Courtland “Cory” Van Deusen V, CPA Tax Principal Lumsden & McCormick, LLP Cyclorama Building 369 Franklin Street Buf

1. Courtland “Cory” Van Deusen V, CPA Tax Principal Lumsden & McCormick, LLP Cyclorama Building 369 Franklin Street Buffalo, NY 14202 Phone: 716-856-3300 Ext. 138 Cell: 716-867-0322 cvandeusen@lumsdencpa.com Thursday, November 7, 2013

2. Presentation Topics • Program Goals • Identification of an Opportunity – Buzz Words • Where do I start? • Application Process • Administration of the Program • Benefits to Participants • Excelsior Jobs Program (EJP) Enhancements

3. Program Goals • Promote Entrepreneurialism • Promote Job Creation • Transform Higher Education • Target High-tech, Start-Ups, Attract Venture Capital and encourage these businesses to start, grow and stay in NYS

4. Identification of an Opportunity • Buzz Words • High Tech • Innovation • New Product • Moving/Relocation • Hiring • Expanding • Expansion • Growth

5. Where do I start? • Professional with business development incentive experience • Start-Up NY website • http://startup-ny.com/376-2/ • Empire State Development • http://www.esd.ny.gov/

6. Application Process • Designation as a Tax-Free NY Area • Upstate versus Downstate • Become a “Sponsor” • Business Participants

7. Tax-Free Areas - Upstate • SUNY & Community Colleges • Vacant land, buildings & 200K of square feet within one mile of the campus • Prohibits relocation of campus facilities to create space • Private Colleges & Universities • 2.4 million square feet • Bona fide affiliation • Strategic State Assets • 20 to be identified • Up to 200K square feet for each • Bona fide affiliation • NYS Incubator/Hot Spot • Bona fide affiliation

8. Participant Application • Submitted to a Sponsor • Application available on ESD website • Must be an eligible business • Certifications • Documentation Requirements • Benefit period plus three years • Statements of Performance Benchmarks & Consequences • Subject to review and final approval of Commissioner of Economic Development

9. Eligibility • Eligible Businesses • New business • NYS Incubator Graduate • Previously (before 6/1/13) moved out of NYS • Expansion leading to job creation • Ineligible Businesses • Retail/Wholesale • Restaurants • Real Estate Brokers • Law Firms • Medical or Dental Practices • Real Estate Management • Hospitality • Financial Services • Personal Services • Administrative Support Services • Accounting Firms • Utility Providers • Electricity Generation & Distribution

10. Required Certifications • Allow NYS Agencies to share Participant information • Allow NYS access to all applicable books and records • Certification of all eligibility criteria • Certification that efforts to ascertain the existence of a “Competitor in the same Community” • 6-digit NAICS search (performed by Sponsor) • Affidavit of publication – 5 consecutive days in a local print or online newspaper • Certification that there are no competitors in the same community

11. Competitors • You are not eligible to participate in the program if you have a “Competitor” in the same “Community” • Competitor – a business that produces, manufactures, or sells the same or substantially similar product or provides the same services, and competes for the same customers or clients as an applicant for the START-UP NY Program • Community – the census tract or tracts containing an approved Tax-Free NY Area and the census tracts immediately contiguous to such census tract or tracts • See map example

13. Statements of Performance and Consequences • Statement of Performance/ Benchmarks • 5 Year Projection of job creation including maximum number of net new jobs eligible for the personal income tax benefit • Statement of Consequences • Choose one of the following: • Suspension of benefits • Termination of benefits/participation • Proportional recovery of tax benefits

14. Benefits – 10 Years • Tax-Free NY Area Tax Elimination Credit • Personal Income Tax – Wage Exclusion • Metro Commuter Transportation Mobility Tax • Sales and Use Tax Refund or Credit • Real Estate Transfer Tax & Real Property Tax Exemption

15. Tax-Free NY Area Tax Elimination Credit • 10 Years • Product of “Tax-Free NY Area Allocation Factor” and the “Tax Factor” • Tax-Free NY Area Allocation Factor (Inside/Outside of Tax Free NY Area) – 2 Components • Adjusted basis of property inside and outside the Tax-Free Area • Wages inside and outside the Tax-Free Area • Excludes Executive Officers • Tax Factor (Amount of Tax Attributable to Tax Free NY Area Operations) • NYS adjustments are applied • Compute tax factor as if nonresident for flow through entities and sole proprietors • Do not utilize wages received by an employee shareholder • S Corporations determining NYS income must utilize a 3 factor apportionment (property, payroll and receipts)

16. 10 Year Wage Exclusion • First five years – 100% exclusion • Second five years – up to $200,000 for single, $250,000 for head of household and $300,000 for joint filers • Can apply for withholding exemption • Forms available in January 2014 • 10,000 exempt employees per year • Employer must be approved and be in compliance • If termination of employer’s benefits occur during the tax year the employee will remain tax free though the end of the year

17. Sales & Use Tax Credit or Refund • 120 consecutive months • Predominantly used in Tax Free Area – 50% or more • Utilities – consumed 100% in Tax Free Area • Contractors, subcontractors and repairmen • Integral component part of the structure, building, real property, property or land • File form AU-11 Application for Credit or Refund • Can be filed once per sales tax quarter

18. Annual Employment Test • The average number of employees of the business and its related persons in the state during the year equals or exceeds the sum of the average number of employees of the business and its related persons I the state during the tax year immediately preceding the year in which the business submits its application to locate in a Tax-Free NY Area and the net new jobs of the business in the tax-free NY area during the tax

19. Net New Jobs Calc • New to the state • Cannot be transferred from another NYS business via merger or acquisition • Cannot be employed by a related party within the preceding 60 months • Full-time – 35 hours a week (can add multiple part-time jobs together) • Job must be filled from more than six months

20. Benefits Recapture • Failure to meet performance benchmarks • Governed by statement of consequences • Proportional recovery • 75% test • Pass – receive proportionate benefits • Fail • 1st – proportionate recovery • 2nd – suspension of benefits • 3rd – termination of benefits • Application amendments are allowed

21. EJP • Tracks and targeted industries • Four items to remember • Maximum credit VS EJP offer • Ways to accelerate your credits • Coordination with other incentives • Electricity discount • Possible pitfalls – reduction of incentives

22. JOB GROWTH TRACK – 75% of FUNDS

23. Investment Track – 25%

24. EJP – FOUR ITEMS TO REMEMBER • CREDITS ARE REFUNDABLE • CREDITS = CASH • BUT FOR • NO EXPENDITURES BEFORE PRELIMINARY BENEFITS SCHEDULE (PBS) IS RECEIVED • BENEFITS DO NOT INCREASE FROM PBS

25. KEYS TO A SUCCESSFUL APPLICATION • Likelihood of the project being located outside of NYS or not occurring at all if benefits are not granted • “BUT FOR” - The decision to move forward with the project cannot have been made • The application must make the case that this project depends on the receipt of program benefits • Any expenditures occurring before admission to the program will not count in the credit benefit computation

26. EXCELSIOR TAX CREDITSMAXIMUM VS EJP OFFER • Jobs Tax Credit • Maximum of 6.85% of wages per “net new job” • Investment Tax Credit • Maximum of 2% of qualified investments • Sacrifice IRC Section 179 • Research and Development Tax Credit • Maximum of 50% of the Federal Research and Development Credit • Real Property Tax Credit • Maximum of 50% the first year declining by 5% in subsequent years

27. Determination of Offer • Number of jobs created • Average salary of jobs created • Investment in plant property and equipment • Risk of project being located in another state • Feasibility of the project • Other available benefits

28. Accelerate Your Credits • Allocation between four EJP credits • Consider other incentives • Other ITC’s • Brownfield – Up to 24% • NYS ITC – 5% • Is it a new business? • Expected NYS sourced income

29. Coordination With Other NYS Programs • Total NYS benefits will likely not change • Other benefits may be considered • Brownfield • IDA Benefits • NYS Sourced Grants • NYPA Benefits

30. REDUCED UTILITY RATES • Special Excelsior Jobs Program Rates • 50% discount on standard electric delivery rates • 50% discount on Natural Gas delivery rates • Available for a ten year period • Period starts at the later of the first year listed on the PBS or the first year the participant receives a certificate of tax credit

31. EJP - Pitfalls • Not living up to your promises • How aggressive should you be on your application? • NEW - 75% threshold • Related party transactions • ITC • Real estate • Wilmorite, Inc. • Timing of entity set-up • Timing of expenditures and hires • Professional Employment Organizations and Temp Agencies

32. QUESTIONS?

33. CIRCULAR 230 • In accordance with Internal Revenue Service Circular 230, please be advised that unless otherwise expressly stated, any discussion of a federal tax issue in this communication or any attachments to this communication is not intended to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on any taxpayer.