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Fine-tuning the GO Zone Act to maximize opportunities

Mississippians are reaping the benefits of the Gulf Opportunity (GO) Zone Act of 2005, passed by Congress six months ago to provide significant economic incentives to rebuild the Gulf Coast and to attract new investments to the affected areas.

“The GO Zone legislation was put together and passed rapidly,” cautioned John Scott, CPA, a partner with Horne LLP in Jackson. “There are a lot of questions out there to still be resolved about the application of particular provisions. The IRS has promised guidance. They realize they need to issue some more pronouncements on how the rules will be applied. They say it’s imminent, anytime over the summer. The point is, people are going to have to be continually monitoring the legislation and the IRS pronouncements because some of the provisions will be sharpened more. The attorneys and accountants dealing with it are speculating how some of the provisions are supposed to be applied a little bit more than they would like.”

Jackson attorney Robert S. Lazarus, a partner with Watkins Ludlam Winter & Stennis, P.A. who has handled hundreds of municipal and corporate finance projects, including the bond issue for Nissan-Canton, said two provisions of the GO Zone legislation generating the most client interest are the expansion of the tax-exempt bond provisions and the bonus depreciation provisions.
v“Since these two benefits are available singly and not jointly, business owners must choose between the two provisions,” he said. “Much of our time in these beginning stages has been spent educating our clients and the public about the specific benefits and time constraints applicable to each provision.”

Taking advantage of the bond provisions can result in lower interest rates over the term of the bonds, up to 30 years. The bonus depreciation provisions can result in immediate tax savings in the first year the facilities are placed in service.

“Although we have been taking an active role in helping our clients determine which benefit is most appropriate in their circumstances, we’ve encouraged them to seek additional guidance from their accountants as well,” said Lazarus.

“The bonus depreciation is really piquing most people’s interest,” said Scott. “Most people who were already in the GO Zone or who are looking to invest represent a much larger number of interested parties going to the Mississippi Business Finance Corporation to get bond inducements under the GO Zone bonds.”

The employment tax credit is one of the most surprisingly useful provisions of the act, said Scott.

“There was a retention credit for the retention of employees, which can be up to $2,400, 40% of the first $6,000 of wages paid while your business was inoperable after the storm,” he explained. “Also, the flip side to that is an employment credit for new hires in the GO Zone for the next two years (the same 40% of the first $6,000). I’ve got people taking those credits left and right. They reward employers for doing the right thing for keeping or adding employees.”

Which state programs best complement GO Zone provisions? “Mississippi provides certain state tax benefits for projects that are financed with the proceeds of tax-exempt or taxable bonds,” said Lazarus. “These include exemptions from sales taxes, ad valorem taxes and, in some cases, tax credits which may lessen the project owner’s Mississippi corporate income tax liability. Many of our clients seem to be interested in taking advantage of these state tax benefits through the issuance of taxable bonds, while at the same time taking advantage of the bonus depreciation provisions of the GO Zone Act.”

Jackson attorney Steve Rosenblatt of Butler, Snow, O’Mara, Stevens & Cannada, PLLC, said the law firm has already closed one GO Zone bond issue — a $40-million mortgage revenue bond — and, at press time, was scheduled to close two more.

“Through this bond issue, Mississippi Home Corporation was able to provide low-cost mortgage financing to families affected by Hurricane Katrina,” said Rosenblatt. “Of the $40 million, $36 million will be available for potential home buyers in the GO Zone, and $4 million will be available for potential home buyers in north Mississippi.”

Real estate developers are keenly interested in GO Zone benefits. “These folks are involved in the construction of office buildings, retail shopping centers and other large scale real estate development projects,” said Lazarus.

“We’re also seeing a lot of interest in certain manufacturing facilities in the GO Zone, many of which are in the alternative energy field. In addition, we’re working closely with banks to help them provide needed services to their clients.”

Contact MBJ contributing writer Lynne W. Jeter at Lynne.Jeter@gmail.com.

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