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STARTUP-NY is an unfair and discriminatory scam

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It is quite possible that you have seen the promotional advertisements on TV for the new STARTUP-NY program. STARTUP-NY stands for SUNY Tax-Free Areas to Revitalize and Transform UPstate New York. It is being hailed as a wonderful new initiative by Gov. Cuomo to jumpstart the economy of New York State. The advertisement talks about new businesses starting up in NY, or established businesses moving to NY, or expanding within the state. It promises 10 years of tax-free exemption to any business that comes to their state. Like anything that sounds to good to be true, it is.

Upon visiting the STARTUP-NY website, one can peruse the FAQ section to get a brief overview of the program. It is first revealed that the tax-free areas are mostly strictly limited to vacant land or building space on or within a mile of any public or private university or community college, or their affiliated properties, and said university or college must sponsor businesses taking part in the tax-free program, so long as they work to further their “academic mission”. After closer inspection of the 34 pages of the actual statute, 50 pages of accompanying regulations and 18 pages detailing the tax law changes, of course all written in legalese, one can begin to see the heavy hand of bureaucratic regulation, market interference and the limited scope of beneficiaries. It becomes clear that New York is in the business of unfairly and discriminatorily picking winners and losers in the marketplace.

Let us first look at who is eligible, or rather ineligible, for the tax-free incentives in the program. A business is not eligible to receive tax-free benefits if they are involved in retail or wholesale, restaurants, real estate brokers or real estate management, law firms, medical or dental practices, hospitality, finance or financial services, personal services, business administrative or support services (unless granted special permission), accounting services, utility services, or energy production or distribution. So what exactly does that leave? A business can be eligible for tax-free incentives if it is a “high-tech” business, involved in biotechnology, information technology, remanufacturing, advanced materials, processing, engineering or electronic technologies, or innovative manufacturing processes. Basically, only high-tech companies with high-paying jobs need apply to reap the tax-free benefits.

To become eligible for the program, one of these high-tech companies must seek sponsorship by a college or university, show that their business will further the “academic mission” of their sponsor, constantly create net new jobs and provide detailed business plans and forecasts for the next ten years showing that they will continue to create net new jobs. Failure to meet or exceed their forecasted job creation, falling below their average employee count from the previous year, or any of the myriad other requirements, will result in removal from the program and even financial liability for any tax benefits received. Businesses must also be in compliance with all worker protection and environmental rules and regulations, and show “environmental sustainability”.

Let us now look at these tax-free benefits for these select few companies that remain eligible. For ten years, businesses in the program would pay no business or corporate tax, no organization tax or license and maintenance fees, no Metropolitan Commuter Transportation District mobility tax, no sales or use tax, no real estate or real property transfer tax, and employees would pay no state or local personal income taxes. These same tax-free benefits would also apply to any other business, contractor, subcontractor or repairmen that is in any way associated with the original construction or building of the tax-free business, or the adding to, altering, improving, maintaining, servicing or repairing of any real property used by the program participant in the tax-free area. Sounds like a pretty good deal for the unions that will undoubtedly be performing much or all of that type of work.

The question has been raised, how is this fair to other, already established businesses that are not receiving any of these tax benefits, when they must compete with these new businesses that are paying no taxes. Of course it isn’t fair at all, but the program would have you believe that no business will be allowed into the program if it competes with another similar business in the nearby community. However, when looking through the regulations, it is found that businesses that feel they are being unfairly competed against must appeal to the Commissioner of the program, and the Commissioner has the sole discretion and authority to decide if a program participant is in competition or not.

These tax-free benefits also appear to be unfair on a personal level. How is it fair for an employee of one of these new “high-tech” businesses to pay no personal income tax on their higher than average salary, when their friends, family and neighbors that work for other, regular low-tech jobs must pay the high rates of personal income tax on their average to below-average salaries? This seems blatantly discriminatory against low-skilled and low-educated workers, in favor of highly skilled and educated workers. For a liberal state like New York, that always seems to push equality and an egalitarian agenda, this is a complete contradiction.

There are a number of rules and regulations relating to fraud in the program. Businesses that are receiving tax-free benefits will be constantly monitored and audited, and they will be responsible for supplying quarterly and annual progress reports to the program board. As noted before, when applying for the program, the business must forecast out ten years and show exactly how many new jobs they will create. Should they fail to meet these forecasts, they can be suspended or removed from the program, at the Commissioner and Board’s discretion. Any other failures to meet specified goals or if they run afoul of any other law or regulation, or be found to have committed any type of fraud in their application could result in immediate termination from the program and felony charges. Any business that is terminated will be held responsible for repaying all of the tax benefits granted to them, including the personal income taxes of their employees. Given the up and down nature of our economy, and the unknowable future, it seems highly likely that many of these startup businesses will find themselves unable to meet their forecasted growth, and will suddenly find themselves on the hook for all of the benefits granted them.

The STARTUP-NY program appears to be an unfair and discriminatory scam. It is unfair to other tax-paying businesses that must compete with new tax-free startups. It is discriminatory to low-skilled and undereducated workers that are unable to get hired at these “high-tech” jobs that will be offering personal income tax-free jobs. And it seems like quite a risk for new or expanding business owners, who may find themselves suddenly facing felony charges while owing hundreds of thousands, if not millions of dollars to the state in back taxes, should they run afoul of any of the numerous rules and regulations, and be removed from the program.

It also would appear to be an admission that the tax burden of New York State is too high for new businesses. They claim themselves that they are offering these tax-free benefits as a way to boost the economy and bring prosperity to their state. Given that admission that a lower tax burden brings about jobs and prosperity, instead of offering this sweet deal to a select few businesses as a way to lure them into the state, why not lower some or all of their many taxes for everybody that already conducts business in the state?

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