On January 21, 2015, Governor Cuomo released the proposed 2015-2016 Executive Budget. The Governor's Budget includes a proposed bill with numerous measures that would impose substantial limitations on the authority of industrial development agencies ("IDAs") to provide State tax exemption benefits. The proposals extend to exemption from State sales and use taxes, mortgage recording taxes and real estate transfer taxes.
State Approval of State Tax Exemption Benefits
The Governor's proposed bill includes an amendment to the IDA Act to require that an IDA obtain prior approval from Empire State Development Corporation (the State Department of Economic Development) ("ESDC"), before the IDA can provide State tax exemption benefits to a project, or before it can increase or extend the duration of any such benefits (including for projects that began before the effective date of this bill). The proposed bill enumerates certain information to be furnished to ESDC by an IDA in a request for approval and confers broad discretion on ESDC and the Authorities Budget Office (the "ABO") to require additional information prior to granting an approval. ESDC will have 45 days to approve or deny an application. The proposed bill prohibits approval of an IDA's grant of State tax exemption benefits to a project: (1) consisting substantially of only State tax exemption benefits; (2) from an IDA whose website is non-compliant as determined by the ABO (see requirements below); (3) from an IDA that is not compliant with certain State laws as determined by the ABO (see requirements below); or (4) that ESDC concludes would provide the agent or project operator with a competitive advantage over an existing business in a similar industry in that area.
Tax Clearance
The proposed bill restricts an IDA from establishing a project or providing financial assistance to a project until it has received from every applicant, agent and project operator a "tax clearance" for tax liabilities in excess of $500 and compliance with tax return filing and registration requirements.
Expansion of Reporting and Clawback Requirements to Mortgage Recording Taxes and Real Estate Transfer Taxes
The proposed bill extends previously enacted requirements relating to an IDA's grant of exemptions for State sales and use taxes to also include mortgage recording taxes and real estate transfer taxes. An IDA would now need to track, report and establish clawback provisions for any exemption from State sales and use taxes, mortgage recording taxes and real estate transfer taxes.
State Tax Commissioner Audits
The proposed bill authorizes the State Commissioner of Taxation and Finance to audit IDA projects and IDA agents and project operators with regard to the requirements and restrictions of General Municipal Law and Public Authorities Law, particularly regarding job targets, investment targets, construction and any state or local tax exemptions. ESDC, the ABO and others can report IDAs to the Tax Commissioner for potential non-compliance. The Tax Commissioner would determine the amount the agent or project operator must pay if found non-compliant.
Website
All IDAs are currently required to maintain a website, where the IDA must make available all resolutions and agreements appointing an agent or project operator or otherwise related to a project. The Governor's proposed bill would require that an IDA's website be current to within 30 days with:
- Names and titles of all IDA members and officers;
- Public notice, agendas (at least 10 days in advance) and minutes of every meeting of the IDA; and
- Descriptions of every IDA project, including state or local tax exemption benefits provided or intended to be provided.
If the ABO finds that an IDA's website is not in compliance with these requirements, the IDA will have 30 days to correct its non-compliance; if it does not, the IDA cannot establish any project or provide State tax exemption benefits.
Compliance with State Laws
The Governor's proposed bill confers broad authority on the ABO to determine an IDA's compliance with Public Officers Law (including opening meetings law and freedom of information law), Public Authorities Law and General Municipal Law. An IDA found by the ABO to be non-compliant cannot grant State tax exemption benefits until the non-compliance is corrected and certified as corrected by the ABO.
Effective Date
The bill proposed in the Governor's Budget would take effect immediately and apply to any of the following that occurs on or after the bill's effective date: (1) any IDA project established, agent or project operator appointed, or financial assistance provided; (2) any amendment or revision involving additional financial assistance (including an extension of the sales tax exemption period); and (3) any State tax exemption benefits recovered, recaptured, received or otherwise obtained by an IDA.
If you would like further information or have any questions with respect to the impact of the Governor's proposed bill, please feel free to contact Connie Cahill at (518) 429-4296 or mcahill@hblaw.com, Garrett DeGraff at (518) 429-4235 or gdegraff@hblaw.com, Jean Everett at (202) 582-0601 or jeverett@hblaw.com, Susan Katzoff at (315) 425-2880 or skatzoff@hblaw.com or Melissa Bennett at (518) 429-4219 or mbennett@hblaw.com.