Business Development Spotlight - Empowerment Zones
by Eugene R. Quinn, Jr.
, Associate Director, NYS Science & Technology Law Center
The Empowerment Zone program was established in the Fall of 1993 under the Federal Omnibus Budget Reconciliation Act and is considered by many to be the capstone of the Clinton Administration's community revitalization strategy. The program is designed to empower people and communities across the United States by inspiring Americans to work together to develop a strategic plan designed to create jobs and opportunities.
The first six of the current 28 Urban Empowerment Zones were designated in 1994. These first EZs were created to entice businesses back to the inner cities. Among the first six designated urban areas was New York City. This designation provided for EZs in both Upper Manhattan and the Bronx. In 1998, the Initiative was expanded through a second round, incorporating an additional 15 zones, none of which were located in New York State. The 2000 Community Renewal Tax Relief Act established a third round of Empowerment Zones, two of the locations being within New York State. As a result of this third round both Syracuse and Yonkers were designated as EZs.
About Empowerment Zones
Designation entitles the Empowerment Zones to receive regulatory relief and tax breaks to promote both job growth and generate community revitalization.
The primary benefit to the new Empowerment Zones is a tax incentive package for businesses to locate and expand within these areas. These incentives include wage credits, tax deductions, bond financing and capital gains. Each incentive is tailored to meet the particular needs of a business and offers a significant inducement for companies to locate and hire additional workers.
Below is a broader description fo the benefits to business located within an Empowerment Zone.
Wage credits are especially attractive to businesses looking to grow. These businesses are able to hire and retain Zone residents and apply the credits against their federal tax liability. Businesses located within the new Empowerment Zones will enjoy up to a $3,000 credit for every newly hired or existing employee who lives in the EZ.
Work Opportunity Credits provide businesses located with Empowerment Zones up to $2,400 against their Federal tax liability for each employee hired from groups with traditionally high unemployment rates or other special employment needs, including youth who live in the EZ.
Welfare to Work Credits offer EZ businesses a credit of up to $3,500 (in the first year of employment) and $5,000 (in the second year) for each newly hired long-term welfare recipient.
In addition to the wage credits, there are significant tax incentives available in support of qualified zone property and schools with the EZs.
Tax-Exempt Facility Bonds help Empowerment Zone businesses to receive lower-cost loans to finance property, purchase equipment and develop business sites within these communities.
Qualified Zone Academy Bonds allow state and local governments to match no-interest loans with private funding sources to finance public school renovations and programs.
Businesses located within EZs can postpone or only partially recognize the gain on the sale of certain assets, including stock and partnership interests. This benefit significantly reduces the capital gains tax liability on businesses located with these designated areas.
Under Section 179 of the tax code, businesses located with EZs may claim increased expensing deductions up to $35,000 for depreciable property such as equipment and machinery acquired after December 31, 2001.
Environmental Cleanup Cost Deductions allow businesses to deduct qualified cleanup costs in Brownfields.
Indian Reservations Deductions permit special accelerated depreciation rules for qualified property placed in service on Indian reservations.
In addition to the incentives described above, HUD will provide technical assistance to these communities to ensure that businesses are fully aware of the many opportunities available to them. To make certain the Empowerment Zones are successful in the initial stages of their designations, HUD will host an Implementation Conference where the newly designated EZs will meet to hear from experts in the fields of business, taxes and economic development. The conference will also provide presentations from representatives from previously designated EZs recognized for their successes in forming public-private partnerships.
Like all distressed communities, Empowerment Zones will also be able to take advantage of the New Markets Tax Credits that provide investors with a credit against their federal taxes of 5 to 6 percent of the amount invested in a distressed area. Also available to Empowerment Zones is the Low-Income Housing Tax Credit providing credit against Federal taxes for owners of newly constructed or renovated rental housing.
R. Quinn, Jr.</a>, Associate Director, NYS Science & Technology Law Cen