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Bonus depreciation benefit extended for five counties

Following a hurricane of epic proportion, an historic piece of legislation was passed by the U.S. Congress to aid the recovery and rebuilding of Mississippi, Louisiana and Alabama. The Gulf Opportunity Zone Act was signed by the president in December 2005 and encompasses 49 of Mississippi’s counties.

Business owners all over the state have become educated about the GO Zone Act and have been eager to take advantage of the bond provisions and tax incentives. Due to the massive destruction in the coastal counties, cleanup and rebuilding — especially in Hancock, Harrison and Jackson counties — is much slower than in the rest of the state. For that reason, the 50% bonus depreciation provision was extended for five counties in Mississippi and some parishes in Louisiana. The new deadline is December 31, 2010, for Hancock, Harrison, Jackson, Pearl River and Stone counties.

“Bonus depreciation deadlines have been extended for two years in five of the most highly damaged coastal counties,” said Kim Smith with the Butler Snow law firm in Jackson. “Deadlines for bonus depreciation remain the same in the other counties, and all other incentives in the act still remain the same.”

When the bonus depreciation benefit was extended, Barry Cannada, a partner with Butler Snow, said the extension would help jump start economic recovery. “We have already seen at least one construction project that now will go forward that would have been shelved under the shorter bonus depreciation deadlines of the initial GO Zone Act,” he said.

Combo approach?

The attorneys point out that businesses may be able to use state incentives in combination with the federal GO Zone benefits. These incentives include a sales and use tax exemption for most purchases and the potential for the avoidance of the Mississippi contractor’s tax. A business may also be able to obtain a property tax exemption for assets purchased with bond proceeds, if the local governing authority permits such an exemption.

Jay McCarthy, director of financial resources for the Mississippi Development Authority, works with local economic developers to help them understand and make the best use of the act’s provisions.

“When they take everything into account, taking advantage of these incentives ties in with other incentives and it helps,” he said. “It’s a good marketing tool for the state. It gives us a jump up on other places.”

Jay Moon, president of the Mississippi Manufacturers Association, believes the state does a really good job of working with local communities to offer incentives.

“But we’ve never had anything on the federal level to offer. This is something new and it’s got people’s attention,” he said. “It’s been very beneficial legislation. It’s got a lot of businesses — those damaged and those not damaged but in the counties in the zone — taking a look at their business plans. In many cases, they have accelerated their plans to take advantage of the incentives.”

The 50% bonus depreciation and tax-exempt bond financing are the most widely used benefits of the GO Zone Act, according to professionals working with clients to utilize the legislation. However, Russ and Smith outline other important incentives:

• Increase in section 179 expensing

• Net operating loss carry back extended to five years

• Tax credits for employers

• Advanced refunding authority, allowing state and local governments to restructure eligible tax-exempt debt

• An increase to 26% for the rehabilitation credit for qualified expenditures on historic structures

• Rules permitting expensing of 50% of demolition and cleanup costs incurred through 2007.

“Although most of these incentives are still in effect, many of them are set to expire by the end of 2008,” Smith said. “If a company is interested in utilizing these incentives, it is critical that the business owner consult his or her tax advisor regarding these incentives.”

All types of businesses can qualify for the act’s provisions. “All categories of businesses have taken advantage of it,” said Louis Fuller with the Brunini law firm in Jackson. “We’ve spoken to retail shopping center developers, heavy and light manufacturers, service industries, office buildings and many others.”

Melanie Woodrick with GranthamPoole CPAs has been involved with interpreting the legislation enacted to assist with recovery. “Our firm has been very involved with the GO Zone as it affects our clients,” she said. “This involvement includes advising clients about the tax implications on real estate construction, purchases and sales. We have also had a lot of interest in the impact on business aircraft and trucking.”

In addition to planning for future transactions, the CPA firm has assisted clients in filing tax returns and using the work opportunity credit. “For individuals who had hurricane losses, we want to ensure that they claim all the casualty losses they are allowed and ensure that the new legislation, which provides safe harbor values for losses, is correctly applied,” Woodrick added.

Absorbing it all

Legal and tax advisors have worked diligently to learn the details of this important piece of legislation.

“The GO Zone Act was so comprehensive and touched on so many different areas of the law and businesses activities that we have a total of over 20 lawyers who are involved in some way or another in advising clients pursuing GO Zone-related projects, many of them on a daily basis,” said Don Clark, firm chairman at Butler Snow.

“These include lawyers whose practices are focused on private activity bond financing and other economic incentives, the pure tax aspects, real estate and related project development work, environmental issues, together with all of the ancillary aspects that can arise in such projects, such as choice of entity issues, purchase and sale transactions and a wide variety of federal, state and local regulatory issues.”

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

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