Empire Zones Program Alert | 12.31.10

New York State Tax Treatment of Refunds of QEZE Real Property Tax Credit

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On December 31, 2010, the New York State Department of Taxation and Finance issued the attached memorandum (TSB-M-10(9)C, (15)I) regarding the tax treatment of the refundable portion of the Qualified Empire Zone Enterprise (QEZE) credit for real property taxes for corporate franchise and personal income tax purposes.

Qualified Empire Zone Enterprise (QEZE) Credit

Federal Tax Treatment

For federal tax purposes, the IRS Office of Chief Counsel released CCA 200842002 on October 17, 2008 (corporate tax) and CCA 200909032 on February 27, 2009 (flow-through entities) concluding that the refundable portion of the QEZE credit for real property taxes (the amount that may be applied as a credit to another tax year or refunded in cash) may constitute a recovery of property tax previously deducted and therefore, is included in federal taxable income.

The portion of the QEZE credit for real property taxes that is applied as a tax credit reducing the amount of the New York State tax liability is not included in federal taxable income.

New York State Tax Treatment

For New York State tax purposes, the refundable portion of the QEZE credit for real property taxes is considered a refund of franchise or income tax and therefore, is not taxable
for New York State purposes.

The memorandum provides instructions for subtracting the amount included in federal taxable income for the 2010 tax year and for reporting on amended tax returns filed for previous tax years.

The memorandum does not provide guidance regarding the tax treatment of the refundable portion of the EZ wage tax credit, EZ investment tax credit, EZ employment incentive credit, or the refundable portion of other New York State tax credits.

See Memorandum TSB-M-10(9)C, (15)I

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For more information contact:

Don Warrant, CPA
don.warrant@freedmaxick.com
OR 716.332.2647

Michael Biondo
michael.biondo@freedmaxick.com
OR 716.332.2601

Lisa Molle
lisa.molle@freedmaxick.com
OR 716.332.2780

Samantha Southall, CPA
samantha.southall@freedmaxick.com
OR 585.815.4557