Zoned out?

GUILDERLAND — The Northeastern Industrial Park, and Northeastern IP Holdings, a business located within the Guilderland Center park, are on the list of the nearly 1,600 businesses in the state, and 52 in the Capital Region, that may have their Empire Zone certifications rescinded.

The businesses are on that list because they have been identified as “shirt-changers” by Empire State Development, according to a spokesperson from ESD.

A “shirt-changer” is a business that transferred employees from one property or business to another, and treated them under tax laws as if they were new employees, the spokesperson said. By doing this, businesses enhanced their Empire Zone benefits.

The Empire Zone program was meant to boost employment rates. Companies that did not have an employment base, and went on to add positions, would be eligible for a tax break under the program.

Some businesses were abusing this privilege by filling out paperwork, claiming they had a base employment of zero, and then adding just one employee, boasting an employment increase of 100 percent, said the ESD spokesperson, who asked not to be named.

 Tax forms from 2007 show that Northeastern Industrial Park, with a total of 27 full-time employees, expected a tax break in the amount of $36,969, and Northeastern IP Holdings, with two full-time employees, expected an exemption of $658,402. The ESD confirmed these figures, and said IP Holdings received such a large amount because they held the title to the property and got real property tax credit, while NEIP was only getting sales tax exemption.

The businesses recognized as “shirt-changing” offenders were identified based on their answers to a question on a form they filled out in 2006, called the Business Annual Report. The question on the BAR asked any business certified prior to Aug. 1, 2002, whether it was a Qualified Empire Zone Enterprise with a base period of zero years, or with an employment number of zero in the base period.

NEIP and IP Holdings basically identified themselves as “shirt-changers” when they answered the question on the BAR, said the ESD spokesperson. They met the following criteria — certified prior to Aug. 1, 2002, had a zero base period or zero employment in their base period, qualified for certain tax credits, but were similar in ownership and operation to an existing business entity.

Guilderland’s assessor, John Macejka, was contacted for information on the number of buildings and businesses located in the Northeastern Industrial Park, and which of those received Empire Zone exemptions, but Macejka said he did not know. He is not notified about which properties get the exemption, and therefore could not say what the businesses would pay in taxes if they were to lose certification, he said.

The success of the Empire Zone program has actually been in question for years. In December 2008, Elizabeth Lyman and Tammy Pels, of the Citizens Budget Bureau, published an extensive report detailing the Empire Zone problems they had discovered in their research.

Lyman told The Enterprise that the Empire Zone program was something she became interested in during her quest to examine programs that were doing unnecessary spending.

“The Empire Zone program proved to have a very high failure rate,” said Lyman. The decision making process was problematic, and the kind of investments the program was making were not lucrative, she said. A lot of the investments were in manufacturing and big box stores, and the costs weren’t adding up, Lyman said.

The issue of the program was a rising topic, but Lyman believes that the CBC’s report helped speed the debates and lead to action.

Now, companies that have been in the program for at least three years must have generated a minimum of a dollar in wages, benefits, and investments, for every dollar they received in tax credits. The ESD refers to this as a 1:1 cost-benefit test.

“There have been some changes made, processes have been tightened, and loop-holes are being eliminated,” said Lyman, in reference to the potential de-certifications.

The ESD now has regulatory authority to audit companies, and, “reserves its right to review the circumstances of a particular company in order to, among other things, verify the accuracy of our records, and that a business has not made misrepresentations on its application for certification,” said the ESD spokesperson.

Before 2005, the ESD did not receive base period data from the businesses applying for certification; the information was provided only to the tax department by a certified business when filing tax returns that claimed Empire Zone benefits, the spokesperson said.

On June 19, the ESD will send out the retention certificates to businesses that will remain certified. Businesses that don’t appear to meet the qualifications, including NEIP and IP Holdings, will receive additional information on the same date.

Multiple calls to David Buicko, the chief operating officer of the Northeastern Industrial Park, were not returned.