New York, Empire Zone Credits Denied

The Tax Appeals Tribunal (TAT) denied the petitions of the taxpayer, failing to find a valid business purpose for the formation of an entity seeking Empire Zone credits. The taxpayer, an owner of several home furnishing related businesses, had reorganized certain portions of the business, installing a holding company as the owner of a home furniture retailing business and attempting to obtain Empire Zone enterprise credits based on the establishment of the new entity. The Division of Taxation determined, on audit, that the formation of the holding company lacked a valid business purpose and the taxpayer was not entitled to Empire Zone Credits, a finding which was upheld by the Administrative Law Judge. The TAT held that the taxpayer's business was required, pursuant to N.Y. Tax Law § 14(j)(4)(B) and N.Y. Tax Law § 208(o)(1)(D) , to have a valid business purpose and to not have been formed solely to acquire Empire Zone benefits. As the record lacked any contemporaneous evidence supporting the taxpayer's contention that the holding company was established as part of a liability segregation plan and the establishment of the holding company did not meaningfully change the economic position of the taxpayer's business, the taxpayer failed the valid business purpose test under N.Y. Tax Law § 208(o)(1)(D) and the new business test under N.Y. Tax Law § 14(j)(4)(B) and therefore was ineligible to receive Empire Zone credits. Furthermore, the TAT determined that the application of N.Y. Tax Law § 14 was not unconstitutionally retroactive, as it applied to the receipt of prospective benefits and noted that entitlement to Empire Zone credits is not a right, but a matter of legislative grace. (In the Matter of the Petition of Dunk & Bright Furniture Co., Inc. and James F. Bright, N.Y.S. Tax Appeals Tribunal, Nos. 823026, 06/28/2012).