What You Need to Know About the 2023 NYC Biotechnology Tax Credit

The New York City (NYC) Biotechnology Tax Credit for life sciences companies is getting a new life, but you must apply soon for 2023.

On December 4, 2023, NYC Mayor Adams signed legislation to reinstate the previously lapsed tax credit for qualified emerging technology companies (QETCs). The Biotech Tax Credit can be used to offset the city’s general corporation tax, the unincorporated business tax, or the business corporation tax. Any portion of the credit which is in excess of the QETC’s current year tax liability may be refunded to the taxpayer.

The biotechnology industry has shown exponential growth in recent years, emerging stronger than ever from the Covid-19 pandemic. We have witnessed a convergence of biology, chemistry, and various areas of engineering, such as genetic, computer, and biochemical, coupled with advances in artificial intelligence. Biotechnological tools and techniques have also witnessed significant innovations that include but are not limited to the following:

• Electrophoresis and blotting
• Imaging and quantitation
• Real-time PCR and digital PCR
• Transfection
• Flow cytometry, cell sorting, and cell counting
• Preparative and analytical chromatography
• Spectrophotometry and fluorometry
• Multiplex immunoassays
• Protein functional and interaction analysis

QETCs are companies located in NYC 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 within NYC and whose ratio of R&D spend to net sales equals or exceeds an average ratio (as determined by the National Science Foundation).

The credit is available to eligible taxpayers for tax periods beginning on or after January 1, 2023, and prior to January 1, 2026. 

Additionally, a company will only be eligible for the credit if the QETC:

1. Engages in biotechnology;
2. Employs no more than 100 full-time employees, with at least 75% of those employees based in NYC;
3. Has a ratio of R&D spend to net sales of at least 6%; and
4. Has no more than $20 million of aggregate gross revenue (including any affiliates) in the immediately preceding year.

Applications for the 2023 tax year must be submitted by January 16, 2024. Taxpayers will be notified by the NYC Department of Finance with the amount of approved credit.

The credit is calculated as the sum of the following expenses:

1. Facilities: An eligible taxpayer is allowed a tax credit of 18% of the cost of R&D property that is purchased by the taxpayer and placed in service in the calendar year that ends with or within the taxable year for which the credit is claimed.
2. Research: An eligible taxpayer shall be allowed a credit of 9% for qualified research expenses paid or incurred by the taxpayer in the calendar year that ends with the taxable year for which the credit is claimed (employee wages, contract research, supplies).
3. Employee Training: An eligible taxpayer shall be allowed a credit for up to 100% of high-technology training expenditures incurred by the taxpayer during the calendar year that ends with or within the taxable year, for which the credit is claimed. There is a limit of $4,000 per employee per calendar year. These expenses qualify for the credit only if they are full-time employees of the company during the time of the training.

Additional qualifying training expenses allowed for relocation of an academic business incubator facility:

1. Relocation Tax Credit: Credit is allowed for a taxpayer who relocates from an academic business incubator facility, partnered with an accredited post-secondary education institution located in the City, to another City site.
2. Employment Requirements for Relocation Tax Credit: The requirement that the person remain employed during training, and then for at least 180 days following completion of the training, doesn’t need to be met if they were employed at the incubator facility for at least 750 hours during any 24-month period during which the taxpayer was located at the incubator facility.

The credit per taxpayer is capped at $250,000 annually, with a total available credit pool of $3 million per year.

To be eligible for the maximum amount of the calculated credit (capped at $250,000, with a total available credit pool of $3 million per year), the QETC’s average number of full-time employees in NYC must be at least 105% of the number of full-time city employees in the immediately preceding calendar year for which the credit is claimed. Otherwise, the taxpayer is limited to 50% of the calculated credit (capped at $125,000).

To learn more, taxpayers engaged in emerging biotechnology in New York City should contact Paul Gevertzman or Yair Holtzman, Partners and
Co-Leaders of Anchin’s Tax Credits and Incentives Practice, or your Anchin Relationship Partner.