New Markets Tax Credit (NMTC)

How does this affect Florida businesses?

The New Markets Tax Credit (NMTC) is a federal program designed to stimulate economic growth in low-income communities by providing tax incentives to investors in eligible projects. Florida governments leverage the NMTC to attract investment in economically distressed areas, benefiting Florida-based businesses through a twofold collateral effect.

On the one hand, businesses located in or planning to expand into designated low-income communities may attract investors seeking NMTCs, leading to increased capital for growth and development. At the same time, investors who take advantage of the NMTC can receive a tax credit of up to 39% of their initial investment, distributed over seven years. This incentive encourages investments in Florida-based businesses operating in qualifying areas, fostering job creation and economic development.

Need help regarding economic development incentives? Schedule your consultation today with a top economic development attorney.

Which Florida and federal laws and regulations apply to the NMTC?

The NMTC program follows the IRS’ guidance under the Internal Revenue Code (26 USC § 45D). Florida does not have a state-specific NMTC program; however, the Florida Department of Economic Opportunity (DEO) collaborates with federal agencies, such as the Community Development Financial Institutions Fund (CDFI Fund), to facilitate the use of NMTCs in the state.

Additionally, the CDFI Fund designates Qualified Active Low-Income Community Businesses (QALICBs) and Community Development Entities (CDEs) under 26 CFR § 1.45D-1, which outlines the requirements and responsibilities of these entities to participate in the NMTC program. In Florida, businesses and investors should familiarize themselves with these federal regulations to ensure compliance with the program’s requirements and maximize the benefits of the NMTC in the state.

Which Florida businesses qualify for the NMTC?

Businesses must meet the following requirements:

• Be a Qualified Active Low-Income Community Business: This means that the business must derive at least 50% of its gross income from the active conduct of a business in a low-income community, use a substantial part of its tangible property within the community, and perform a significant amount of its services within the community.
• Be Located in a Low-Income Community: The business must be n a census tract with a poverty rate of at least 20% or an area where the median family income does not exceed 80% of the statewide median family income.
• Generate Positive Community Impact: The business should create jobs, provide essential goods or services, or otherwise contribute to the economic development of the LIC.
• Obtain Investment from a Community Development Entity: A CDE is a certified organization that serves as an intermediary between the business and the NMTC investors. The CDE is responsible for allocating the tax credits to the investors.

When a set of facts is appropriate to meet the requirements of the NMTC, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path to seek appropriate remedies.

To determine whether your unique situation may necessitate litigation, please contact our office to set up your initial consultation.

What are the strategic benefits for qualifying Florida businesses?

• Access to Capital: The NMTC attracts investment from individuals and corporations looking to reduce tax liability, providing businesses with the capital necessary for growth and expansion.
• Lower Financing Costs: The tax credits can reduce the cost of financing for businesses, making it easier for them to secure loans and other financial assistance.
• Job Creation: As businesses expand and develop, they often create new job opportunities for residents, contributing to the overall economic well-being of the community.
• Economic Revitalization: By investing in LICs, businesses can help revitalize economically distressed areas and improve the quality of life for residents.

Please contact our office to set up your initial consultation to see what actions or defenses may be available for your unique situation.

Frequently Asked Questions

1. How does a business apply to Florida’s New Markets Tax Credit (NMTC)?

A business must first secure investment from a CDE. A CDE is a certified organization responsible for allocating tax credits to investors. The business should contact CDEs that have received NMTC allocation authority from the US Treasury’s CDFI Fund. Once a CDE agrees to invest in the business, it will allocate the tax credits to the investors, who can then claim the credits on their federal income tax returns.

2. Can the New Markets Tax Credit be combined with other economic development incentives?

Yes, the NMTC can be combined with other federal, state, and local economic development incentives to maximize the potential benefits for businesses in Florida. For example, a business may qualify for the Florida Enterprise Zone Program or the Florida Brownfields Redevelopment Program in addition to the NMTC. However, consulting with a tax professional or legal advisor is essential to ensure compliance with all applicable regulations and maximize the benefits of combining these incentives.

3. How long does the New Markets Tax Credit last, and what is the value of the credit?

The NMTC provides a 39% tax credit on the total investment amount, which is claimed over seven years. Specifically, the investor claims 5% of the investment during the first three years and 6% during the remaining four years. The credit’s value derives from the amount of the investment made by the CDE into the QALICB.

Have more questions about an economic development-related situation?

Crucially, this overview of the NMTC does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain tireless advocates at every step. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to schedule a consultation.