception
Section 210.19(d)(3) lets you include a related person's EZ employees from the preceding 60 months only if that related person never claimed an EZ wage tax credit for them. If the predecessor already took the credit for those workers, you cannot count them again.
Document the predecessor's credit history
The result here turned on the fact that Corporation A never claimed the EZ wage credit. Keep records of whether any related/merged entity previously claimed the credit for the employees you want to count.
Common questions
Q: Can a surviving EZ corporation count a merged related corporation's employees?
A: Yes. The merger transfers the predecessor's rights and obligations as to employees, so they are counted; someone employed by both before and after is counted only once.
Q: What is the related-person 60-month limit?
A: Under section 210.19(d)(3), you may include a related person's EZ employees from the preceding 60 months only if the related person was never allowed an EZ wage tax credit for them.
Q: Why could JML include Corporation A's employees?
A: Because Corporation A never claimed an EZ wage tax credit for any of those employees.
Citations and references
Statutes, regulations, and authorities:
- Tax Law section 210.19 (Empire zone wage tax credit)
- Tax Law section 210.19(d)(3) (related-person employees within preceding 60 months)
- JML Optical Industries, Inc., TSB-A-04(7)C (Apr. 16, 2004)
Source
- Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2004.htm
- Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a04_7c.pdf
Original ruling text
New York State Department of Taxation and Finance
Office of Tax Policy Analysis
Technical Services Division
TSB-A-04(7)C
Corporation Tax
April 16, 2004
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
PETITION NO. C030801A
On August 1, 2003, a Petition for Advisory Opinion was received from JML Optical
Industries, Inc., 690 Portland Avenue, Rochester, New York 14621.
The issues raised by Petitioner, JML Optical Industries, Inc., are:
1. Whether new jobs are considered to be created upon the creation of a newly formed
corporation operating within an empire zone (EZ), and the subsequent merger of a related
corporation into such newly formed corporation, for purposes of the EZ wage tax credit
under section 210.19 of the Tax Law.
2. Whether Petitioner may include employees from a predecessor related corporation in
determining the number of qualified employees eligible for the EZ wage tax credit under
section 210.19 of the Tax Law, if the related corporation was never allowed an EZ wage tax
credit with respect to such employees.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner was incorporated under the laws of New York State on June 11, 2002. On July 31,
2002, Corporation A, a related corporation located in New York, was merged into Petitioner with
Petitioner as the surviving corporation and Corporation A ceasing to exist. Petitioner’s location is
the same as Corporation A prior to the merger. Corporation A’s location was designated as an EZ
on June 6, 2002. Petitioner became certified under Article 18-B of the General Municipal Law on
July 17, 2002.
The majority of the employees currently working for Petitioner were employees of
Corporation A prior to the merger. Corporation A was never allowed, nor did it ever claim, the EZ
wage tax credit with respect to any of its employees.
Applicable law
Section 210.19 of the Tax Law provides for an EZ 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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(b) For the purposes of this subdivision, the following terms shall have the following
meanings: (1) “Empire zone wages” means wages paid by the taxpayer for full-time
employment, other than to general executive officers, during the taxable year in an area
designated or previously designated as an 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 eighteen-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.
(2) “Targeted employee” means a New York resident who receives empire zone
wages and who is (A) an eligible individual under the provisions of the targeted jobs tax
credit (section fifty-one of the internal revenue code), (B) eligible for benefits under the
provisions of the job training partnership act ... (C) a recipient of public assistance benefits
or (D) 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.
*
*
*
(c) The credit provided for herein shall be allowed only where the average number
of individuals, excluding general executive officers, employed full-time by the taxpayer in
(A) the state and (B) 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 (A) the state and (B) 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 (A)
the state or (B) 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.
*
*
*
(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
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(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.
*
*
*
(3) For purposes of calculating the amount of the credit, individuals employed within
an empire zone or zone equivalent area within the immediately preceding sixty months by
a related person, as such term is defined in subparagraph (c) of paragraph three of subsection
(b) of section four hundred sixty-five of the internal revenue code, shall not be included in
the average number of individuals described in subparagraph one or subparagraph two of
this paragraph, unless such related person was never allowed a credit under this subdivision
with respect to such employees.
Section 465(b)(3)(C) of the Internal Revenue Code provides:
Related person. – For purposes of this subsection, a person (hereinafter in this
paragraph referred to as the “related person”) is related to any person if –
(i) the related person bears a relationship to such person specified in section 267(b)
or section 707(b)(1), or
(ii) the related person and such person are engaged in trades or business under
common control (within the meaning of subsections (a) and (b) of section 52).
For purposes of clause (i), in applying section 267(b) or 707(b)(1), “10 percent” shall
be substituted for “50 percent”.
Opinion
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Before a taxpayer is allowed to claim an EZ wage tax credit under section 210.19 of the Tax
Law, the taxpayer must be certified under Article 18-B of the General Municipal Law, and must
meet certain increased employment levels in New York State and in the EZ during the taxable year.
The EZ wage tax credit under section 210.19 of the Tax Law is allowed only with respect
to empire zone wages paid by the taxpayer for full-time employment, excluding general executive
officers, during the taxable year in the EZ where such employment is in a job created in the area
since it became an EZ. See section 210.19(b)(1) of the Tax Law. The credit is allowed only where
the average number of individuals, excluding general executive officers, employed full-time by a
taxpayer in New York State and in the EZ during the taxable year exceeds the average number of
such individuals employed full-time by the taxpayer in New York State and in the EZ during the
four years immediately preceding the first taxable year in which the credit is claimed with respect
to such zone. If the taxpayer did not provide full-time employment for such four year period, then
section 210.19(c) of the Tax Law provides that the term “four years” shall be deemed to refer instead
to such portion, if any.
With respect to Issue 1, in construing the phrase jobs created in the area, as used in section
210.19(b)(1) of the Tax Law, it is instructive to look to the General Municipal Law, which
established the EZ program.
In the statement of legislative findings pursuant to the creation of the EZ program, the
legislature declared:
[i]t is the public policy of the state to offer special incentives and assistance that will
promote the development of new businesses, the expansion of existing businesses and the
development of human resources within these economically impoverished areas and to do
so without encouraging the relocation of business investment from other areas of the state.
(General Municipal Law, section 956, emphasis added.)
Thus, the statute provides that a business which has shifted its operations, or some portions
thereof, from an area within New York State not designated as an EZ to an area so designated shall
not be certified to receive such benefits, except where
•
the shift is entirely within a municipality and has been approved by the local governing body
of the municipality,
•
it has been established after a public hearing that extraordinary circumstances exist which
warrant the relocation of the business, in whole or in part, into an EZ from another
municipality and the municipality from which the business is relocating approves of such
relocation, or
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•
such shift in operation is from a business incubator facility operated by a municipality or by
a public or private not-for-profit entity. (General Municipal Law, section 959(a))
In light of the above, we will look to the principles of the General Municipal Law to
determine whether jobs which existed in New York State outside of the EZ following its designation
and were moved inside the EZ after its designation, are jobs created by Petitioner for purposes of
the EZ wage tax credit.
Petitioner was incorporated on June 11, 2002, and was certified under Article 18-B of the
General Municipal Law on July 17, 2002. Pursuant to the merger, Corporation A was merged into
Petitioner on July 31, 2002, with Petitioner as the surviving corporation. As a result of the merger,
Corporation A ceased to exist. Petitioner is located where Corporation A was located, and that
location became an EZ on June 6, 2002. The majority of Petitioner’s employees were employees
of Corporation A before the merger. Although Corporation A ceased to exist as a result of the
merger into Petitioner, Petitioner possesses all the rights, privileges, immunities, powers and
purposes of Corporation A, all of Corporation A’s property is vested in Petitioner, and Petitioner
assumed and is liable for all the liabilities, obligations and penalties of Corporation A. (Business
Corporation Law, section 906 (b)) Consequently, Corporation A’s rights, privileges, immunities,
powers, liabilities and obligations with respect to its employees did not terminate under the merger,
but instead were transferred to Petitioner. Since the employees Petitioner acquired as a result of the
merger, were employees of Corporation A located within the EZ at the time of the merger, Petitioner
did not create any new jobs in the EZ as a result of the merger within the meaning and intent of
section 210.19(b)(1) of the Tax Law.
However, Corporation A may have created jobs in the EZ for which Petitioner may be
eligible to claim an EZ wage tax credit. To the extent the jobs of Petitioner were jobs created in the
EZ by Corporation A on or after June 6, 2002, and the jobs did not exist previously elsewhere in
New York State, or if they did, the jobs conform to the principles in the General Municipal Law,
those jobs would be jobs created in the area for purposes of determining empire zone wages under
section 210.19(b)(1) of the Tax Law. Such jobs may be counted when computing Petitioner’s EZ
wage tax credit, provided the other credit requirements are met. Further, individuals in jobs which
are created in the EZ by Petitioner, itself, on or after June 11, 2002, may also be counted when
computing the credit, provided the other credit requirements are met.
Under section 210.19(c) of the Tax Law, the credit would be allowed only where the average
number of individuals, excluding general executive officers, employed full-time by Petitioner in
New York State and in the EZ during the taxable year exceeds the average number of such
individuals employed full-time by Petitioner in New York State and in the EZ during the four years
immediately preceding the first taxable year in which the credit is claimed with respect to the EZ.
For purposes of determining these employment numbers, the employees of both Corporation A and
Petitioner should be counted because Corporation A’s rights, privileges, immunities, powers,
liabilities and obligations with respect to its employees were transferred to Petitioner and did not
terminate under the merger. To the extent that an individual was employed full-time by both
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Corporation A before the merger and Petitioner after the merger, such employee should only be
counted once during the taxable year. If Petitioner and Corporation A provided full-time
employment within New York State or the EZ during only a portion of the four years immediately
preceding the first taxable year in which the credit is claimed then the term four years refers to such
portion that full-time employment was provided.
With respect to Issue 2, section 210.19(d)(3) of the Tax Law provides that for purposes of
calculating the amount of the credit, individuals employed within an EZ within the immediately
preceding 60 months by a related person may be included in the average number of individuals
described in subparagraph (1) or (2) of section 210.19(d) of the Tax Law, only if the related person
was never allowed an EZ wage tax credit under section 210.19 of the Tax Law with respect to such
employees.
In this case, Corporation A, the related corporation that was merged into Petitioner, had
employees located within an EZ within the 60 months preceding the merger in 2002. However,
Petitioner states that Corporation A never claimed an EZ wage tax credit with respect to any of its
employees. Accordingly, Petitioner may include the employees of Corporation A in determining
the number of qualified employees eligible for the EZ wage tax credit under section 210.19 of the
Tax Law.
DATED: April 16, 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.