Provides that land leased from a relative shall be eligible for the personal income real property tax credit for manufacturers when the land is used for production of goods by farming or fishing

1 Co-sponsor

• Patty Ritchie

BILL NUMBER:S4275

Title of bill

An act to amend the tax law, in relation to the personal income real property tax credit for manufacturers

Purpose

To clarify that land in production of goods in agriculture is not precluded from the credit if such land is leased from a related party.

Summary of provisions

Section 1 amends the tax law, to clarify that land in production of goods in agriculture is not precluded from the credit if such land is leased from a related party.

Section 2 establishes the effective date.

Justification

The real property manufacturer's tax credit allows qualified manufacturers to claim a property tax credit equal to 20% of real property tax paid during the year. Qualified manufacturers include tax payers principally engaged in farming, agriculture, horticulture, floriculture, viticulture, or commercial fishing, among other activities. These activities, specifically, describe farming practices within New York State. It was the intention of the original enactment of the credit that farms be eligible for the benefit.

Many farms that were intended to be eligible for the real property manufacturer's tax credit are precluded from eligibility based on a technicality. Under current law, leased land is precluded from eligibility unless the lease occurs between two corporations. The instant bill would clarify that other business structures-such as sole proprietorships, partnerships, or limited liability companies-that rent land from a related party for agricultural production are also eligible for the credit.

This clarification comes at a critical time. There recently have been great efforts across the State to engage the farming community in planning for intergenerational transfer. An overwhelming majority of farms in New York State are family farms, and planning for intergenerational transfer is essential to maintaining the assets of these unique family businesses as they are passed from one generation to the next.

Intergenerational transfer models often include business structures that result in land leased between related parties, a construct that would technically preclude such farms from qualifying for the credit. Typically, farm families will incorporate into two separate entities-primarily sole proprietorships, partnerships, or limited liabilities companies-to aid with intergenerational transfer activities. For example, a younger generation may incorporate as an operating LLC and lease land from the preceding generation's ownership

LLC. Over time, the younger generation will buy into the ownership LLC, effecting a gradual transfer.

This bill, therefore, clarifies that New York's family farms will be eligible for the real property manufacturer's tax credit, regardless of a transfer structure, as intended.

Legislative history

This is a new bill.

Fiscal implications

To be determined.

Effective date

This act shall take effect immediately.