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ECONOMIC DEVELOPMENT; TAXATION;

OLR Research Report


December 2, 2009

 

2009-R-0425

COMPARISON OF TAX INCENTIVES FOR MANUFACTURERS IN NEW YORK AND CONNECTICUT

By: Rute Pinho, Research Analyst II

You asked us to compare New York and Connecticut's tax incentives for manufacturers. You were specifically interested in the tax incentives New York used to attract a new semiconductor manufacturing plant.

SUMMARY

Connecticut and New York offer a number of tax incentives for manufacturers that, among other things, create jobs, purchase machinery and equipment, construct or expand facilities, and invest in research and development. Both states offer incentives targeted to specific business incentive zones, but unlike Connecticut, New York limits several incentives to emerging technology companies.

In July 2009, Global Foundries, Inc. and New York state officials broke ground on a 1.3 million-square-foot, $4.2 billion semiconductor manufacturing plant in Saratoga County. The plant will receive an estimated $1.37 billion in state aid over 15 years.

New York has a long history of initiatives to attract computer chip manufacturers like Global Foundries, Inc. Since 1998, it has been pre-permitting sites designed for chip manufacturing plants and suppliers to encourage these manufacturers to locate in the state. In addition, New York supports a number of research centers at the state's public and private colleges and universities to expand high-tech research and economic growth, particularly in the computer chip field.

TAX INCENTIVES FOR MANUFACTURERS

Table 1 lists the tax incentives available to manufacturers in Connecticut and New York. (The tax credits are against corporation taxes, unless otherwise noted.) It specifies whether the incentive is available statewide or in a targeted area. As the table shows, manufacturers in both states can qualify for various credits based on certain activities, including creating jobs, hiring targeted populations, investing in research and developing, constructing or expanding facilities, and purchasing machinery and equipment.

Most of Connecticut's tax incentives are available statewide to any firms that carry out the specified activities. New York, however, targets three of its credits to qualified emerging technology companies that create new jobs or for corporate taxpayers that invest in such companies. For example, while Connecticut offers a 5% tax credit for employee training in any industry, New York limits its job training credit to qualified high-tech training.

Both Connecticut and New York target a number of their incentives to business development zones – enterprise zones (EZ) in Connecticut and empire zones in New York. New York also provides enhanced zone benefits to a subset of empire zone businesses based on their employment history and operations. Connecticut's EZ tax incentives are also available (1) in other related zones in or near the towns with EZs and (2) to businesses in towns with designated EZs that show that they need the incentives to undertake a project.

Table 1: Tax Incentives Available Statewide to Manufacturers in Connecticut and New York

Activity

Connecticut

New York

Tax Incentive

Location

Tax Incentive

Location

Creating jobs

Tax credit for companies who hire at least 10 new employees for a minimum of a 12-month period; the tax credit is equal to 60% of the state income tax withheld from the employee's wages and applies for five consecutive years

Statewide

Tax credit for businesses creating new jobs in the three years after expanding their manufacturing production facilities; credit amount is based on the business' investment tax credit (ITC) amount for the related facility expansion; credit equals 1.5%, 2% or 2.5% of the ITC amount if the current year employment is 101%, 102%, or 103% of the prior year average, respectively

$1,000, three-year credit for each new employee hired by a qualified emerging technology company

Statewide

3% credit for businesses creating new jobs in the three years after claiming an ITC; credit amount is based on the ITC amount; employment increases must be at least 101% of the prior year average

$1,500 per employee, 5-year credit for full-time employment increases

Empire Zones

Refundable corporate or income tax credit, equal to a percentage of real property taxes paid, based on 25% of total wages, health, and retirement benefits paid to net new employees, up to the amount of real property taxes paid

10-year, non-refundable credit against business or income taxes attributable to the zone enterprise based on its employment growth in the zone; credit can reduce a firm's tax liability to zero

Qualified Empire Zones

Hiring Targeted Populations

$1,500 per worker tax credit for companies that hire a worker who lost his or her previous job because of corporate restructuring resulting in at least 10 layoffs and whose wages are at least 75% of prior wages

$1,500 per worker credit for hiring a worker displaced because of electrical industry restructuring

$125 per employee per month for hiring Temporary Family Assistance Program participants

Statewide

Up to $3,000 per employee, 5-year credit for hiring individuals with low incomes, on public assistance, or honorably discharged veterans

Empire Zones

Purchasing manufacturing machinery and equipment and other goods and services

Five-year, up to 100% property tax abatement for newly acquired manufacturing machinery and equipment

100% sales tax exemption on manufacturing machinery and materials, tools, and fuel used in manufacturing; 50% on machinery, tools, fuels, and equipment that does not meet the requirement for the 100% exemption

10% credit for increased investment in machinery and equipment for businesses with 250 or fewer employees; 5% for businesses with between 251 and 799 employees

5% credit for fixed capital investment in tangible personal property

100% personal property tax exemption on inventories

Statewide

All personal property exempted from property taxes

Sales tax exemptions for (1) production machinery and equipment, (2) fuels/utilities used in production, and (3) pollution control equipment

Statewide

Tax credit of up to 10% of a company's eligible investment in production property and equipment

Empire Zones

Five-year, state reimbursed property tax exemption for machinery and equipment purchases

Enterprise Zones

10-year sales tax exemption on purchases of goods and services, including utility services, used in the zone

Qualified Empire Zones

Investing in Research and Development (R&D)

From 1-6% of R&D expenditures based on their amount and size of company

20% credit for incremental R&D expenses for businesses that increase their R&D expenditures over the prior year

Businesses granting funds to colleges for technology-related R&D can receive a credit equal to 25% of the grant amount that exceeds the business' three-year average for technology-related R&D grants

Statewide

Up to a 9% credit for investments property used for R&D

18% credit for R&D property and costs incurred in connection with emerging technology activities

Sales tax exemption for (1) property used in R&D and (2) fuels/utilities used in R&D

Statewide

Greater of 3.5% of total R&D expenditures or the amount derived from the statutory formula for firms outside an EZ; business must employ more than 2,500 people and have annual revenues over $3 billion

Enterprise Zones

Investing in Human Capital

5% credit for investments in human capital, including job training, work education, child care subsidies, day care facilities, and donations to colleges and universities for technology

Up to $4,800 per worker for hiring manufacturing, plastics, and construction apprentices participating in state-approved apprenticeship training programs

Statewide

100% of qualified high-tech training expenses, up to $4,000 per employee per year

Statewide

Purchasing Electronic Data Processing Equipment

100% property tax credit for electronic data processing equipment expenses

Statewide

Sales tax exemption for internet access service and computer hardware used in software development

Statewide

Investing in Companies

Tax credit for investing in certain Connecticut-based insurance companies; credit is 100% of invested amount spread out 10 years

Statewide

10% or 20% credit for investing in qualified emerging technology companies

Statewide

25% personal or corporate tax credit for eligible investments in certified zone businesses

Empire Zones

Financing Costs

100% corporate tax credit for Small Business Administration loan application fees

Statewide

None

 

Cleaning up and redeveloping contaminated property

10-year credit up to $100 million for businesses investing in projects developing or redeveloping property, including brownfields, that meet statutory criteria

Local option delinquent property tax forgiveness for properties slated for clean up and redevelopment

Statewide

10% to 22% refundable credit for site preparation, tangible property, and on-site groundwater remediation costs; credit amount depends on the project's location and whether it meets certain remediation standards

10-year, refundable credit against property taxes paid on cleaned up property; credit amount is based on the jobs created at the site and its location

Tax credit on premiums paid for environmental remediation insurance; credit amount is the lesser of $30,000 or 50% of the premiums

Statewide

Constructing, expanding, or rehabilitating facilities

Local option property tax abatement for large scale projects based on project costs

10-year credit up to $100 million for constructing a new facility in designated areas

Statewide

5% credit on the first $350 million of new or expanded manufacturing production facilities; 4% on investments over this amount

10-year property tax abatement to offset increased assessments due to improvements to business and commercial property

Business and personal income tax credit for owners and tenants of eligible buildings and tenant spaces that meet certain “green” standards

Statewide

10-year credit attributable to a business expansion or renovation project:

● 25% credit or

50% credit if project creates at least 150 jobs or fills 30% of new jobs with EZ or city residents who are eligible for federal job training assistance

Five-year, state reimbursed property tax exemption for facility improvements

10-year credit for new companies locating in the zone, according to statutory schedule

Enterprise Zones

Local option 10-year property tax abatements based on improvements to real property, according to statutory schedule

Refunds on the state portion of the sales and use tax for the purchase of building materials used in the construction, expansion, or rehabilitation of industrial or commercial property

Empire Zones

NEW YORK GLOBAL FOUNDRIES PROJECT

In July 2009, Global Foundries, Inc. and New York state officials broke ground on a 1.3 million-square-foot, $4.2 billion semiconductor manufacturing plant in Saratoga County. The plant will receive an estimated $1.37 billion in state aid over 15 years. The incentive package includes a $665 million capital grant ($500 million for land improvements, building structures, and fabrication equipment and $150 million for research and development). The remaining state aid is an estimated $700 million in Empire Zone credits over 15 years (“Governor Paterson Breaks Ground on GlobalFoundies Fab 2 Project I Saratoga County,” July 24, 2009 press release).

The state initially agreed to provide the incentives to a California-based company, Advanced Micro Devices Inc. (AMD), in 2006. In October 2008, AMD partnered with the Advanced Technology Investment Company of Abu Dhabi to spin off its manufacturing operations and form Global Foundries. Located in the Luther Forest Technology Campus, a research park designed specifically for semiconductor, nanotechnology, and other emerging technology companies, the Global Foundries plant will manufacture advanced microprocessors for AMD and other microchip design firms. The plant is projected to create 1,400 new manufacturing jobs, 5,000 indirect jobs, 1,600 construction jobs, and 2,700 construction-related jobs.

New York has a long history of initiatives to attract computer chip manufacturers. Since 1998, it has been pre-permitting sites designed for chip manufacturing plants and suppliers to encourage these manufacturers to locate in the state. The Saratoga Economic Development Corporation (SEDC) began site engineering and pre-development work on the Luther Forest Park in 2000, six years before AMD began evaluating the site as a possibility for its plant. The SEDC was part of the regional economic development team that began marketing the region to the global semiconductor industry in 2000.

New York also has a long history of investments in high technology research and development. The New York State Office of Science, Technology, and Academic Research is charged with supporting technology development, innovation, and commercialization in the state. It supports a number of research centers at the state's public and private colleges and universities to expand high-tech research and economic growth.

Beginning in the early 2000s, the state began establishing “centers of excellence” to focus academic research in areas of high technology economic development and encourage rapid commercialization of scientific breakthroughs. The centers specialize in nanotechnology, bioinformatics, photonics, environmental systems, wireless applications, and information technology.

The nanotechnology center of excellence, located near the future Global Foundries plant at the State University at Albany's School of Nanoscale Science and Engineering, has been a leader in computer chip research and development. Sematech, a consortium of semiconductor makers, moved its computer chip research and development center to the campus in 2002. The campus further expanded its university and corporate research on computer chips in 2007 when Sematech announced it would locate its international headquarters in Albany. The state invested $300 million in capital funds, which Sematech matched, to support the expansion (“New York Plans $300-Million Deal to Expand Research Center at SUNY- Albany,” The Chronicle of Higher Education, May 10, 2007).

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