The Industrial and Commercial Abatement Program (ICAP)

 
The ICAP program has replaced the Industrial and Commercial Incentive Program (ICIP) in New York City. Seiden & Schein, P.C. has been at the forefront of filing applications for ICAP benefits and is prepared to assist developers with ICAP applications for alteration and new construction projects. Please make sure to consider ICAP eligibility and make appropriate filings before any permit is issued by the New York City Department of Buildings.

ICAP Duration
8 Year Abatement: Manhattan new construction (south of Murray Street for the construction of "smart" buildings)		10 Year Abatement: Manhattan Renovation Area1 (south of 59th Street)		15-Year Abatement: Regular Abatement Areas (Manhattan, north of 96th Street and outer boroughs)		25 Year Abatement: Special Areas2
Tax Year during benefit period:	Amount of Abatement:	Tax Year during benefit period:	Amount of Abatement:	Tax Year during benefit period:	Amount of Abatement:	Tax Year during benefit period:	Amount of Abatement:
Years 1-4	100%	Years 1-5	100%	Years 1-11	100%	Years 1-16	100%
Year 5	80%	Year 6	80%	Year 12	80%	In years 17 through 25, the abatement phases out by 10% annually.
Year 6	60%	Year 7	60%	Year 13	60%
Year 7	40%	Year 8	40%	Year 14	40%
Year 8	20%	Years 9-10	20%	Year 15	20%

 
Abatement Base

Eligible ICAP applicants receive an abatement of their taxes equal to a percentage of the "Abatement Base." The "Abatement Base" is equal to the "Post-completion Tax" minus 115% of the "Initial Tax."

The "Post-completion Tax" is the taxable assessed value (the lower of the actual or transitional assessed values) shown on the assessment roll with a taxable status date³ immediately following the earlier of (1) completion of construction (issuance of a Final Certificate of Occupancy) or (2) four years from the date of issuance of the project's first building permit multiplied by the "Initial Tax Rate." The "Initial Tax Rate" is the tax rate applicable to the assessment roll with a taxable status date immediately preceding the issuance of the first building permit.

The "Initial Tax" is the taxable assessed value indicated on the assessment roll with a taxable status date immediately preceding issuance of the first building permit multiplied by "Initial Tax Rate."

Neither the Post-completion Tax nor the Initial Tax include the assessed value of the subject property's land, and the ICAP abatement is not available to reduce the real estate tax attributable to its land.

Example:

XYZ Corp. plans to build a commercial building in Harlem. The building receives its first construction permit on July 1, 2008 and construction is completed on July 1, 2009. The property has the following assessed values:

 

Taxable Status Date	Taxable Building Assessed Value	Taxable Land Assessed Value	Applicable Tax Rate
January 5, 2008 (Immediately preceding issuance of first building permit)	$100,000	$100,000	10%
January 5, 2010 (Immediately following completion of construction)	$300,000	$100,000	11%

Post-completion Tax:
$300,000 x 10% = $30,000

Initial Tax:
$100,000 x 10% = $10,000

Abatement Base:
$30,000 – ($10,000 x 115%) = $18,500

Real Property Tax Due:
($400,000 x 11%) - $18,500 = $25,500

In this scenario, the ICAP would provide a real property tax savings of $18,500 to XYZ Corp. in the first benefit year alone.

Equalization/Inflation Protection
Projects located within ICAP Special Areas receive "inflation protection." In years 2 through 13 of the abatement benefit, should the property's taxes increase by an amount that exceeds 5% due to an increase in assessed value, the excess amount of tax will be added to the Abatement Base. However, the excess tax will not be added to the Abatement Base if the tax increase is due to physical change, an increase in the assessed value of the land or an increase in the applicable tax rate.

Time to file ICAP Final Application
Final Applications must be filed within 1 year from date of issuance of the project's first building permit.

Minimum Required Expenditure (MRE)
The MRE for all projects is 30% of the property's assessed value in the tax year with a taxable status date immediately preceding the date of issuance of the project's first building permit. Applicants have 4 years from the date of issuance of the first building permit in which to spend the full MRE.

Expenditures for construction work on portions of the building to be used for residential purposes cannot be used to meet the MRE. In the Manhattan Renovation Area, expenditures for construction work on portions of the property to be used for retail purposes that exceed 5% of the building or for residential purposes cannot be included in the MRE.

Time Limit for Construction
There is a 5-year time limit in which to complete construction. Failure to do so will result in termination of inflation protection, if applicable.

Implementation of Benefits
Benefits commence on the July 1 with a taxable status date immediately following the earlier of (1) completion of construction, defined as issuance of a final Certificate of Occupancy, or (2) 4 years from the date of issuance of the first building permit. This is a significant change from the previous ICIP, in which benefits commenced in the first year following commencement of construction in which there was an increase in the property's physical assessed value. However, please note that the benefits of NYC Administrative Code Section 11-209 remain available for qualifying projects. Section 11-209 provides for an exemption of up to 3 years of physical assessments of a newly constructed Commercial Building, which, by definition, may include a residential component, other than hotel, provided that such residential component is receiving or has applied for 421-a benefits.

Please contact Jay G. Seiden at jayseiden@seidenschein.com to discuss your project's eligibility for ICAP benefits.

 
Notes:
1. If more than 5% of a building upon which renovation work is performed is used for retail purposes, no abatement shall be granted for the retail portions of such building in excess of 5%. Certain areas within the Manhattan Renovation Area are entitled to 12 year benefits and may have different eligibility criteria and/or benefits.
2. Where more than 10% of the building is used for retail purposes, only the non-retail portions of the building and up to 10% of the retail portion are eligible for the 25 year benefit. The remaining retail portion shall be eligible for benefits in accordance with the 15 year schedule. ICAP Special Abatement Areas are determined by the Temporary Commercial Incentive Area Boundary Commission and are published by the Department of Finance. These areas are subject to revision in the future by the Commission, which is required to meet at least once every five years beginning in 2009.
3. Each January 5th is a Taxable Status Date.