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Gulf Coast Recovery is Ready to "GO"

Nearly a year after Hurricane Katrina, "GO Zone" and other incentives offer new options for businesses in and out of the region.

Jun/Jul 06
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Additional State Law Incentives in Mississippi
If properly structured, projects financed with tax-exempt GO Bonds can be exempt from the sales and use tax - generally 7 percent - and, with proper planning, can avoid a portion of the contractor's tax - the 3 percent tax on component materials and on design services. Also, projects financed with GO Bonds are eligible to obtain ad valorem tax exemptions, subject to the discretion of the local governing body where the project is located. Finally, businesses utilizing tax-exempt GO Bonds may also be eligible for RED Program state income tax credits. These three state law incentives can produce significant savings, especially when combined with the savings of the cost of funds for a tax-exempt, private activity bond.

Other Benefits Offered by the GO Zone Act
100 percent deduction for qualifying tangible personal property for small businesses: The amount small businesses are permitted under Section 179 to expense, rather than depreciate, for investments in qualifying tangible personal property and computer software placed in service in the Zone has been increased by $100,000 to $208,000. The placement in service dates are the same as those that apply to bonus depreciation. The investment ceiling limit for eligible property has been increased by $600,000 to $1,030,000.

Demolition and cleanup expenses may be expensed: Under existing law, the cost of demolition generally is added to the business owner's basis in the underlying land and cannot be recovered until the property is sold. The GO Zone Act allows businesses to expense 50 percent of their demolition and cleanup expenses incurred through 2007.

Work Opportunity Tax Credit (WOTC): Employers may claim the WOTC if they hire a new "Hurricane Katrina employee." This is an individual who, on August 28, 2005, had a principal place of abode in the "core disaster area" and (1) who was hired after August 27, 2005 and before August 28, 2007 for a job located in the core disaster area; or (2) who was displaced by Hurricane Katrina and was hired after August 27, 2005 and on or before December 31, 2005 for a job located outside the core disaster area. For employers outside the GO Zone, the employee must have been hired after August 27, 2005 and before January 1, 2006. For employers within the GO Zone, the WOTC is extended for employees hired through August 27, 2007. Eligible employers are allowed a credit of 40 percent of the first $6,000 of qualified first-year wages paid to each eligible employee.

Employee Retention Tax Credit: The Employee Retention Tax Credit was expanded to apply to all employers in the Zone, regardless of the number of employees. The credit is equal to 40 percent of qualifying wages up to a subject to a maximum of $6,000 (for a maximum credit of $2,400 per qualifying employee) and applies to qualifying amounts expended prior to December 31, 2005.

Other Important Provisions of the GO Zone Act
The GO Zone Act contains a number of additional incentives and relief provisions that are important to businesses considering an investment in the GO Zone.

• Increase in qualified rehabilitation credit: The credit for qualified expenditures for a historic structure was raised to 26 percent and for other qualified structures to 13 percent.

• Expensing of qualified environmental cleanup costs: The deductibility of environmental cleanup costs incurred on qualifying sites was extended for two years and applies to the cleanup of petroleum products. To qualify, costs must be incurred from August 27, 2005 through December 31, 2007.

• New market tax credit authority increased: The allowable credit is equal to 39 percent of qualifying investments in low-income communities. To qualify, the investment must be made by an authorized community development entity (CDE). An additional $1 billion in authority was granted for the years 2005-2007.

• Low-income housing: The act authorizes almost $40 million in additional low-income tax credits for Mississippi. Additional provisions will increase the credits available to investors for new construction and rehabilitation expenditures.

• Reforestation incentives for small timber owners: The cap on the deductibility of reforestation costs was doubled to $20,000 per year through 2008, and a special five-year NOL carryback for small timber operations was authorized. To qualify, the timber owner must own less than 500 acres of timber.

The damage caused by Hurricane Katrina is unprecedented. The impact on individuals and existing business and industry has been catastrophic. But significant lessons have been learned, and significant efforts are underway to assist the region in recovery and, more importantly, future growth. If business and industry response to the GO Zone incentives reaches the proportion Congressional and regional representatives expect, undoubtedly the entire Gulf Coast region will be back, better and stronger than ever.

AngelouEconomics is an economic development consulting firm specializing in the site selection needs of the technology industry and the communities seeking to recruit them. The website is Butler, Snow, O'Mara, Stevens & Cannada is one of the largest law firms in the mid-South. Contact its attorneys via the company's website,

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