One of the major benefits of being a manufacturer in New York is the various tax credits that New York offers to businesses whose primary purpose is the production of goods within the state. Among the most beneficial of these credits is the New York Investment Tax Credit (“ITC”). Manufacturers who place in service qualified tangible property that is used primarily to produce goods in New York State are eligible for a 5% credit (4% for S Corporations) on the cost basis of the property (“investment credit base”) that was placed in service up to $350 million, and if the base is over $350 million an additional 4% on the amount that exceeds this threshold. For purposes of this credit “qualified tangible property” refers to machinery, equipment and facilities primarily used for production purposes. It is important to note, when calculating the investment credit base, the cost basis must be reduced by the amount of section 179 depreciation taken on that property during the tax year to prevent a double tax benefit at the state level.
In addition to the ITC discussed above, entities eligible for the ITC may also be eligible for the Employment Incentive Credit (EIC). The EIC offers a further tax benefit of 1.5%-2.5% of the original credit base so long as an entity can demonstrate that its average number of New York State employees was at least 101% of the average number of employees employed by the entity in the year prior to the year the property was placed in service. The increase in employees must occur in the first two years following the year the qualified tangible property was placed in service.
It is important to note that while the ITC and EIC cannot reduce a taxpayer’s New York State tax liability below the fixed dollar minimum tax, any unused credit can be carried forward 15 years (10 years for S-Corporations) and used to offset future New York State in tax liabilities. In addition, a portion of the ITC allowed in a previous year may be required to be recaptured if the underlying property is disposed of prior to the end of its useful life. For these reasons, it is important for companies who take advantage of the ITC to keep detailed records of the qualified property purchased in each year, the amount of credit that is allowable, and the amount of credit actually used to reduce the taxpayer’s tax liability in any given year.
For more information on this, or any other credits available to manufacturers in NY, please consult your trusted TBC advisor.