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Paladino wins in dispute with state over Empire Zone benefits

Developer Carl P. Paladino won a resounding victory in the state’s highest court over Empire Zone benefits that he argued were taken away retroactively from one of his companies after changes were made in the economic development program.

The Court of Appeals, in a 5-1 ruling, said the state was wrong when it changed the rules for the Empire Zone program in 2009 and then tried to recover the tax breaks that Paladino and four other companies from across New York had received since the beginning of 2008.

Seeking to reclaim the tax breaks retroactively “simply punished the program participants more harshly for behavior that already occurred and that they could not alter,” Chief Judge Jonathan Lippman wrote in the majority decision.

The ruling should allow Paladino and other companies that were removed from the Empire Zone program to attempt to reclaim any tax benefits that were taken away retroactively or bring an end to the state’s efforts to do so.

“This decision shows the need for economic development programs to have strong protections, rigorous oversight, and clear clawback provisions from the inception. All of these will be part of the governor’s Tax Free NY initiative,” said Richard Azzopardi, a spokesman for Gov. Andrew Cuomo, who last month proposed the establishment of tax-free zones for new businesses on and near State University of New York campuses.

Paladino was not available to comment Tuesday.

The case stemmed from changes the state made in 2009 to its high-profile Empire Zone economic development program in an attempt to curtail abuses from companies that failed to generate the economic benefits they had promised. The new rules called for the state to review whether a company was receiving more in tax incentives than it was making in investments and paying in wages and benefits.

In June 2009, the state said Paladino’s J-P Group, which was getting about $200,000 a year in tax breaks at 13 parcels it owned in Buffalo’s Empire Zone, no longer qualified for tax credits from the Empire Zone program under the revised rules because it was returning only 79.5 cents for every dollar of Empire Zone benefits it received.

Other companies that were part of the Empire Zone program lost their benefits because the state determined that they merely had shifted jobs and assets among related entities to appear to have created more jobs and made more of an investment in the Empire Zone in order to claim more tax benefits. The Empire Zone program allowed participants to claim tax credits of $1,500 to $3,000 for every new job created within those areas.

But as part of that move, the state also revoked the companies’ certification under the Empire Zone program retroactively to the beginning of 2008, prompting Paladino and four other companies across New York to file lawsuits challenging the state’s right to reclaim tax breaks the firms already had received under rules that were in place at the time.

Paladino, who ran for governor against then-Attorney General Andrew M. Cuomo in 2010, filed his lawsuit in April 2010. A State Supreme Court justice ruled in favor of Paladino four months later, prompting the state to file an appeal.

The Appellate Division also came down on Paladino’s side in a January 2012 ruling that scaled back the sweeping victory that Paladino had won in State Supreme Court Justice Joseph R. Glownia’s ruling but upheld his decision that the changes to the Empire Zone program were not retroactive.