Higher Taxes Drive Small Company out of Buffalo

May 26, 2009
Tom Precious

Their plight also drew two very different reactions from local economic development officials. In Erie County, the Bells said, help or even encouragement was, at best, lacking. In Nassau County, a rural spot north of Jacksonville, Fla., officials leapt into action to entice the Bells southward — and in interviews were extremely knowledgeable about the Bells and their company and what they say will be their growing future in Florida.

Last fall, the family had no thoughts of fleeing. After buying out another company, the business was looking to relocate somewhere in Erie County.

But in December, Gov. David A. Paterson proposed his budget. Two things worried the Bells: Paterson was pushing drastic changes in the Empire Zone program, which gives companies like Science First various financial incentives. Paterson’s plan would end that for Science First.

Then, more worrisome, was talk by Assembly Speaker Sheldon Silver and unions of a plan for big income tax increases on wealthier residents.

Nancy Bell, 60, was traveling in the Antarctic with Nathaniel when her older son, Aaron, sent her an e-mail: Given the budget news out of Albany, shouldn’t they consider investigating other states to take the family business? The green light was given.

The search was limited to four states with no state income taxes: Florida, Texas, Nevada and South Dakota. It was quickly winnowed to Florida and finally to the Jacksonville area for a variety of reasons: access to a container port, low taxes, good schools and a lineup of local officials who bent over backward to help them.

But the decision still wasn’t made until late March and early April, when the components of the new state budget became clear.

That, the Bells said, was devastating. While Paterson’s Empire Zone plan revisions were softened, they still called for its demise next year and new provisions for this year that the Bells say would have bumped them from the benefits that cut certain business taxes in half.

But hitting them far harder was the budget’s income tax increase on residents making more than $200,000 — a plan worth $4 billion this year for the state. Backers touted it as a way for the rich to help during tough times.

Not really rich

But there’s a problem, the Bells say. They are not rich, but because of how they file their state returns, they are treated that way.

Three-quarters of small-business owners pay taxes through filings as S-corporations or limited liability partnerships. That means company profits are taxed as part of their personal income. But the Bells say the money reported as income doesn’t go to their bank accounts. A large part goes to federal and state taxes, and then about 40 percent is driven back into the company to hire more people and buy equipment and expand.

So of the five family members involved in the business, the state tax rate for two will rise to 8.97 percent from 6.85 percent because their S-corporation filing lists their incomes at more than $500,000, and three others will pay more because their incomes exceed $200,000.

“So there will be less to invest in the business,” Aaron Bell said.

Last year, the family, which will say only that the company’s sales total several million dollars a year, was looking for sites in the Buffalo area. They contacted the Erie County Industrial Development Agency. It didn’t go well.

“Essentially, they couldn’t care less about us. We only had 20 jobs, and it wasn’t important to them,” said 22-year-old Nathaniel Bell. And agency officials said they could not do anything about the big state income tax increase.

Alfred Culliton, the development agency’s chief financial officer, said his agency gave Science First all the help it requested. While the agency is not a real estate operation, two of his senior officials, he said, worked with the company in trying to find buildings for its relocation. He said the company never sought any financial assistance, such as low-interest loans, from the agency.

“I don’t know why they would say we were not eager to help small businesses,” Culliton said. He said the firm wasn’t able to find the real estate it wanted locally. “That brings the question into mind of how realistic were their expectations,” he said, noting that no rent subsidy programs are available for companies like Science First and that available space is charged at market rates.

“I believe we gave them the help they asked for,” Culliton said.

In January, sensing what was coming with the final budget, the Bells contacted officials in Florida’s Nassau County.

“It was like night and day,” Nathaniel said.

The offers of help rolled in. County legislators came forth. Economic developers pointed them to local architects and engineers and help with the permitting process. Officials persuaded a local paper company to sell Science First some unused land for 25 percent of the market rate. They were offered up to $8,300 for every job created under a State of Florida program. A low-interest loan of $300,000 was put on the table. And the absence of a state income tax saves the family about $100,000 a year, the Bells estimated.

A new, 25,000-square-foot building, about double the company’s Buffalo facility, is scheduled to be built by December, and plans call for doubling the work force.

Not easy decision

In Nassau County, officials don’t focus on luring big companies. Science First “fits the profile of the company we are trying to recruit here—small to medium-size and an entrepreneurial- driven management,” said Steve Rieck, executive director of the Nassau County Economic Development Board.

Rieck was careful not to pick a turf war fight with New York, going only as far as to say the Empire State’s reputation for high taxes “probably does” help lure companies to Florida.

For some of the Bells, the decision to move was not easy. The family has long ties to the Buffalo area. Nancy Bell and her deceased husband bought the company from her father back in 1983. The sons went to area high schools in Buffalo and Kenmore, and Aaron, 31, and his wife have a young son.

A year ago, no one thought of leaving. But, in an interview last week, a sense of anger and frustration flowed from the family members. After years of making a go of it in Buffalo, the expense of doing business in this state, increasingly unaffordable over the years, was now a clear obstacle to growth plans.

Of the 21 employees, two might transfer. The Bells say they feel bad about the impact on the rest and note that not everyone in the family embraced the decision; one of Nancy Bell’s daughters will not make the move.

The decision behind her, she still admits to regrets and anger —aimed mostly at the state and its financial decisions that affect businesses like Science First. “We would have never moved,” Nancy Bell said.

This article was originally run in the Buffalo News.