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In January 2002 a portion of Lincoln Parish was designated as an “Urban Renewal Community” by the U.S. Department of Housing and Urban Development (HUD), becoming one of only forty nationwide renewal communities. This designation makes available a substantial package of tax incentives to businesses currently existing in and those that would build or relocate inside the boundaries of the Renewal Community (RC). The objective of the Renewal Community initiative is to foster investment in the designated areas. These areas have been determined to be some of the most severely distressed and development-resistant areas in the nation.
By encouraging job development and retention, the RC initiative helps residents gain employment, succeed in their jobs and become economically self-sufficient. The increase in activity that results from these actions will provide economic growth and benefits to the RC and the surrounding communities. The incentives offered through the Renewal Community initiative will be available for eight years beginning retroactively in January 2002 and extending through December 2009. In addition to tax incentives, the RC initiative also fosters a partnership between Federal, State and local governments, community organizations and businesses, in which each plays a significant role.
State and local government play their part in the Renewal Community initiative by committing to perform at least four of the following: reduce tax rates, increase local services, implement crime reduction strategies, act to reduce or remove government requirements, increase involvement in economic development activities, and promote the giving or selling, below fair market value, of surplus real property in the RC. Certain businesses, by nature, will not qualify for Renewal Community benefits. The following businesses would not qualify for RC benefits: golf courses, country clubs, massage parlors, hot tub facilities, suntan facilities, race tracks, gambling facilities, and retailers of alcoholic beverages.
Rather than providing grants or guarantees to finance development projects, the RC initiative offers tax incentives to foster a strong, coordinated effort by Federal, State and local governments to attract business to the designated area. The following are some of the incentives available to businesses in the RC:
RC Wage Credit
Annual tax credit of up to $1,500 or 15% of an employee’s first $10,000 of FUTA wages. Available for each employee who both lives and works in the Renewal Community. Use HUD’s address locator to verify an address. This applies to new and existing employees and is available through December 31, 2009.
Work Opportunity Credit
One time tax credit of up to $2,400 for new hires from groups that have high unemployment rates or other special employment needs such as veterans, ex-convicts, vocational rehab referrals, high-risk youth (18 – 24 year olds), summer youth, SSI recipients, Food Stamp recipients. Employee must be certified either before or within the first 21 days of hire.
Welfare to Work Credit
Two year tax credit of up to $3,500 for the first year and $5,000 for the second year for each new hire of someone on long-term family assistance. Employee must be certified within the first 21 days of hire.
Increased Section 179 Deduction*
This depreciation deduction, which allows any business to write off up to $25,000 in equipment purchases, is expanded to allow “Renewal Community Businesses” to write off an additional $35,000 of equipment purchases. The expensing “phase-out” rule is also relaxed to allow businesses with larger equipment investment amounts to take advantage of this incentive.
Commercial Revitalization Deduction
This incentive allows a business that constructs or substantially rehabilitates commercial property within the renewal community to deduct all or a portion of those costs over a shorter period of time than would be permitted under standard depreciation rules. Eligible businesses must apply for a portion of its Renewal Community’s yearly allocation. The business is then allowed to write off their allocation in one of two ways – one-half in the first year or all pro rata over a ten-year period.
Zero Percent Capital Gains Rate*
This incentive allows a “Renewal Community Business” that acquires and holds an asset (ex. stock, partnership interest, tangible property) for a minimum of five years to pay zero taxes on the profit from its eventual sale or exchange.
Environmental Clean-up Cost Deduction
This incentive applies to Brownfield areas. It allows a business to deduct clean-up costs of hazardous substances in the year the business pays or incurs the cost rather than depreciating those costs over an extended period of time.
New Markets Tax Credit
Allows an investor in certain qualified projects to obtain a tax credit of 5 to 6 percent of their investment each year the investment is held up to 7 years of the credit period. The investment amounts are made available in the form of loans to or equity investment in “low-income community businesses”.
Low-income Housing Tax Credit
This incentive provides a ten-year tax credit for owners of newly constructed or renovated rental housing who set aside a percentage of units for low-income residents. Owners must apply for a portion of the allocation given each state for this incentive.
Tax Incentives (con’t)
Qualified Zone Academy Bonds
This incentive allows state and local governments to issue bonds, at no interest to them, to finance certain public school programs in schools that have at least 35% of students eligible for either the free or reduced cost lunch program. Private businesses must contribute money, equipment or services equal to 10 percent of the bond proceeds. The federal government pays the interest in the form of tax credits.
*A business must meet the definition of being a “Renewal Community Business” to take advantage of the Increased Section 179 Deduction and the Zero Percent Capital Gains incentives only.
RENEWAL COMMUNITY BUSINESS – Definition
- Every trade or business of the entity is actively conducted within the boundaries of an RC (this rule does not apply to sole proprietorship)
- At least 50% of total gross income of entity is from active conduct of business in an RC
- A “Substantial Part” of the use of tangible and intangible property (owned or leased) is w/in an RC.
- A “Substantial Part” of services performed for the employer by the employees is w/in an RC.
- At least 35% of the employees are residents of an RC
- Less than 5% of the average total unadjusted basis of property owned by the business is in the form of: Nonqualified financial property (e.g., debt, stock, partnership interests, options, futures, contracts, forward contracts, warrants, notional principal contracts, and annuities), or… Collectibles not primarily held for sale to customers
Additional information regarding the Renewal Community designation and the available tax incentives may be gained from the following sources.
- HUD’s Tax Incentive Guide for Businesses in the Renewal Communities, Empowerment Zones, and Enterprise Communities. Print the guide from the HUD’s website or order free copies by calling 1-800-998-9999.
- IRS Publication 954 - Tax Incentives for Empowerment Zones and Other Distressed Communities - details tax benefits available to the RC. May be printed from the IRS's website.
How the City of Ruston can help
The City of Ruston has an Economic Development Administrator on staff, who serves as the primary contact for the Renewal Community, this individual is responsible for promoting RC benefits to businesses and insuring that commitments made by State and local government are carried out.
Address Verification: http://www.hud.gov/crlocator
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