In New York, industrial development agencies (IDAs) are one means used to provide tax incentives to businesses. An IDA is a public benefit corporation governed by article 18-A of the General Municipal Law (the Act) that promotes economic development in the municipality in which it is established.
Most counties and Towns in New York State including New York City have IDAs. IDAs perform government functions and serve public purposes, the Act authorizes IDAs to provide specific real property tax and sales and use tax benefits for property owned or controlled by an IDA.
Once an IDA determines that a project qualifies for, and has been approved by the IDA for, financial assistance, the IDA enters into project agreements with the property owner to
either sell and lease back the property, or lease and lease back the property from the IDA. At the same time, the property owner and the IDA enter into a payment-in-lieu-of-taxes agreement (PILOT agreement) under which the property owner makes payments to the IDA instead of the normal taxing jurisdiction. The payments are usually just a portion of the property taxes the company would have otherwise paid. In addition to an abatement of real property taxes under a PILOT agreement, IDAs can provide a sales and use tax exemption to a company benefitting from an IDA project. A PILOT agreement usually lasts from 10 to 30 years after which the property is no longer “tax exempt” and the company pays regular property taxes.
The New York State Industrial Development Agency Act outlines eligible projects, which include manufacturing, warehousing, research, commercial or industrial facilities, industrial pollution control, recreation, educational, cultural, horse racing, and transportation facilities. Certain health care, college dormitory, and housing facilities may also receive assistance. The legislation restricts support for commercial retail facilities, with exceptions for tourist destinations, projects relocating out of state, or those in highly distressed areas.
In general, New York State law exempts governmental agencies, like IDAs, from tax obligations. In an IDA transaction, the agency assumes nominal ownership of a property and leases it back to the applicant company. This arrangement enables the project to avoid the majority of mortgage recording tax, sales tax on construction materials, and property taxes.