Local economic developers and government officials say a new tool under the federal government’s tax reform will have an impact on designated areas of the local community.
The Opportunity Zones program provides tax benefits for private investment in economically-distressed areas, said Scott Satterfield, CEO of economic development agency Wilmington Business Development (WBD).
The zones are part of a new federal initiative those at WBD are watching closely, he said.
The program was created by the Tax Cuts and Jobs Act of 2017. Since then, local and state officials, have been waiting to see how the program might work.
In mid-October, the U.S. Treasury and IRS issued proposed rules and guidance that would facilitate the use of the zones across the nation. Those regulations provide guidance in the tax code relating to gains that may be deferred as a result of an investment into a qualified opportunity fund.
The IRS has a public comment period open on the proposed regulations until late December.
An Opportunity Zone is defined by the IRS as “an economically- distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.” Localities qualify as Opportunity Zones by state designation and certification by the federal government, according to the agency.
“North Carolina Opportunity Zones will offer qualified investors certain tax benefits when they invest unrealized capital gains into these areas,” according to the N.C. Department of Commerce.
Satterfield also said the zones designated in WBD’s region are well suited for business services firms, small business, hospitality operations, retail, mixed-use and multiunit residential.
“Not all OZs (opportunity zones) will be appropriate for new industrial operations,” he added. “Still, these other types of investments are very important for overall job creation and will boost economic diversification in Greater Wilmington.”
There were 252 census tracts designated as Opportunity Zones in North Carolina, with several in the tri-county region.
Pender County’s zone, for example, spans two large census tracts. The area encompasses more than 56,200 acres, said Kyle Breuer, Pender County planning director.
Although the county is still seeking to understand the details of how the program will benefit the area, Breuer said that “within the designated zone, an area of potential benefit would include reinvestment in the old Coty plant along the NE Cape Fear River to bolster job creation. Also, areas along Exit 408 along I-40 may be prime candidates for investment,” he said.
Cosmetics company Coty Inc. shut down in 2011 and was the county’s largest private employer at the time, taking up nearly all of the Cape Fear Industrial Complex in Rocky Point. Part of the complex became base for BlueArrow Warehousing & Logistics LLC, a New Jersey-based logistics firm, this summer.
There are also three very large census tracts designated in northern Brunswick County.
“Something like this would be beneficial and could help us in attracting investors in developing spec buildings,” said Bill Early, executive director of Brunswick Business & Industry Development.
In November, city of Wilmington officials attended a session on Opportunity Zones during the N.C. Metropolitan Mayors Coalition annual meeting in Asheville.
State and private-sector officials presented a series of updates on Opportunity Zones at the conference, said Tony McEwen, assistant to the city manager for legislative affairs, who was in attendance. McEwen said city officials are closely watching the program and how it might impact tracts in Wilmington.
Four census tracts within city limits were prioritized by the state, three of which encompass portions of downtown Wilmington and the Greenfield Lake area, and another large tract that includes the University of North Carolina Wilmington and surrounding community. There are no tracts outside the city in New Hanover County.
The city has worked to ensure that the tracts are areas that investment would have impacts, including affordable housing opportunities, public safety improvements and private sector investment into small businesses, McEwen said.