January 18th, 2018
In his recent budget proposal, Governor Cuomo proposed a three-year BCP tax credit deferral. The proposed deferral which is located in Part S of Revenue Article VIII is similar to that enacted in 2010 during the depth of the Great Recession. Taxpayers claiming BCP tax credits in 2018-2020 would be limited to $2MM each year. Taxpayers will be able to begin claiming the deferred nonrefundable credits in full starting in 2021. 50 percent of the refundable credits would be able to be claimed in 2021, 75 percent of the remainder in 2022, and the remainder in 2023.
The 2010 deferral had been the subject of a takings claim in Empire Gen Holdings, Inc. v. Governor of New York, 967 N.Y.S.2d 919 (Sup. Ct-Albany Cty. June 25, 2013). Plaintiff had constructed a 65 megawatt natural gas fired electric generating plant that received a Certificate of Completion (COC) in 2008. The plaintiff claimed and received the site prep tax credit. After the property was placed into service in September 2010, plaintiff claimed tangible property tax credit of $86,951,916 for 2010. However, because the Tax Credit Deferral Provisions became effective on August 11, 2010 and plaintiff did not place its property into service until September 2010, plaintiffs’ 2010 BCP tax credit was reduced to $1,663,633 with the balance of the full redevelopment tax credit deferred until 2013 and thereafter.
Plaintiff alleged the Tax Credit Deferral Provisions amount to an unconstitutional taking and was a violation of the Due Process, Equal Protection and Contract Clauses of the State Constitution. The Supreme Court of Albany County granted the State’s motion to dismiss on grounds that the plaintiff had no cognizable injury. The court ruled the plainiff”s rights to claim the BRTC did not vest until the property was put into service. On the Contracts Clause cause of action, the court said that the New York Constitution provides that tax exemptions are freely repealable and found no legislative intent in the brownfield statute (ECL, art 27, tit 14) and the related Tax Law sections that the State was bound to paying the full BRTC without deferral.
Earlier, the plaintiff sought a permanent injunction in federal court seeking to bar New York from enforcing the deferral provision and a ruling that they were unconstitutional. However, the United States District Court for the Northern District of New York ruled the challenge was was barred by the Tax Injunction Act and the principle of comity because the plaintiff sought a federal-court ruling on a local tax matter because the relief plaintiffs sought (i.i.e., money damages and a judgment declaring the statutes unconstitutional and enjoining their enforcement) would have interfered with New York’s assessment and collection of tax revenue, and thus with New York State’s administration of its fiscal operations. Empire Gen Holdings, Inc. v. Governor of New York, 2012 U.S. Dist. LEXIS 96023 (N.D.N.Y. July 11, 2012)
If the Governor’s proposal is enacted into law as currently drafted, BCP projects that received Certificates of Completion but have not placed the property into service (e.g., received a certificate of occupancy)will be subject to the deferral. Sites that are under a deadline to obtain a COC by December 31, 2019 would probably want to delay putting their project into service until after the deferral period expires.