Business leaders in North Carolina have long shared the goal of spreading economic opportunity and prosperity throughout the entire state. That’s why we were pleased to include support for Opportunity Zones on our Jobs Agenda and are eager to share more information on this new investment tool.
As we wrote earlier this year, Opportunity Zones are part of an economic development and tax incentive package that identifies low-income census tracts where tax incentives may draw long-term investment to help revitalize the area. In exchange for certain types of investment, investors receive a temporary capital gains deferral and other tax benefits.
On Tuesday, July 9th, the Treasury Department held a public hearing on its second set of proposed regulations addressing Opportunity Zones. We turned to the attorneys at our Cornerstone member company, Poyner Spruill, for more information on what this means for you. Read on for a Q&A with Emily Meeker, a partner, who advises clients on investing in Opportunity Zones:
What should North Carolina businesses know in order to take advantage of Opportunity Zones?
Opportunity Zones were included as part of The Tax Cuts and Jobs Act of 2017. This law allows investors to invest capital gains in designated economically depressed areas, known as “Opportunity Zones,” and take advantage of multiple tax benefits as a result of this investment.
In order to benefit, an investor must have capital gains. The investor must then invest those gains in an Opportunity Fund, which must then invest in businesses or property in an Opportunity Zone.
What are the main takeaways from the recent guidance regarding Opportunity Zones?
The recent guidance makes clear that non-real estate businesses can also take advantage of Opportunity Zone tax benefits. This is a big deal for potential investors and those who are looking for investment in their businesses.
An Opportunity Fund may invest in a Qualified Opportunity Zone Business. In order to qualify, the business must derive at least 50% of its gross income from the active conduct of a trade or business in an Opportunity Zone. A real estate business or a small restaurant based in an OZ would clearly qualify—but the law wasn’t clear on how this would apply to different types of businesses—like manufactures or tech start-ups.
The new regulations clarify how this requirement will be applied and offer businesses three safe harbors for meeting this 50% gross income test. These safe harbors will allow more businesses to qualify—including manufacturers, tech start-ups, and other types of small businesses. This will hopefully lead to greater economic benefits and diversity in OZs.
The new proposed regulations also included several other clarifications of the law and the earlier regulations that are taxpayer-friendly. These provisions will give investors and developers more confidence that they will be able to develop their projects and stay within the time frames set forth in the regulations.
How do OZs support economic development throughout rural and urban NC?
OZs are another tool in our effort to encourage economic development across North Carolina. They are special benefits for investing in economically distressed areas in rural and urban North Carolina. We should use these benefits to encourage more investment from inside and outside of the State.
If you’re interested in learning more about how you can take advantage of North Carolina’s Opportunity Zones, please reach out to our Director of Government Affairs, Debra Derr.
Gary J. Salamido
Chief Operating Officer and Acting President