Update On Initial Filing Requirement And Annual Recapture Report Requirement Contained In The 2013 New York State Budget Legislation

by Hodgson Russ LLP
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Among other requirements, Chapter 59 of the Laws of 2013 (Part J), effective March 28, 2013 (the “2013 Budget Law”), imposed new sales tax recordkeeping and reporting requirements on industrial development agencies in New York State. The purpose of this client update is to update our previous client alerts respecting the new sales tax recordkeeping and reporting requirements imposed on industrial development agencies by the 2013 Budget Law.

Initial Filing Requirement

One of the requirements added by the 2013 Budget Law is contained in Section 875(2) of the General Municipal Law (the “Initial Filing Requirement”), which requires that each industrial development agency must, within 30 days of providing financial assistance in the form of a state sales and use tax exemption benefit to a project, report to the New York State Commissioner of Tax and Finance (the “Tax Commissioner”) the following information: 1) the amount of such benefits; 2) the project to which they are being provided; and 3) any other information the Tax Commissioner may prescribe.

In April 2013, the New York State Department of Taxation and Finance (the “Tax Department”) published Notice N-13-3 (the “Initial Filing Notice”), which Initial Filing Notice concerned the Initial Filing Requirement. According to the notice, an industrial development agency can satisfy the Initial Filing Requirement by filing with the Tax Department an updated Form ST-60 (IDA Appointment of a Project Operator or Agent). Note that failure to file the report could result in the revocation of the IDA’s authority to provide state and local sales and use tax exemption benefits. A copy of the Initial Filing Notice can be found on the Tax Department website here.

Sales Tax Recapture; Annual Recapture Report

Another of the requirements added by the 2013 Budget Law is contained in Section 875(3)(b) of the General Municipal Law (the “Recapture Requirement”), which requires that each industrial development agency recapture state and local sales tax benefits awarded to a project which: 1) are in excess of the amounts authorized; 2) are for property or services not authorized; or 3) are for a project that failed to comply with a material term or condition to use property or services in the manner required by the agreement with the IDA (“Unauthorized Sales Tax Benefits”).

Section 875(3)(b) of the General Municipal Law requires that each industrial development agency file an annual report (the “Annual Recapture Report”) detailing a) the terms and conditions imposed by such industrial development agency relative to the recapture of Unauthorized Sales Tax Benefits taken with respect to any project and b) its activities to recapture such Unauthorized Sales Tax Benefits. Copies of such Annual Recapture Report are required to be filed with 1) the Tax Commissioner, 2) the Division of the Budget, 3) the State Comptroller, 4) the Empire State Development Commissioner, and 5) the legislative body of the jurisdiction served by the IDA.

At the Industrial Development Agency Section Meeting held by the New York State Economic Development Council on January 22, 2014, a representative of the Tax Department discussed the new sales tax recordkeeping and reporting requirements contained in the 2013 Budget Law. During this presentation, the representative of the Tax Department indicated that:

(A) Other than the Initial Filing Notice described above, the Tax Department has not drafted any additional forms, technical memoranda, or important notices regarding the new sales tax recordkeeping and reporting requirements contained in the 2013 Budget Law.

(B) Except as noted in item (C) of this paragraph, industrial development agencies will not need to file an Annual Recapture Report for the 2013 fiscal year.

(C) Notwithstanding the foregoing, if an industrial development agency has in fact collected any unauthorized state and local sales tax benefits taken with respect to any project, such industrial development agency must remit all such amounts so collected to the Tax Department within 30 days of recapturing such benefits, accompanied by a letter containing details respecting such amounts so collected. Such letter must identify the portion thereof that represents the local county’s share). The entire amount of unauthorized state and local sales tax benefits collected by the industrial development agency (including the local county share thereof) must be remitted by the industrial development agency to the Tax Department. The Tax Department will in turn remit to the local county its portion of the recaptured amount.

(D) The Tax Department expects to publish regulations relating to the Annual Recapture Report, including a form of Annual recapture Report, sometime in calendar year 2014, and accordingly, it is likely that each industrial development agency will be required to file an Annual Recapture Report relating to the 2014 fiscal year.

(E) The Department alluded to the possible use of Tax Department personnel to assist industrial development agencies in the recapture process.

Initial Agent Appointment Filings

The existing requirements respecting filings by industrial development agencies and their agents remain in effect. IDAs must keep records of sales tax exemptions provided to each project and make them available to the Department upon request. For example, an industrial development agency must still file with the Tax Department a Form ST-60 to report the appointment by such industrial development agency of each 1) entity appointed as agent of the industrial development agency and 2) each project operator.

A copy of the current Form ST-60 (and the accompanying instructions related thereto) can be found on the Tax Department website here.

Initial Filings by Agents and Project Operators

Each agent or project operator appointed by an industrial development agency is still required to file Form ST-340 to annually report its claimed sales tax exemptions. A copy of Form ST-340 can be found on the Tax Department here.

General Sales Tax Recapture Requirements

Finally, note the following requirements contained in the 2013 Budget Law applicable to industrial development agencies. In particular, a) the terms and conditions related to recapture of sales tax benefits must be included in project documents and resolutions, b) an industrial development agency is required to report and make available on the internet, without charge, copies of its resolutions and agreements appointing an agent or project operator or otherwise related to any project it establishes, c) an industrial development agency is also required to provide, without charge, copies of all such reports and information to a person who asks for it in writing or in person, d) within thirty (30) days of the date an agent agreement is terminated, amended, revoked, or becomes invalid or ineffective for any reason, an industrial development agency is also required to report to the Tax Commissioner on a form prescribed by the Tax Commissioner describing the reasons for such changes, e) industrial development agencies are required to recapture sales tax benefits awarded which the project owner is not entitled or which are in excess of the amounts authorized, and f) industrial development agencies are required to keep records of state and local sales tax exemptions provided to each project and make such records available to the Tax Commissioner upon request.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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