Certificate of Tax Credit (Excelsior)

The Certificate of Tax Credit (Excelsior) is the official statutory instrument issued by Empire State Development (ESD) that verifies a business has fulfilled its performance requirements and authorizes the claiming of earned tax credits on a New York State return. It represents the final step in a performance-based incentive process, converting contractual benefit schedules into usable, refundable tax assets that provide vital liquidity for innovative enterprises.

For any business leader, tax professional, or economic development stakeholder in New York, understanding the Certificate of Tax Credit is essential for navigating the state’s modern incentive landscape. Unlike the legacy “Empire Zones” program, which was often criticized for its broad entitlement structure, the Excelsior Jobs Program (EJP) functions under a strict “pay-for-performance” model. The Certificate of Tax Credit is the physical evidence of that performance. Within this framework, the Research and Development (R&D) tax credit component emerges as a critical tool for high-tech, biotechnology, and green-energy firms seeking to offset the high costs of innovation. This report provides an exhaustive examination of the certificate’s legal meaning, the mechanics of the R&D credit, the administrative rigor of the verification process, and the specific guidance issued by state revenue offices to ensure compliance and maximize fiscal benefits.

The Evolution of New York State Incentives: From Entitlement to Performance

To grasp the current significance of the Excelsior Jobs Program, one must first understand the historical shift in New York’s economic policy. The program was established by Chapter 59 of the Laws of 2010 as a replacement for the older Empire Zones program, which had faced criticism regarding its accountability and the realization of actual economic returns for the state. The EJP was designed specifically to support the growth of traditional economic pillars, such as manufacturing and finance, while ensuring that the state emerged as a global leader in knowledge-based and innovation-driven economies.

The “Excelsior” branding—reflecting the state’s motto “Ever Upward”—signaled a move toward rewarding firms that make substantial commitments to growth, either through significant job creation or massive capital investments. The program’s design is inherently discretionary, meaning that participation is not a right but an invitation extended by the Commissioner of Empire State Development to firms that meet strategic criteria. This discretionary nature allows the state to manage its fiscal exposure through annual caps, which have historically ranged from $50 million to $250 million in a given year, with a total lifetime program value of $2.25 billion.

Statutory Framework and Legal Definitions

The legal foundation of the Excelsior Jobs Program is split between two primary bodies of law: the New York Economic Development Law (EDL) and the New York Tax Law. This division of labor reflects the dual roles of the state: ESD manages the program’s eligibility and performance, while the Department of Taxation and Finance (DTF) manages the actual claiming and refunding of the credits.

Economic Development Law Article 17

Article 17 of the EDL contains the definitions and programmatic rules. Specifically, Section 353 outlines the eligibility requirements, while Section 354 governs the application and certification process. Section 355 is perhaps the most critical for R&D-focused firms, as it details the four (and later five) components of the credit:

• The Excelsior Jobs Tax Credit: Based on a percentage of wages for net new jobs.
• The Excelsior Investment Tax Credit: Based on a percentage of qualified capital investments.
• The Excelsior Research and Development Tax Credit: Tied to federal research expenditures.
• The Excelsior Real Property Tax Credit: Available to firms in distressed areas or those undertaking “Regionally Significant Projects”.
• The Excelsior Child Care Services Tax Credit: A newer component introduced to support workforce development.

New York Tax Law Section 31

Tax Law Section 31 provides the mechanism for claiming these credits. It explicitly states that a taxpayer must be issued a “Certificate of Tax Credit” by the Department of Economic Development to be eligible. This section creates the “hard link” between the programmatic side of the EJP and the taxpayer’s return, mandating that the certificate be attached to the return and that the taxpayer may only claim the amount specifically listed on that certificate for that taxable year.

The Life Cycle of the Certificate: From Admission to Claim

The journey to obtaining a Certificate of Tax Credit is a multi-year process that begins long before a tax return is filed. It is a four-stage life cycle: Admission, Agreement, Performance, and Verification.

Stage 1: The Consolidated Funding Application (CFA)

The process begins with the Consolidated Funding Application (CFA), which is submitted to the local ESD regional office. The regional office plays a pivotal role in vetting the project’s alignment with local economic priorities. For instance, a project in Western New York might be evaluated differently than one in the Mid-Hudson Valley, based on the specific strategic industries targeted for those regions. At this stage, the firm must outline its 10-year plan for growth, including projected headcount, salary levels, and R&D budgets.

Stage 2: The Certificate of Eligibility and Preliminary Schedule of Benefits

Upon approval, ESD issues a “Certificate of Eligibility,” which admits the firm into the program. Accompanying this is the “Preliminary Schedule of Benefits” (PSB). The PSB is a critical planning document—it outlines the maximum potential credits the firm can earn for each year of its 10-year benefit period. However, it is essential to understand that the PSB is not a guarantee of payment; it is a ceiling that can only be reached through 100% performance.

Stage 3: The Performance Period

Once admitted, the firm enters its first performance year. During this time, it must hire employees and incur research and capital expenses as outlined in its agreement. The state tracks this performance using “Full-Time Equivalent” (FTE) metrics, which are often a point of contention during audits. An FTE is generally defined as a job requiring at least 35 hours per week, but the state also allows the aggregation of part-time positions to meet these requirements.

Stage 4: Performance Reporting and the Issuance of the Certificate

At the end of the year, the participant must submit a “Performance Report”. This report is a comprehensive digital workbook that requires the submission of raw data to verify every claim made by the firm. Once ESD verifies that the firm has reached at least 75% of its job creation goal and 100% of its other commitments, it issues the “Certificate of Tax Credit”.

The Excelsior R&D Tax Credit Component: Deep Dive

The Research and Development component is specifically designed to leverage the federal R&D tax credit (Internal Revenue Code Section 41) to provide an additional layer of support for New York activities.

The Calculation Logic

The R&D credit is calculated based on the “New York portion” of the federal credit. To be eligible, a firm must first qualify for the federal R&D credit. The amount of the Excelsior R&D credit is equal to 50% of the federal credit that relates to expenditures incurred within New York State.

However, the law imposes a secondary cap to ensure the credit is proportional to the actual activity in the state. This cap is a percentage of the total Qualified Research Expenditures (QREs) attributable to New York. The specific cap varies based on the type of project, as shown in the following table:

For example, if a firm has a New York federal credit portion of $200,000, the baseline Excelsior credit is $100,000. However, if that firm only had $1,000,000 in NY QREs, the 6% cap would limit their Excelsior R&D credit to $60,000. This dual-test structure ensures that firms are rewarded both for their federal research success and their physical presence in New York.

The 2009 Federal Conformity Provision

A unique aspect of the Excelsior R&D credit is its “conformity safeguard.” Because the credit is tied to federal law, any changes or expiration of the federal R&D credit could theoretically wipe out the state benefit. To prevent this, New York Economic Development Law § 355 specifies that if the federal credit expires, the state will calculate the R&D expenditures as if the federal structure and definitions from 2009 were still in effect. This provides a permanent, stable incentive for long-term R&D planning in New York, regardless of political shifts in Washington D.C..

Industry-Specific Thresholds for Job Growth and Investment Tracks

The Excelsior Jobs Program is not a “one-size-fits-all” incentive. It is carefully calibrated to the economic realities of different industries. To be admitted, a firm must choose between the “Job Growth Track” (focused on hiring) or the “Investment Track” (focused on capital spending with job retention).

Job Growth Track Thresholds

The following table summarizes the minimum net new job requirements for various strategic industries as of recent program updates:

Note: Thresholds have been reduced over time; legacy agreements may have higher requirements (e.g., 10 for R&D or 25 for manufacturing).

The Investment Track

The Investment Track is reserved for firms in strategic industries (excluding music and entertainment) that have at least 25 employees and make a significant capital investment. Manufacturing firms that retain at least five employees while making significant investments are also eligible. This track is particularly vital for established firms that need to modernize facilities or equipment to remain competitive but may not be in a high-growth hiring phase.

The Role of Local State Revenue Office Guidance

While Empire State Development manages the program, the New York State Department of Taxation and Finance (DTF) provides the technical guidance for the actual implementation of the credits. This guidance is primarily found in Technical Service Bureau Memoranda (TSB-M) and form instructions.

TSB-M-11(6)C and TSB-M-11(6)I

Issued in June 2011, these memoranda are the foundational documents for the modern Excelsior program. They summarized the legislative changes that extended the benefit period from five to ten years and clarified several key administrative points:

• Project Location Rule: The determination of whether a business is “operating predominantly” in a strategic industry is based solely on the activity at the specific project location, ignoring operations elsewhere in the state.
• Milestone-Based Rewards: Participants can receive credits based on interim milestones for jobs, investments, or R&D, provided they meet the criteria in the Tax Law.
• Double-Dipping Permissibility: In a rare departure from standard tax policy, the TSB-M explicitly allows a participant to claim both the Excelsior R&D credit and the Qualified Emerging Technology Company (QETC) facilities and training credit on the same expenditures.
• Investment Credit Synergy: A firm can claim both the Excelsior Investment Tax Credit (ITC) and the standard Investment Tax Credit for research and development property on the same expenditures.

Form CT-607 Instructions

The instructions for Form CT-607 (the claim form for corporations) serve as the “operator’s manual” for the Certificate of Tax Credit. They emphasize that the Certificate of Tax Credit is the only document that guarantees the right to claim the credit. The instructions warn that incorrect information on the form—such as the certificate number or the specific tax year—can lead to an immediate denial of the credit.

The Verification Process: The Performance Report Workbook

The bridge between a firm’s internal data and the issuance of the Certificate of Tax Credit is the “Performance Report Workbook”. This digital tool is the primary mechanism for state auditing and requires exhaustive detail.

Section-by-Section Breakdown of Requirements

The workbook is divided into several “blue-shaded” sections that must be completed with precision:

• Section A (Employment Data): This requires monthly headcount totals for the project location and all other NYS locations. The state uses this to verify “Net New Jobs,” ensuring that a firm hasn’t simply moved employees from one New York office to another—a practice often referred to as “job churning”.
• Section B (Investment Data): This requires a log of all qualified investments, including purchase dates, service dates, itemized descriptions, and the useful life of the asset.
• Section C (R&D Verification): This is the nexus for the R&D credit. Firms must submit a completed copy of IRS Form 6765 (Credit for Increasing Research Activities) and an “Affidavit of True Copy,” which is a notarized statement swearing that the federal form submitted to ESD is an exact match of the one filed with the IRS.
• Section D (Real Property): For firms in the Real Property track, receipts from the municipality showing property taxes paid are mandatory.
• Section E (Claiming Entities): For flow-through entities (LLCs, Partnerships, S-Corps), this section must list every individual or entity that will be claiming a share of the credit, along with their Social Security or EIN numbers.

The “Related Person” Tab

One of the most complex parts of the workbook is the “Related Person Employment” tab. This is designed to prevent a firm from qualifying for credits by hiring relatives of owners or by transferring employees from affiliated companies. ESD auditors look for “job transfers” where a position is ended at one entity and started at another without actual economic growth.

Refundability, Recapture, and Financial Management

The Excelsior credits are highly attractive because they are “fully refundable”. This means that if a company’s tax liability is zero—which is common for startups in a heavy R&D phase—the state will issue a check for the full amount of the credit.

The Mechanics of Refundability

If the credit exceeds the tax due (after reducing the tax to the fixed dollar minimum), the taxpayer can either:

1. Request a refund of the excess.
2. Apply the excess as an overpayment to the following year’s tax.

However, the Tax Department does not pay interest on these refunds. For a business, this makes the timing of the Certificate of Tax Credit issuance crucial, as delays can impact year-over-year cash flow.

The Risk of Recapture

The Certificate of Tax Credit is not an irrevocable asset. Under Tax Law § 31(f), if the Certificate of Eligibility or the Certificate of Tax Credit is revoked by ESD, the taxpayer must “recapture” the credit. This means the full amount previously claimed must be added back to the tax in the year the revocation becomes final.

Revocation typically occurs for “violations of worker protection or environmental laws” or “failure to pay state and local taxes”. Additionally, if a firm fails to maintain its job base—for instance, if it hires the required 10 people in Year 1 but lays them off in Year 3—it will not only lose its Year 3 credit but may also face recapture of previous years’ benefits if the state determines the program’s intent was not met.

Enhanced Benefits for the Green Economy

A significant expansion of the Excelsior program occurred in the 2021 New York State Budget with the introduction of “Green Projects” and “Green CHIPS”. These enhancements were designed to align economic incentives with the state’s Climate Leadership and Community Protection Act (CLCPA).

What Defines a “Green Project”?

A “green project” is one primarily aimed at reducing greenhouse gas emissions or supporting the use of clean energy. Examples include:

• Manufacture of zero-emission vehicles.
• Development of carbon capture and storage technologies.
• Supply chain components for renewable energy systems like wind and solar.
• Clean energy storage technologies.

The Green R&D Advantage

Firms engaged in green projects are eligible for an enhanced R&D credit cap. While standard firms are capped at 6% of NY QREs, green projects can claim up to 8% of NY QREs. This 33% increase in the credit cap provides a massive incentive for sustainability-focused startups to choose New York over other jurisdictions.

Furthermore, “Green CHIPS” projects—specifically targeting the semiconductor industry—receive even more specialized treatment. These projects can enter a second phase and maintain their enhanced rates (7.5% for jobs, 8% for R&D) for the entirety of both schedules of benefits, providing up to 20 years of continuous incentive support.

Statistical Insights: Program Performance and Impact

Data from Empire State Development and the State Comptroller provide a clear picture of the program’s scale and the rigor of its oversight.

Overall Program Scale

The Excelsior Jobs Program has a total lifetime value of $2.25 billion. It is one of the state’s largest and most successful economic development tools, consistently attracting high-growth sectors. The program is 75% focused on the Job Growth Track and 25% on the Investment Track.

Audit Findings and Compliance Rates

A 2018 audit by the New York State Comptroller’s office (Report 2016-S-15) highlighted the rigor of the verification process. The audit tested 39 instances where ESD authorized tax credits. It found that in 5 of those 39 instances (13%), the companies could not fully support that they had met their benchmarks, leading to the withholding or reduction of $214,000 in credits. This report led to even tighter controls in the Performance Report Workbook to ensure that the Certificate of Tax Credit is only issued for verified economic activity.

Life Sciences Initiative Data

The life sciences sector has been a major beneficiary of the Excelsior R&D credit. From 2017 to 2022, life science jobs in New York grew by 18.5%, a rate significantly higher than the overall private sector. Between April 2022 and October 2023, the state issued $3.66 million in R&D tax credits specifically to life science companies against $34.68 million in qualified state research expenses. In total, $18.2 million in combined R&D and Jobs credits have been funded through the Life Science Initiative since its inception.

Example: The Multi-Year Growth of “SiliconHudson Corp”

To illustrate the practical application of the Certificate of Tax Credit and the R&D component, consider “SiliconHudson Corp,” a hypothetical semiconductor supply chain firm located in the Hudson Valley.

Year 1: Admission and Initial Agreement

• Industry: Semiconductor Supply Chain (Strategic Industry).
• Agreement: Commit to 20 net new jobs and $2M in NY R&D spend.
• PSB Maximum: $200,000 (Jobs) + $140,000 (R&D Cap).

Year 2: Performance and Verification

SiliconHudson Corp hires 25 people (beating their goal) and spends $3M on NY research. Their federal R&D credit portion for NY is $250,000.

1. Calculate R&D Credit:

• 50% of federal NY portion: $125,000.
• 7% cap on NY QREs: $210,000 (7% of $3M).
• Result: The lesser amount is $125,000.

2. Calculate Jobs Credit:

• 25 jobs at $80,000 average wage ($2M total).
• 7% semiconductor rate: $140,000.
• Result: $140,000.

Year 3: The Certificate Issuance

SiliconHudson submits its Performance Report with its IRS Form 6765 and Affidavit of True Copy. ESD verifies the headcount and the $3M spend.

ESD issues a Certificate of Tax Credit for $265,000. SiliconHudson attaches this certificate to its Form CT-607. Because they are a young firm with no tax liability, the State of New York issues a refund check for $265,000, providing the cash needed to hire five more researchers for Year 3.

Comparison with Alternative Research Credits

It is vital for businesses to distinguish the Excelsior R&D credit from other available New York state incentives, as “double-dipping” is generally prohibited unless explicitly stated.

Most established firms or those intending to scale headcounts significantly choose the Excelsior program due to its 10-year duration and higher total benefit potential, whereas very small, R&D-heavy startups might find the Life Sciences credit easier to access if they don’t meet Excelsior’s job-creation thresholds.

Interaction with Federal Tax Law Changes (TCJA)

The 2017 Tax Cuts and Jobs Act (TCJA) significantly impacted R&D planning. Starting in 2022, Section 174 of the IRC required businesses to amortize R&D expenses over five years rather than deducting them immediately. This federal change increased the tax liability for many companies, making the refundability of the New York Excelsior R&D credit even more critical as a source of liquidity.

Legislation like the “Empire Innovation Act” (S303) has been proposed to further expand the Excelsior R&D credit to counter these adverse federal effects, potentially allowing firms to claim the full cost of research expenses directly. This ongoing legislative dialogue emphasizes that the Certificate of Tax Credit is a dynamic tool that New York uses to remain competitive against other states and international markets.

Summary of Key Takeaways for Businesses

1. The Certificate is Mandatory: You cannot claim EJP credits without the annual Certificate of Tax Credit. The Preliminary Schedule of Benefits is merely a planning tool, not a voucher.
2. Federal Nexus: The R&D credit is strictly tied to the federal R&D credit. If you don’t qualify for the federal credit, you won’t get the Excelsior R&D component.
3. Performance or Nothing: The EJP is a performance-based program. If you hire fewer than 75% of your target, you receive $0 in credits for that year.
4. Green is Better: If your project qualifies as “green,” you enjoy higher wage credits (7.5%), higher investment credits (5%), and a higher R&D cap (8%).
5. Audit Defense: The Performance Report Workbook is the “trial” for your credit. Meticulous record-keeping of FTE hours and research invoices is non-negotiable.

Final Thoughts: The Strategic Imperative of Excelsior

The Certificate of Tax Credit (Excelsior) is the cornerstone of New York’s commitment to an innovation-led economy. By shifting from broad-based entitlements to specific, audited performance benchmarks, the state has created a high-trust environment for corporate investment. For firms in strategic industries—from biotechnology laboratories in the Hudson Valley to semiconductor manufacturers in the Capital Region—the R&D component of the Excelsior program provides a multi-year, refundable safety net that significantly de-risks the process of scientific discovery.

As federal tax landscapes remain volatile and global competition for tech talent intensifies, the administrative rigor of the Excelsior program serves as its greatest strength. A firm that successfully secures its annual Certificate of Tax Credit has not only earned a financial reward but has also proven its operational viability to the state. By understanding the interplay between Economic Development Law § 355 and Tax Law § 31, and by adhering to the detailed guidance of the Department of Taxation and Finance, businesses can transform their R&D departments into profit centers, ensuring their growth is both “ever upward” and financially sustainable.