The boundaries of Baltimore City’s Enterprise Zone will be redefined under a recent proposal, and businesses located in areas that will lose their Enterprise Zone designation have a limited window in which to act to preserve eligibility for certain tax credits.
The Baltimore Development Corporation (BDC) recently released draft maps for the reorganization and renewal of the Enterprise Zone and Focus Areas eligible for tax credits within Baltimore City. A public hearing is scheduled for Tuesday, March 27, at 7 p.m. at the Emerging Technologies Center, JHU Eastern Campus, 1101 East 33rd Street, 3rd Floor, Baltimore.
Baltimore City’s Enterprise Zone (EZ) was established in 2002 and currently covers nearly 22,000 acres within the City. The EZ is limited by statute to a 10-year term, and is scheduled to expire in June 2012. Baltimore City’s two existing Focus Areas (FAs)—one in the Carroll-Camden Industrial Area and a second in the Remington neighborhood—are also scheduled to expire at the same time.
BDC’s application, if approved by the Maryland Department of Business and Economic Development, would redefine the boundaries of the EZ and FAs and extend their terms.
Businesses located in an Enterprise Zone are eligible for several tax benefits. Improvements to real property are eligible for a 10-year credit against new property taxes generated as a result of expansion or new construction, beginning at an 80 percent credit for the first five years and then declining 10 percent annually to a 30 percent credit in the 10th and final year. Brownfields property tax credits are also extended from five years to 10 years for properties within an EZ.
A state income tax credit of $1,000 per new employee is also extended to EZ businesses, along with up to $6,000 in state income tax credits over a three-year period for each economically disadvantaged new employee.
In a Focus Area, the tax benefits are even greater: the real-property tax credit remains at 80 percent for the full 10-year period, and is also applicable to personal property, and the state income tax credit is increased to $1,500 per new employee and $9,000 per economically disadvantaged new employee. Residential properties are not eligible for any EZ or FA tax credits.
BDC’s proposed new map redefines the borders of the City’s Enterprise Zone and substantially reduces its size by eliminating large residential areas and open park space. The size of the new EZ would be approximately 14,000 acres—a decrease of 36 percent. In addition, the new map reconfigures the boundaries of the existing FAs and adds a new FA in the Old Town neighborhood.
Businesses that are located within an area that is part of the existing Enterprise Zone, but would not be included in the renewed EZ, may nevertheless remain eligible for tax benefits. Any business that has qualified for tax credits at the time of the expiration of the EZ may continue to take the tax credits for the remainder of the 10-year credit period.
Any business that is certified as eligible before the expiration of the EZ but has not completed its improvements will have an additional five years to complete the work and begin taking EZ real-property tax credits. We do not expect this five-year extension period to apply to the enhanced FA tax credits.
Businesses located in areas that will lose their Enterprise Zone designation have until June 14, 2012, to obtain certification to take advantage of the five-year extension of eligibility. The certification process is administered by BDC.
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Copyright © 2012 by Ballard Spahr LLP.
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