Empowerment Zones


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  • Hello and welcome to the Empowerment Zone Overview.
  • The best way to understand the EZ tax incentives is to understand the two categories of tax incentives and to what degree and under what circumstances they benefit businesses in the Empowerment Zone.
  • How Wage Credits Work Wage credits reduce the amount of Federal income tax that a business has to pay. Once a business has determined its income, it subtracts its business and other allowable deductions to arrive at its taxable income. The amount of taxes owed is then calculated against the taxable income. A tax credit is a direct subtraction from the amount of taxes owed. So, if a business calculated that it owed $50,000 in taxes and had $20,000 in tax credits, it would owe only $30,000 in taxes. In some cases, wage credits can be carried forward or backward under the IRS’s general business credit rules. If the business owed $50,000 in taxes and had tax credits equal to $53,000, it would owe $0 taxes this year and could carry the additional $3,000 in tax credits forward to upcoming years or, in some cases, carry it back to prior years to reduce taxes owed in those years.
  • The Empowerment Zone Employment Credit gives businesses an incentive to retain or hire individuals who both live and work in an Empowerment Zone (EZ). Businesses can claim the credit if they pay or incur “qualified zone wages” to a qualified employee. The credit can be as much as $3,000 per qualified employee per year through December 31, 2011.
  • The Work Opportunity Tax Credit (WOTC) provides businesses with an incentive to hire individuals from groups that have particularly high unemployment rates or other special employment needs. Businesses do not have to be located in an Empowerment Zone (EZ) to qualify for this credit.
  • Groups that qualify for this one year tax credit include:
  • The Welfare to Work (WtW) credit is the second of the two employment credits administered by the Texas Workforce Commission The WTW credit provides businesses with an incentive to hire long-term family assistance recipients. Businesses do not have to be located in an Empowerment Zone to qualify for this credit. They can claim the credit if they pay or incur qualified wages (during the first 2 years of employment) to a long-term family assistance recipient
  • The interest rate savings with Tax-exempt bond financing may be up to 2 percent, which increases cash flows each year and may result in substantial interest savings over the term of the loan.
  • As with most public financing tools the facility bond has several important factors that go into successful use. This statement captures the factors in successful bond issuance to a qualified private enterprise.
  • Basically, a bond is a low cost loan.
  • The Empowerment Zone governance Board reviews and votes either in support or opposed to the Facility Bond projects based on the project merits and how it addresses the Empowerment Zone strategic plan. The ultimate authority lies with City Council in all bond issuances while the Governance Board acts in an advisory capacity and has the opportunity to address issues.
  • We now know what the bonds are and who issues them. We will now examine the definition of an empowerment zone businesses. Who can use this bond capacity. Well the IRS is very specific in IRS PUBLICATION 954. An Empowerment Zone business is Here we can see the clear program goal of keeping investment and employment opportunities in the Empowerment Zone.
  • At this point we have discussed what tax exempt bonds are (a low cost loan), Who issues the bonds (city council with input from staff and governance board), and who can access the bonds an empowerment zone business as defined by IRS publication 954. Now what can the bonds be used for. According to IRS publication 954 in addition to restrictions on ownership they can only be used to:
  • Empowerment Zones

    1. 1. City of San Antonio Empowerment Zone
    2. 2. Empowerment Zone Business Tax Incentives Employment Credits Bond Financing
    3. 3. Empowerment Zone Business Tax Incentives Employment Credits <ul><li>A business is taxed on taxable income </li></ul><ul><li>Credits are a direct subtraction of Federal Tax owed </li></ul><ul><li>This credit can be carried forward or backward to reduce taxes in those years </li></ul>
    4. 4. <ul><li>EZ Employment Tax Credit - EZ Business can receive up to $3,000 per EZ resident employed per year. </li></ul><ul><li>20% of first $15,000 of wages paid to full or part-time </li></ul><ul><li>Current employees and new hires </li></ul><ul><li>Employee performs substantially all (80%) of work in the Zone </li></ul>
    5. 5. <ul><li>Work Opportunity Tax Credit (WOTC) - Employers, regardless of location , can earn up to $2,400 in tax credit per employee, for first year of employment </li></ul><ul><li>40% of first $6,000 of wages paid </li></ul><ul><li>New full-time employees </li></ul><ul><li>Employees must be certified through Texas Workforce Commission within 21 days of hire </li></ul>
    6. 6. Work Opportunity Tax Credit (WOTC) <ul><li>Groups with special employment needs: </li></ul><ul><ul><li>High-risk youth (ages 18 to 24) who live in an EZ </li></ul></ul><ul><ul><li>Summer youth (age 16 to 17) living in EZ </li></ul></ul><ul><ul><li>Veterans, Ex-felons, Vocational rehabilitation referrals </li></ul></ul><ul><ul><li>Food stamp recipients </li></ul></ul><ul><ul><li>Temporary Assistance for Needy Families (TANF) </li></ul></ul><ul><ul><li>Supplemental Security Income (SSI) Recipients </li></ul></ul>
    7. 7. <ul><li>Welfare to Work Tax Credit - Federal tax credit of up to $8,500 over first two years per employee. </li></ul><ul><li>35% or $3,500 of the first $10,000 of wages paid for the first year </li></ul><ul><li>50% or $5,000 of the first $10,000 of wages paid for the second year </li></ul><ul><li>New full-time and part-time employees </li></ul><ul><li>Targeted at any member of a family who has received long term (18 months) public assistance </li></ul>
    8. 8. Empowerment Zone Business Tax Incentives Bond Financing <ul><li>Less expensive capital for large investment in the Empowerment Zone </li></ul><ul><li>The viability of any venture is sometimes based on the cost of money borrowed and how much it costs every month to pay it back. </li></ul><ul><li>Bond financing usually offers longer terms and lower interest rates </li></ul>
    9. 9. <ul><li>Empowerment Zone </li></ul><ul><li>Facility Bonds </li></ul><ul><li>Tax Exempt Bonds issued by the </li></ul><ul><li>EZ Development Corporation to make loans to </li></ul><ul><li>Empowerment Zone Businesses to finance </li></ul><ul><li>Qualified Zone Property </li></ul><ul><li>IRS Publication 954 </li></ul>
    10. 10. Empowerment Zone Facility Bonds <ul><li>Tax Exempt Bonds </li></ul><ul><ul><li>Facility Bonds are used by businesses to gain access to the bond market </li></ul></ul><ul><ul><li>Investors pay no federal income tax on interest income </li></ul></ul><ul><ul><li>Generally more attractive than conventional financing </li></ul></ul><ul><ul><ul><li>up to 2% below prime </li></ul></ul></ul><ul><ul><ul><li>generally longer loan periods </li></ul></ul></ul><ul><ul><li>Business is the borrower with no recourse to the City of San Antonio </li></ul></ul>
    11. 11. <ul><li>Empowerment Zone Development Corporation </li></ul><ul><li>City Council </li></ul><ul><ul><li>Weigh projects based on: </li></ul></ul><ul><ul><ul><li>Council priorities </li></ul></ul></ul><ul><ul><ul><ul><li>Job creation, wage standards, environmental impact, etc. </li></ul></ul></ul></ul><ul><ul><ul><li>Staff recommendation </li></ul></ul></ul><ul><ul><ul><ul><li>(Bond Counsel/ Finance/ EDD) </li></ul></ul></ul></ul><ul><ul><ul><li>Empowerment Zone Governance Board </li></ul></ul></ul>Empowerment Zone Facility Bonds
    12. 12. <ul><li>Empowerment Zone Business </li></ul><ul><ul><li>Operating in the Empowerment Zone </li></ul></ul><ul><ul><li>At least 50% of it’s total gross income is from the active conduct of business in the zone </li></ul></ul><ul><ul><li>A substantial part of the employee services are performed within the zone </li></ul></ul><ul><ul><li>35% of the employees are EZ residents </li></ul></ul>Empowerment Zone Facility Bonds
    13. 13. <ul><li>Qualified zone property </li></ul><ul><ul><li>Bond Proceeds can be used only to: </li></ul></ul><ul><ul><ul><li>Construct a building </li></ul></ul></ul><ul><ul><ul><li>Renovate an existing building or equipment </li></ul></ul></ul><ul><ul><ul><li>Acquire land, new equipment, or a new </li></ul></ul></ul><ul><ul><ul><li>building </li></ul></ul></ul><ul><ul><ul><li>Cannot be used for working capital </li></ul></ul></ul><ul><ul><ul><li>2% of the bond proceeds can go to pay cost of bond issuance </li></ul></ul></ul>Empowerment Zone Facility Bonds
    14. 14. Discussion Questions