Friday, May 14, 2010

New York City Economic Incentives for Biotech and Other Start-ups

On May 12, 2010, Christine Quinn, the City Council Speaker, spoke to the business owners - members of the Bensonhurst Business Club, located in Brooklyn. She talked about the City’s focus on jobs and what is being done by the City Council to create/maintain them. She mentioned the biotech tax credit that was adopted in 2009 and the current proposal to eliminate double taxation for certain small S corporations (since currently New York City does not recognize the federal treatment of S corporations as “pass through” entities).

This speech inspired me to summarize the tax incentive programs available to biotech and other technology companies.

First, there are the New York State Qualified Emerging Technology Company Credits (QETCs), available to early-stage technology companies (such as new media, communications, IT, engineering, advanced materials, biotech and electronics), with annual sales under $10 million, gross revenue under $20 million, fewer than 100 full-time employees (with at least 75% based in New York) and New York-based R&D spending of at least 6% of net sales. These QETCs are comprised of (1) QETC Employment Credit, available to businesses creating jobs; (2) QETC Capital Tax Credit, available to the investors in qualified emerging technology companies of up to $300,000 for qualified investments; and (3) QETC Facilities, Operations and Training Credits, that may be applied to costs related to the purchase or lease of property to be used for R&D, equipment, production costs, expenses associated with in-house research, patent and grant applications, and training employees.

Second, there is the Empire Zone, a program that provides New York State tax credits and tax exemptions to manufacturing and biotech firms located in the Zone, including the East River Science Park and the Brooklyn Army Terminal.

Third, there is the New York City Biotech Tax Credit that Speaker Quinn mentioned at the Bensonhurst Club meeting. The credit is applied against the City’s General Corporation Tax and Unincorporated Business Tax for certain expenses by qualified companies. It is only available to emerging biotechnology companies with similar sales, revenue and employee requirements as those for QETCs and only during 2010-2012 tax years. The maximum yearly tax credit per taxpayer can be $250,000, and the aggregate amount of credits for a calendar year cannot exceed $3 million. If it does, the credits will be allocated to eligible companies on a pro rata basis. Credit can be reduced by 50% if the company does not create a certain number of new jobs. Tax credit is available for purchases of properties (18%), research (9%), employee training (max $4,000 per employee) and in certain other instances.

All together, the three tax credit systems, coupled with funding options available to start-up tech companies in New York City (ex: New York City Investment Fund and the East River Science Park Lab Space Loan Fund), may provide just enough incentives to create a booming biotech industry. It is somewhat unusual to think of New York City as a biotech haven. Typically, one would think of San Diego, Seattle or Boston as being particularly welcoming to biotechs, and New York as being the world finance center. However, given the incentives and the proximity of academic and research institutions, I cannot find good reasons why New York would not succeed as a national biotech center, other than one: once the tax credits expire, will the biotech companies that have emerged during these “incubator” year be able to survive on their own, when faced with New York City’s high tax rates and real estate prices, or will these companies flee to the other traditionally biotech-friendly locations?

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