C&I programs increase development project feasibility.
Many jurisdictions, for example, use enterprise zone (EZ) designations or boundaries for locations in which the state wants to rehabilitate, by promoting capital investment and job creation or retention. In addition, states are generally willing to share in the responsibility for revitalizing environmentally blighted locations through "Brownfield" designations.
A Brownfield program is intended to assist with the cost of restoring land or repairing existing buildings in areas that have been environmentally polluted or contaminated from a previous occupant's activities. Brownfield and EZ programs can help make marginal areas more attractive to potential investors and developers.
Credits are offsets to tax liabilities in response to a capital investment or job creation activity. Credits are available for investment in certain categories of purchases, such as historic property, manufacturing machinery and equipment, or research and development equipment.
Eligibility for the use of tax credits is generally straightforward: Credits are an immediate deduction from a tax liability once the purchase has been made.
Incentive programs are much more subjective and may take many different forms. State and local governments use incentive programs to encourage or induce capital investment or job creation activities. Common incentive programs involve abatements of property, income or sales taxes; convertible loans (forgivable loans); training grants; or sales tax rebates.
Generally, C&Is are offered to companies that consider expanding or retaining jobs or facilities in a state. To be eligible for many programs, companies must notify the state that they are considering an expansion project. The C&Is are determined by the level and type of project.
States generally, however, require legal contracts that include recapture provisions if a company fails to meet the investment or job creation requirements. For example, recently, the State of Illinois and the City of Chicago had designated a long-vacant USX site on the city's south side as an EZ. Taking advantage of this designation, manufacturer Solo Cup and, most recently, Ford Motor Co. decided to make substantial investments in the blighted area. In addition to tax credits and other incentive programs that will benefit these companies, the state will also dedicate funding to restore more than 1,500 acres of wetlands, marshes and lakes.
Historic Tax Credits
Some states administer programs that provide tax credits to assist developers with the cost of rehabilitating historic properties. In many states, the department or division of historic preservation administers the tax credits. The credit is based on the total cost and expenses of the rehabilitation project.
Generally, for structures to be eligible for historic tax credits, the property must meet the following criteria:
* A building must be a certified historic structure listed in the state's register or the National Register individually, or as a building that stands in a designated local historic district;
* Rehabilitation work must meet standards consistent with the Standards of the Secretary of the U.S. Department of the Interior; and
* A project's scope must constitute a substantial rehabilitation, generally defined as an increase over the building's appraised value.
FROM TIM SCHRAM, CHICAGO, IL
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|Title Annotation:||credit and incentive|
|Publication:||The Tax Adviser|
|Date:||Feb 1, 2001|
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