NYC relocation incentive applicable to multiple business taxes
The RACE credit is designed to encourage businesses currently operating outside New York to relocate personnel and operations to qualifying commercial space within New York City.
Eligible taxpayers may claim the credit against the New York City business corporation tax, general corporation tax, banking corporation tax or unincorporated business tax, depending on the taxpayer's filing status.
Eligibility requirements
To qualify for the RACE credit, a business generally must satisfy several requirements relating to its historical operations, relocation activities and occupancy of eligible space.
Among other requirements:
- The business must have maintained substantial operations outside New York state during the 24 consecutive months immediately preceding the taxable year of relocation.
- The business cannot have employees at New York state premises during the period beginning Jan. 1, 2025, and ending on the date the qualifying lease or purchase contract is executed.
- The taxpayer must relocate at least one employee, partner or sole proprietor from an existing out-of-state operation to eligible New York City premises on or after July 1, 2025.
- The qualifying premises must consist of at least 10,000 square feet of nonresidential space located in New York City. For premises located in Manhattan, the building generally must have received its final certificate of occupancy prior to Jan. 1, 2000.
- Certain industries are excluded from eligibility, including traditional retail sales businesses, covered personal service businesses, retail banking operations and hotel services.
Credit calculation and benefit period
The RACE credit provides a benefit of $5,000 per eligible "employment share,” a measurement of employment for the purposes of the credit calculation. Once approved, the credit may continue for up to 11 years, consisting of the relocation year and the subsequent 10 tax years.
The structure of the credit provides enhanced value during the initial years of participation. Credits generated during years one through five are refundable. Credits generated during years six through 11 are nonrefundable; however, unused credits may generally be carried forward for up to five succeeding tax years.
Because the benefit is tied to employment-share certification, taxpayers should evaluate both current staffing levels and long-term workforce plans when modeling the value of the incentive.
Application and certification requirements
A preliminary application generally must be submitted before a lease or purchase agreement is executed. Following submission of the preliminary application, the lease or purchase contract must be executed and submitted within 90 days.
In addition, both the preliminary application and the required lease or contract submission must occur no later than June 30, 2028. Awards are granted on a first-come, first-served basis, making early planning particularly important for taxpayers evaluating relocation opportunities. Relocation generally must occur within 36 months of the preliminary application.
Taxpayers must obtain an initial eligibility certificate and annual employment-share certifications. Credits are claimed annually.
Planning considerations and how tax advisors can help
The RACE credit may provide businesses with an opportunity to take advantage of potentially lucrative incentives while relocating to the largest city in the country. The combination of a per-employee benefit, an extended eligibility period and refundability during the first five years could make the program particularly attractive for growing businesses relocating personnel from outside New York state.
However, due diligence is essential when evaluating the program's technical requirements. The restrictions on prior New York state presence, the minimum space requirements and the sequencing of application and lease execution may create traps for unwary applicants. Businesses contemplating a relocation should evaluate eligibility early in the site-selection process to avoid inadvertently disqualifying themselves from claiming the incentive.
State and local tax advisors can help businesses looking to expand into New York City or pursue other available credits and incentives in New York state to determine whether the RACE or other credits align with their tax planning and growth objectives.
