What are New Markets Tax Credits?
New Markets Tax Credits (NMTC) are a dollar-for-dollar reduction in taxes for an investor into a project. These were created to lure investment into low income communities to fight poverty. An investor provides cash injection into a project, and sees a tax benefit for seven years following the transaction.
What can New Markets Tax Credits be used for?
NMTC can be used on a wide variety of items. Construction costs (including hard and soft costs) are eligible, as are business acquisitions, and machinery & equipment, furniture and fixtures, and nearly every reasonable business expense. NMTC may not be used directly on businesses that engage in gambling, alcohol sales, golf courses, massage businesses or other businesses we would classify as “sin” or “luxury” businesses. Keep in mind, NMTC were created to fight poverty.
How much funding can be expected from a successful NMTC transaction?
Typically companies can expect 15%-25% of their project costs to come from a successful NMTC transaction. This wide range is influenced by the complexity of a project, the size of a project and efficiency that project sponsors display in closing the project.
Where can NMTC be used?
NMTC must be used either: by a business located in low income census tracts (defined by US Treasury, which have low median income or high poverty rates, often both) – OR – on businesses whose owners, clients or workers are low income.
Who invests in NMTC?
Any corporation with a Federal tax burden may invest in NMTC. Typically investors are financial institutions because of their familiarity with tax credits. Investors are looking to make a financial return on their investment, and to participate in economic development.
How do we get NMTC for a project?
Community Development Entities (CDEs) are allocated NMTC from the U.S. Treasury Department. These entities then seek out projects to utilize their share of NMTC. In 2012, 66 CDEs were allocated $3.5 billion in various amounts. Those entities underwrite transactions, work to secure investors, and partner CDEs when necessary. Alaska Growth Capital (AGC) has historically been allocated NMTC, but currently we have exhausted our NMTC allocation (totaling $90 million since 2002). However, AGC actively seeks out projects to represent in the NMTC process. Our long history with the program has provided us with expertise and relationships that will help to successfully complete your project with NMTC financing.