New York City Reinstates the Biotech Tax Credit

New York City Mayor Eric Adams signed legislation that renewed the previously lapsed NYC Biotechnology Tax Credit (“the credit”). The credit is meant to bolster and incentivize the emerging biotechnology sector to create jobs and invest in NYC. Currently, the credit is available for eligible taxpayers for tax periods starting January 1, 2023, and before January 1, 2026.

The credit is available to qualified emerging technology companies (“QETCs”).  QETCs are engaged in biotechnology, which is defined as: the scientific manipulation of living organisms for products that improve life and health including the associated scientific research, pharmacological, mechanical, and computational applications and services connected with these improvements, that are subject to the business corporation tax, general corporation tax, and the unincorporated business tax.

A QETC is a company located in New York City that has annual product sales not exceeding $10 million, and meets either of the following criteria:

• The primary products or services of such company must be classified as emerging technologies, which include advanced materials, defense technologies, electronic and photonic devices, information and communication technologies, and remanufacturing technologies; or
• The company has a ratio of research and development (“R&D”) funds to net sales that is equal to or exceeds the average ratio of all surveyed companies classified (as determined by the National Science Foundation).

To qualify for the credit a company must also:

• Have 100 or fewer full-time employees, at least 75% of whom are employed in New York City;
• Have a ratio of R&D funds to net sales which equals or exceeds 6%; and
• Have gross revenues of no more than $20 million in the immediately preceding year (including affiliates and related members).

The credit is computed as the sum of the following qualifying expenses, which include property, research, and employee training, each with specific percentages and limits applied:

• Property: 18% of the cost of a research and development property that is purchased by the taxpayer and placed in service in the calendar year that ends with or within the taxable year for which the credit is claimed.
• Research: 9% for qualified research expenses paid or incurred by the taxpayer in the calendar year that ends with or within the taxable year for which the credit is claimed.
• Employee Training: 100% of high-technology training expenditures incurred during the calendar year that ends with or within the taxable year for which the credit is claimed. There is a limit of $4,000 per employee per calendar year. The employees must be full-time employees and remain employed for at least 180 days following the training’s completion.

The maximum credit a taxpayer can receive annually is capped at $250,000, unused credits can be refunded or applied against the next year’s tax if it exceeds the current year’s tax liability. There is also an overall annual cap for the credit of $3 million annually.

• A taxpayer is entitled to the maximum credit provided the average number of full-time employees in NYC is at least 105% of the number of full-time NYC employees in the immediately preceding calendar year for which the credit is claimed. Assuming the 105% increase is not met, a taxpayer is eligible for 50 percent of the credit, capped at $125,000.
• For taxpayers new to NYC or without prior employees in NYC, there is no requirement to meet the 105% employee increase. They can receive the maximum credit in their first eligible year.
• A taxpayer receiving space and support from an academic incubator in NYC is not eligible for any credit if the full-time employee count in NYC is less than 105% of the previous year’s count.

Applications for the credit must be submitted by January 15^th following the calendar year for which the credit is to be claimed. The NYC Department of Finance will notify taxpayers regarding their eligibility.

Weaver is available to help with any questions regarding the credit. Please contact us for information or assistance.

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