On December 4, 2023, New York City Mayor Eric Adams signed legislation to reinstate previously lapsed tax credits for biotech companies (the Credit), with a view towards bolstering the emerging biotechnology sector in New York City. Eligible companies can apply the Credit against certain New York City taxes for tax years beginning on or after January 1, 2023, and before January 1, 2026. Notably, for eligible companies who do not owe sufficient New York City taxes, the excess amount of the Credit is payable as a refund (without interest). Each eligible company is entitled to a Credit of up to $250,000 per year, with a total of $3 million available annually. The New York City Council Department of Finance will determine how to allocate the aggregate amount of the Credit among eligible companies.
Eligibility
The Credit is available to qualified emerging technology companies (QETCs) that are engaged in “biotechnologies” and fulfill certain requirements. QETCs are companies located in New York City with total annual product sales of $10 million or less and 1) whose primary products or services are classified as emerging technologies or 2) that have research and development (R&D) activities in City and whose ratio of R&D funds to net sales equals or exceeds an average ratio (as determined by the National Science Foundation). In addition, QETCs must have 1) no more than 100 full-time employees (of which at least 75 percent are employed in the New York City), 2) a ratio of R&D funds to net sales of at least six percent, and 3) no more than $20 million dollars in aggregate gross revenue (including that of its affiliates) in the preceding taxable year.1
The Credit equals the sum of 1) 18 percent of the cost or tax basis of R&D property purchased and placed in service during the current taxable year, 2) nine percent of qualified research expenses incurred in the current taxable year and 3) 100 percent of qualified high-technology training expenditures in the current taxable year, capped at $4,000 per employee. “Qualified research expenses” includes expenses associated with in-house research and development, including patent costs, but does not included expenses of outside paid consultants. “Qualified high-technology training expenditures” includes expenditures for biotech courses at accredited, degree-granting colleges or universities in New York City. A QETC is entitled to 100 percent of the aggregate Credit (capped at $250,000), provided the number of full-time employees employed by the QETC in New York City increases by five percent from the year immediately preceding the first taxable year in which the Credit is claimed, or 50 percent of the aggregate Credit, capped at $125,000. Finally, the Credit is not allowed to a QETC that receives space and support from an academic incubator in New York City if the number of full-time employees located in New York City does not increase by five percent or more compared to the year immediately preceding the first taxable year in which the Credit is claimed.
If you have any questions relating to a company’s eligibility and the availability of the Credit, please contact Myra Sutanto Shen, Marty Waters, Jennifer Fang, or any member of the tax or life sciences practices at Wilson Sonsini.
Anjali Krishnan contributed to the preparation of this alert.
[1] For fiscal year taxpayers, any reference to “taxable year” means the calendar year ending within such taxable year.
