By Karen Schnog, Department of Business and Industry
In November 2016, the federal government allocated $7 billion in New Market Tax Credits (NMTC) to support investment in businesses operating in distressed communities throughout the U.S. Although not new, this is the largest allocation to the program since inception. From 2000 to 2016, $50.5 billion in tax credit allocation authority has been awarded by the Com-munity Development Financial Institution (CDFI) Fund, part of the U.S. Department of the Treasury, resulting in $42 billion in NMTC investment in low-income communities. By creating a public-private partnership, the NMTC program helps economically distressed communities attract private investment previously unlikely, to help fill the investment gap and make business development possible in these neighbor-hoods.
How does the program work?
The CDFI certifies specialized financial intermediaries called Com-munity Development Entities (CDEs). These entities use the allocated tax credits to raise private capital to invest. For their investment, they receive a tax credit against their federal income tax liability. It is important to note that despite the implication of the name, the businesses which receive the investment do NOT receive tax credits, but they do receive favorable terms that help their business access capital.
What does this mean for Nevada?
Nevada has been identified as a historically underserved state by the CDFI Fund and many statewide tracts meet the program definition of economically distressed. Currently, there are at least 15 CDEs specifically targeting opportunities in ten underserved states, including Nevada, which equates to almost $800 million, or 11 percent, of the $7 billion allocation.
Does your company qualify for NMTC Investments?
First, your business must be located in (or plan to locate within) a Qualified Low-Income (QLI) neighborhood as defined by census tracts. This includes:
- Where the poverty rate is at least 20%; or
- Where median family income does not exceed 80% of the area median family income; or
- Where median family income does not exceed 85% of the area median family income provided the census tract is located in a high migration rural county; or
- Where the census tract has a population of less than 2,000 and is contained within a federally designated Empowerment Zone and is contiguous to at least one other QLI zone listed above. (To see if your location qualifies, refer to the IRS and CDFI for guidance for additional details, or visit cdfifund.gov/mapping. Another useful tool can be found at Novoco.com
Second, a significant part of your business must be located, operating, and producing revenues in the QLI community. Specifically, at least 50 percent of the total gross income must come from the active conduct in the QLI; at least 40 percent of the use of the tangible property of the business is within the QLI community; and at least 40 percent of the services per-formed by the company’s employees are conducted in the low income community. Additional restrictions regarding the hold-ings and industry also apply.
Third, the total funding package usually needs to be a minimum of $5 million; however, larger package amounts are more common. For example, the total equity, loans, funding and investment may be $10 million and the NMTC funding may make up approximately $3 million in additional gap funding.
What kinds of businesses typically receive funding?
Examples of qualified businesses include: manufacturing; grocery stores; rehabilitation of commercial, industrial, retail, and mixed use projects in the community; businesses that rehabilitate or provide community services such as community health centers or schools. Nevada businesses that have benefited from the federal NMTC program include Northern Nevada Hopes, a Federally Qualified Health Center located in Reno providing critical healthcare and support services to disadvantaged community members; and Eclipse Theater, a luxury theater and entertainment complex located in Downtown Las Vegas. In addition, several manufacturers including Tortillas, Inc., Plastic-Card International Las Vegas LLC and Erickson Sputtering LLC are expanding because of NMTC funding and have hired employees from their respective distressed neighborhoods.
Although qualifying for and completing the process to receive these funds can be challenging, each business that received the NMTC funding states that it is well worth it due to the favorable terms and the ability to acquire funding that makes many of the projects possible.
ACCESS TO ASSISTANCE
In an effort to support the growth and development of the business sector in Nevada, the Nevada Department of Business and Industry offers an online business resource portal. The Business Resource Center provides the most comprehensive listing of resources, information, contacts and learning opportunities to help you – the person running a business or interested in starting one. It is simply one way we are working to enhance our state’s entrepreneurial environment. The Business Resource Center can be accessed here.
This article was reprinted from the Winter 2016 edition of The Business Advocate, published by the Nevada Department of Business and Industry.