New York Advisory Opinion TSB-A-88 (3)I: Issue raised is whether the Petitioner, as a shareholder of an S corporation, is entitled to a pass through of the S corporation's employment incentive tax credit provided for under section 210.

Plain-English summary

Gunther and Wilhelmine Kronenberger asked the Department whether, as shareholders of an S corporation, they could claim a personal pass-through of the corporation's "employment incentive tax credit" under Tax Law § 210.12-A. Mr. Kronenberger was the sole shareholder of Kronenberger Wahl Corporation, a New York machining-industry company in East Rochester that had elected Subchapter S status for both federal and New York purposes in November 1983. During 1984 and 1985, the corporation expanded its workforce and placed $402,376 of new equipment into service. The Petitioners argued that, because this growth helped the community by creating jobs and teaching new skills, they should be able to benefit personally from the employment incentive credit.

The Department ruled against them. Tax Law § 210.12-A grants a corporation an additional investment tax credit - on top of the regular § 210.12 investment tax credit - but only for years in which the corporation's average New York employee count (excluding general executive officers) is at least 101% of the prior year's average, meaning it rewards actual year-over-year employment growth at the corporate level. Separately, Tax Law § 660(a) lets shareholders of a federal S corporation subject to Article 9-A tax elect New York S-corp status, and Tax Law § 606(i) (added by Chapter 606 of the Laws of 1984) then passes through to those shareholders their pro-rata share of the corporation's credits under section 210 - but only subdivisions 12, 17, and 18. The employment incentive credit, found in subdivision 12-A, is conspicuously absent from that list.

The Department explained that Chapter 606 of the Laws of 1984 was enacted in response to a federal tax-law change that began treating S corporations like partnerships, passing through each item of income, loss, and deduction while preserving its character. The New York Legislature's clear intent (per the Memorandum of Senator Walter J. Floss, Jr., 1984 Legislative Annual, p. 211) was to treat S corporations similarly to partnerships for New York tax purposes. Because New York partnerships and their partners are likewise not allowed an employment incentive tax credit, denying the pass-through to S-corp shareholders keeps them on the same footing as partners - consistent with that legislative intent. Since the employment incentive credit is not one of the specific credits enumerated in section 606(i), the Kronenbergers were not entitled to a pass-through of their corporation's employment incentive credit, regardless of the genuine workforce expansion and equipment investment involved.

What this means for you

S-corp shareholders whose corporation grew its New York workforce

Even if your S corporation genuinely expanded its New York workforce and invested in new equipment, don't assume every corporate-level credit tied to that growth flows through to your personal return. The employment incentive credit under § 210.12-A stays at the corporate level for S corporations - it is not one of the credits section 606(i) passes through to shareholders, no matter how clearly the underlying facts (job creation, new equipment, community benefit) would otherwise support the credit's purpose.

Accountants checking which corporate credits actually pass through under section 606(i)

When advising an S-corp shareholder on which of the corporation's Tax Law § 210 credits can be claimed personally, check the specific subdivision. Section 606(i) passes through only subdivisions 12 (the regular investment tax credit), 17, and 18 - not subdivision 12-A (the employment incentive add-on). This opinion notes that section 606(i) has been amended several times since 1984, but confirms none of those amendments changed this particular answer, so the same subdivision-by-subdivision check remains necessary today.

Small manufacturers considering a New York S-election

If your corporation is weighing a New York S-corp election under § 660(a), understand that S-election trades away certain corporate-level credit benefits for shareholders in exchange for pass-through treatment of income and loss. The Legislature intended S corporations to be treated similarly to partnerships, and partnerships and their partners likewise cannot claim the employment incentive credit - so this limitation isn't an S-corp-specific quirk but part of a broader pattern of parity with partnership taxation.

Common questions

Q: My S-corp qualifies for the NY employment incentive credit at the corporate level - do I get a share of it on my personal return?
A: No. Tax Law § 606(i) only passes through to S-corp shareholders their pro-rata share of the corporation's credits under section 210, subdivisions 12, 17, and 18. The employment incentive credit is in subdivision 12-A, which is not on that list, so it stays at the corporate level and shareholders cannot claim it personally.

Q: Why did the Legislature leave the employment incentive credit off the section 606(i) list?
A: Chapter 606 of the Laws of 1984 was enacted because federal law began treating S corporations like partnerships, passing through each item's income, loss, deduction, and character. New York intended to mirror that partnership-style treatment. Since New York partnerships and their partners are also not allowed an employment incentive tax credit, leaving it off the S-corp pass-through list keeps S-corp shareholders on the same footing as partners.

Q: Does it matter that section 606(i) has been amended since 1984?
A: The opinion notes that section 606(i) was amended several times after 1984, but none of those amendments changed the answer here - the employment incentive credit under subdivision 12-A remains outside the list of pass-through-eligible credits.

Q: Does the corporation still get to keep and use the employment incentive credit itself?
A: This opinion addresses only whether the credit passes through to shareholders; it does not disturb the corporation's own entitlement to claim the § 210.12-A credit against its own Article 9-A franchise tax liability, assuming the corporation meets the 101%-employee-growth test.

Q: Does genuinely creating jobs and investing in equipment change the outcome?
A: No. The Department did not dispute that the Kronenbergers' corporation expanded its workforce and placed $402,376 of new equipment into service. The ruling turned entirely on the statutory list in section 606(i), not on whether the underlying facts fit the policy goals behind the employment incentive credit.

Citations and references

• Tax Law § 210.12-A (Article 9-A) - additional "employment incentive" investment tax credit, allowed only for years in which a corporation's average NY employee count (excluding general executive officers) is at least 101% of the prior year's average
• Tax Law § 210.12 - the regular investment tax credit a corporation must qualify for before the § 210.12-A add-on credit becomes available
• Tax Law § 660(a) - permits shareholders of a federal S corporation subject to Article 9-A tax to elect New York S corporation status as well
• Tax Law § 606(i) (as added by L.1984, ch.606) - passes through to an S-corp shareholder a pro-rata share of the corporation's credits under section 210, subdivisions 12, 17, and 18 only; subdivision 12-A is not included
• 1984 Legislative Annual, p. 211 (Memorandum of Senator Walter J. Floss, Jr.) - explains that Chapter 606 of the Laws of 1984 was meant to treat S corporations similarly to partnerships for New York tax purposes, following the federal shift to partnership-style pass-through treatment of S corporations

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1988.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a88_3i.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88 (3) I
Income Tax
March 30, 1988

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I880125B

On January 25, 1988, a Petition for Advisory Opinion was received from Gunther and
Wilhelmine Kronenberger, 115 Kirklees Road, Pittsford, New York, 14534.
The issue raised is whether the Petitioner, as a shareholder of an S corporation, is entitled to
a pass through of the S corporation's employment incentive tax credit provided for under section
210.12-A of the Tax Law.
Mr. Kronenberger is the sole shareholder of Kronenberger Wahl Corporation a New York
corporation located in East Rochester, New York - engaged tn the machining industry. In November
1983, the corporation elected Subchapter S status for both Federal and New York State income tax
purposes.
Petitioners state that during 1984 and 1985 they expanded their workforce and placed into
service new equipment costing $402,376. As a result, it is the Petitioners' opinion that they have
helped the community to rebuild itself by teaching their employees new skills and expanding both
the workforce and the manufacturing facilities. For this reason, the Petitioners contend they should
be able to take advantage of the employment incentive tax credit.
Section 210.12-A of Article 9-A of the Tax Law states, in part, that "a corporation which
acquires, constructs, reconstructs, or erects property, for which an investment tax credit is allowed
under Section 210.12 of the Tax Law, will be allowed an additional investment tax credit." [T]he
additional credit shall only be allowed for those years during which the taxpayer's average number
of employees in New York, except general executive officers, is at least 101% of the average number
of employees in New York, except general executive offices, during the taxable year immediately
preceding the taxable year for which the original investment tax credit was allowed.
Section 660(a) of the Tax Law provides that if a corporation which is an S corporation for
federal income tax purposes is subject to tax under Article 9-A of the Tax Law, the shareholders of
the corporation may elect S corporation status for New York State purposes, as well.
Section 606(i) of the Tax Law, as added by Chapter 606 of the Laws of 1984, provides that
where the election provided for in section 660(a) is in effect, the shareholder of an S corporation
shall be allowed a credit equal to his pro rata share of the credits under subdivisions 12, 17 and 18
of section 210 determined for the Corporation for which such election is in effect. The employment
incentive credit under subdivision 12-A of section 210 is not included among the credits which are
allowed to shareholders of S corporations under section 606(i) of the Tax Law. It is noted that
subsequent to 1984, section 606(i) was amended several times. However, none of these amendments
result in a change to the answer to the question here at issue.

-2­
TSB-A-88 (3) I
Income Tax
March 30, 1988
In enacting Chapter 606 of the Laws of 1984, the New York State Legislature was reacting
to a change in the federal tax treatment of S corporations. For federal purposes, S corporations are
treated in a manner similar to the treatment of partnerships with a pass through of each item of
income, loss and deduction and the retention of the character of each item for purposes of
determination of tax. Memorandum of Senator Walter J. Floss, Jr., 1984 Legislative Annual, p. 211.
It was clearly the intention of the Legislature to treat S corporation for New York tax purposes
similarly to partnerships. It is noted that for New York tax purposes, partnerships and their partners
are not allowed an employment incentive tax credit. Thus, in this respect, shareholders of S
corporations receive the same treatment as partners.
Accordingly, since the employment incentive tax credit is not one of the specifically
enumerated credits allowable to shareholders of S corporations under section 606(i) of the Tax Law,
Petitioners are not entitled to a pass through of their S corporation's employment incentive credit.

DATED: March 30, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.