NYS Changes QETC Tax Credit Rules for Partnerships and S Corporations

Earlier this month, New York State lawmakers completed one of the latest budgets in New York State history.  The legislation that finalized the budget includes numerous tax law changes that will raise approximately $1 billion in state revenues.  One significant change worth noting is to the Facilities, Operations and Training Credit for Qualified Emerging Technology Companies.  Partnerships and New York State S Corporations that plan to claim this credit in 2010 and forward will now be limited $250,000 per year at the entity level.  Prior law allowed these entities to pass through a total of more than $250,000 in credits to their partners and shareholders, making it possible for an individual taxpayer to claim the $250,000 maximum credit from one entity source.  This change in the law will result in a decrease to the QETC credits that are available to individual taxpayers for the 2010 tax year.

For example, if a New York Limited Liability Company (LLC) generated $500,0 00 of QETC credits in 2009 and passed them through to its two equal members, each member would have received $250,000 of tax credits for that year, the maximum allowed to be claimed by an individual taxpayer.  If that same LLC generates $500,000 of QETC credits in 2010, it may only pass through $250,000 of those credits to its members.  For 2010, each member would only be able to claim $125,000 of credits, a significant reduction that may not have been anticipated by the members.

We encourage taxpayers to review their 2010 tax planning assumptions, as they may need to be modified before the end of 2010 to take this law change into account.  Our Emerging Technology Team can assist business owners in quantifying the impact of this law change on their business, as well as their personal tax returns. Email our team with questions at emergingtechnologyteamefprotenberg [dot] com          and click here to read more about QETC Tax Credits.