State & Local Tax

Urgent Empire Zone News

Below is a link to a NYS Tax Department pronouncement issued on the afternoon of April 15, telling all recipients of Empire Zone benefits that they can not claim those benefits for the 2008 tax year until the business has been recertified by Empire State Development. The pronouncement asks all recipients who have already filed returns claiming benefits to file amended returns as if the benefits were not available. The State will require that the resulting underpayments be paid with interest.

We are not convinced that the new law compels the result reflected in the pronouncement, and have contacted the Department of Taxation and Finance to confirm the proper legal analysis and discuss options for taxpayers.

http://www.tax.state.ny.us/pdf/memos/multitax/m09_5c_4i.pdf

UPDATE: After contacting the Department for clarification, we have the following to report:

If a taxpayer has already filed a 2008 return claiming Zone benefits, the Department is NOT asking the taxpayer to prepare an amended return calculating and paying tax as if Zone benefits were not available for 2008. If it is anticipated that the QEZE business will pass the new tests for continued certification, then the only time an amended return ought to be filed is when the retention certificate is issued by Empire State Development (ESD). After the retention certificate is issued, the taxpayer needs to file an amended return that (assuming there are no other changes to report) should be the same as the original return but with a copy of the retention certificate attached. Since under these circumstances no underpayment would result, there should be no additional cost to the taxpayer (other than the cost to prepare the return).

If a taxpayer thinks that the business may not survive the ESD review with its Empire Zone certification intact, it can either: (1) send in an additional estimated payment to be credited to the 2008 tax year to avoid the accrual of additional interest in the event of a decertification retroactive to January 1, 2008; (2) do nothing and wait for the Tax Department to assess a liability for the underpayment with interest (currently at 7.5%) if a retention certificate is not forthcoming; or (3) file an amended return after a retroactive decertification computed without Zone benefits and pay the additional tax due, with interest.