With Congress’ passage of the 2017 Tax Cuts and Jobs Act, communities in Maryland and throughout the nation received a new tool for revitalization – Opportunity Zones. The Opportunity Zone program is designed to help redevelop underserved communities by providing federal tax incentives for investment in distressed communities over the next 10 years, including potential exemption from capital gains taxes. Maryland received 149 Opportunity Zone designations, and every single one of Maryland’s 24 jurisdictions has at least one designation. Opportunity Zones will attract significant capital and create jobs. Under Governor Larry Hogan’s leadership, Maryland intends to maximize the potential of Opportunity Zones by prudently targeting state resources to support investment in these areas, including the creation and expansion of a Qualified Opportunity Zone Business.
To become a Qualified Opportunity Zone Business, the business must be located in a designated Opportunity Zone. Half of the business’ revenue, payroll, or hours worked, as well as 70% of its assets must be within the Opportunity Zone, or the business must provide additional information that demonstrates it is substantially operating within the zone. Any investment into the business must considerably increase its tangible assets. If a business is a Qualified Opportunity Zone Business, its investors may receive capital gains incentives by investing in the business. These incentives include:
• Deferral of paying capital gains tax due earlier than December 31, 2026, or upon sale of the Opportunity Zone investment.
• Reduction of capital gains tax due on December 31, 2026, or earlier – a 10% reduction for five year hold of the Opportunity Zone investment and a 15% reduction for a seven year hold.
• After a 10 year hold on an Opportunity Zone investment, 100% of capital gains tax is exempted.
Governor Larry Hogan proposed legislation during the 2019 General Assembly session to support initiatives that make Maryland attractive for Opportunity Zone investment capital. Over the course of the session, the administration’s legislation was combined with several privately-sponsored bills to form a larger, omnibus Opportunity Zone bill – Senate Bill 581. From a big picture perspective, the legislation aligns Maryland’s policies, programs, and regulation, to leverage Opportunity Zones. In addition to core tax benefits, it provides several potential benefits for business owners looking to operate within Opportunity Zones.
For example, many of the State of Maryland’s programs, including the Maryland Department of Housing and Community Development’s Neighborhood BusinessWorks lending program, often have a requirement that the project or business seeking assistance must be located in a designated Sustainable Community or Priority Funding Area. While most of Maryland’s Opportunity Zones already have one or both of those designations, several Opportunity Zones in rural counties did not. The legislation amends state regulations so that, in those counties, an Opportunity Zone designation is the only requirement to qualify for Neighborhood BusinessWorks and other revitalization resources. This change ensures equal access in all areas of the state to this critical small business resource that received a significant funding increase in the state’s Fiscal Year 2020 budget.
The legislation also included and expansion of Governor Hogan’s More Jobs For Marylanders program – The More Opportunities for Marylanders Act. The More Opportunities for Marylanders Act will allow eligible businesses locating in or expanding within Maryland Opportunity Zones to claim a fully refundable income tax credit of 5.75% of wages for each qualified job created and sustained for more than 12 months. Under the act, new Qualified Opportunity Zone Business can receive a credit against the state’s portion of its property tax, a refund of sales and use tax, and a waiver of fees charged by the Maryland Department of Assessments and Taxation in addition to the job creation tax credit.
The ultimate goal is to create a seamless, complementary framework where public resources – federal, state, and local – can be layered together to attract additional private sector and nonprofit investment. Businesses, investors, and local stakeholders can learn more about the various incentives and programs that support Opportunity Zone projects and businesses by visiting the Maryland Opportunity Zone Information Exchange. The Maryland Opportunity Zone Information Exchange is the first comprehensive, interactive resource of its kind in the nation. As of July 2019, the Information Exchange lists 102 projects totaling approximately $12 billion of capital investments in Maryland’s 149 Opportunity Zones.
Supported by an array of state business, workforce development, housing, and revitalization programs, Opportunity Zones have the potential to be a gamechanger for Maryland’s communities. They will be a catalyst for economic growth and job creation, and Maryland’s small businesses can and will have a vital role in their overall success.
To access the Maryland Opportunity Zone Information Exchange, visit http://dhcd.maryland.gov/OpportunityZones.
This article is featured in the 2019 edition of The Daily Record’s Expanding Opportunities Resource Guide for Small, Minority and Women Businesses. Published in conjunction with the Governor’s Office of Small, Minority & Women Business Affairs, Expanding Opportunities explores diversity, entrepreneurship and innovation in Maryland’s small business community. Read more from Expanding Opportunities on this website or read the digital edition.