New Market Tax Credits
The New Markets Tax Credit (NMTC) is a Federal tax incentive program that was established in 2000 and has supported more than 4,800 projects in all 50 states. The purpose of the credit is to encourage investment in low-income community businesses. The program accomplishes this by stimulating economic development in underserved communities where projects involve new construction, rehabilitation, and/or acquisition of real property. It may also be used in business expansion projects. Examples of qualifying projects may include:
- Small business loan funds
- Industrial facilities
- Commercial/retail projects
- Mixed-use projects (commercial/residential)
Examples of successful projects may include any/all of these elements:
- Creation of quality jobs
- Assisting minority and women-owned businesses
- Providing flexible lease rates to tenants of newly completed projects
- Providing affordable housing options
- Improving access to healthy and affordable food options
- Increased environmental sustainability
Some 43 percent of the US’s roughly 73,000 census tracts qualify for NMTC investments; Banning has seven qualifying census tracts (map below).
City of Banning—New Market Tax Credit Eligible Area (light green) with Opportunity Zone Overlay
In order to finance businesses and developments, lending institutions partner with certified Community Development Entities (CDEs), which are organizations that have primary missions of providing investment capital for, and other financial services to, qualified businesses in the low-income communities that the CDE serves. CDEs apply to the Community Development Financial Institutions Fund (CDFI Fund), a division of the U.S. Department of the Treasury, in a competitive application process for NMTC Allocation Authority. This Authority allows successful CDEs to raise investment capital from commercial lender and other private investors in exchange for the rights to claim tax credits over a seven year compliance period (5 percent of the aggregate qualified investment for three years and 6 percent for the remaining four years). Capital raised by the CDEs is then used to provide below-market financing to qualified businesses in low-income communities.
NMTCs can be combined with Opportunity Zones (OZ), Historic Tax Credits (HTCs), and Renewable Energy Tax Credits (RETCs). NMTC financing may not be combined with Low-Income Housing Tax Credits (LIHTCs).
NMTC Qualification Criteria
To be eligible for NMTC financing, businesses being financed must, at a minimum, be located in a designated low-income community, known as qualifying such businesses as Qualified Active Low Income Community Businesses (QALICBs). Eligible areas are depicted in the map above.
U.S. Department of the Treasury – Community Development Financial Institutions Fund (CDFI) - https://www.cdfifund.gov/programs-training/Programs/new-markets-tax-credit/Pages/default.aspx
New Market Tax Credit Mapping Tool - https://www.cdfifund.gov/Pages/cims3.aspx
California Statewide Communities Development Corporation (CSCDA) - http://cscda.org/New-Markets-Tax-Credit-Program
National Development Council (NDC) - https://ndconline.org/new-markets-tax-credits/