The City of Albuquerque can issue industrial revenue bonds to finance economic-based industry projects (defined as exporting a majority of goods and services out of state). This includes construction or renovation of manufacturing plants, research and development facilities, corporate headquarters and certain other facilities, and purchase of land and equipment. Because the project is technically owned by the government entity and leased to the company, it’s exempt for up to 20 years from property taxes on land, buildings, and equipment. Equipment purchased with bond proceeds is exempt from gross receipts or compensating taxes. The City does not provide any direct financing; the company is responsible for securing its own financing.

Public Law 115-97, also known as the Tax Cuts and Jobs Act of 2017, and subsequent legislation and federal IRS guidelines allows for the the designation of “Opportunity Zones” within qualified census tracts in counties and the creation of a new class of investment vehicle with tax advantages authorized to aggregate and deploy private investment located in those Opportunity Zones.

The purpose of these tax advantages is to attract capital investment into economically distressed areas.

(Second round of proposed guidance published by the IRS: https://eig.org/news/irs-publishes-second-round-of-proposed-oz-guidance.)

The Opportunity Zones program offers three tax incentives for investing in low-income communities through a qualified Opportunity Fund.* The incentives are:

• Temporary deferral: A temporary deferral of inclusion in taxable income for capital gains reinvested into an Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is disposed of or by December 31, 2026.
• Step-up in basis: A step-up in basis for capital gains reinvested in an Opportunity Fund. The basis is increased by 10% if the investment in the Opportunity Fund is held by the taxpayer for at least five years and by an additional 5% if held for at least seven years, thereby excluding up to 15% of the original gain from taxation.
• Permanent exclusion: A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years. This exclusion only applies to gains accrued after an investment in an Opportunity Fund.

* A qualified Opportunity Fund is a privately managed investment vehicle organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property. (The vehicle must hold at least 90% of its assets in such property.) Low-income census tracts are defined in Internal Revenue Code Section 45D (e). Qualified opportunity zone property includes any qualified opportunity zone business stock, any qualified opportunity zone partnership interest, and any qualified opportunity zone business property. Only taxpayers who roll over capital gains of non-zone assets before December 31, 2026, will be able to take advantage of the special treatment under the provision.

Businesses locating in the Albuquerque area can utilize all of the identified state and local incentive programs, and their investors can also reap the benefits of this significant federal program. Businesses and potential investors can utilize either the State of NM or the Bernalillo County interactive maps to locate qualified census tracts in Opportunity Zones.

Information on State Opportunity Zones

Metropolitan Redevelopment (MR) Bonds are like Industrial Revenue Bonds in the sense that the use of bond proceeds to develop a project can relay some property tax abatement. MR Bonds can only be used for projects in designated Metropolitan Redevelopment Areas.

A tax exemption is granted on the value of the net new improvements to the property while the City has technical ownership of the property (up to seven years), which is leased back to the project owner; taxes are owed on the base value of the property before the bonds being issued.

MR Bonds have some additional flexibility in their application, which may include retail uses (which City IRBs cannot), and have been successfully implemented for mixed-use projects in MR Areas. MR Bonds do not allow for an exemption on gross receipts or compensating taxes on the purchase of equipment for the facility. The program is administered by the City’s Metropolitan Redevelopment Agency in the Planning Department.