More Census Tracts Eligible for New Markets Tax Credits
The good news is that more census tracts are now eligible to participate in the federal New Markets Tax Credit (NMTC) program. The bad news is that this eligibility has come about due to increasing rates of poverty and relatively low family income in the Windham Region. Congress created the NMTC program in 2000 to spur investment of private capital for economic development in both rural and urban low-income communities. Individuals and corporations receive a tax credit against federal income taxes for making investments in certain low-income properties or businesses when those investments are made through a “community development entity” (CDE). Prospective NMTC projects generally need to be located in qualified census tracts.
The U.S. Department of Treasury, using the U. S. Census, makes this determination of applicable low income communities at the census tract level. The census tract is determined low income if: (1) the poverty rate for such tract is at least 20 percent, or (2) in the case of a tract not located within a Metropolitan Area, the median family income for such tract does not exceed 80 percent of statewide median family income.
In 2000 only one census tract in the Windham Region was considered New Market Tax Credit eligible (Brattleboro). On May 1, 2012, the U.S. Department of Treasury released updated NMTC program eligibility based on the 2006-2010 American Community Survey (ACS). Based on this information the Windham Region now has five (5) eligible census tracts.
Vermont Rural Ventures (VRV), a qualified CDE operated by Housing Vermont, secured its first allocation of NMTC in the spring of 2009. Vermont Rural Ventures is deploying its New Markets Tax Credit resources to support investment in the economic, environmental, and social well-being of Vermont communities. NMTC funds are used to retain and create jobs for Vermonters by financing key community developments in downtown and village centers and in other concerted community efforts which demonstrate positive impacts on Vermont’s economic, health care, energy and food systems. VRV is targeting 70% of its NMTC funds to rural areas of Vermont.
Upon making an investment in a CDE, the NMTC provides a 39% federal income tax credit over seven years. Investors receive a tax credit equal to 5% for each of the first three years and 6% for each of the last four years. Investors can be any taxable entity, individual, corporation or investment fund. Typically investors are banks, insurance companies, venture capital and other investment funds, corporations and individuals.
New Market Tax Credit projects tend to be larger in scope than the typical community development project. For example, the first NMTC project in the Windham Region was Commonwealth Yogurt in Brattleboro. The Brooks House project, downtown Brattleboro, has recently been deemed eligible for NMTC.