In December of 2000 Congress passed the Community Renewal Tax Relief Act. It included many tax code revisions and added, at the last minute, a tax credit model that had been championed by advocates looking for ways to entice private investment into low income communities. New Markets Tax Credits (NMTC) was designed to stimulate investments in commercial real estate and business ventures located in low income urban and rural areas. It provides investors with federal tax credits that total 39 percent of their investment, distributed over a seven year period.
NMTC can be applied to equity investments in certified Community Development Entities (CDE). They must have a primary mission of community development through capital investment. Qualified CDEs must ensure accountability to residents of low-income communities by including community representation on a governing or advisory board. CDEs are expected to make loans and investments in businesses located in low-income communities. The Community Development Finance Institution (CDFI) Fund in the U.S. Treasury Department certifies CDEs.
CDFI Fund publishes a Notice of Allocation Availability annually for which CDEs apply for a tax credit allocation. When allocations are awarded CDEs solicit private taxpaying investors, including an individual, company or investment fund. Proceeds of the investments are used to invest in specifically defined businesses in specifically defined low income communities (LIC). A LIC is defined by census tract. Almost any business in the LIC is eligible for loans or equity investments.
Tags: CDE, CDFI, Community Development Entities, Community Development Finance Institution, Community Renewal Tax Relief Act, Congress, Governor Strickland, LIC, Low Income Community, New Markets Tax Credit, Ohio General Assembly, US GAO, US Treasury Department