Tax Incentive Package

Seat Pleasant has been designated as a Maryland Enterprise Zone. Enterprise zones are often established in low-income areas or places that are recovering from disasters, such as a flood or hurricane. Reduced taxes or regulations, and in some cases special financing, encourage businesses to open the area and hire local residents. There are two types of tax credit firms that a Maryland Enterprise Zone may claim:

1. General Income Tax Credits
2. Large State Income Tax Credits (for hiring economically disadvantaged employees)

Sole proprietorship, corporations and pass-through entities such as partnerships, subchapter S Corporations, limited liability companies, and business trust may claim these credits.

In 2010, The State of Maryland awarded the City of Seat Pleasant the designation of "Sustainable Community". As a Sustainable Community the city qualifies for funds under the following State Programs to foster economic development:

• Community Legacy Program
• Neighborhood Revitalization
• Strategic Demolition (Statewide)
• Planning Assistant
• Open Space Under the Sustainable Community Designation, the City of Seat Pleasant may apply for funding to cover a developer's soft costs for marketing studies, architectural drawings or renderings

Below, an illustration of how the state and local tax credit associated with the City of Seat Pleasant as a Focused Enterprise Zone would work for a project with the following current factors:

• New residential property improvements assessed at $38,000,000
• New business inventory and equipment assessed at $500,000
• The hiring of 35 new economically disadvantaged employees

City Tax Incentive Mixture for the Project

• Non-Residential Estimated Value After Projects: $31,540,000

Seat Pleasant being located in a Focus Enterprise Zone and provides the following tax credit as offsets to non-residential improvements assessed at $38,000,000 after 10 years.

I. Real Estate Tax Credit

• Year 1: $25,232,000
• Year 2: $25,232,000
• Year 3: $25,232,000
• Year 4: $25,232,000
• Year 5: $25,232,000
• Year 6: $25,232,000
• Year 7: $25,232,000
• Year 8: $25,232,000
• Year 9: $25,232,000
• Year 10: $25,232,000

Estimated Value of New Plant and Equipment of $2,500,000

I. Federal Corporation Income Tax Write Off

• Year 1: $2,500,000

II State Corporation Income Tax Write-Offs

• Year 1: $2,500,00

III. State Tax Credit

• 35 new jobs created for disadvantages
• Year 1: $105,000
• Year 2: $105,000
• Year 3: $105,000

Total State Tax Credit over a 3-year period: $315,000

IV. New Job Creation Tax Credit

• 35 new jobs created
• Year 1: $175,000
• Total New Jobs Creation Tax Credit: $175,000

Total Potential State and Local Tax Credits over 10 years: $259,810,000

On January 23, 2013 five Health Enterprise Zones were designated by Lieutenant Governor Anthony Brown in the State of Maryland. The five Health Enterprise Zones were:

• Capital Heights in Prince's County
• Greater Lexington Park in Saint Mary's County
• Dorchester and Caroline Counties
• West Baltimore
• Annapolis

Areas designated as Health Enterprise Zones have access to a range of incentives that include:

• State income tax credits
• Hiring tax credits
• Loan repayment assistance
• Priority entrance into the state's Patient Centered Medical Home Program
• Priority for available state electronic health record grant funding
• Additional grant funding from the Community Health Resources Commission
• Capital grant support

Jointly administered by the Community Health Resources Commission (CHRC) and Maryland Department of Health and Mental Hygiene (DHMH), the HEZ Investment Initiative is a 4-year pilot program with a budget of $4 million per year. A Specific HEZ investment initiative for the Capital Height area is a Prince George's Health Department, in the Seat Pleasant and Capital Heights Area: The proposal submitted by Prince George's County Health Department focuses on Seat Pleasant and Capitol Heights surrounding areas. This proposal would create five new patient-centered medical homes in the Zone to serve a minimum of 10,000 residents, and would add a total of 25 new providers.

In 1997, Congress passed the Small Business Administration Reauthorization Act (Public Law 105-135), which included provisions designed to promote economic development and employment opportunities in metropolitan or rural areas with low income, high poverty rates, and/or high unemployment rates. Title VI of the Act established the Historically Underutilized Business Zone (HUBZone) program to target federal contracts to small businesses that are located in these areas. There are five classes of HUB Zones:

1. Qualified census tracts (QCTs)
2. Qualified counties
3. Indian reservations
4. Difficult development areas (DDAs)
5. Military bases closed under BRAC

The HUBZone program has 3 mechanisms for targeting contracts to HUBZone businesses: set-asides, sole source awards, and price preferences.

On the local level as part of the city's tax incentives, there are two types of tax credits that are available to firms locating its business or investment funds in a Maryland Focused Enterprise Zone:

Business Personal Property Tax Credit

Any new or existing Businesses investing in new plants and equipment in the City of Seat Pleasant may claim a business personal property tax credit entitling them, over a 10-year period, to an 80% reduction in their taxes on these investments in new fixed assets over a 10-year period. An illustration is highlighted depicting how the Business Property Tax Credit operates: If a new business entering the city invests $10,000 each year for the next ten years in new technology or health business equipment, then the business would be eligible to apply for a reduction of 80% in its personal property tax bill for each of the ten years.

This is 80% tax reduction will allow the business to add cash back its working capital.

Real Estate Tax Credit for New Construction

Any real estate developer owning real property in the City of Seat Pleasant and that expends funds on any new construction or improvement to nonresidential units in the City of Seat Pleasant may claim a 10 year Real Property Tax Credit of 80% to reduce his or her real property taxes resulting from this investment in new construction or improvement to his or her real property.  To qualify, an entity must:

1. Be primarily involved in high technology manufacturing, fabrication, assembling, or research and development, as determined by the County and the City applying the criteria set forth in the regulations
2. Construct, expand, or cause to be constructed or expanded, a building or buildings within the County or City, to include at least 5,000 square feet of gross floor area (as defined in Subtitle 27 of this Code) to be occupied by the said business entity
3. Invest at least $500,000 in the construction or expansion of said building or buildings
4. Create at least ten new permanent, full-time positions for the said business entity to be located within said building or buildings

Neither the relocation of an existing position from any other location within the County or the City to the new or expanded building or buildings nor the reclassification of a preexisting position shall constitute new positions for the purposes of this Section.

On the state level as part of the city's tax incentive, there are three types of state income tax credits that are available to firms locating its business in a Maryland Focused Enterprise Zone:

General Income Tax

The first job creation tax incentive for a business owner(s) is the General Income Job Tax Credits for creating new jobs. The General Income Job Tax Credits works like this: If a Corporation hires a new employee living in the City of Seat Pleasant when it locates its business or has a business in the City of Seat Pleasant a Maryland Focus Enterprise Zone, the corporation would be entitled:

• To a federal tax credit of $3,000
• To a state tax credit of $1,500 (See General Income Tax Note)
• To a county tax credit to offset the local piggyback tax rate
• To a municipal tax credit to offset the local piggyback tax rate

General Income Tax Note

If a Corporation hires a new employee when it locates its business in the City of Seat Pleasant, a Maryland Focused Enterprise Zone, the corporation would be entitled to a one-time tax credit of $1,500. If the corporation's income tax liability is $1,500 over a one-year period, the tax credit would lower the business tax liability of the corporation to zero over the one-year period and return $1,500 in cash to the corporation's balance statement.

Large State Income Tax

If a Corporation hires a new economically disadvantaged employee living in the city of Seat Pleasant when it locates its business in the City of Seat Pleasant a Maryland Focus Enterprise Zone, the corporation would be entitled:

• To a state tax credit of $9,000 over a three-year period (See Large State Income Tax Note)
• To a county tax credit equal to the county piggyback rate
• To a municipal tax credit equal to the municipality's piggy-back-rate

Large State Income Tax Note

If a Corporation hires a new employee when it locates its business in the City of Seat Pleasant, a Maryland Focus Enterprise Zone, the corporation would be entitled to a tax credit of $9,000 over a three year period for hiring a new economically disadvantaged employee. If the corporation income tax liability is $9,000 over a three year period, the tax credit would lower the business taxes for the corporation to zero over the three year period and return $9,000 in cash to the corporation's balance statement.

New Jobs Creation Tax Credits

The following is an illustration of how the New Job Creation Tax Credit for hiring economically disadvantaged employees works: If a Corporation hires a new employee when locating its business in the City of Seat Pleasant, a Maryland Focus Enterprise Zone. By locating the business in a Focused Enterprise Zone under the New Job Creation Tax Credit Program, the corporation would be entitled to a one-time tax credit of $5,000. If the corporation's income tax liability is $5,000 in the current year period, this tax credit would lower the business taxes for the corporation to zero during the current year period and return $5,000 in cash to its corporation balance sheet.

Sole proprietorship, corporations, and pass through entities such as partnerships, subchapter S Corporations, limited liability companies and business trusts may claim these credits.

On the federal level as part of the city's tax credit incentives, there are tax credits, abatements, and set aside contracts available to firms locating its business or investment funds in the Seat Pleasant Focused Enterprise Zone:

Opportunity Zone Tax Deferrals or Abatements

The City of Seat Pleasant was designated as an Opportunity Zone by the Unites States Treasury Department and the Governor of Maryland as of June 2018. This entitles investors with high unrealized capital gains to cash in the appreciation of their gains, while deferring the taxes on the gains if they redirect these gains into properties located in areas approved as Opportunity Zones. The City of Seat Pleasant was designed as a Opportunity Zones to spur economic development by providing tax benefits to investors.

• First, investors can defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026. If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain.  If held for more than 7 years, the 10% becomes 15%
• Second, if the investor holds the investment in the Qualified Opportunity Fund for at least ten years, the investor is eligible for an increase if the basis of the QOF investment is equal to its fair market value on the date that the QOF investment is sold or exchanged

New Markets Tax Credits (NMTC)

The credit provides an incentive for investment in low-income communities. The U.S. Department of the Treasury competitively allocates tax credit authority to intermediaries that select investment projects. Investors receive a tax credit against their federal income tax. NMTC in the city of Seat Pleasant: NMTC investors provide capital to community development entities (CDEs), and in exchange are awarded credits against their federal tax obligations.

Investors can claim their allotted tax credits in as little as 7 years - 5% of the investment for each of the first three years and 6% of the project for the remaining 4 years - for a total of 39% of the NMTC project. A CDE can be its own investor or find an outside investor. Investors are primarily corporate entities - often large international banks or other regulated financial institutions-but any entity or person is eligible to claim NMTCs.

HUB Zones Contract, Set-Asides, & Price Concessions

In 1997, Congress passed the Small Business Administration Reauthorization Act (Public Law 105-135), which included provisions designed to promote economic development and employment opportunities in metropolitan or rural areas with low income, high poverty rates, and/or high unemployment rates. Title VI of the Act established the Historically Underutilized Business Zone (HUB Zone) program to target federal contracts to small businesses that are located in these areas. In 2004 and 2005, Congress designated two additional classes of HUB Zones: Indian lands and military bases closed under the Base Realignment and Closure (BRAC) Act. As a result of these changes there are now 5 classes of HUB Zones:

• Qualified census tracts (QCTs)
• Qualified counties
• Indian reservations
• Difficult development areas (DDAs)
• Military bases closed under BRAC

The City of Seat Pleasant is in a qualified HUB Zone and any business located in the city that is minority owned and whose owners live in the city can apply to become a HUB Zone certified business. The HUB Zone program has 3 mechanisms for targeting contracts to HUB Zone certified businesses:

• Set asides
• Sole source awards
• Price preferences

In the 8-year period from Fiscal Year 2000 through Fiscal Year 2007, there have been about 21,350 contracts totaling $6.28 billion awarded through the 3 HUB Zone mechanisms.

Tax Incentive for business owners who invest in building, plant, and equipment in the City of Seat Pleasant may claim:

• Tax Write-offs on the Corporate Incomes Taxes on Federal, State, County and City levels
• Tax Credits on the Municipal or City Business Personal Property Tax

Tax Write-offs on the Federal, State, County and City Corporate Income Tax Returns and Municipal or City Business Personal Property Tax works in the following manner: Any new or existing Businesses investing in new plants and equipment in the City of Seat Pleasant may claim a 100% write off for the year that the business purchased the equipment. The following illustration highlights depicting how the Business Property Tax Credit operates on the federal level.

If a new business owner locating in the city invests $ 10,000 this year in new business equipment, then the business owner would be eligible to write all this cost off its federal, state and county income taxes when filing their business income tax return for that year. As for how the Business Personal Property Tax Credit works for a business owner investing in new plant and equipment, this is how the Business Personal Property Tax Credit works: Any new or existing Businesses investing in new plants and equipment in the City of Seat Pleasant may claim a business personal property tax credit entitling them, over a 10-year period, to an 80% reduction in their taxes on their investments in new fixed assets over a 10-year period.

The following highlighted illustration further depicts how the Business Property Tax Credit operates: If a new business entering the city invests $ 10,000 each year for the next ten years in new technology or health business equipment, then the business would be eligible to apply for a reduction of 80% in its personal property tax bill for each of the ten years. This is 80% tax will allow the business to add cash back to its working capital.