When some people hear the phrase New Markets Tax Credits, they might think of an obscure tax incentive. However, other people, those who deal with the program or have been directly impacted by it, think of something completely different. These individuals think of a hydroelectric generating facility found on the Kentucky River, a new health and science building at a small college in Berea that offers students a debt-free education, a brand new state-of-the-art YMCA in West Louisville that offers increased community services to society’s most vulnerable, or a Winchester facility that manufactures bio-degradable plastic items while employing those desperately in need. These are just a few of many transactions that could not have happened without New Markets Tax Credits, an oft-used, but still relatively unknown, tax incentive that has contributed significantly to the economic development of low-income communities across the country.
The New Markets Tax Credit (“NMTC”) program was passed into law in the early 2000s, and while seen as a very impactful economic tool over the past 19 years, was in danger of expiring at the end of 2019. On December 20, 2019, however, Congress passed into law Bill H.R. 1865, which included a one-year extension, and a $5 billion allocation award to the NMTC program. The importance of this increased allocation cannot be understated, as it will allow for increased community and economic development by way of increased tax credit investment. According to some estimates, the resulting investments from this increased allocation will spur economic growth arising from the creation of 118,000 jobs. Throughout its life, the NMTC program has helped finance over 6,000 projects across various fields in the private sector, from health care to community facilities to manufacturing and industrial, and has helped create over one million jobs in all 50 states, Washington D.C., and Puerto Rico.
The NMTC program offers tax credit investors a federal tax credit of 39%, which is taken over seven years. In order to receive these credits, an investment must be made in a qualified low-income census tract. These census tracts qualify if the individual poverty rate is at least 20% or where the median family income does not exceed 80% of the area median. Each year, the U.S. Treasury Department awards NMTC allocations to qualified community development entities (the “CDEs”) across the country to deploy projects that have various geographic focuses, be it on a certain city, state, region, or across the nation, as well as industry focuses, such as health care, renewable energy, manufacturing jobs, or community facilities. All of these CDEs have the intent of creating new economic activity which will stimulate economic growth in communities that have lacked such growth for years.
The extension of the NMTC program is a great victory for communities that have traditionally been starved of private capital investment. This program has a proven track record of assisting communities in need and can continue to do so for at least one more year. If you or someone you know has a project that could benefit from the use of NMTCs or is merely interested in learning more about the program, Stites & Harbison will be hosting a New Markets Tax Credits Workshop on April 22, 2020. Please mark your calendar and we will provide further details on the program, including national speakers, in the coming weeks. We look forward to seeing you in April.