Tax credit program offers welcome optionto expanding manufacturers
By Staff -- Manufacturing Business Technology, 9/1/2006 12:00:00 AM
Manufacturers looking to expand operations may qualify for little known tax credits, says Karen Williams, a partner with the Portland, Ore.-based law firm of Lane Powell. New Market Tax Credits (NMTC) is a federal program that can entail up to 20 percent in "found" money not having to be repaid if the site location resides within certain census tracts characterized as low income.
"NMTC is a federal-subsidy tool that encourages resources from private financial markets in particular census tracts to accomplish community and economic development that benefits residents in low-income communities," Williams says. Census-tract qualifying characteristics include the median family income being 80 percent below the area's overall median income, or 20 percent below the poverty line.
Those particular areas have trouble attracting equity capital for development, and they don't have enough of what Williams terms an "economic water table" to support many kinds of businesses. As a result, they end up being economic islands.
Surprisingly, a large number of census tracts exist around the country—and qualify for funding, Williams adds.
The tax credits can generate as much as 20-percent to 25-percent subsidy for a project, yet Williams says manufacturers have not taken advantage of the program, except in very rare instances. The Community Development Financial Institutions (CDFI) Fund, run out of the U.S. Treasury, welcomes manufacturers as participants in the program, she asserts.
"The subsidies could enable manufacturers to modernize plants or consolidate into more energy-efficient plants, making them more competitive with foreign entities," says Williams. "Without the subsidy, it could be a close decision whether they will stay in the U.S. or go offshore."
The original Congressional appropriation in 2000 was $15 billion, of which 39 percent was allocated in federal tax credits; while 61 percent of the funding comes from private financial institutions.
There have been four rounds of annual allocations, with a fifth slated for application in the fall. The program is up for Congressional renewal at the end of the year.
For more information: www.nmtcprogram.com, or www.cdfifund.gov.
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