When an Empire Zone company has a short tax year with none of the four quarterly measuring dates, how does it count employees for the EZ and QEZE credits?

Plain-English summary

Mod-Pac Corp., a New York C corporation certified in the Buffalo Empire Zone, was spun off from its parent on March 14, 2003. The spin-off forced two short tax years; the first ran January 1 to March 14, 2003.

The Empire Zone and QEZE credits (EZ wage tax credit, EZ employment incentive credit, QEZE tax reduction credit, QEZE real property tax credit) are computed using an average number of employees measured on four fixed quarterly dates: March 31, June 30, September 30, and December 31. Mod-Pac's first short year contained none of those dates.

The Department held that the missing dates do not disqualify the company. Under Article 9-A Regulations section 5-11.2, when a short taxable year includes none of the statutory quarterly dates, the taxpayer uses the number of eligible employees on the last day of the short year -- here, March 14, 2003 -- as the average number of employees for computing all four credits, assuming the other statutory requirements are met. Although section 5-11.2 is written for the EZ employment incentive credit, the same last-day rule applies to the other credits.

What this means for you

Spin-offs, acquisitions, and other short years

A reorganization that creates a short tax year can leave you with none of the four quarterly headcount dates. That does not cost you your Empire Zone or QEZE credits. The fallback is simple: count eligible employees on the last day of the short year and treat that as the year's average.

Same rule across the EZ/QEZE credits

The last-day rule in Regulations section 5-11.2 is written for the EZ employment incentive credit, but the Department applies it equally to the EZ wage credit and both QEZE credits. You do not need a separate methodology for each credit.

Still must meet the other requirements

The short-year headcount rule only fixes the measurement-date problem. You must still independently satisfy each credit's substantive requirements (certification, eligibility, wage thresholds, and so on).

Common questions

Q: How are employees normally counted for EZ and QEZE credits?
A: By averaging the headcount on four fixed dates -- March 31, June 30, September 30, and December 31 -- during the tax year.

Q: What if a short year contains none of those four dates?
A: Under Regulations section 5-11.2, use the number of eligible employees on the last day of the short year as the average for that year.

Q: Does a short year with no quarterly date disqualify the credits?
A: No. The taxpayer can still claim the credits if it otherwise meets the statutory requirements.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 210.19 (Empire zone wage tax credit; average number of employees)
- Tax Law section 210.12-C (Empire zone employment incentive credit)
- Tax Law sections 210.27 and 210.28 (QEZE real property tax credit; QEZE tax reduction credit)
- Tax Law section 14(g) (computation of employment numbers)
- Article 9-A Regulations section 5-11.2 (short taxable year with no quarterly measurement date; use employees on last day)
- Mod-Pac Corp., TSB-A-05(9)C (July 21, 2005)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2005.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a05_9c.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-05(9)C
Corporation Tax
July 21, 2005

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C050202A

On February 2, 2005, a Petition for Advisory Opinion was received from Mod-Pac Corp.,
1801 Elmwood Avenue, Buffalo, New York 14207-2496.
The issue raised by Petitioner, Mod-Pac Corp., is whether it may claim the Empire zone
(EZ) wage tax credit, the QEZE tax reduction credit, the QEZE credit for real property taxes, and
the EZ employment incentive credit for the short taxable year, January 1- March 14, 2003, based
on a determination of the average number of full-time employees (excluding general executive
officers) who worked more than half of the taxable year.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a C corporation, incorporated in the state of New York on November 8,
1968, subject to tax under Article 9-A of the Tax Law. Petitioner was certified under Article
18-B of the General Municipal Law in the city of Buffalo EZ, effective June 15, 2002 (i.e., the
effective date of the EZ boundary revision). Prior to March 14, 2003, Petitioner was a wholly
owned subsidiary of another New York corporation. For federal income tax purposes, the parent
corporation and affiliates filed returns on a consolidated basis. Petitioner, however, filed in
New York State on a separate company basis. Neither the parent corporation nor any other
affiliated companies had ever applied for certification under Article 18-B of the General
Municipal Law prior to this time. Petitioner has two operating divisions; one located in the city
of Buffalo EZ, the other located in New York State but not in an empire zone.
On March 14, 2003, Petitioner was spun-off from its parent corporation. Due to the fact
that Petitioner was no longer part of the federal consolidated tax group of the parent company,
Petitioner filed two short-year tax returns for 2003 (i.e., January 1- March 14, 2003, and
March 15 - December 31, 2003) for both federal and New York State tax purposes.
Applicable law and regulations
Section 210.12-C of the Tax Law provides, in part:
Empire zone employment incentive credit (EDZ-EIC). (a) Where a taxpayer is
allowed a credit under subdivision twelve-B of this section, the taxpayer shall be allowed
a credit for each of the three years next succeeding the taxable year for which the credit
under such subdivision twelve-B is allowed … provided, however, that the credit
allowable under this subdivision for any taxable year shall only be allowed if the average
number of employees employed by the taxpayer in the empire zone ... is at least one

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hundred one percent of the average number of employees employed by the taxpayer in
such empire zone … during the taxable year immediately preceding the taxable year for
which the credit under such subdivision twelve-B is allowed….
(b) The average number of employees employed in an empire zone … in a taxable
year shall be computed by ascertaining the number of such employees within such zone,
or, where applicable, in the geographic area subsequently constituting such zone, except
general executive officers, employed by the taxpayer on the thirty-first day of March, the
thirtieth day of June, the thirtieth day of September and the thirty-first day of December
in the taxable year, by adding together the number of employees ascertained on each of
such dates and dividing the sum so obtained by the number of such above-mentioned
dates occurring within the taxable year….
Section 210.19 of Article 9-A of the Tax Law provides, in part:
Empire zone wage tax credit. (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.
(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 … as an empire zone….
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(3) "Average number of individuals, excluding general executive officers,
employed full-time" shall be computed by ascertaining the number of such individuals
employed by the taxpayer on the thirty-first day of March, the thirtieth day of June, the
thirtieth day of September and the thirty-first day of December during each taxable year
or other applicable period, by adding together the number of such individuals ascertained
on each of such dates and dividing the sum so obtained by the number of such dates
occurring within such taxable year or other applicable period.
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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,

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*

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(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.
Section 210.27 of the Tax Law provides, in part:
QEZE credit for real property taxes. (a) Allowance of credit. A taxpayer which is
a qualified empire zone enterprise shall be allowed a credit for eligible real property
taxes, to be computed as provided in section fifteen of this chapter, …
Section 210.28 of the Tax Law provides, in part:
QEZE tax reduction credit. (a) Allowance of credit. A taxpayer which is a
qualified empire zone enterprise shall be allowed a QEZE tax reduction credit, to be
computed as provided in section sixteen of this chapter, …
Section 14(g) of the Tax Law provides, in part:
Employment number. The term "employment number" shall mean the average
number of individuals, excluding general executive officers (in the case of a corporation),
employed full-time by the enterprise for at least one-half of the taxable year. Such
number shall be computed by determining the number of such individuals employed by
the taxpayer on the thirty-first day of March, the thirtieth day of June, the thirtieth day of
September and the thirty-first day of December during the applicable taxable year, adding
together the number of such individuals determined to be so employed on each of such
dates and dividing the sum so obtained by the number of such dates occurring within
such applicable taxable year….
Section 15 of the Tax Law provides, in part:
(b) Amount of credit. (1) In the case of a business enterprise which is first
certified under article eighteen-B of the general municipal law before April first, two
thousand five, the amount of the credit shall be equal to the product … of (i) the benefit
period factor, (ii) the employment increase factor and (iii) the eligible real property taxes
paid or incurred by the QEZE during the taxable year….
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(d) Employment increase factor. The employment increase factor is the amount,
not to exceed 1.0, which is the greater of:
(1) the excess of the QEZE's employment number in the empire zones with
respect to which the QEZE is certified pursuant to article eighteen-B of the general
municipal law for the taxable year, over the QEZE's test year employment number in
such zones, divided by such test year employment number in such zones; or
(2) the excess of the QEZE's employment number in such zones for the taxable
year over the QEZE's test year employment number in such zones, divided by 100.
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(h) Definitions and cross-references. For definitions of terms used in this section
see section fourteen of this article….
Section 16 of the Tax Law provides, in part:
(b) Amount of credit. The amount of the credit shall be the product of (i) the
benefit period factor, (ii) the employment increase factor, (iii) the zone allocation factor
and (iv) the tax factor.
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(d) Employment increase factor. The employment increase factor for the taxable
year shall be as prescribed in subdivision (d) of section fifteen of this article.
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(g) Definitions and cross-references. For definitions of terms used in this section
see sections fourteen and fifteen of this article….
Section 5-11.2 of the Business Corporation Franchise Tax Regulations (“Article 9-A
Regulations”) provides, in part:
(a) The average number of employees employed in the economic development
zone … in a taxable year … is computed as follows:
(1) ascertain the number of employees within the economic development zone,
designated pursuant to article 18-B of the General Municipal Law … except general
executive officers, employed by the taxpayer on March 31st, June 30th, September 30th,
and December 31st in the taxable year;
(2) add together the number of such employees ascertained on each of such dates;

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and
(3) divide the sum by the number of such dates occurring within the taxable year.
(b) In the case of a taxpayer having a short taxable year which does not include
any of the dates set forth in paragraph (a)(1) of this section, the number of employees
within such economic development zone employed by the taxpayer on the last day of
such taxable year shall constitute the average number of employees for such taxable year.
Opinion
Pursuant to sections 210.19, 210.12-C, and 14(g) of the Tax Law, the dates March 31,
June 30, September 30, and December 31, within the taxable year, are used to determine the
average number of employees employed by the taxpayer for purposes of computing the EZ wage
tax credit, the EZ employment incentive credit, the QEZE tax reduction credit, and the QEZE
credit for real property taxes.
Based on the facts presented, Petitioner filed a short-year tax return for the period
January 1- March 14, 2003, and none of the statutorily required dates referred to above for
determining the average number of employees occurred during such period. However, Petitioner
is not precluded from claiming the EZ wage tax credit, the EZ employment incentive credit, the
QEZE tax reduction credit, and the QEZE credit for real property taxes for such short year, if it
otherwise meets the statutory requirements for such credits. Pursuant to section 5-11.2 of the
Article 9-A Regulations, if a short taxable year does not include any of the statutorily required
dates, the number of employees employed by the taxpayer on the last day of such taxable year
shall constitute the average number of employees for such taxable year. Section 5-11.2 of the
Article 9-A regulations pertains to the EZ employment incentive credit, but the rule concerning
the average number of employees for a short taxable year may be applied to the other credits
referred to in this Opinion. Accordingly, Petitioner is required to use the number of eligible
employees employed by Petitioner on March 14, 2003, the last day of Petitioner’s short taxable
year, as the average number of employees for such taxable year for purposes of computing the
EZ wage tax credit, the EZ employment incentive credit, the QEZE tax reduction credit, and the
QEZE credit for real property taxes.

DATED: July 21, 2005

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.