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Using New Markets Tax Credits to Subsidize Expansion or Relocation Within a Distressed Community?

If you’re planning a significant investment in a low-income community, take action now to explore NMTCs. The federal government is expected to award credits in late spring 2014.

Community Development Entities (CDEs) have been providing subsidy to real estate projects via the New Markets Tax Credit (NMTC) program since the program began about 10 years ago. That’s nothing new. What is new, however, is a shift whereby CDEs are increasingly interested in providing NMTC allocation to operating businesses, particularly if such financing will result in significant job creation.

If your manufacturing and/or distribution company is relocating or expanding within distressed areas and, in doing so, will create new jobs, consider taking advantage of NMTCs. The majority of urban areas and many rural areas qualify as distressed under the NMTC program.

NMTCs: An Overview

In a nutshell, the NMTC program encourages taxpayers to make investments into low income communities by providing them with a tax credit for making those investments. The credit equals 39 percent of the investment, earned over seven years. For qualifying businesses, NMTCs can provide a permanent net subsidy of 15 to 20 percent of the amount financed. The best candidates are businesses that are:

  • Located in or serve the residents of a distressed or low-income community 
  • Seeking financing of $5 million or more 
  • Either or both of the following: 
    • Creating a significant number of permanent jobs, particularly if such jobs will be available to low income individuals
    • Making services or goods available to residents of a distressed community that aren’t currently available in the community

How to Access NMTC Capital

A manufacturing and/or distribution company interested in taking advantage of the NMTC program would first need to determine if it’s eligible to benefit from NMTCs; it would then need to identify CDEs with an allocation of NMTCs that are willing to enhance the business’s financing with NMTCs.

Cherry Growers: A Brief Case Study

Located near Traverse City, MI, Cherry Growers, Inc. is a fruit cooperative serving the cherry and apple industries. In an effort to further diversify its already existing product offerings, Cherry Growers entered into a long term relationship with Materne North America, the manufacturer of GoGo squeeZ, a popular pouch-based 100% natural fruit snack.  As part of this partnership, Materne invested in excess of $40 million and Cherry Growers invested more than $12.5 million to expand existing operations and construct a manufacturing facility in Green Lake Township, a low-income area. Through the help of the New Markets Tax Credit investment and other financial incentives, the total project to date has created 86 new jobs at Cherry Growers and 180 new jobs at the Grawn Production facility.

Plante Moran helped guide Cherry Growers through the entire financial incentive portion of the project, which included the receipt of an $11.5 million NMTC investment from Stonehenge Community Development LLC, a $2.5 million Business Development Program performance-based grant from the Michigan Economic Development Corporation, and an overall financing package from Huntington Bank. “Plante Moran was instrumental in helping us obtain these credits. They were there from start to finish, including helping us understand the credit and explaining the process to our board of directors and members; preparing for and finding the allocation; and working us through the many turns that occurred throughout the entire process,” said Cherry Growers’ Jon Sluis, financial controller. “We’re excited by the opportunities this affords us and look forward to continuing to make a difference in our community.”

In Conclusion

Plante Moran can quickly determine if a business is eligible for NMTCs if you provide us with the location of the business. We can also help introduce you to CDEs that may be able to provide NMTC allocation to the business. Information regarding CDEs that have received NMTC allocations from the federal government is available at www.cdfifund.gov. If you’re interested in learning more about the program and obtaining its benefits, please contact Gordon Goldie at 248.375.7430 or Tim Frens at 847.628.8789.

Contact Us

Tim Frens

847-628-8789

Gordon Goldie

248-375-7430