NY TSB-A-09(13)C / TSB-A-09(8)I Corporation Tax; Income Tax 2009-07-21

New York Advisory Opinion TSB-A-09(13)C/(8)I: Does a long-existing corporation reopening operations in an Empire Zone pass the section 14 'new business' test?

Short answer: Yes for QEZE, no for the wage/investment credits. A corporation taxable under Article 9-A since 1993 that reopens at a new Empire Zone plant passes the section 14(j) 'new business' test, because that test compares two separate entities and an entity cannot be 'substantially similar' to itself. But it is not a 'new business' under section 210.12(j) for the wage tax credit and EZ investment tax credit, because it has been subject to Article 9-A for more than five taxable years.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

A corporation formed in 1993 assembled buses at a New York plant until 2003, stayed taxable under Article 9-A (with no employees or operations from 2003-2008), absorbed another company in a 2001 merger (surviving and taking that company's name), and has now built a new bus assembly plant in an Empire Zone and applied for certification. With a zero-employment base period (2005-2008), it asked whether it passes the section 14 "new business" test needed for the QEZE benefits.

The Department concluded it passes the section 14(j) new-business test. When a business first certified on/after April 1, 2005 has a zero base period and an in-zone employee, the QEZE employment test is met only if the business is a "new business" under section 14(j). The new-business test exists to stop companies from spinning up a new entity to grab EZ benefits the existing business couldn't get -- so it compares two separate legal entities, not an entity to itself. Here only one entity is involved: the same 1993 corporation, which has never claimed EZ benefits and isn't restructuring to obtain them, and which represents it has never been substantially similar in operation and ownership to another New York taxpayer (a fact question outside the opinion). That fits the program's job-growth purpose, so it passes section 14(j). However, it is not a new business under section 210.12(j) for the wage tax credit and EZ investment tax credit, because it has been subject to Article 9-A for more than five taxable years.

What this means for you

Established companies reopening or expanding in an Empire Zone

A long-existing single corporation can still pass the QEZE new-business test -- because that test targets new-entity gaming and compares two entities, and you can't be "substantially similar" to yourself. But your years of Article 9-A history can disqualify you from the separate section 210.12(j) new-business status for the wage and investment credits.

Accountants and tax professionals

Keep the two "new business" tests separate: section 14(j) (QEZE employment-test gateway, one-entity-passes) versus section 210.12(j) (wage/EZ-ITC, fails after 5+ years of Article 9-A). The "substantially similar in operation and ownership" question remains factual and outside an advisory opinion.

Common questions

Q: Can a decades-old corporation pass the QEZE new-business test?
A: Yes. The section 14(j) test compares two separate entities, and a single continuing entity cannot be substantially similar to itself, so it passes.

Q: Does it then get the EZ wage and investment credits as a new business?
A: No. Under section 210.12(j) it isn't a new business, because it has been subject to Article 9-A for more than five taxable years.

Citations and references

Tax Law § 14(j) (new business test for QEZE benefits); Tax Law § 14(c)(2) (base period)
Tax Law § 210.12(j) (new business for EZ wage and investment credits; 5-year bar)
General Municipal Law Article 18-B (Empire Zone certification)

Source

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(13)C
Corporation Tax
TSB-A-09(8)I
Income Tax
July 21, 2009

Office of Counsel
Advisory Opinion Unit

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. Z090521A

The petition asks whether name redacted (Petitioner) is considered a “new business” under §14
of the Tax Law. We conclude that Petitioner passes the new business test.
Facts
Petitioner was formed in 1993 as a subsidiary of name redacted (Parent). Shortly thereafter, it
began operations under the name name redacted at an assembly plant in County A in New York, where it
assembled buses until the plant closed in 2003. During its active operations in County A and thereafter,
Petitioner has been taxable for franchise taxes under Article 9-A of the Tax Law, despite having no
employees and operations in New York from 2003 through 2008. In 2001, another entity named name
redacted (Company A) merged with and into Petitioner. Petitioner survived the merger, but adopted the
Company A name. Petitioner represents that the acquired Company A was not a New York taxpayer
before the merger. In addition, Petitioner represents that it has never been substantially similar in
operation and ownership to any other business entity that is taxable or was previously taxable under
certain New York business taxes.
Petitioner, which has never been certified, has completed construction of a new bus assembly
plant in the County B, New York Empire Zone (EZ) and applied for certification as an EZ business under
Article 18-B of the General Municipal Law. It anticipates that in 2009 it will be certified and will begin
hiring employees at its new plant. Thus, assuming Petitioner is a calendar year taxpayer, its base period
under §14(c)(2) is taxable years 2005 through 2008 for franchise tax purposes during which time
Petitioner had no operations in New York State and no employees. For the qualified empire zone
enterprise (QEZE) sales tax credit, the base period under §14(c)(3) is taxable years 2005 through 2007.
Petitioner expects to hire at least one full-time employee in 2009.
Analysis
For businesses first certified under Article 18-B of the General Municipal Law on or after April 1,
2005 that have zero employment in the base period and an employment number in the zone of greater
than zero for the taxable year, the employment test under §14(b) of the Tax Law will be met only if the
enterprise qualifies as a new business under §14(j) of the Tax Law. When applicable, the new business
test under §14 determines eligibility for the qualified empire zone enterprise (QEZE) tax benefits.
The new business test was added to the Tax Law in 2002 to stem abuses by companies that
created a new entity to claim EZ tax benefits for which the existing business would not qualify. For
example, when a business had reduced its number of employees in a tax year over the employment
number in its base period, it would not qualify for the EZ tax credits. However, before enactment of the
new business test, a new entity with a zero base period and one employee could qualify for the EZ
benefits, thus circumventing the purpose of the program - to provide incentives for businesses to create

-2-

TSB-A-09(13)C
Corporation Tax
TSB-A-09(8)I
Income Tax
July 21, 2009

new jobs. A “new business” includes any corporation, except a corporation that is substantially similar in
operation and ownership to a business entity (or entities) taxable, or previously taxable, under certain
New York business taxes. 1 For purposes of the analysis, the test contemplates a comparison of at least
two separate legal entities, not a comparison of one entity to itself.
Because Petitioner had zero employment in its base period, it will be subject to the new business
test. Petitioner, however, is the same business entity that was created in 1993 to undertake a new
operation in New York State and represents that it has never been substantially similar in operation and
ownership to another business entity taxable in New York State, which is a question of fact that cannot be
resolved in an Advisory Opinion. Petitioner has never claimed any EZ tax benefits, and it is not changing
its corporate structure to obtain benefits that would otherwise be unavailable. Under the facts provided,
Petitioner will pass the new business test under §14(j), since only one entity is involved. This conclusion
is consistent with the underlying policy of the EZ program to promote job growth in New York State.
The company will not be a new business for purposes of the wage tax credit and the EZ investment tax
credit under §210.12(j), because it has been subject to tax under Article 9-A for more than 5 taxable
years.

DATED: July 21, 2009

NOTE:

/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.

§14(j)(1) of the Tax Law.