The Renewal Community program provides a variety of tax incentives to businesses. Some incentives work well for labor-intensive businesses while some benefit businesses with capital needs and others benefit small businesses. Under the RC program six main incentives are available:

Wage Credits

Increased Section 179 Deduction

Commercial Revitalization Deduction

Capital Gains Exclusion

Work Opportunity Tax Credit (WOTC)

Welfare-to-Work Credit (WtW)

WAGE CREDITS

Wage credits allow businesses located in an RC area to deduct up to $1,500 per year for each year of the designation for each new or existing employee who lives and works in the RC area. Employers determine their credit amount by calculating 15% of the first $10,000 in wages for each qualified employee.

EXAMPLE 1: XYZ Basket Company employs 6 people who both live and work in the RC zone. The XYZ Basket Company pays each employee a yearly salary of $22,000. Under this illustration the Basket Company is eligible to take an RC wage credit of $9,000.

6 # of RC Employees

X

$10,000 Max Eligible Wage Amount

X

15% Percent Credit

=

$9,000 Wage Credit Amount

EXAMPLE 2: ABC Wheel Company employs 6 people who both live and work in the RC zone. The ABC Wheel Company pays three of the employees a yearly salary of $15,000 and the remaining three a yearly salary of $8,000. Under this illustration the ABC Wheel Company is eligible to take an RC Wage Credit of $8,100.

3	X	$10,000	X	15%	=	$4,500
3	X	$8,000	X	15%	=	$3,600
$4,500	+	$3,600	=	$8,100 (Eligible Wage Credit Amount)

Employees who do not qualify for RC Wage Credit are ones who:

Work less than 90 days for the employer, except those terminated for misconduct or those that become     disabled

Relatives and dependents

Any 5% or greater owner

Individuals employed at a golf course, country club, massage parlor, hot tub facility, suntan facility, gambling     facility, business whose principle sale is the sale of alcohol for off-site consumption or an employee of a farming     facility who has farm assets greater than $500,000.

INCREASED SECTION 179 DEDUCTION

Under general tax regulations, a business is allowed to expense (take an immediate deduction on its tax return) the cost of new equipment and machinery acquired each year. Businesses are allowed to expense up to a fixed amount set each year, and have to depreciate the remaining costs over the life of the property assigned by tax regulations. However, under the Increased Section 179 Deduction, RC Businesses are allowed to expense up to an additional $35,000 a year for qualified equipment and machinery purchased each year of the RC designation. To take advantage of this incentive businesses must meet the definition of a Renewal Community Business and must purchase Qualified Renewal Community Property.

EXAMPLE: The XYZ Basket Company purchases new equipment in 2002 for $65,000. If under general tax regulations, the company could expense only $24,000 a year the Basket Company would have to depreciate the remaining $41,000 over the life of the equipment. However, since the XYZ Basket Company is an RC business, it is allowed to immediately deduct $59,000 and has to depreciate only $6,000 over the life of the equipment.


COMMERCIAL REVITALIZATION DEDUCTION

The Commercial Revitalization Deduction allows businesses to increase the amount of deduction they take for a new or rehabilitated building by reducing the time period over which the cost must be spread. Each state with an RC is allowed to allocated $12 million (maximum $10 million per project) per year, in deductions to businesses placed in service after December 31, 2001 and before January 1, 2010. Once awarded an allocation by the state, the business is allowed to deduct its allocated amount in either of the following ways:

Deduct half of the allocated amount for qualified revitalization expenses in the year the building is placed in service with the remaining qualified amount depreciated over the standard 39 years, or

Amortize the full-allocated amount over a 10-year period beginning with the year the building is placed in service.

In order for a business to receive a portion of the $12 million in deductions, it must complete a CRD Application and submit it to the Mississippi Development Authority.

Application Guidelines | 2006 CRD Application


CAPITAL GAINS EXCLUSION

The Capital Gains Exclusion allows a holder of an RC asset to exclude in its gross income any “qualified capital gain” from the sale or exchange of an RC asset. The RC asset must be held for a minimum of 5 years, and must be acquired between January 1, 2002 and December 31, 2009.


WORK OPPORTUNITY TAX CREDIT (WOTC)

The Work Opportunity Tax Credit is available to businesses that hire employees from groups with traditionally high unemployment rates or other special employment needs, including youth who live in the RC. The WOTC can be up to $2,4000, and is available to employers for the first year of employment only. The Mississippi Employment Security Commission must certify if an employee is from a targeted group.


WELFARE-TO-WORK TAX CREDIT (WTW)

The Welfare-to-Work Tax Credit applies to newly hired employees who are long-term family assistance recipients. The credit applies to the first two years of employment and may be as much as $3,500 the first year and up to $5,000 the second year.

Years Employed	Maximum Rate	Qualified Wages	Maximum Credit
1	35%	$10,000	$3,500
2	50%	$10,000	$5,000

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