New York State’s New COVID-19 Tax Credit for Small Businesses

What is the COVID-19 Capital Costs Tax Credit Program?

This new program offers a tax credit of up to $25,000 to small businesses that incurred costs in 2021 and 2022 to:

  1. Comply with COVID-19 regulations, or
  2. To generally increase safety through infectious disease mitigation

How is the tax credit calculated?

The credit is equal to 50% of qualified expenses up to a maximum of $50,000 of expenses (i.e. a maximum tax credit of $25,000).

What are considered qualified expenses?

Qualified expenses include:

  • supplies to disinfect and/or protect against COVID-19 transmission
  • restocking of perishable goods to replace those lost during the COVID-19 pandemic
  • physical barriers and sneeze guards
  • hand sanitizer stations
  • respiratory devices such as air purifier systems installed at the business entity’s location
  • signage related to the COVID-19 pandemic including, but not limited to, signage detailing vaccine and masking requirements and social distancing
  • materials required to define and/or protect space such as barriers
  • materials needed to block off certain seats to allow for social distancing
  • certain point of sale payment equipment to allow for contactless payment
  • equipment and/or materials and supplies for new product lines in response to the COVID-19 pandemic
  • software for online payment platforms to enable delivery or contactless purchases
  • building construction and retrofits to accommodate social distancing and installation of air purifying equipment but not for costs for non-COVID-19 pandemic related capital renovations or general “closed for renovations” upgrades
  • machinery and equipment to accommodate contactless sales
  • materials to accommodate increased outdoor activity such as heat lamps, outdoor lighting, and materials related to outdoor space expansions
  • other costs as determined by the department to be eligible under this section; provided, however, that “qualified COVID-19 capital costs” do not include any cost paid for with other COVID-19 grant funds as determined by the commissioner
  • expenses to support employees working remotely

What requirements must a business meet to be considered eligible?

  • To be eligible, the business entity must be structured in one of the following ways and have its own Federal Tax ID (i.e. an EIN or, in the case of a sole proprietor, an SSN):
    1. Sole Proprietor
    2. Partnership
    3. LLC
    4. Corporation (C or S)

Note – entities with common ownership but operating under different EINs are generally considered to be separate business entities.

  • The business must be a small business, meaning that it:
    • Had gross receipts of less than $2.5 million in 2021
    • Has less than 100 full time equivalent (FTEs) employees
    • Is operating at a location or locations within New York State
    • Incurred qualified COVID-19 expenses of at least $2,000 between January 1, 2021 and December 31, 2022 that were paid on or before March 31, 2023
    • Is independently owned and operated (this precludes companies that are publicly traded or owned 5% or more, directly or indirectly, by a publicly traded entity)
    • Is in substantial compliance with State health laws and directives
    • Does not owe past due state taxes or local property taxes (unless the business is making payments and complying with an approved binding agreement with the taxing authority)
    • Independently manages and controls the day-to-day operations of its own business through its ownership and management, without undue influence by an outside entity or person that may have an ownership and/or financial interest in the management responsibilities of the small business

How do I apply?

There will be a multi-step application process as follows:

  1. Fill out the eligibility screening tool to determine if your business qualifies for the program (which isn’t available yet)
  2. Once the full application is available you will be notified by email and will need to fill out and submit the completed application, including documentation to show proof of expenses
  3. Authorized applicants will be notified when the application portal is open (which is expected in the fall of 2022)

What documentation will I need to apply?

You’ll need proof (e.g. invoices, receipts, etc.) showing that qualified expenses claimed in the application were paid on or before March 31, 2023.

The documents must be uploaded at time of application, and proof of expense will be required for every expense item over $1,000.  A random sample of items less than $1,000 will be selected and proof of expense required for the selected items.

If I meet all of the eligibility criteria, am I guaranteed to receive tax credits under this program?

No. The State budget allocated a maximum of $250 million in available tax credits. If and when this allocation is exhausted, business entities will no longer be able to receive tax credit certificates. Business entities are encouraged to apply to the program as soon as possible.

How do I use the tax credit certificate I received from Empire State Development to claim my tax credit?

You will submit your tax credit certificate when filing a tax return. The tax credit can be claimed in the taxable year in which the tax credit certificate is issued to your business.

The certificate will include the ownership information provided by the business in the application. It is very important that the ownership table in the application be completed correctly to include all owners of the applicant business, their tax identification or social security numbers, and the percentage ownership for each owner.

How much funding is available?

There is a maximum of $250 million available for these tax credits, and once the funding runs out the credits will no longer be available.

How does this tax credit work in conjunction with other federal COVID credits?

Businesses that received Federal assistance (e.g. PPP loans, EIDL grants or loans,) or State assistance (e.g. New York Forward loan or a COVID-19 Pandemic Small Business Recovery grants) are eligible for this credit.  However, if your business received grant assistance from the NYS COVID-19 Pandemic Small Business Recover Grant Program and grant proceeds were used to pay for COVID-19 expenses, then those expenses would not qualify for this Program (i.e. no double dipping on expenses between these two NYS programs).

In conclusion, this credit seems like a no-brainer for any eligible business that paid qualified expenses. Apply ASAP so you can get your credit before funds run out!