Opportunity Zone Magazine Volume 1, Issue 3 | Page 66

66 OPPORTUNITY ZONE MAGAZINE | VOLUME 1 • ISSUE 3 purposes, the census tract benefitting from the investment must be located in Arkansas in order for conformity to apply. 8 Hawaii enacted similar legislation in June 2019, providing incentives to investors in Hawaii, limiting the scope to “opportunity zones designated by the chief executive officer of Hawaii (which is usually the state’s governor),” meaning that investments into OZs outside of the state do not qualify for state-level conformity. 9 While Rhode Island conforms to federal OZ guidelines for individual income tax purposes, H.5151A (signed into law on July 5, 2019) states, “for purposes of a taxpayer’s state tax liability, in the case of any investment in a Rhode Island opportunity zone by the taxpayer for at least seven years, a modification to income shall be allowed,” which essentially limits the state-level conformity benefit to opportunity zones located within Rhode Island. 10 STATES PROVIDING ADDITIONAL BENEFITS While states like California have yet to conform to federal OZ provisions, other states are providing additional statelevel incentives and allowing more credits to taxpayers investing in OZs within their state. States that offer specific incentives include Alabama, Connecticut, Indiana, New Jersey, Ohio, and West Virginia. federal OZ provisions. A 2019 study by Capital Matrix Consulting found that OZ conformity in California would lead to between $745 million and $1.2 billion in new economic activity as a direct result of 2019 investments. 5 In subsequent years, the study said economic activity would range from more than $700 million to just under $500 million. 6 While conforming to federal provisions would cause the state to lose out on tax dollars it would have otherwise acquired, each dollar of state revenue reduction would specifically generate between $10 and $66 of private investments in low-income communities in California. 7 STATES WITH SPECIAL CONFORMITY RULES Some states have enacted special rules governing whether individuals and businesses can receive state-level conformity to OZ benefits. For example, Arkansas, Hawaii and Rhode Island require the OZ to be located within the state for the state to recognize OZ incentives; otherwise, the federal deferral for those incentives must be added back to the federal taxable income starting point used on the taxpayer’s state tax return. Although Arkansas enacted OZ conformity legislation in February 2019, it does not conform to OZ deferral treatment for investments into OZs outside of the state. Instead, for both individual and corporate income tax In July 2019, Ohio passed legislation that provides taxpayers with a state tax credit of up to $1 million for investments made in any number of the state’s OZs. The 10% income tax credit applies against the taxpayer’s income tax liability, equal to 10% of the taxpayer’s investment. The taxpayer may claim the credit in the year the investment was made and will receive a tax credit certificate 60 days after submitting a completed application to the director of development services. There is no minimum holding period and the carryforward period is five years. 11 In October 2019, Ohio Governor Mike DeWine said he hopes the additional state incentives will help “move investment into businesses inside of the zones.” He also said he is “open to adjusting state policy to encourage that sort of investment over real property deals.” 12 Over the summer of 2019, New Jersey passed a law to increase the Angel Investor Tax Credit (AITC) percentage for qualified investments made by technology businesses into OZs, low-income communities, and certified minority- or women-owned businesses. The AITC program, which was initially approved by state legislators in 2013, provides investors with a 10% tax credit against New Jersey Corporate Business or Gross Income Tax. There is a maximum credit of $500,000 for each qualified investment per tax year. 13 OPPORTUNITYZONE.COM