The Empire Zone program offers companies in the zone and those specially certified a variety of tax credits, ranging from sales tax exemptions to credits for new jobs to real property credits.
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The program also gives certified companies an investment tax credit for purchasing equipment and an employment incentive tax credit of up to 19 percent (compared with 6.5 percent outside the zone). All benefits are awarded for 10 years, with the exception of the wage tax credit, which is claimed for five years.
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The wage tax credit is an annual $1,500 for each new job created, with jobs earning 135 percent of minimum wage getting a credit of $3,000. The wage tax credit can also be claimed for new jobs created since the zone was designated, according to A.J.Carter, spokesman for Empire State Development, the state”™s primary development agency. If a company became certified in 2001, it could claim wage tax credits for any jobs created since the Kingston-Ulster zone was designated in 1995.
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In addition, any company in the zone automatically qualifies for a 7.75 percent sales tax refund on building materials. Local incentives in the Kingston-Ulster zone are also available, such as a waiver of planning and development permit fees for certified businesses and municipal bus fare discounts for EZ residence and certified employees.
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One of the biggest boondoggles in the program that has since been reformed was the real property tax credit. Prior to Aug. 1, 2002, this was based and calculated on a formula that enabled a company to claim a percentage of its real property taxes as a credit on its state tax returns. In some cases a company could set up shop, create one job and get a 100 percent refund on the property tax for 10 years, after which the credit was gradually scaled back over the next five years.
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The state Legislature changed the rules in 2002: the credit was based on the same factors but capped at either $10,000 per new job or 10 percent of the capital investment, according to Carter.
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In 2005, the rule was revised again, with the formula for the real property tax credit based on either 25 percent of the wages for new jobs created, capped at $10,000 per new job; or 10 percent for the capital investment, according to Carter.
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Carter said two types of widely practiced abuses have been curtailed under the 2005 reforms. One was “shirt changing,” in which an existing company could simply reincorporate or shift assets to create a new company that then qualified it for EZ tax credits. This is no longer allowed.
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The other was the ability for a company under the real property tax credit to get a substantial, if not complete, break on paying income taxes simply by purchasing a building with zero jobs and creating one position. Caps of $10,000 per job on real property tax credit limit the amount companies can write off on their income taxes. Businesses also taking the real property tax credit must now also pass an employment test to see if they are indeed creating jobs.
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However, the Post Standard of Syracuse reported in June that companies with zero or one employee who get certified can still avoid paying income taxes simply by hiring one more employee, under the QEZE tax reduction credit. The credit is applied against corporate taxes or personal income taxes and is computed by a formula based on the number of jobs created, the company”™s assets in the zone and in the state, and the income taxes owed by the company. The credit is for a 14-year period.
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The Post Standard reported that while legislators proposed to cap the tax break to $10,000 per year for each new job in the 2005 reform bill, the cap was eliminated from the final bill. Since creating one new job from zero is more than a 100 percent increase ”“ technically, it”™s an increase of infinity ”“ in employment, companies that do this get a full write-off on their state income tax for 10 years and a portion of it reduced for the next four years. If the business is a partnership or limited liability company, the partners also avoid paying state income tax.
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