NY State QETC: Tax Savings Opportunity for Emerging Tech Sector Investors.

Posted on April 4, 2016 by Jeanne Goulet

For investors looking at emerging tech sector companies based / doing business in New York State there are four letters that can spell potential tax savings: QETC. This stands for Qualified Emerging Technology Companies.

However these emerging technology companies must first be certified as a QETC by the NY State Department of Taxation and Finance – before the tax credits can be claimed by investors; and that qualification process can be complicated.

Starting back in 1998 NY State began to offer business tax credits to help attract and encourage the development of business in the Empire State, including investments in next-generation technology companies. WHAT’S AVAILABLE:

The credit is available for investors (a corporation, individual, partnerships, etc.) in QETC qualified companies who own 10% or less of the QETC can be eligible for a capital credit (reduction of tax) amounting to:
- 10% of a qualified investment if the investor certifies that the QETC is to be held for more than 4 years, and not to exceed $150,000.
- 20% of a qualified investment if the investor certifies that the QETC is to be held for more than 9 years, and not to exceed $300,000.
Qualified investments do not include investments made by or on behalf of an owner of the QETC, including, but not limited to a stockholder, partner, sole proprietor, or any related person as defined in section 465(b)(3)(C) of the Internal Revenue Code.
An owner of the qualified emerging technology company means an entity that owns more than a 10% interest in a QETC.

The percent ownership in a certified QETC is determined based on the following:

The number of share of stock issues and outstanding.
The contribution of property to a partnership, or
Similar contributions in the case of a business entity not in corporate or partnership form.

There is also a employment tax credit component of the QETC tax laws for emerging tech companies. It is worth $1,000 for each new full-time job, over and above a three-year employment base (average) available for qualifying QETC companies. This tax credit is available for up to three years.

WHICH EMERGING TECH COMPANIES CAN QUALIFY FOR QETC STATUS?

The first step: Emerging Tech Company QETC Qualification.

In order for the investor to file for / obtain the QETC Capital Credit – the company itself must first be certified as a Qualified Emerging Technology Company by the Commissioner of the NYS Dept. of Taxation and Finance (Form DTF-620) and meet the following criteria:

The QETC Company must own or rent real property in New York State used for its product and services, and
Must have annual product sales of $10 million or less, and
Qualify under category 1 or 2 as follows:
1. A QETC is defined as an Emerging Technologies company whose primary products or services are classified as emerging technologies including, but not limited to the following:
  - Advance materials and processing technologies.
  - Engineering, production or defense technologies.
  - Electronic and photonic devices and components.
  - Information and communication technologies, equipment and systems that involve software and hardware, visualization technologies and human interface technologies.
  - Bio-Technologies.
  - Re-manufacturing Technologies. OR
2. It has research and development (R&D) activities in New York State and its ratio of R&D funds to net sales equals or exceeds the average ratio for all surveyed companies as determined by the NYS Tax Department.

Note the second type of qualification is used less frequently among emerging technology companies in New York State.

HOW DO INVESTORS / EMERGING TECH COMPANIES GET THE QETC TAX CREDIT?

For the capital tax credit, investors should file Form DTF-622 (https://tax.ny.gov/pdf/2013/fillin/misc/dtf622_2013_fill_in.pdf) (Claim for QETC Capital Tax Credit) with the New York State Department of Taxation and Finance.

For the employment tax credit, emerging tech companies should file Form DTF-621 (https://www.tax.ny.gov/pdf/2013/fillin/misc/dtf621_2013_fill_in.pdf)(Claim for QETC Employment Tax Credit) with the New York State Department of Taxation and Finance.

NY STATE QETC INVESTOR TAX SAVINGS OPPORTUNITY ADVICE:

Seek out a qualified NY State-based CPA to make sure all the QETC criteria are met, the tax credits are properly calculated, and that all the the correct NYS tax forms are filed in a timely basis.

Reprinted and used with permission from Marks Paneth LLP

This material has been prepared for general informational and educational purposes only and is not intended, and should not be relied upon, as accounting, tax or other professional advice. Please refer to your advisors for specific advice.

Posted on April 4, 2016 by Jeanne Goulet

For investors looking at emerging tech sector companies based / doing business in New York State there are four letters that can spell potential tax savings: QETC. This stands for Qualified Emerging Technology Companies.

However these emerging technology companies must first be certified as a QETC by the NY State Department of Taxation and Finance – before the tax credits can be claimed by investors; and that qualification process can be complicated.

Starting back in 1998 NY State began to offer business tax credits to help attract and encourage the development of business in the Empire State, including investments in next-generation technology companies. WHAT’S AVAILABLE:

The credit is available for investors (a corporation, individual, partnerships, etc.) in QETC qualified companies who own 10% or less of the QETC can be eligible for a capital credit (reduction of tax) amounting to:

10% of a qualified investment if the investor certifies that the QETC is to be held for more than 4 years, and not to exceed $150,000.

20% of a qualified investment if the investor certifies that the QETC is to be held for more than 9 years, and not to exceed $300,000.

Qualified investments do not include investments made by or on behalf of an owner of the QETC, including, but not limited to a stockholder, partner, sole proprietor, or any related person as defined in section 465(b)(3)(C) of the Internal Revenue Code.

An owner of the qualified emerging technology company means an entity that owns more than a 10% interest in a QETC.

The percent ownership in a certified QETC is determined based on the following:

The number of share of stock issues and outstanding.

The contribution of property to a partnership, or

Similar contributions in the case of a business entity not in corporate or partnership form.

There is also a employment tax credit component of the QETC tax laws for emerging tech companies. It is worth $1,000 for each new full-time job, over and above a three-year employment base (average) available for qualifying QETC companies. This tax credit is available for up to three years.

WHICH EMERGING TECH COMPANIES CAN QUALIFY FOR QETC STATUS?

The first step: Emerging Tech Company QETC Qualification.

In order for the investor to file for / obtain the QETC Capital Credit – the company itself must first be certified as a Qualified Emerging Technology Company by the Commissioner of the NYS Dept. of Taxation and Finance (Form DTF-620) and meet the following criteria:

The QETC Company must own or rent real property in New York State used for its product and services, and

Must have annual product sales of $10 million or less, and

Qualify under category 1 or 2 as follows:

A QETC is defined as an Emerging Technologies company whose primary products or services are classified as emerging technologies including, but not limited to the following:

Advance materials and processing technologies.

Engineering, production or defense technologies.

Electronic and photonic devices and components.

Information and communication technologies, equipment and systems that involve software and hardware, visualization technologies and human interface technologies.

Bio-Technologies.

Re-manufacturing Technologies. OR

It has research and development (R&D) activities in New York State and its ratio of R&D funds to net sales equals or exceeds the average ratio for all surveyed companies as determined by the NYS Tax Department.

Note the second type of qualification is used less frequently among emerging technology companies in New York State.

HOW DO INVESTORS / EMERGING TECH COMPANIES GET THE QETC TAX CREDIT?

For the capital tax credit, investors should file Form DTF-622 (https://tax.ny.gov/pdf/2013/fillin/misc/dtf622_2013_fill_in.pdf) (Claim for QETC Capital Tax Credit) with the New York State Department of Taxation and Finance.

For the employment tax credit, emerging tech companies should file Form DTF-621 (https://www.tax.ny.gov/pdf/2013/fillin/misc/dtf621_2013_fill_in.pdf)(Claim for QETC Employment Tax Credit) with the New York State Department of Taxation and Finance.

NY STATE QETC INVESTOR TAX SAVINGS OPPORTUNITY ADVICE:

Seek out a qualified NY State-based CPA to make sure all the QETC criteria are met, the tax credits are properly calculated, and that all the the correct NYS tax forms are filed in a timely basis.

Reprinted and used with permission from Marks Paneth LLP

This material has been prepared for general informational and educational purposes only and is not intended, and should not be relied upon, as accounting, tax or other professional advice. Please refer to your advisors for specific advice.