New York Advisory Opinion TSB-A-09(10)C/(6)I: Will a newly formed entity or a division of a foreign corporation be eligible for the QEZE tax reduction credit and the wage tax credit?

Plain-English summary

A consolidated insurance group asked whether expanding its homeowners-insurance operations into New York -- via either a newly formed entity or a division of an existing foreign affiliate (Petitioner B) -- could claim the QEZE tax reduction credit (TRC) and the EZ wage tax credit (WTC). The plan: hire some full-time employees in 2009, get the New York location certified as a Regionally Significant Project (RSP) in 2010, and hire more in 2010.

The Department concluded either structure is eligible, beginning in its second taxable year. To claim the QEZE TRC, an entity must be certified and pass the employment test (Tax Law sections 14(a), 14(b)(4)) -- its employment number must exceed its base-period number. The base period is the four years before certification (section 14(c)(2)). Normally, a business with a zero base period and an employee in the zone must also qualify as a new business under section 14(j). But here, if the business hires at least one full-time employee for half of 2009 and is certified in 2010, it will have a base-period employee, so the new-business test does not apply; increasing employees in 2010 lets it claim the TRC for 2010. The same base period governs the WTC; it's eligible if 2010 average full-time employment exceeds the base period (employees hired before RSP designation don't count). However, because the entity (new or division) is over 50% owned by a New York taxpayer, it is not a "new business" under section 210.12(j), so it cannot treat the WTC as a refundable overpayment.

What this means for you

Groups expanding into Empire Zones through a new entity or division

Whether you use a fresh entity or a division can be neutral for QEZE eligibility. Hiring an employee in the year before certification creates a base-period employee that sidesteps the strict zero-base-period new-business test -- but majority ownership by a New York taxpayer still blocks refundability of the wage tax credit.

Accountants and tax professionals

Sequence the hiring and certification to control the base period. Distinguish the section 14(j) new-business test (employment-test gateway) from section 210.12(j) (refundability) -- passing the former doesn't make the WTC refundable if 210.12(j) ownership rules fail.

Common questions

Q: Can a new entity or division claim QEZE credits in New York?
A: Yes, generally beginning in the second taxable year, if it has a base-period employee (e.g., hired for half of 2009) and meets the employment test after 2010 certification.

Q: Is the wage tax credit refundable here?
A: No. Because the entity is over-50% owned by a New York taxpayer, it isn't a new business under section 210.12(j), so the WTC can't be treated as a refundable overpayment.

Citations and references

• Tax Law § 14(a) (QEZE tax reduction credit; benefit period); Tax Law § 14(b)(4) (employment test); Tax Law § 14(c)(2) (base period)
• Tax Law § 210.19 (EZ wage tax credit)
• Tax Law § 210.12(j) (new business; refundability of the wage tax credit)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2009.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a09_10c_6i.pdf

Original ruling text

TSB-A-09(10)C
Corporation Tax
TSB-A-09(6)I
Income Tax
June 29, 2009

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. Z090529A

The Petitioners are the names redacted (Petitioner A) and name redacted (Petitioner B), owned by
Petitioner A; collectively, they will be referred to as “Petitioners.” They ask whether a newly formed entity,
or in the alternative, a division of Petitioner B, a foreign corporation, will be eligible to claim the qualified
empire zone enterprise (QEZE) tax reduction credit (TRC) and the wage tax credit (WTC), as long as the
employment test and other requirements of the applicable statutes are met. We conclude that under the facts
presented, either entity will be eligible to claim the credits, beginning in its second taxable year.
Facts
In Petitioner A’s consolidated group, there are four separate corporations doing business in
New York State. All of these companies are in the business of selling and servicing auto insurance policies,
and all are certified as Empire Zone (EZ) businesses under Article 18-B of the General Municipal Law.
Petitioner B is an insurance agency that sells various non-auto lines of insurance – primarily
homeowners’ insurance. It is also part of Petitioner A’s consolidated group. Petitioner B conducts all its
operations in Fredericksburg, Virginia location, but it uses independent agents throughout the United States.
Although Petitioner B has reported the income generated from these agents’ New York sales on its New
York franchise tax returns and paid the minimum tax, Petitioners represent that these agents are not
employees of Petitioner B, and that Petitioner B has no other business operations or employees in New York.
Petitioner A would like to expand the operations for homeowners’ insurance sales, etc., potentially
locating a facility in Amherst, New York. It may form a new company or use a division of Petitioner B to
administer the business operations in New York. All the employees will be newly hired employees of the
company. Petitioners represent that the new operation will hire some full-time employees in 2009, become
certified as a Regionally Significant Project (RSP) in 2010, and hire additional employees in 2010. Our
conclusion is predicated on those representations.
Analysis
In order to qualify for the QEZE TRC, an entity must be certified as an EZ business and pass the
employment test.1 Designation of its location as a RSP and certification of the business entity will satisfy the
certification requirement. The employment test will be met if the business enterprise’s employment number
in the New York State and in the EZs for a taxable year exceeds its employment number in the state and the
EZs, respectively, for the base period.2 For an entity certified on or after April 1, 2005, the base period is the
4 taxable years (or less than 4 years if the company has been subject to tax in New York for fewer than 4
years) immediately preceding the year the entity is certified.3 In calculating the employment number, general
1

§14(a) of the Tax Law.
§14(b)(4) of the Tax Law.
3
§14(c)(2) of the Tax Law.
2

-2-

TSB-A-09(10)C
CorporationTax
TSB-A-09(6)I
Income Tax
June 29, 2009

executive officers and related persons4 are not counted. If a business certified on or after April 1, 2005 has
zero years in the base period or the base period employment is zero, and the entity has an employment
number in the zone of greater than zero for the taxable year, the employment test will be met only if the
enterprise qualifies as a new business under §14(j) of the Tax Law.5 If the business enterprise - whether it is
a new entity or a division of Petitioner B - has at least one full-time employee for at least half the 2009 tax
year, and it becomes certified in the 2010 tax year, it will have an employee in its base period, and thus, the
“new business test” will not be applicable. Additionally, if the business enterprise increases its full-time
employees in the 2010 taxable year, it will be eligible to claim the QEZE TRC in 2010. It does not matter
for eligibility purposes whether the business enterprise is operated by a new entity or Petitioner B.
In order to qualify to claim the WTC, an entity must be certified as an EZ business and employ an average
number of full-time employees (not counting general executive officers) in both New York State and the EZ
during the tax year that exceeds the number of employees in New York State and the EZ during the base
period.6 The base period for WTC purposes is the same as the base period for the QEZE TRC. Individuals
employed in an EZ within the immediately preceding 60 months by a related person7 must also be excluded
from the employment number unless a WTC was never taken for the employee. If Petitioner B is designated
a RSP in 2010 and continues to expand its employment rolls in 2010 so that the average number of full-time
employees meets the statutory requirements, it will be eligible to claim the WTC. Employees hired before
the designation of the location as a RSP cannot be counted for purposes of claiming the WTC. Neither
Petitioner B nor a new entity, owned more than 50% by a New York taxpayer, will qualify as a “new
business” under §210.12(j), and thus cannot treat any of the WTC as an overpayment eligible for refund.

DATED: June 29, 2009

NOTE:

4

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the person
or entity fully and accurately describes all relevant facts. An Advisory
Opinion is based on the law, regulations, and Department policies in effect as
of the date the Opinion is issued or for the specific time period at issue in the
Opinion.

Defined in IRC §465(b)(3(C).
§14(b)(4) of the Tax Law.
6
§210.19 of the Tax Law.
7
Defined in IRC §465(b)(3)(C).
5