“Start-Up NY” Program Begins in January. ; Governor Cuomo Hopes for Economic Boost

How does a governor entice new businesses to move to his state when it ranks 49th on chiefexecutive.net 2013 listing of best and worst states for business? How can this governor “sell” an economic environment that ranks dead last on the taxfoundation.org 2014 State Business Tax Climate Index? To add insult to injury, this state is also a place where personal income tax rates are among the highest in the country (at 8.82 percent), and that does not include any additional locally levied taxes. Property taxes here are the sixth-highest in the nation, and unemployment stands at 7.7 percent. To make matters even worse: Between 1992 and 2010, this governor’s state lost over $68 billion in adjusted wealth, which migrated to states with far more beneficial tax environments. These are some of the stark realities for New York Governor Andrew Cuomo.

In May of 2013, the governor proposed a new tax initiative (S5903). The formal name of S5903 is the “SUNY TAX-FREE AREAS TO REVITALIZE AND TRANSFORM UPSTATE NEW YORK,” although it is more commonly referred to as the “Start-Up NY” initiative. The intent of this initiative is to lure new businesses to the scenic, yet mostly overlooked and slow-growth, areas of upstate New York, far beyond the five boroughs of the City.

The plan allows existing businesses to expand, and also assists in the establishment and growth of new small businesses. At its core, S5903 creates new “tax-free” areas. It provides impressive incentives and an interesting set of prerequisites.  For one, the new businesses must be located on or around a New York state college campus property, either within vacant university buildings or on university-owned property located within one mile of the campus. There are more than 150 private or public colleges currently eligible to sponsor this program.

In these designated zones, businesses are exempt from paying property taxes, as well as business and corporate taxes, for a period up to ten years. Company employees are exempt from paying personal income tax for the first five years, with the possibility of extending into the next five, based on income. There is also a provision for sales tax refunds on certain purchases of tangible property and services within the zone. In return, the businesses must maintain net new jobs and not decrease their employment numbers there or at their related companies elsewhere in the state.

Among college students in New York aged 20 through 24, the unemployment rate stands at 14.7 percent. By relocating or creating new businesses on or around college campuses, students are provided with long-term career opportunities right within their local community. Conversely, employers have the advantage of access to a pool of highly educated individuals to help them foster research and innovation. The plan is essentially a business incubator for the science-, engineering- and technology-sector companies, and will hopefully generate economic engines for job creation.

The Start-Up NY initiative passed into law in June, was formally launched by Governor Cuomo on October 22, 2013, and officially starts in January 2014. By mid-November, over 800 companies have reportedly applied for the program. Start-UP NY is a new, unproven experiment. Will it attract companies from other states to take advantage of the program? Will it expand job creation? Will it help stem the tide of outward migration? These questions can’t be answered yet. But with all the challenges New York must overcome to repatriate and attract new businesses, stepping out of the box might be a good start.