Is the dollar limit on the economic development zone capital credit applied separately to each corporation in a combined group, or once at the combined-group level?

Plain-English summary

The New York State Department of Economic Development asked how the dollar limits on the Economic Development Zone (EDZ) capital credit work when two or more investors report on a combined return. The EDZ program (Article 18-B of the General Municipal Law plus Tax Law provisions) gives a credit equal to 25% of qualifying investments in or contributions to zone-certified businesses, capped at $300,000 in the aggregate and $100,000 per category of activity. The statutes did not say whether those caps apply to each company or to the whole combined group.

The Department held the caps apply per corporation:

• The credit amount is set by sections 210.20(a) (Article 9-A), 1456(d)(1) (banking) and 1511(h)(1) (insurance), not by the combination provisions (sections 211.4, 1462(f), 1515(f)).
• The combination rules address combining income and eliminating intercompany items; the zone capital credit is not an item they address.
• Therefore each corporation in a combined group computes its own zone capital credit, and each can have up to $300,000 aggregate / $100,000 per category.
• This mirrors the investment credit base rule for combined groups (section 210.12(a)), where each member computes its own base and the bases are summed (see H & S Holdings Limited).

The sum of each member's zone capital credits is then allowed against the combined tax, subject to the separate per-taxpayer tax-liability limits and any recapture.

What this means for you

Each combined-group member gets its own caps

Filing a combined return does not force the group to share a single $300,000 cap. Every corporation that makes qualifying zone investments computes its credit under its own caps.

Credit limits versus combination rules are separate questions

The combination statutes govern how income is combined; they do not shrink a statutory credit. The credit amount is always determined under the credit's own section.

Consistent with the investment credit base

The same per-member logic that applies to the investment credit base applies here -- compute each member's amount, then sum.

Common questions

Q: Does a combined group share one $300,000 zone capital credit cap?
A: No. The $300,000 aggregate and $100,000 per-category caps apply to each corporation in the group.

Q: Where does the credit amount come from?
A: From sections 210.20(a), 1456(d)(1) or 1511(h)(1) -- not from the combined-return provisions.

Q: Are there still limits on using the credit?
A: Yes. Each member's use is limited by the per-taxpayer tax-liability limitations, and recapture can apply if the investment is recovered or disposed of within the holding period.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 210.20(a) (economic development zone capital credit, Article 9-A)
- Tax Law section 1456(d)(1) (zone capital credit, banking corporations)
- Tax Law section 1511(h)(1) (zone capital credit, insurance corporations)
- Tax Law sections 211.4, 1462(f), 1515(f) (combined returns)
- Tax Law section 210.12(a) (investment credit base in a combined group)
- General Municipal Law section 964 (economic development zone capital corporations)
- H & S Holdings Limited, TSB-D-97(6)C (Sept. 11, 1997)
- New York State Department of Economic Development, TSB-A-99(21)C (Aug. 10, 1999)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1999.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a99_21c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(21)C
Corporation Tax
August 10, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C990727A

On July 27, 1999, a Petition for Advisory Opinion was received from New York State
Department of Economic Development, 30 South Pearl Street, 7th Floor, Albany, New York 12245.
The issue raised by Petitioner, New York State Department of Economic Development, is
whether the statutory limitation on the total amount of economic development zone capital credit
allowable to a taxpayer under section 210.20(a), 1456(d)(1) or 1511(h)(1) of the Tax Law is applied
to each corporation included in a combined group filing in a combined tax return, under the
respective sections of the Tax Law, or is applied at the combined group level.
Petitioner submits the following facts as the basis for this Advisory Opinion.
The New York State Economic Development Zones Act, codified in Article 18-B of the New
York General Municipal Law and selected provisions of the New York Tax Law ("EDZ Program"),
was enacted in 1986 and modified in 1993, to promote new jobs and investment in New York State's
most economically distressed communities. The EDZ Program targets small businesses located
within designated economic development zones who are certified under the EDZ Program ("Zone
Certified Business"). To encourage private investment in and/or contributions to or for the benefit
of Zone Certified Businesses, the EDZ Program authorizes the issuance of tax credits("Zone Capital
Credit"). The EDZ Program authorizes the Zone Capital Credit for individuals under section 606(l)
of the Tax Law, for business corporations under section 210.20 of the Tax Law, for banking
corporations under section 1456(d) of the Tax Law and for insurance corporations under section
1511(h) of the Tax Law.
There are three categories of activities identified under the EDZ Program for which Zone
Capital Credit is available: (i) direct equity investments in Zone Certified Businesses; (ii)
contributions of money to community development projects sponsored by a not-for-profit
corporation which promote the goals of a Zone's economic development plan; and (iii) investment
in a "zone capital corporation", a separate entity which pools funds and serves as a source of
community based financial assistance to Zone Certified Businesses in the form of loans and/or
equity. In each instance, the availability of the Zone Capital Credit is the primary inducement to
attract private capital which ultimately will fulfill the purposes of the EDZ Program.
Under the EDZ Program, there are a few limitations on the use of Zone Capital Credit. For
example, each economic development zone has only $2.5 million in credits to allocate, as each Zone
chooses, among the three categories of activities outlined above. (General Municipal Law section
964(d)). Also, an investor or contributor may only receive Zone Capital Credit equal to 25 percent

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of the amount of investment or contribution, but not to exceed a total tax credit of $300,000 for all
categories of investment, or $100,000 for each category. (Tax Law sections 606(l)(1), 210.20(a),
1456(d)(1) and 1511(h)(1)). Furthermore, a taxpayer's New York State tax liability in any one year
may not be reduced entirely by the Zone Capital Credit, depending upon the type of taxpayer
receiving the credit. For example, an individual's limitation is 50 percent of the individual's tax
liability (See, Tax Law section 606(l)(2)(A)), and the corporate limitations are the 50 percent of the
taxpayer's tax liability provided that the tax is not reduced below the minimum franchise tax. (See,
Tax Law sections 210.20(b), 1456(d)(2) and1511(h)(2)). The impact of these limitations is softened
by the unlimited ability to carry an unused tax credit forward to future tax years. Id. Finally, to
ensure that investor or contributor dollars remain with Zone Certified Businesses for at least three
years, the EDZ Program imposes gradational recapture provisions if the investor or contributor who
claims Zone Capital Credits recovers all or a portion of its contribution or investment, or sells,
transfers or otherwise disposes of the interest that was the basis for claiming the credit during the
taxable year or within 36 months from the close of the taxable year with respect to which such credit
is allowed (Tax Law sections 606(l)(4), 210.20(d), 1456(d)(4) and 1511(h)(4)).
Petitioner states that the statutory scheme was designed to encourage private investment
which would ultimately benefit targeted economically distressed areas, and more specifically
designated businesses within those areas. The EDZ Program was also designed to have an overall
limited impact on New York State's fiscal budget by limiting the total Zone Capital Credit available
under the program, and the annual limited impact of the New York State's tax revenues by limiting
the use of such credit by investors or contributors as investments or contributions were made.
However, the EDZ Program does not address the situation in which two or more corporate or
institutional investors report their New York State tax obligations on a combined return.
Discussion
Section 210.20(a) of the Tax Law provides that an economic development zone capital tax
credit (the Zone Capital Credit) is allowed against the tax imposed on business corporations under
Article 9-A of the Tax Law. Section 1456(d)(1) of the Tax Law provides that an economic
development zone capital tax credit (the Zone Capital Credit) is allowed against the tax imposed on
banking corporations under Article 32 of the Tax Law. Section 1511(h)(1) of the Tax Law provides
that an economic development zone capital tax credit (the Zone Capital Credit) is allowed against
the tax imposed on insurance corporations under Article 33 of the Tax Law. Under sections
210.20(a), 1456(d)(1) and 1511(h)(1) of the Tax Law, respectively, the amount of the Zone Capital
Credit is equal to 25 percent of the sum of the following investments and contributions made during
the taxable year and certified by the Commissioner of Economic Development:
(1) qualified investments made in, or contributions in the form of donations
made to, one or more economic development zone capital corporations established
pursuant to section 964 of the General Municipal Law,

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(2) qualified investments in certified zone businesses which during the 12
month period immediately preceding the month in which such investment is made
employed full-time within New York State an average number of individuals,
excluding general executive officers, of 250 or fewer, computed pursuant to the
provisions of section 210.19(b)(3)(for business corporations), 1456(e)(2)(C) (for
banking corporations) and 1511(g)(2)(C) (for insurance corporations)of the Tax Law,
respectively, except for investments made by or on behalf of an owner of the
business, including, but not limited to, a stockholder, partner or sole proprietor, or
any related person, as defined in section 465(b)(3)(C) of the Internal Revenue Code,
and
(3) contributions of money to community development projects as defined in
regulations promulgated by the Commissioner of Economic Development. (See,
section 10.2 of the Economic Development Zones Regulations.)
The total amount of credit allowable to a taxpayer under the above provisions for all years, taken in
the aggregate, shall not exceed $300,000, and shall not exceed $100,000 with respect to the
investments and contributions described in each of three categories of activities listed above.
Pursuant to sections 211.4 (for business corporations), 1462(f) (for banking corporations) and
1515(f) (for insurance corporations) of the Tax Law, respectively, the Commissioner of Taxation and
Finance may permit or require the filing of a combined return of two or more corporations if certain
conditions are met, not at issue herein. Such provisions address certain elements of income to be
combined, and other transactions to be eliminated in the combination process. The Zone Capital
Credit is not an item addressed under sections 211.4, 1462(f) and 1515(f) of the Tax Law,
respectively. Rather, the amount of the Zone Capital Credit allowable is determined under sections
210.20(a), 1456(d)(1) and 1511(h)(1) of the Tax Law, respectively.
Pursuant to sections 210.20(a), 1456(d)(1) and 1511(h)(1) of the Tax Law, respectively, the
total amount of Zone Capital Credit allowable to each taxpayer for all years, taken in the aggregate,
shall not exceed $300,000, and shall not exceed $100,000 with respect to the investments and
contributions described in each of the three categories of activities listed in those sections,
respectively. Therefore, each corporation included in a combined group that files a combined return
pursuant to sections 211.4, 1462(f) or 1515(f) of the Tax Law, respectively, computes the total
amount of Zone Capital Credit allowable under sections 210.20(a), 1456(d)(1) and 1511(h)(1) of
the Tax Law, respectively, and each corporation included in the combined group could have a
maximum Zone Capital Credit allowable not in excess of $300,000 in the aggregate for all years, and
not in excess of $100,000 with respect to investments and contributions described in each of the
three categories of activities.

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Such treatment is consistent with the computation of the investment credit base under section
210.12(a) of the Tax Law for business corporations included in a combined return pursuant to
section 211.4 of the Tax Law. Section 210.12(a) of the Tax Law provides that each corporation that
is included in a combined group must calculate its own investment credit base. The sum of the
individual corporation's investment credit bases is the investment credit base of the combined group.
See, H &S Holdings Limited, Dec St Tax Trib, September 11, 1997, TSB-D-97(6)C.
The sum of the Zone Capital Credits allowed for each corporation included in a combined
group is allowed against the tax imposed on the combined group as computed on the combined
return pursuant to the provisions of Article 9-A, Article 32 and Article 33, respectively, subject to
the other limitations contained in sections 210.20(b), 1456(d)(2) and 1511(h)(2) of the Tax Law,
respectively, and any recapture required pursuant by section 210.20(d), 1456(d)(4) and 1511(h)(4)
of the Tax Law, respectively.

DATED: August 10, 1999

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.