Don't start your startup in New York or San Francisco. Rents here are twice what they are in more reasonable parts of the country, and you get absolutely nothing in exchange except maybe a slightly-less-shallow talent pool. (Oh, and cockroaches. Lots of cockroaches.) Your employees will be paid twice as well, and your offices will be twice as nice... for free... if you locate yourself outside the expensive parts of the country.
This is pretty awesome, and it seems to apply to New York City too:
- In New York City, Long Island and Westchester County, businesses must be start-ups or one of a number of broadly defined “high technology” businesses.
But this looks like a major caveat:
- Participation in START-UP NY does not necessarily require that your business be on or next to a campus, but it must be located on property affiliated with a university.
That's a very "interesting" requirement. I wonder how it will work in practice? What does it mean for a property to be "affiliated"?
Edit: here are the 3 NYC locations: http://startup-ny.com/properties/new-york-city-properties/
Read through the regulations, here's the gist:
-- New initiative to establish tax-free zones near and on university campuses
-- Businesses in those zones will operate 100% tax free for 10 years – no income, business, corporate, state, local, sales, property taxes nor franchise fees
-- Employees can be eligible to pay no income taxes as well
-- Business have to be either new startups OR expansion of existing businesses that will bring new jobs to New York state
-- Some industries are prohibited from participating
-- Types of companies targeted are in high-tech – generally engaged in the “design, development, and introduction of new biotech, IT, advanced materials, process engineering, electronic technology, and/or innovative manufacturing process”
I love startups and hate high taxes, but programs like this are bad.
The rewards go to firms most able to jump through confusing and often quite arbitrary eligibility hoops, or race to collect benefits before they are capped. (In some cases, the firms' skill in doing so is because they helped draft the program or otherwise have connections to the governing authorities.)
Jurisdictions get into bidding wars for the new/relocating firms able to qualify... but continue to subject older/less-politically-connected firms to growth-stunting tax levels. So it's creating incentives to move/restructure/game-the-rules, and an uneven playing field between sources of growth, and advantaging lawyers and policy-arbitrageurs above other more customer-focused innovators.
Just make a fair, welcoming environment for all employers, new and old, big and small, novice and expert, insider and outsider.
This is why I hate being a democrat ( I know republicans do the same thing but I think hard to argue they have a stronger overall position of lower taxes for everyone). This kind of stuff is embarrassing. It seems like a secondary but big reason taxes are so high is so that politicos can hand out stupid breaks like this to arbitrary groups. Plus the fairly obvious admission that taxes diminish business growth.
I would say that tax breaks are not compelling to startups since they play almost no role. But the employee income tax waiver might be significant.
Got excited, then saw that your business must operate from university-affiliated property. Those of us already established in NYC and working from shared spaces, home, etc. are ineligible. Might still be worth it (I don't have the experience to say) but it's not for everyone.
Can I freelance for 10 years tax free in NY if I incorporate?
Clever, both financially and psychologically. If you plan on leaving after 10 years consider this, after a decade you will have built your entire logistics, business partnerships, network, staff, and support system in NYC. Moving out will be very difficult. You won't want to.
It's really interesting, funny and ironic that in a liberal, pro-tax-the-hell-out-of-everyone, government-knows-best state the best tool they can think of to entice businesses to set roots in the state is the elimination of income tax. Friggin hilarious. I almost got happy thinking that they started to understand but quickly realized it's a bait-and-switch. They are going to shaft these businesses one way or the other eventually and most-certainly after the ten year mark passes.
As a New Yorker, I think this sucks.
We already pay high taxes and if somebody gets a tax break that means all the rest of us will pay even more.
The hidden fine print is that you have to affiliate with a university and support that university's mission. I wonder how loose they'll be in interpreting that support. Does "providing internships to students every summer" count, or will it need to be more substantial?
Why not just take the same money, and reduce taxes for all businesses, rather than favoring this, that or the other sector.
Italy does this a lot: incentives for biotech startups founded by Sardinian women under 35, or German speaking Italians over 50 with shoe companies, or whatever other silly thing some politician decides is a good idea. It creates incentives for people who are adept at navigating the bureaucracy and finding where the government money is directed, rather than simply getting on with business.
(Because it's not on the front page)"START-UP NY is a groundbreaking new initiative from Governor Andrew M. Cuomo that will provide major incentives for businesses to relocate, start up or significantly expand in New York State through affiliations with public and private universities, colleges and community colleges. Businesses will have the opportunity to operate state and local tax-free on or near academic campuses, and their employees will pay no state or local personal income taxes. In addition, businesses may qualify for additional incentives."
Wow. As a former resident of NYS, this is incredible. Income tax in the state is really high and this seems like a good way to spark development.
I wonder what the trade-off is. I mean, business income taxes are generally a bad idea anyway, and it's great to see a state make a move toward eliminating them, but they would also need a way to offset lost revenue. Higher taxes on 10+ year businesses?
um...silicon valley already has this covered: you only pay taxes on revenues. (badam CHING).
Startups in DC are exempt from many taxes for 5 years (and no capital gains on holdings older than 5 years). Makes sense that states would be competing for entrepreneurs.
Let say the person is not a US citizen. They recently incorporated (C-Corp or LLC) in a different state (e.g. Delaware). They're a one/two-person tech startup until forseeable future (e.g. building SaaS on the side). Are they eligible for this? (They might not be physically in US)
As a startup CEO, I don't really care about income taxes. Most tech startups get acquired or fail before profitability. I care about personal capital gains tax. Give me a personal capital gains tax exemption and I'm in. I love Hudson.
I wonder, if, and how MA and Boston might respond? NYC is probably a bigger competitor than San Francisco is for getting start-ups in the region only because of proximity.
Could these be great money-laundering opportunities as well ;)? Establish a chain of start-ups, convert black money to white, tax free!
Isn't this why people incorporate in Delaware? I don't really see the point of this.
Wow! Does this in include NYC?
What about Income Tax and Payroll Tax? That is more important for employees.
Guessing that none of these tax-free zones will be in New York City.
Okay but the rents must be cheaper than Vancouver, BC right? Taxation must be lower too?
I signed up and planning to move there IF this is not one of those 'too good to be true' deal that ends up in snow flakes.
The tax rates in BC is insane both as an employee and employer. The cost of hiring an employee because of taxation and other social welfare benefits in an attempt to become more 'Netherlandly' forces down salary for software engineers and designers. What makes it worse the scarcity of such jobs forces engineers to compete with each other on the non-paid overtime one can work to become 'invaluable'. Plenty of software sweatshops here in BC, where a nurse or a manager at mcdonalds find more stability and higher pay (when you count the unpaid overtime).
Not to mention that up to 40% of any money you make goes to federal government and the BC government still trying to pay off the loans from holding the winter olympics.
Not to mention the special taxes on rent, food, bars, everything.
If the door opens, I'm going to be the first in line to get to NY if the tax thing turns out to be true. I hear New Yorkers are mean and cold, that's totally fine with me, I'd rather have someone admit they are an asshole and not hide behind it, rather than try to deny it to keep some false image as the 'warmest part of Canada and the whole world' thing. I've been part of this hypocrisy too long.
Not sure this is anywhere as good as it sounds. Most startups aren't profitable for several years (if ever), so income tax would not be an issue during this period. Even after there is income, there would be loss carry-forwards that would have soaked up income taxes from the first couple of profitable years. So this probably doesn't produce much benefit for much/most of the 10 years.
Eliminating sales tax isn't that big a benefit either: SASS, social, or other popular startup types would not pay much of this anyway (on purchases of desks, computers, etc?).
Property tax benefits could be sizable, though many bootstrapped startups don't have this for a couple of years anyway.
Cutting franchise taxes provides a small benefit that would probably help all startups.
As others have pointed out, the non-tax costs of being in an expensive city like NYC are substantial. And don't forget, NY isn't waiving personal income taxes—so if your startup does hit a homerun, they'll take their pound of flesh on the back end.
For some startups (like the rare one with high anticipated sales tax costs), this program might be enough to tip the scales in favor of locating in NY. For most startups, however, state/local tax cuts in the first 10 years are just not that big a deal. As the saying goes: don't let the tax tail wag the dog.
Looking at the policy from a macro perspective, it looks a lot like what Swiss cantons do to negotiate tax breaks for a limited time based on anticipated future tax revenues and job creation. Also seems a lot like what Ireland has done to build up its tech sector (and been chastised for of late: see Apple, Google, etc.). So it could be produce benefits (for NY), but it would of course pull talent from other regions, thereby reducing the net benefit.