I Love NY Tax Credits

Last year, I almost fell over last year when I found out that technology companies and investors based in New York State can get a material tax credit from New York State.  I had heard of the program before, but was told it wasn't worth the paperwork.  Last year I decided to ask a few companies in our portfolio to file for the credits.  The paperwork is fairly simple and straight forward and my investors picked up a few hundred grand in New York State tax credits. 

New York State provides a tax credit for New York State taxpayers who invest in Qualified Emerging Technology Companies ("QETC").   Most early stage technology companies are qualified as a QETCs.  In general, the QETC tax credit is equal to 10% of an investment in the QETC if you hold your investment for at least 4 years or 20%, if you hold your investment for more than 9 years.  There are limits on the maximum amount of the credit that may be claimed, carryover rules and recapture for early dispositions.   In addition, the companies themselves can get a credit for the number of New York State employees they have, generally about $1,000/employee/year. 

So if your company is raising money for a company and based in New York, particularly from high net worth angel investors, this QETC program is added perk.  As investors get the credit immediately, there is a very real 20% downside protection: worstcase scenario, if the investor sells it's shares the tax credit is subject to clawback.   For your existing investors, although the benefit is a little limited, it shows great good will that you tracked down this relatively painless tax credit program for them.

For more information check out NY State's site and a tax advisor, of course, but it's relatively straightforward and not that time consuming.   That said, I met with the New York City Economic Development Corporation head, Andy Alper, and some of his staff, last month.  They mentioned there are several tax credit programs of note.  I pointed out the perception of the paperwork issues with this QETC program and other similar programs are a tough barrier for some entrepreneurs.  One staffer helpfully pointed me to the New York Grant Company.  I understand that this small consultancy which takes a small contingency fee to fill out the paperwork for you.   So for you timestrapped entrepreneurs and VCs, this might be the way to go, as it might not make a whole lot of sense to have a $500/hour lawyer or Big 4 accountant review this stuff.   For the QETC stuff I think the paperwork is not that difficult, but, particularly for the other programs, it's worth consulting with this company, I understand.

I'd love to see these New York State tax credit programs, and others like it around the country, expanded a bit more, as I think it's a much more effective way to promote growth by reducing taxes on those companies that have the biggest impact on job growth.  My venture firm backed New York State based companies which grew from about $12 million in aggregate revenues when we invested a few years back to a projected $300 million this year; for every employee that was there when we invested there are over 10 employees now; our portfolio company employment has been basically doubling just about every year despite the downturn, and we expect that growth to continue.  For every $1 we invested, another $10+ followed our dollars at higher valuations as our portfolio companies grew. For every $8000 we invested, one permanent well paying job was created in the state-- and the money wasn't spent, it was invested and we expect that we'll get at least 3-4 times our capital back and returned to our investors.  We need to encourage more of this type of economic growth in this state, region, and country and the best way is to tax it less, and credits are a great targeted way to do it.  The New York State QETC program is a great start.   In the future, hopefully, it will expand and grow, as well as get better promoted in the technology community.

If you have another such tax credit program that tech entrepreneurs might find helpful, please do comment below!