Controversy has swirled about Gulf Opportunity (GO) Zone credits being used far inland where there was little damage from Hurricane Katrina, such as to build condominiums in Tuscaloosa, Ala. But there seems to have been little controversy over the use of the GO Zone credits inland in Mississippi.
”It’s very important that we keep in mind that all Mississippians are in this recovery and rebuilding effort together,” says John Fletcher, a shareholder, Watkins Ludlum Winter & Stennis P.A. Attorneys at Law, Jackson. “From the beginning that’s what has set us apart from others in the area, and we hear that on a daily basis from clients and contacts around the country.”
Developments take time
Use of the GO Zone credits has been easier in areas not as badly hurt in the storm. It takes a while for infrastructure repairs that can facilitate development.
“The Coast has some unique hurdles to overcome in the rebuilding effort, and that will take some time,” Fletcher says. “But there’s still plenty of time for projects on the Coast to take advantage of the most valuable development tool that came out of the GO Zone legislation — the vast amount of tax-exempt bonds the state is authorized to issue.”
There seems to be no doubt the GO Zone provisions are helping spark recovery. Fletcher says his law firm has spoken with numerous investors around the country who have or are contemplating investing in the Gulf Coast strictly because of the GO Zone bonus depreciation and tax-exempt GO Zone bonds.
“From a macroeconomic standpoint, having those outside dollars come into the local economy would appear to be exactly what Congress intended in adopting this legislation,” Fletcher said.
There has been some confusion about deadlines for qualifying for the GO Zone provisions. It was widely reported that Congress extended until the end of 2010 the bonus depreciation deadlines for buildings in the five hardest-hit counties.
“While a taxpayer does have an additional two years to finish constructing those properties, the extension legislation included some unfortunate fine print that resulted in only those amounts spent by December 31, 2009, qualifying for the bonus depreciation,” Fletcher says. “Thus, even though there has been an extension of the deadlines for the coastal areas, that extension is not as valuable as it could have been. Congress needs to enact a meaningful bonus depreciation extension that recognizes the practical difficulties those on the Coast are having in pushing forward larger job-producing projects.”
Although the clock is ticking on the bonus depreciation deadlines, Fletcher says many of the large-scale, job-producing projects they would like to see come to the Coast probably will be using tax-exempt GO Zone bonds, especially given the broad existing state tax benefits associated with that funding source. Those projects must be funded by December 31, 2010, and typically the company has an additional three years to spend those proceeds.
“Thus, there’s still plenty of time for businesses along the Coast to take advantage of this important and valuable benefit,” Fletcher says.
If a company is constructing a new facility or expanding an existing facility, try to anticipate future needs for equipment, furniture and computer software and if possible, purchase these items by December 31, 2007, in order to meet the deadline, is the advice of Butler, Snow, O’Mara, Stevens & Cannada, PLLC, a law firm based in Jackson. For all counties and parishes in the GO Zone except those qualifying for an extension, personal property (equipment, computer software, etc.) must be acquired and placed in service on or before December 31, 2007.
One provision is expiring. The Work Opportunity Tax Credit is only available to qualified employees hired before August 28, 2007.
Variety of businesses
utilizing GO Zone Act
The businesses that have benefited the most from the GO Zone Act are existing operating businesses, says Thad Varner, a member of Butler Snow.
“Some of these businesses were already doing business within the GO Zone, while others were doing business elsewhere previously, but are now operating within the GO Zone,” Varner says. “There are all types of business that have taken advantage of these incentives. We have assisted clients utilizing GO Zone incentives to construct, rebuild, expand or improve manufacturing facilities, office buildings, retail stores, automobile dealerships, hotels, medical clinics and hospitals, warehouse facilities, apartment complexes and a variety of other businesses.”
Another member with Butler Snow, Gene Magee, says the firm advised clients on how to couple GO Zone incentives with certain state and local economic development tax incentives such as property tax abatements, savings on sales or use or contractors’ tax savings and using income tax credits for new construction within the Go Zone.
“One client for whom we handled a $40-million bond project saved over $500,000 using these additional state incentives,” Magee says.
Louis Fuller, senior tax attorney with Brunini, Grantham, Grower & Hewes PLLC, Jackson, says the most popular GO Zone incentive has been bonus depreciation.
“It appears that taxpayers are taking good advantage of available incentives,” Fuller says. “In addition, I understand that about $1 billion of the almost $5 billion available GO Zone Bond allocation has been utilized.”
Regarding criticism of GO Zone money going to areas less impacted, Fuller says the largest single GO Zone bond issue was for a project in Jackson County. He also knows that there are several large GO Zone bond issues proposed for industries in South Mississippi.
“Mississippi’s policy on the bond allocation favors the six southernmost counties and I believe they have been holding to that policy,” Fuller says. “There is no public record of the taxpayers who are claiming bonus depreciation, but by simple observation we know the recovery and reconstruction has been slower in the most heavily impacted areas as utilities have to be rebuilt, insurance issues addressed and other problems overcome. As a consequence, the less impacted areas have had greater opportunity to take advantage of the incentives.
“For this reason, the bonus depreciation provisions have been extended in five of the southernmost counties. There is no doubt that the bonus depreciation opportunity has encouraged construction throughout the GO Zone. We will be moving into a new downtown Jackson office building that is a GO Zone building. In some respects, damage and economic loss as severe as we experienced in Katrina to any part of the state affects the entire state. We would hope that recovery and economic development in other parts of the state would likewise benefit the entire state. As the recovery in the most heavily damaged areas continues, I think we will see those areas take major advantage of the incentives.”
Fuller says the firm has numerous clients on the Coast and many of those who have rebuilt their buildings or built new buildings are taking advantage of the bonus depreciation. Fuller’s law firm has been involved in GO Zone bond financing for others.
“Many took advantage of the initial jobs credits and many more will as one of the available jobs credits doesn’t expire until the end of this month,” Fuller says.
The general GO Zone Bonus Depreciation will expire for personal property on December 31, 2007, and for real property on December 31, 2008. In Hancock, Harrison, Jackson, Stone and Pearl River Counties, GO Zone Bonus Depreciation on real property will expire December 31, 2010. Fuller says bonus depreciation on personal property placed in service in a building within 90 days after the building is placed in service in those counties will also qualify.
“There are some limits on the qualifying costs,” Fuller sysd. “GO Zone bonds may be issued through December 31, 2010. As I just mentioned, the Katrina Work Opportunity Tax Credit will apply only to eligible employees hired by August 27, 2007.”
Contact MBJ contributing writer Becky Gillette at email@example.com.
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