New York ~ Corporate, Personal Income Taxes: Qualifications for ...

The New York Department of Taxation and Finance has issued a corporate franchise and personal income tax memorandum clarifying the qualifications needed to claim the qualified emerging technology company (QETC) employment credit, the QETC facilities, operations, and training credit, and the QETC capital tax credit. Specifically, the memorandum clarifies that a business:

must be engaged in creating or developing emerging technologies referenced in Public Authorities Law ?3102-e to qualify under the primary products or services test;

must qualify under the primary products or services test to claim the QETC facilities, operations, and training credit; and

may use an alternative method to compute the primary products or services test if the business does not make sales of products or services.

Under the Public Authorities Law, a QETC is a company located in New York whose primary products or services are classified as emerging technologies and whose total annual product sales are $10 million or less (the primary products or services test) or a company that has research and development activities in New York and whose ratio of research and development funds to net sales equals or exceeds the average ratio for all surveyed companies classified as determined by the National Science Foundation in the most recent published results from its Survey of Industry Research and Development, or any comparable successor survey, and whose total annual product sales are $10 million or less (the research and development test).

If a business is deemed a QETC under either of the above tests, it may qualify for the QETC employment credit and its new investors may qualify for the QETC capital tax credit.

QETC Facilities, Operations, and Training Credit

The Tax Law imposes additional requirements that a business must meet to be able to claim the QETC facilities, operations, and training credit:

the business must have 100 or fewer full-time employees, of which at least 75% are employed in New York;

the business must have a ratio of research and development funds to net sales of 6% or greater;

the business and all of its affiliated companies and related members must have gross revenues of $20 million or less for the immediately preceding tax year; and

the business must qualify as a QETC specifically for the activities referenced in Public Authorities Law ?3102-e(1)(b).

To qualify as a QETC specifically for activities referenced in Public Authorities Law ?3102-e(1)(b), a business must meet the primary products or services test.

Primary Products or Services Test

To meet the primary products or services test, a business must be engaged in creating or developing products or services that are classified as emerging technologies as defined in Public Authorities Law ?3102-e(1)(b). The mere use of a product or service classified as an emerging technology will not qualify a business under the primary products or services test. The business?s primary products or services must be classified as emerging technologies, determined using either of the following methods:

determine the ratio of the business?s receipts from the sale of its products and services classified as emerging technologies to the receipts from all sales of its products and services; if the ratio is greater than 50% for the tax year that the credit is claimed, the business satisfies the test;

alternatively, if a business has no receipts from the sale of products or services, a different ratio may be used; for these businesses, if the ratio of the expenses attributable to its emerging technologies to all expenses is greater than 50% for the tax year that the credit is claimed, the business satisfies the test.

Application of Memorandum

Because the memorandum is a clarification of the language of the QETC credits as enacted, it applies to all tax years open under the statute of limitations. The memorandum applies to credit claims filed on original and amended returns on and after September 14, 2012, and also to credit claims that have already been filed with the department but have not yet been finally processed. However, the memorandum does not apply to credit claims that were paid out prior to the issuance of the memorandum.

TSB-M-12(9)C, (8)I, Taxpayer Guidance Division, New York Department of Taxation and Finance, September 14, 2012 , ?407-643

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