NY tax break hopes to draw businesses to campuses

McGraw Hall, Cornell University, Ithaca, N.Y.
Dennis Macdonald | Photolibrary | Getty Images
McGraw Hall, Cornell University, Ithaca, N.Y.

New York officials are hoping it's back-to-school time for businesses.

A unique bill signed into law by Gov. Andrew Cuomo in June would allow new businesses to locate on or around college campuses in New York tax-free for 10 years.

Under Start-Up NY, or SUNY Tax-free Areas to Revitalize and Transform Upstate New York, certain types of businesses—start-ups, businesses expanding within New York and businesses relocating to New York from another state—will be able to locate in areas across New York where they would be exempt from paying property tax, sales tax and business or corporate taxes. Any one of the more than 150 private or public colleges are eligible to apply for a tax-free zone.

While other states, such as California, have created communities that give businesses tax credits, this bill would be the first to give tax breaks to businesses that locate to designated areas on or around college and university property.

Supporters of the bill say that these new businesses will bring new vibrancy and energy to areas of New York state that have seen decline over the past several years. New York was 35th in CNBC's Top States ranking. (Read More: How does your state stack up?)

"Generally speaking, the thinking is that an idea that is formed inside our SUNY campuses that is incubated and ready to take flight is leaving New York state right now," said Joanne Mahoney, the county executive from Onondaga County, home to Syracuse University, LeMoyne College and the SUNY College of Environmental Science and Forestry.

This bill, she added, would allow the upstate New York community to hold onto young entrepreneurs who might fall into that category.

"As taxpayers in New York, we spend a lot of money educating our young people through the SUNY system, so we're taking all of this taxpayer money and investing in these young people," she said. "If we can keep some of these young people with new ideas and start-up businesses, [and] stop them from leaving right now, we can turn it around."

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The nature of the bill, Mahoney said, would make New York state competitive with other states that currently collect zero income and corporate taxes. She said it would be more effective than an across-the-board cut in income tax, which would cost the state billions of dollars.

Aside from granting tax immunity to new businesses in these areas, the bill would exempt employees of these new businesses from paying income tax for five years and from paying income tax the following five years up to a certain wage.

Union leaders, however, said this is unfair to the existing businesses that cannot take advantage of these tax-free communities and to residents who will have to cover the cost of additional public services.

"Individuals granted favored status under the proposal, as well as their families, will consume state services, but unlike other New Yorkers will be exempt from helping to pay for them; that's just not right," Mario Cilento, president of the New York state AFL-CIO, said in a statement.

But Morris Peters, a spokesman for the New York State Division of Budget, said an influx of people would have "no effect at all." Since these jobs would be ones New York would not be getting otherwise and with no upfront cost, Start-Up NY will instead bring new energy to these upstate communities, he said.

"We have a lot to offer in upstate New York. Our university system, both private and public, is a part of that. There are more research dollars in New York state than anywhere else, but we have not been successful [in] taking the ideas that are coming to campus and bringing them to market in a way to create jobs," Peters said.

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People and businesses that move into the area, particularly around Binghamton, will bring more benefits, said Terrence Kane, assistant vice president for government relations at Binghamton University.

"The companies coming in are new companies or growing current companies, which will also provide services to employees of companies that currently exist, which is good," he said. "New business [and] new jobs are good for everyone."

Peters also said that since much of the state's population lives near a SUNY campus, this bill is a new way to revitalize upstate New York.

"There has been nothing like this in New York state," he said. "In the long term, something bold like this is what is going to make upstate New York vibrant again."

—By CNBC's Caroline Flax.