A friend recently asked me about Startup-NY, New York’s new program ostensibly designed to help foster startups. As you might expect, the bark is better than the bite. Fundamentally, there are a bunch of complicated rules, exceptions, and requirements, and some conveniently unstated limits. Now, since I think the prerequisites will gut most of the program, I don’t expect those limits will get tested.
To me, this program, as with many political schemes, tries to be smarter than the market. We can barely figure out whether plain simple tax rate changes increase or decrease tax collections: who thinks they can improve startup job creation by this series of intertwined levers and dials? This violates the principle of Simplicity, affectionately known around here as the reverse Occam’s Razor — make the smallest possible change, so that you can explain what happened and why.
Here are some comments excerpted from emails on the subject:
This sounds like a pretty good deal — tax-free operations if you operate on a University campus and meet some other rules. They knocked out a bunch of other businesses (no retail or wholesale — does that mean that anyone who sells stuff is out? If you make electric cars? I guess only services, but they knocked out most of those too: no professional services, no financial services, no personal services. Maybe plumbers?
Personal income taxes (NY State, NY City, Yonkers)
Employees hired for and whose jobs are certified as net new jobs in a tax-free area will pay no state or local income taxes for the first five years. For the second five years, employees will pay no taxes on income up to $200,000 for individuals, $250,000 for a head of household and $300,000 for taxpayers filing a joint return. There is an annual cap per business on the number of employees that qualify for this exemption and an annual cap statewide of 10,000 net new jobs (i.e., there will be a maximum of 10,000 tax-free jobs after year one, 20,000 tax-free jobs after year two, etc.)
Translation: if we drafted this well and it increases jobs, we want to claw back some of that incentive and maybe screw you into having followed the rules and then pull the rug out from under you.
Translation: we don’t really know what will happen, so we’ve limited it in case we screwed up.
Translation: another complicated quirky tax rule is easier to get passed than a simple broad-based adjustment. Plus, this one means we can hire more people to administer it and appoint a few buds to run the thing.
I read through that program when I first heard about it. It’s (of course) more complex than it’s being pitched. The core requirement is that you have to be renting space from a state college/university. There’s a list on the site. Then there’s an application for the tax-free stuff, which can also apply to some employees, but there are limits on the total program. It also wasn’t clear whether you are guaranteed tax-free next year if you get it this year.
The rental of space is also not (at least not obviously) contingent/conditioned on getting the tax-free status. So I read the program as saying if you rented space, then you could apply, and then who knows what.
To my mind, another complicated program that doesn’t seem to be aimed at actually improving things for startups; it seems to be focused on reducing fixed costs at state educational institutions.
All-in-all: unless a company wants space and will definitely need it, more of a possible bonus than an actual program.
The lease is a real sticking point. Maybe they’ll drop that once they realize it’s a dead end.
Startups in NY need a few simpler things:
1. eliminate the LLC publishing requirement. It’s a huge expense ($1500) that is useless to the companies and provides only hypothetical value to the public.
2. reduce administrative burdens of payroll taxes on very small businesses. Either reduce the taxes or simplify the system.
3. eliminate state pre-offering filing requirements for private placements to accredited investors
Simple things: reduce transaction costs.