Korb W. Maxwell spent part of the December 2017 holiday season reading about the new Tax Cut bill — then a major news story — and he ran across a provision that wasn’t getting much attention. Around the same time, Nancy M. Hawes, a Polsinelli shareholder in St. Louis, also learned about the provisions in the bill.
The bill established so-called Opportunity Zones, which seek to direct unspent capital to investments in economically distressed areas of the country. Opportunity Zones aim to spur economic development and job creation in rural or low-income communities by offering tax benefits to investors.
When the new year began, Hawes and Maxwell got to work, assessing how the program would mesh with their legal practice. In September, Polsinelli established its Opportunity Zones working group, led by Maxwell.
“The leadership of the firm was unbelievably supportive of this,” said Maxwell, who is based in Kansas City. “We’re really happy to have a 10-month head start on this and help clients start funds and deploy this capital.”
The program works when investors put capital gains into special funds, 90 percent of which must be invested in businesses or other ventures in a designated opportunity zone, according to the Internal Revenue Service. Investors who keep their money in a project for at least five years will see a tax break of 10 percent, and an additional 5 percent if they stay in for seven years, Hawes said. Also, taxes that are paid aren’t due until 2026.
“This is designed for fast and quick deployment of funds, which I think, candidly, will further send people to invest in areas where they would not originally invest because there is a critical mass based on the timelines,” Hawes said. “Instead of a one-off rehab in a distressed area, I think you’ll see much more influx of capital.”
Missouri’s zones were developed to meet specific census criteria during the administration of former Gov. Eric Greitens, with input from local authorities, Hawes said. Dozens of census tracts throughout the state have been designated, including the areas of Jennings and Berkeley in north St. Louis County, as well as areas of North Kansas City and Independence. There are also zones in non-urban areas, including a zone that includes significant portions of Sullivan County in northern Missouri and large portions of New Madrid County.
Polsinelli has about 21 attorneys working on the program. Its team is collaborating with state, regional and local planners to coordinate efforts so that areas with multiple zones and multiple investment funds will be more likely to reach success, Hawes said.
“When you look at all other tax-credit programs, they are complex,” she said. “They are expensive because they’re so complex. This is, comparatively speaking, a simple program. Make no mistake, it’s a tax credit, but it’s me telling the federal government ‘I invested at 111 Main Street.’”
The program is still being shaped, but Hawes said there are a number of industries and sectors that could be involved in it, including technology, housing and more.
“This is a full-firm effort that we are trying to push forward,” said Maxwell, whose law practice focuses on real estate development. “It’s exciting to work on this and exciting that management has been so supportive.”