12. New Market Tax Credits

Key Details:

• Federal program providing tax credit for investments in low-income communities
• 18-23% of financing in form of low interest, potentially forgivable loan
• Projects must be over $4 million in total costs
• Must be in qualifying census tract or mainly hire/serve low-income people
• No more than 80% of ongoing revenue from housing rental income
• Project must demonstrate need for NMTC financing and benefit to community

ANALYSIS

The New Market Tax Credits program, while not exclusive to large businesses, is structured in a way that primarily benefits larger-scale projects and businesses. The minimum project size of $4 million effectively excludes most small businesses under 20 employees, making this program largely inaccessible to them.

Small Businesses

For small businesses under 20 employees, the New Market Tax Credits program offers very limited opportunities. The program's requirement for projects to be over $4 million in total costs immediately disqualifies the vast majority of small businesses from direct participation. This high threshold is far beyond the typical investment capacity of small enterprises, especially those with fewer than 20 employees. While the program's focus on low-income communities could theoretically benefit small businesses in these areas, the scale of investments supported by NMTCs is generally beyond what small businesses can undertake or directly benefit from. The complexity of NMTC transactions, often involving multiple parties and sophisticated financial structures, is also likely to be beyond the expertise and resources of most small businesses. While some small businesses might indirectly benefit if an NMTC project improves local economic conditions or creates opportunities for small business suppliers or services, the program itself does not provide a mechanism for small businesses to directly access or significantly benefit from these credits. The emphasis on projects that can demonstrate substantial community benefit and the need for NMTC financing further suggests a focus on larger-scale initiatives rather than the incremental growth typical of small businesses.

Big Businesses

For larger businesses, the New Market Tax Credits program offers a significant opportunity to reduce the cost of major investments in qualifying areas. The potential for 18-23% of project financing to come in the form of a low-interest, potentially forgivable loan can dramatically improve the financial viability of large-scale projects. This program is particularly attractive for businesses planning investments of $4 million or more in low-income communities, offering a way to align expansion or relocation plans with community development goals. The NMTC structure can make previously marginal projects financially feasible, potentially opening up new markets or expansion opportunities that might otherwise be overlooked. For businesses in sectors like manufacturing, technology, or commercial real estate development, NMTCs can significantly reduce the cost of establishing or expanding operations in qualifying areas. The program's focus on community projects aligns well with corporate social responsibility initiatives, potentially enhancing a company's reputation and community relations. For out-of-state businesses, NMTCs can be a compelling reason to consider locating new operations in qualifying areas of Idaho. For large in-state businesses, the program provides a strong incentive to focus expansion efforts in areas that might otherwise be considered economically challenging. The flexibility of the program in terms of project type (as long as it's not predominantly housing) allows for a wide range of business activities to potentially qualify. While the application process and financial structuring can be complex, larger businesses often have the resources and expertise to navigate these challenges, either in-house or through partnerships with experienced NMTC intermediaries. Overall, the New Market Tax Credits program offers a powerful tool for larger businesses to reduce the cost and risk of significant investments in qualifying areas, potentially driving economic development in communities that might otherwise struggle to attract major business investments.