NY Life Sciences Refundable R&D Tax Credit

Summary

On January 24, 2018, The New York Department of Economic Development adopted the Life Sciences Research and Development Tax Credit Program (Program). The objective of the Program is to support and encourage life sciences businesses to locate, invent, commercialize, and produce in New York by offering a refundable credit for qualified companies.

Details Qualified life sciences companies may be eligible to receive a fully refundable credit based on qualified research and development expenditures incurred within the state of New York. The credit is capped at $500,000 per year per taxpayer and is allowed for up to three consecutive years beginning with the first taxable year on or after January 1, 2018. The rule provides 1) eligibility criteria, 2) the application process, 3) how the credit is calculated, 4) the aggregate maximum amount of the credit and 5) the appeal procedure for application denials.

1. Eligibility: The Program is available to a new life sciences company. A qualified life sciences company must be a new business under New York State Tax Law Section 210-b(1)(f), pass a “new business” test, and be certified by the Department of Economic Development. Research and development expenditures are defined as federal qualified research expenses incurred in New York on or after January 1, 2018. Qualified expenses include (a) wages paid or incurred to employees for qualified services performed by such employees, (b) supplies used in the conduct of qualified research and (c) amounts paid or incurred to another person for the right to use certain computers in the conduct of qualified research. Unlike the federal research credit, they do not include contract research expenses.

2. Application: Qualified businesses may apply to the Program for qualified expenses incurred on or after January 1, 2018. Although businesses may be eligible for a credit for a period of three consecutive years, they must apply for the credit in each of those years. Upon review of eligibility, the Department of Economic Development will either admit the application to the Program and issue a certificate of tax credit or deny the application.

3. Credit: The fully refundable credit equals 20 percent of qualified expenses for a company with fewer than 10 employees and 15 percent for a company that employs 10 or more.

4. Aggregate Amount: The aggregate maximum amount allotted to the Program is $10 million per year for all applicants. The credits are allocated by the Department of Economic Development on a first-come-first-served basis, based upon the date of filing a complete application. Any applications that come in after the $10 million has been allocated, will be treated as having been applied for in the next year.

5. Appeals: If an application is denied, a company may send a written notice appealing the denial within 30 days.

Insights

• Although limited to life science companies formed after January 1, 2018, the benefit to eligible companies may be significant: up to 28 percent of eligible expenses when the federal research credit is included.

• Many of a taxpayer’s federal qualified research expenses may also be claimed as part of the New York Life Sciences R&D Tax Credit.

• A company with less than 10 employees would enjoy the maximum annual benefit of $500,000 if it spent $2.5 million in qualified research expenses or more.

• Because only $10 million in credits are awarded per year, the timing of when the application is filed is critical to receiving the refundable tax credit in the current award period.