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Staples.com® | easytech

Location, Location, Location.

Where your business is located may make you eligible for federal, state and local tax breaks.

Column by Barbara Weltman

Thinking of relocating your business? Expanding to another location? You may qualify for both federal and state tax benefits designed to encourage business growth in economically challenged areas.

Federal breaks

The federal government has several different designations for which a business may be eligible. Each designation has its unique tax benefits. Destinations include:

  • Empowerment zones in 30 urban and rural areas throughout the country. Note: There is a special zone for parts of the District of Columbia and Gulf Opportunity Zone (Go Zone) for areas affected by Hurricanes Katrina, Rita and Wilma; similar tax treatment applies to Greensburg, Kansas, certain 2008 Midwest flood areas, and areas affected by Hurricane Ike.
  • Enterprise communities in 49 urban areas and 28 rural areas. Renewal communities in 40 urban and rural areas.

You may be in a designated area and are unaware of it. Use the address locator at the Department of Housing and Urban Development (HUD) Web site.

Designation means tax savings

Depending on the type of designation you obtain, you may qualify for:

  • Special employment tax credits for each new employee you take on. For example, in empowerment zones, there is a 20% credit of wages up to $15,000 per employee, for a maximum credit of $3,000.
  • Additional first-year expensing of equipment. Instead of the $250,000 expensing limit in 2008 for the purchase of equipment, you can write off an additional investment in equipment purchased for a business in an empowerment zone, renewal community, or certain designated disaster area (instead of having to depreciate the cost over a number of years).
  • Full capital gain exclusion for all of the gain from the sale of assets held more than five years, including stock, a partnership interest and business property, within renewal communities and the DC Zone.
  • Full capital gain exclusion for all of the gain from the sale of assets held more than five years, including stock, a partnership interest and business property, within renewal communities and the DC Zone.

For more information about federal tax breaks for designated businesses, see IRS Publication 946, How to Depreciate Property and Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities, at www.irs.gov and HUD's Tax Incentive Guide for Businesses.

State and local breaks

Many states have their own designations for distressed areas, such as Opportunity Zones in Oklahoma and Keystone Opportunity Zones in Pennsylvania. You can learn about designations in your state through the Department of Commerce or contact your local government, redevelopment departments or industrial development corporations listed in your local telephone directory. Benefits for businesses that obtain designation may include:

  • Employment tax credits for creating jobs.
  • Sales tax abatement on purchases used in the zone.
  • Property tax credits or abatements.
  • Investment incentives (special deductions and/or credits) for purchasing equipment.
  • Technical assistance.
  • Business assistance.

For more information about tax incentives under your state's program, contact your state tax, revenue or finance department.

A true tale of a small-business owner's journey to designation

Tina Raymond, the owner of Gardens, LLC, a silk flower and trim business in Mt. Vernon, New York, learned of New York's program for Empire Zone designation through her landlord. Inquiring at City Hall, she completed the application on her own and received Empire Zone designation from New York six months later. Her observations on the process:

  • Hearing about the opportunity for designation is hit or miss (it's not well publicized).
  • There's no government help in completing the forms (there may be some assistance through a local chamber of commerce).
  • The breaks resulting from designation are not necessarily automatic (in some cases you need to take additional steps that aren't very clear).
  • Using an expert attorney or accountant to help navigate the process can cost as much as the benefits to be realized.

LIMITATIONS. The information contained in this article is for general guidance. Such information is provided on a blind-basis, without any knowledge as to your industry, identity or specific circumstances. The application and impact of relevant laws will vary from jurisdiction to jurisdiction. There may also be delays, omissions, or inaccuracies in information contained in this site. The information on this site is provided with the understanding that staples.com® and its affiliated entities, and various authors and publishers providing such information are not engaged in, and that providing such information does not constitute the rendering of, legal, accounting, tax, career or other professional advice or services. As such, information on this site should not be relied upon or used as a substitute for direct consultation with professional advisors. Please refer to our Legal Terms and Conditions for further information.