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GO Zone bonus depreciation benefit extension welcomed

With a recent congressional extension, the Gulf Opportunity Zone Act got better for business owners in the hardest hit areas of the state. Those in Hancock, Harrison, Jackson, Pearl River and Stone counties, along with seven Louisiana parishes, now have more time to take advantage of tax incentives to rebuild. Attorneys and accountants familiar with the act say projects will now go forward that perhaps wouldn’t have otherwise.

Included in the Health Care Act of 2006, the GO Zone extension allows business owners to benefit from the bonus depreciation until December 21, 2010, in the most affected areas. The five Mississippi counties included had at least 60% of the occupied dwellings destroyed or heavily damaged.

In those areas, clean up and debris removal has taken all the time since the storm occurred in 2005. Many are just now in a position to move ahead.

The original act established bond provisions and tax incentives, including bonus depreciation, until December 31, 2007. That date remains in effect for all other counties in the Mississippi GO Zone.

“First, we’d like to give accolades to the politicians who recognized early on that the dates of the Gulf Opportunity Zone Act could not be achieved in the hardest hit areas,” said Barry Cannada, with the Jackson law firm of Butler, Snow, O’Mara, Stevens & Cannada. “There are so many difficulties in rebuilding. The need for the extension was identified for the counties most affected.”

Cannada and others praised the efforts of Senators Trent Lott and Thad Cochran, Representatives Chip Pickering and Gene Taylor and Gov. Haley Barbour.

Kim Smith, also an attorney with Butler Snow, said without the extension there would have been a limited number of businesses which could take advantage of the GO Zone Act. “It would have been a useless tool without the extension,” she said. “Our law firm recognized the need for this, and it’s great that Congress agreed and acted on it quickly.”

Todd Ketchum, a CPA with GranthamPoole of Jackson, has been working closely with businesses using the legislation.

“The big issue with the first bill (before the extension) was that the business had to be in its building by the end of 2007,” he said. “This extension will open doors for more projects. We will see more being done. There’s been a lot of interest, but some were hamstrung. The changes will allow them to go ahead. This is a good tax advantage and is another deciding factor for those wanting to rebuild.”

John Scott with HORNE LLP in Jackson feels that Congress did the state a great service in passing the original act and also for revisiting it. “The extension was needed,” he said. “The pace of reconstruction has been slower than anticipated for a variety of reasons.”

Originally, businesses had to buy personal property, such as office equipment and computers, before the building was placed in service. “It didn’t make any sense under the old rule,” Scott said. “It was like putting the cart before the horse. The new rules will give people more options. Now they have two ways to go with bond financing and bonus depreciation.”

Ketchum agrees that the provision for buying equipment will help businesses along with the bonus appreciation extension. “Bonds are great but require big projects to break even. The GO Zone is the way to go for small businesses,” he said. “The changes are good and we’ll see more being done.”

As an alternative to taking bonus depreciation, all private business owners and corporations located in the GO Zone have until December 31, 2010, to borrow capital on a tax-free basis utilizing GO Zone bonds to acquire, construct, reconstruct or renovate non-residential real property, qualified residential rental projects and public utility property.

All those interviewed say they’ve had a lot of inquiries about the GO Zone Act. “We’ve seen a lot of activity and inquiries from those here and from other parts of the country wanting to make investments here,” Scott said.

Cannada says businesses all over the state are taking advantage of the provisions. “Areas that don’t have infrastructure problems are using it,” he said. “This incentive (bonus depreciation) is probably the most used and best understood of the act. It’s used broadly because it encourages rebuilding and acquisition of buying new equipment.”

Those uses include many types of businesses from new developments and apartment complexes to the purchase of timber equipment to harvest trees felled from the storm.

“We’re seeing good results, no doubt,” he added. “It has encouraged certain capital expenditures that would not have been spent and building that would not have happened.”

Contact MBJ contributing Lynn Lofton at llofton656@aol.com.

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