The Gulf Opportunity Zone (GOZA) incentives have been touted as a great advantage to Mississippi as it recovers from the largest natural disaster in U.S. history. While some people have found the GOZA incentives are complicated to understand, others say that is what business advisors like CPAs and attorneys are for, to help businesses through a process that although new to them, can have substantial economic benefits.
“It is definitely something people should not be afraid of,” said John Scott, CPA, a partner and firm-wide director of tax for HORNE LLP, Jackson. “While the typical tax provisions can be complicated, the implementation of some of the more important provisions is very easy and taxpayer friendly.
“An example would be the bonus depreciation provision. If you acquire assets in the GO Zone before the expiration of the provision, you can write off 50% of the cost in the year of acquisition. Typically for real property you could have a life of 27.5 or 39 years. And with bonus depreciation, you can write off half of it in the first year. It is a great opportunity to save taxes in the year of acquisition. It is not complicated to understand or use although you will need bond counsel and investment bankers for tax exempt bond financing.”
Scott said the opportunity is there for investment not only on the Coast but in the whole GO Zone, which is more than half of the counties in the state. Some of the provisions expire at the end of 2007, but there is a later deadline for the coastal counties.
There is no doubt the GOZA provisions are encouraging investment in Mississippi.
“We’re seeing a lot of interest not only along the Coast, but in Hattiesburg and Laurel and all the way up to Jackson,” Scott said. “There are a wide range of businesses that could take advantage of it including agribusiness, manufacturing, real estate, healthcare and almost any other kind of business you can think of. I think it is going to prove to be quite critical because investments are going to be made that otherwise wouldn’t have been made both by companies that are already here and companies that look to expand here from other places. There is no question it is living up to its promise. It is absolutely essential to what people are trying to do.”
Especially for companies expanding into the zone for the first time, Scott encourages a trip to South Mississippi to look around and see the progress.
“A lot has been done,” he said. “The story needs to be told that we are effectively rebuilding and that we are open for business.”
Some people get bogged down trying to decide which incentive to take advantage of, either bonus depreciation or tax-exempt bonds. Only one type of GOZA incentive can be used. It does require some analysis of the business by its advisors about which to use.
“Bonus depreciation may, especially in the case of smaller projects, be the best option,” Scott said. “Most of the small business people in this state need to take bonus depreciation. They also need to know if they hire new employees who were impacted by Katrina, they get some employment tax credits.”
George Freeland, executive director, Jackson County Economic Development Foundation, said there is a high degree of interest in and appreciation by Jackson County industrial prospects in the tax-exempt financing part of the GOZA.
“On tax exempt bonds, I have several companies that are factoring into their site selection analysis the tax exempt benefits of their bond issue via the GO Zone legislation,” Freeland said. “Obviously, those companies are factoring in a whole host of issues: transportation, labor, cost, access to markets and other general things they will consider during a site selection.”
Freeland said he has a high degree of confidence that access to the GOZA benefits will be critical in at least some of the projects they are currently working. But since the tax-exempt bond piece of the GOZA serves a longer term investment, it may take a while for the results to be seen.
While the GOZA may not fit everyone, it is a good way to draw people in to look at your area, said Larry Bennett, executive director of the Harrison County Development Commission (HCDC). He said it is getting people in the door.
Bennett didn’t have any direct knowledge of how many companies in Harrison County have been able to take advantage of the act. Many may be using the incentives without notifying the HCDC.
While the GOZA is helpful, it doesn’t go far enough, says Ron Fine, director of operations for Partners for Pearl River County. He believes that GOZA alone isn’t the most important factor in the rebuilding of the Gulf Coast.
“The efforts of our congressional, state and local leaders have made immense contributions to rebuilding the Coast in other more significant ways,” Fine said.
Fine believes more needs to be done to provide significant economic incentives in rebuilding the Gulf Coast. He said the GOZA was modeled after the Liberty Zone incentives created after 9-11, but it is not reaching far enough into low-interest financing for post-Katrina needs.
“Suppose, for example, we have a large prospect wanting to locate here in the six coastal counties from somewhere outside the GO Zone,” Fine said. “Shovel-ready industrial land with infrastructure is a scarce resource, flood issues still exist, and water and sewer are still in the planning stages for rehabilitation or expansion through the utility authorities. Can we find affordable housing and insurance? Can we get our infrastructure good-to-go by 2010? In context, we need to keep pushing infrastructure before the GO Zone has any chance to be a meaningful factor in rebuilding the Gulf Coast.”
Fine said while GO Zone is an incentive for companies wanting to expand in Pearl River County, it has not been the driving attraction.
“The projects we are working on are typically under $3.5 million, which does not make GO Zone bonds justifiable when considering the costs associated with bond issuance and fees,” Fine said. “Net operating loss carry back is good only for some losses already in the GO Zone attributable to hurricane damage. The 50% bonus depreciation is significant accelerated depreciation for an asset placed in service in the first year. In my view, the 50% bonus depreciation is better suited for larger retailers and industries. Smaller companies typically do not realize the same proportional benefit. Some gain better proportional benefit under Section 179 deductions.”
Fine said thus far they have seen companies take advantage of the depreciation provision, but not the tax-exempt financing. But he doesn’t think that is because the GOZA is too complicated for smaller investors.
“It is not too complicated for a company with a good accountant,” Fine said. “It is a little complicated for the average small business owner.”
He said that industry and business prospects are always interested in cost savings. For larger scaled projects over $3.5 million, GOZA bonds are a very nice feature.
“Along with proximity to market, property tax abatements and job tax credits, any advantage helps, but by itself it is not the driving force behind the decision,” Fine said.
John Harral, an attorney with Butler, Snow, O’Mara, Stevens & Cannada, PLLC, Jackson, said he thinks it will take time for the Gulf Coast to get the most benefit from the GO Zone legislation.
“The GO Zone Act contains significant economic incentives to rebuild the Gulf Coast,” Harral said. “The legislation provides for tax-exempt, private-activity bonds which may be allocated within the GO Zone to finance the development of a wide array of commercial projects. As the Gulf Coast continues to gain momentum, these incentives will be valuable tools to assist in rebuilding.”
Contact MBJ contributing writer Becky Gillette at firstname.lastname@example.org.