Governor's Proposed Suspension of Tax Credits Could Stall Real Estate Development

Harris Beach PLLC

Governor Cuomo’s recently released Executive Budget may not be well received amongst those planning on redeveloping urban areas, restoring historic structures, remediating contaminated real property or proposing affordable housing developments.  Part S of Revenue Article VIII of the FY 2019 Executive Budget provides that a taxpayer’s ability to claim certain tax credits is deferred for tax years 2018, 2019 and 2020, to the extent that those credits exceed $2 million per tax year.  

The 34 tax credits proposed to be affected by Part S include:

  • brownfield redevelopment tax credit
  • remediated brownfield credit for real property taxes
  • environmental remediation insurance credit
  • conservation easement tax credit
  • low income housing tax credit
  • credit for rehabilitation of historic properties
  • most empire zone tax credits
  • alternative fuels and electric vehicle recharging property credit
  • green building credit
  • biofuel production credit
  • clean heating fuel credit
  • credit for companies who provide transportation to individuals with disabilities
  • economic transformation and facility redevelopment credit

Numerous others tax credits are included.  Not subject to Part S are tax credits relating to the film/movie production industry and the Excelsior Program.

The proposed tax credit deferral set forth in Part S is substantially similar to what was enacted in 2010.  The 2010 deferral was the subject of litigation in state and federal court based upon arguments of taking and unconstitutionality but those arguments failed.  See Empire Gen Holdings, Inc. v. Governor of New York, 40 Misc. 3d 984 (Sup. Ct., Albany County, 2013); Empire Gen Holdings, Inc. v. Governor of New York, No. 11-CV-1509, 2012 U.S. Dist. LEXIS 96023 (N.D.N.Y. July 11,2012).

Part S of the Executive Budget provides that refundable credits (such as historic tax credits, low income housing tax credits and brownfield credits) are capped at $2 million per year per taxpayer with the deferred portion paid out over three years beginning in 2021 as follows:  2021 – 50% of the amount accumulated; 2022 – 75% of the balance of the amount accumulated; and 2023 – the remaining balance.  With respect to nonrefundable credits the taxpayer may begin claiming the accumulated and deferred credit in 2021.

It must be emphasized that Part S is merely the Governor’s proposal.  Budget negotiations have not begun in earnest and some in Albany may argue that the budget gap is not as large as portrayed, that personal income tax revenues may be better than anticipated and thus the “benefit” of the proposed tax credit deferral is outweighed by the “cost” of suspended and terminated projects that are redeveloping urban areas, restoring historic structures, remediating contaminated real property and constructing affordable housing units.

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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