COHOES— One of Gov. Andrew Cuomo’s signature economic development programs has run into a pandemic-related tax problem.
Now in its seventh year, with just over 300 companies involved, the START-UP NY program was created amid great fanfare to encourage new businesses to set up in the state.
Under the program, start-ups that affiliate with a New York college or university get a 10-year exemption from state income taxes for their employees.
It was seen as a way to keep aspiring entrepreneurs in New York rather than see them leave for more business-friendly states or being drawn to major start-up hubs like Silicon Valley.
But now, with many employees of START-UP NY businesses working from home thanks to the COVID-19 pandemic, they are facing income tax bills, as the Albany Business Review first reported.
That’s because the tax exemption was based on where the employees were located, in actual New York workplaces.
“When the governor ordered us home we were no longer physically working in that space …. It’s something that nobody expected,” said Heidi Reale, who participates in START-UP NY with her Cohoes-based company SparkShoppe, a digital marketing and analytics firm.
Most of her 16 employees had been working from home from last March until January.
They went home when Cuomo ordered what was basically a lockdown for non-essential employees.
She learned they would get hit with an income tax bill in January at an annual seminar for START-UP participants about filling out their employee W-2 forms.
The state also emailed participants about the tax issue.
“I wish they had told us last March to start deducting,” Reale said, adding that the employees are now facing tax bills between $2,000 and $3,000 that they didn’t previously have. A number of employees are young recent college graduates who also face college loan payments.
START-UP NY, in large part, was conceived as a way to prevent New York’s college brain drain, which is especially severe upstate. With plenty of good K-12 schools and colleges, upstate loses countless graduates each year to other states or the New York City area due to the lack of job opportunities.
State officials say they believe the Legislature can fix the tax problem through legislation.
“When the governor makes a promise to you it should be kept," Assemblymember Phil Steck said. "Whether I agree or disagree with the START-UP New York program is beside the point. The government made a promise that these people would work tax free, and it is just not right to revoke that promise because the governor forced them to work from home basically.”
“Our income tax is not an outrageously high number, but there are people who could end up owing 5,000 dollars in New York state tax when they were expecting to pay zero," Steck said.
“We’re aware of the unique circumstance caused by the pandemic and the State is proposing a fix that we hope the legislature will adopt in the Enacted Budget,” Empire State Development, the agency that oversees START-UP NY, said in a prepared statement.
START-UP NY participants will also discuss the tax issue in a Zoom call set for Friday afternoon.
The tax glitch is the latest episode to spotlight concerns about the splashy program that drew national recognition to New York’s development efforts. It also has been criticized for its slow pace of job creation and its relative cost in foregone tax revenue.
The program has been fairly low-profile in recent years and state budget officials last year had briefly discussed closing it to new entrants, according to one person with knowledge of the situation.
However, for Reale, who is also a marketing instructor at the University at Albany, START-UP NY has done what it was supposed to be.
She believes the tax holiday allows her to compete for talent and it has enticed graduates with marketing or analytics degrees to stay in the Capital Region rather than move to New York City or out of state.
“We’ve done a really good job of attracting young talent and keeping them,” she said.
rkarlin@timesunion.com • 518-454-5758 • @RickKarlinTU
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