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Go Zone Incentives
What is the GO Zone?
The Gulf Opportunity Zone Act (GO Zone) was signed into law by President Bush on Dec. 21, 2005. It established tax incentives and bond provisions to support the rebuilding of and capital investments in local and regional economies in parts of Louisiana, Mississippi and Alabama that were devastated by the hurricanes in 2005. The GO Zone encompasses more than 20 parishes in Louisiana, approximately 50 counties in Mississippi and 11 counties in western and southern Alabama.
The GO Zone legislation allows private business owners and corporations to borrow capital through tax-exempt financing to acquire, construct, reconstruct or renovate non-residential real property, qualified residential rental projects, and public utility property in the affected areas. Tax-exempt borrowing provides lower cost of capital than conventional debt financing. Alternatively, the borrowers have the opportunity to take accelerated depreciation in the first year equal to 50% of the cost of new capital investments.
GO Zone bonds must meet certain guidelines, including:
- Must be located within the Zone.
- 95% or more of net proceeds are used for "qualified project costs".
- Projects must be approved by the Governor of the State.
- Bonds must be issued by Dec. 31, 2010.
- Election for depreciation benefit expires at end of the 2008 calendar year.
Alabama GO Zone Private Activity Bonds
The Gulf Zone Opportunity Zone Act will provide private businesses and corporations in Alabama with the opportunity to finance construction and reconstruction of projects through the issuance of tax-exempt bonds.
The Act provides for approximately $2.1 billion in additional authority for Alabama and its political subdivisions to issue private activity bonds.
Private business owners and corporations may borrow tax-exempt money to cover the costs of acquiring, constructing and renovating nonresidential real property located in the GO Zone.
Issuance of any bonds authorized under this provision must also be approved by Governor Riley.
Alabama Counties in the GO Zone
Tuscaloosa, Pickens, Sumter, Greene, Hale, Marengo, Choctaw, Clarke, Washington, Mobile and Baldwin counties.
Projects That Qualify for Tax-exempt Financing
Eligible projects may include, but are not limited to: retail stores, warehouses, manufacturing facilities, industrial plants, office buildings, bank branches, hotels and motels, restaurants, physician office buildings, medical hospitals and clinics.
The Benefits of GO Zone Bond Project Financing
Interest on bonds is exempt from federal and State of Alabama income taxes; therefore the interest rate is lower than through conventional financing, historically saving a borrower 1.50% to 2.00%. Congress has also excluded the interest on the GOZB from Alternative Minimum Taxation.
Special Depreciation Election Benefit
The Act permits businesses to claim an additional first year depreciation deduction equal to 50 % of the cost of new capital investments made in the Zone (depreciation will be taken in lieu of tax-exempt financing). The depreciation deduction is exempt from AMT, does not require approval by the State, and applies to property placed in service prior to January 1, 2008, or January 1, 2009 for real property. We recommend consultation with your certified public accountant regarding qualification and treatment of this benefit. Morgan Keegan and Regions welcome the opportunity to assist in evaluating and executing taxable or conventional financing alternatives for those who select the depreciation deduction.
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