New York farmers often overlook credits that can result in significant savings at tax time.
People from around the world identify New York with bright lights, Wall Street, and the arts and culture of the “city that never sleeps.” But outside of the urban population centers, the state of New York is one of the leading agricultural producers in the U.S. A recent study from Cornell University pegs the contribution of agriculture to the New York economy at $63.8 billion per year.
With numbers like that at stake, it should come as no surprise that New York is willing to offer a variety of tax incentives to support the success of this important segment of its economy.
To provide you with an overview of tax credits available in New York that could support agricultural activities, we’ve developed a Tax Alert summarized in this blog post.
The Alert covers several applicable New York state tax credits. Some of them identify specific types of agribusinesses, but others are more widely available credits that can help other types of businesses as well. Here’s a quick look at some of the provisions we discuss:
- Farm workforce retention credit: Operations that employ “eligible farm employees” may claim a tax credit equal to a fixed dollar amount for each of those eligible employees. There are some gross income limitations on the farmer, but the fixed dollar amounts are $250 per employee in tax year 2017 and $300 per employee in tax year 2018.
- Real property credit for qualified New York manufacturers: A credit is available equal to 20% of eligible taxes paid on real property owned or leased for manufacturing. “Manufacturing activities” include farming, agriculture, horticulture, floriculture, viticulture, and commercial fishing.”
- Farmers’ school tax credit: Farmers can claim a refundable New York State income tax credit for the school district property taxes paid on qualified agricultural property.
- Investment tax credit: Farmers who invest in tangible property that is predominantly used in agricultural activities in New York State, such as buildings and structural components, may qualify for an investment tax credit.
- Employment incentive credit: Farmers who claim the investment tax credit may be eligible to claim the employment incentive credit for each of the following two years.
- Small business subtraction modification: A farm business operating as a sole proprietorship, partnership, S corporation, or joint venture may qualify to subtract 5% of farm income included in federal adjusted gross income. The business must employ at least one person and not exceed $250,000 in net income.
- Minimum wage reimbursement credit: From 2014-2018, employers can claim a refundable tax credit by employing students in New York State, ages 16-19, who are paid the state’s minimum wage.
- Fuel tax refund: Diesel and gasoline used for on-road purposes are subject to fuel taxes. Those same fuels used for off-road purposes qualify for a refund of those taxes. Careful tracking of fuel used exclusively off-road in farm production can generate a significant refund at the end of the year. New York State also provides a refund for state excise tax, petroleum business tax, and sales tax to farmers who purchased gasoline or diesel fuel and paid these taxes.
- Research and experimentation tax credit: A federal credit is available for taxpayers, including farmers, who conduct “qualified research activities” within the U.S. The definition of “qualified research activities” gets a little technical. Suffice to say that experiments and research you do to improve your harvest lifecycle, reduce or reuse waste, and minimize or eliminate crop damage for disease may qualify for this credit.
Earning Your Trust
As you can tell from the list above, only a few of these agriculatural tax credits mention farms and farmers by name. There are many savings opportunities available in the tax code, but they don’t always announce themselves to potential beneficiaries.
Freed Maxick CPAs, P.C. is Western and Upstate New York’s largest public accounting firm and a Top 100 firm in the United States. Freed Maxick’s reputation and experience with agricultural business consulting and tax issues has made us a go-to firm for businesses and individuals from all over the U.S. and Canada and around the world.
The Agribusiness Tax Experts at Freed Maxick can help you lower your taxes.
If you would like to better understand just how many credits and deductions are available for your agricultural operation, please download our free alert or contact Freed Maxick via phone at 716.847.2651 or via form, here.View full article
Contactors generally perform two types of transactions for sales tax purposes in New York; (1) performance of a capital improvement to real property, or (2) repair and other maintenance services to real property. As simple as it may sound, distinguishing whether a particular project qualifies as a capital improvement and therefore tax exempt, can be quite problematic and potentially significant in terms of tax dollar savings if a project is incorrectly evaluated.
How to Define Capital Improvement Projects
New York utilizes a three-prong test to define a capital improvement. A project will qualify as a capital improvement if it meets all three of the following:
- Substantially adds to the value of the real property, or appreciably prolongs the useful life of the real property;
- Becomes part of the real property or is permanently affixed to the real property so that removal would cause material damage to the property of the item itself, and
- It’s intended to become a permanent installation.
Projects that meet the above criteria are not subject to New York sales tax to the owner. On these projects, the contractor must obtain a properly completed Certificate of Capital Improvement, Form ST-124 from the owner. Once obtained, the contractor will pay sales tax on the purchases of the materials for the project. The use of subcontractors will follow the same principle. No tax is due on labor charges for the use of subcontractors in a capital improvement project. Subcontractors are required to pay tax on their purchases of materials. Sales tax on the purchases by the contractors are normally passed on to the owner in the total invoice, but the invoice itself is not subject to sales tax.
Note however, the addition of a mobile home to real property is never a capital improvement, regardless of how it is installed. New York also implements special rules in regards to floor coverings. That is, the installation of carpet, padding, linoleum, vinyl roll floor, and other similar floor covering only qualifies as a capital improvement if it’s performed as the initial floor covering. If the floor covering installation is performed in an existing building, or in a building more than six months after the building has been completed, the floor covering and installation charges are deemed as a repair/maintenance and subject to New York sales tax.
How to Define Repair and Installation Projects
If the project is a repair, the contractor must pay sales tax on all the materials purchased for the job. In addition, sales tax is due from the owner based on the contractor’s total invoice for the labor and materials of the job. The contractor may in turn claim a credit on their sales and use tax return for the sales tax paid on the materials that were purchased since sales tax is charged to the owner on the same materials.
To illustrate differences between a capital improvement and a repair/maintenance, below are a few comparisons of work that could be performed:
Due to the difference in tax consequence between a capital improvement and repair/maintenance project, it’s imperative for the contractor to make correct determination prior to beginning the project. The contractor must know whether or not to include sales tax on the cost of materials incorporated into the project. If a contractor is performing a combination of a capital improvement and repair/maintenance work, they should separately state the invoice for these jobs, and only charge sales tax on the repair/maintenance work performed.Understanding sales and use tax can be very cumbersome and mistakes on charging sales tax can be costly. If your business is involved in any construction project or significant expenditures and would like to discuss the potential sales tax rules and exemptions that may apply including capital improvement vs repair, contact our State and Local Tax team by clicking here or calling 716-847-2651. View full article
If you are a third-party provider of cyber services to a “covered entity” in New York State, the Department of Financial Services just made your life harder.
The New York cybersecurity legislation that went into effect on March 1, 2017 (23 NYCRR Part 500) imposes new cyber security requirements on financial institutions, insurance agencies, and other covered entities which pass down and through to you.
Here are a few highlights of the legislation that could have an impact on your policies, processes and cyber security practices:
- Each Covered Entity will do an assessment of you based on the services you provide and your access to information systems and/or nonpublic information belonging to them.
- Based on the assessment, each Covered Entity you work with will define the minimum cybersecurity practices required for you to implement and operate to do business with them.
- The regulation outlines specific sections of the regulation (e.g. encryption, multi-factor authentication) you must implement if you have access to any information deemed non-public, or access systems that store such information.
- There will likely be uncertainties and a lack of consistency in the way each Covered Entity deals with you as the regulation leaves the definition of acceptable minimum cybersecurity practices by third party providers up to each Covered Entity. However, since their evaluation of you will be reviewed and assessed by the DFS, we anticipate the requirements will vastly mirror what they are required to comply with as part of the regulation.
- It’s likely that if a Covered Entity you work with as cybersecurity policies and practices in place that address the following areas, so too will you:
(b) data governance and classification;
(c) asset inventory and device management;
(d) access controls and identity management;
(e) business continuity and disaster recovery planning and resources;
(f) systems operations and availability concerns;
(g) systems and network security;
(h) systems and network monitoring;
(i) systems and application development and quality assurance;
(j) physical security and environmental controls;
(k) customer data privacy;
(l) vendor and Third Party Service Provider management;
(m) risk assessment; and
(n) incident response.
- From time to time, each Covered Entity you do business with will need to conduct a due diligence assessment of your cybersecurity policies and practices to see if they are compliant with their policies and practices, and the new regulation. We believe that a standard SOC 1 or 2 report will lack the specific attributes required to provide adequate assurance that your cybersecurity program is sufficient.
- You will be required to implement Multi-Factor Authentication or Risk-Based Authentication to protect against unauthorized access to Nonpublic Information or Information Systems.
- With certain exceptions, you will be required to implement encryption to protect Nonpublic Information in transit and at rest, which could be cumbersome and expensive.
- You will be required to provide notice of any cybersecurity event directly impacting your Information Systems or your Nonpublic Information affecting Covered Entities you do business with. This requirement may seem straight forward, but there is uncertainty as to what constitutes a cybersecurity event that warrants notification, and how quickly notification must be provided.
- All contracts with you have with third party providers will need to include “representations and warranties addressing the Third Party Service Provider’s cybersecurity policies and procedures.”
Will Your Customers Require You to Do a Cybersecurity Audit?
The possibility exists that a Covered Entity you’re doing with will require you to conduct and report on a comprehensive audit. However, this may be VERY difficult and problematic for both you and the Covered Entities you do business with.
We believe, however, that the best option for compliance purposes (and our recommendation) is that that you have a specific examination performed by an independent CPA firm to attest to your cybersecurity practices in place.
In fact, the AICPA recently released a Cybersecurity Risk Management Reporting Framework and a System and Organization Controls (SOC) reporting option specifically designed to provide a robust, consistent mechanism for reporting on the cybersecurity programs of companies as a means of providing assurance to users of the company.
Where to start?
We suggest that the first step in the process of getting into compliance with the 2017 New York State Cybersecurity Regulations and the requirements of the Covered Entities you do business with be a comprehensive assessment of your current cybersecurity program and controls against these regulations and other leading frameworks to validate its design and operation.
Our thorough assessment includes investigations of your policies, processes and practices governing your relationship with all relevant Covered Entities, as well as an assessment of their programs to provide assurances of you compliance with their requirements.
To schedule an initial consultation, click here or call Dave Hansen, Principal, at 585.360.1481. Or you can download our full New York Cybersecurity Regulation whitepaper here.
If you are a “Covered Entity” regulated by the New York State Department of Financial Services you must be compliant with the newly issued cybersecurity legislation that went into effect on March 1, 2017 (23 NYCRR Part 500), and you are also responsible for compliance by your third-party providers.
Third Party Cybersecurity Compliance Requirements in New York
Relative to how you employ and manage third party providers, here are a few highlights of the legislation that could have an impact on your policies, processes and cyber security practices:
- For the third party providers you work with, you will need to define the minimum cybersecurity practices required for them to do business with you.
- For the third party providers you work with, you will need to inform them of the sections of the regulation (e.g. encryption, multi-factor authentication) they must implement.
- You must do an assessment of each third-party provider’s cybersecurity program, policies and practices based on their access to your information systems and/or nonpublic information.
- You will be responsible for defining and communicating your acceptable minimum cybersecurity practices with each third-party provider you do business with.
- The cybersecurity policies and practices you have in place will likely need to be mirrored by each third-party provider you do business with.
- From time to time, you will need to conduct a due diligence assessment of your third-party providers’ cyber security policies and practices to see if they are compliance with your policies and practices, and the new regulation.
- Your third-party providers will be required to implement Multi-Factor Authentication or Risk-Based Authentication to protect against unauthorized access to your Nonpublic Information or Information Systems.
- With certain exceptions, your third-party providers will be required to implement encryption to protect Nonpublic Information in transit and at rest.
- Your third-party providers will be required to provide notice of any cybersecurity event directly impacting your Information Systems or your Nonpublic Information.
Do Covered Entities Need to Require a Comprehensive a Cybersecurity Audit from Their Third-Party Providers?
Having all your third-party providers conduct an audit of their cyber security program may be VERY difficult and problematic for both you and them.
One alternative for compliance purposes for compliance purposes (and our recommendation) is that that you have a specific examination performed by an independent CPA firm to attest the cybersecurity practices they have in place.
Comply with New York's 2017 Cybersecurity Regulations: Start Here.
The process of getting into compliance with the New York State Cybersecurity Regulations and their “pass through” to your third-party providers should start with a comprehensive assessment of your current cybersecurity program and controls against the new regulations and other leading frameworks to validate its design and operation.
The experts in Freed Maxick’ s Risk and Technology Advisory and Assurance Practice can help you to this end, as well as assisting in development and implementation of a remediation plan.
Our thorough assessment includes investigations of your policies, processes and practices governing your relationship with all relevant third party providers, as well as an assessment of their programs to provide assurances of their compliance with your requirements.
You can download our full New York Cybersecurity Regulation whitepaper here. To schedule an initial consultation, click here or call Dave Hansen, Principal at 585.360.1481View full article
On March 31, 2014, New York State enacted comprehensive corporate franchise tax reform with the passage of the 2014-2015 NY budget legislation. This legislation includes new rate structures, new rules for banks, changes the economic nexus rules, changes the rules on combined reporting, revises the net operating loss provisions, and changes sourcing of income and apportionment.
The changes take effect over multiple years and this legislation will result in planning for the most advantageous entity structure for N.Y. State purposes for both existing and new businesses.
Unfortunately, these changes will negatively impact utilization of non-refundable N.Y. State income tax credits by qualified NY manufacturers.
Check out our educational alert, providing an overview of the corporate franchise tax reform.
If you have additional questions, or need assistance with N.Y. State entity structuring to maximize utilization of tax incentives under the new corporate tax regime, CONTACT US today.