Silver Spring Enterprise Zone May 6, 1997

CONTENTS

• Description of the State Enterprise Zone Program, including the tax credits that are available by locating in an Enterprise zone and the requirements that must be met.
• Map of the Silver Spring Enterprise Zone.
• Executive Regulations No. 5-97, adopted May 6, 1997, for administration of the Silver Spring Enterprise Zone. These regulations include the additional local criteria for eligibility of enterprise zone businesses and property owners to obtain tax credits, and the procedures for application.
• Application and reporting forms that businesses and property owners are required to submit in order to be certified as eligible for the tax credits. For the forms to print correctly, set the proportional font to 12 pt. Times New Roman in "general preferences" under the "options" menu.
  • Certification of Eligibility -- Income Tax Credits
  • Recertification of Eligibility -- Income Tax Credits
  • Certification of Eligibility -- Property Tax Credits
  • Report On Property Tax Credit Received
• Addresses and phone numbers of State and County officials who can provide additional information on the various elements of the enterprise zone program.

The Silver Spring Enterprise Zone (SSEZ) was designated by the State of Maryland on December 15, 1996. The SSEZ comprises the Silver Spring Central Business District (CBD) and the area south of the CBD between the railroad tracks and Eastern Avenue to the District of Columbia boundary. Where the SSEZ boundary is shown in the rights-of-way of Spring Street, Cedar Street, Wayne Avenue, Fenton Street, and Blair Road, the properties contiguous to the rights-of-way of these streets are included in the zone. Businesses and owners of commercial property in the SSEZ area may be eligible for employment and property tax credits if they meet the requirements for eligibility.

THE ENTERPRISE ZONE PROPERTY TAX CREDIT

What is the Property Tax Credit Available in the Enterprise Zone?
The Enterprise Zone Real Estate Property Tax Credit is an incentive for businesses to locate or expand facilities in a designated enterprise zone. For either a new or an expanding business which meets the eligibility requirements, the amount of the credit is 80% of the taxes due on any expansion, renovation or capital improvement in the property over the first five years. For the subsequent five years, the credit decreases 10% annually (70%, 60%, 50%, 40%, 30%). After ten years of property tax credits, the property is returned to the tax rolls at its full assessed value. The Enterprise Zone Executive Regulations explain the eligibility requirements.

Let’s take an example. A commercial building with an assessment of $150,000 (the base year assessment) is modernized and expanded. As a result of this investment, the assessment increases to $200,000-an increase of $50,000. Eighty percent (80%) of this increase will not be taxed for five years. Therefore, $40,000 is initially eligible for the credit. If the county tax rate were $2.00 per hundred dollars of assessed value, the tax savings for the first year is 2% times $40,000 or $800.

Does this credit apply to the State property tax levy?
No. The State property tax is not eligible for the enterprise zone property tax credit.

What if property values rise and my assessment increases?
The property tax credit is the difference between the base year assessment and the current tax year assessment. If the assessment on our example increased in the third year to $250,000, the assessment subject to the credit would be $100,000 ($250,000 minus $150,000). If the tax rates remained $2.00 per hundred dollars of assessed value, the tax savings would be $1,600 for that year. However, a qualifying capital improvement (defined in the Executive Regulations) must be made in order to be eligible for the initial and subsequent credits.

What if I improved my property before the Silver Spring Enterprise Zone was established?
Any new construction assessed in the tax year immediately preceding the tax year for the first credit is excluded from the base year assessment.

How does a property owner meet the eligibility requirements for property tax credit?
The property owner must make a qualifying capital investment in order to be eligible for the initial and subsequent property tax credits. The Executive Regulations define the minimum qualifying capital investment and other eligibility criteria.

What must a property owner do in order to receive the property tax credit?
The property owner must apply to the Montgomery County Department of Economic Development (DED) for certification on a form included in this packet. DED in turn notifies the Maryland Department of Assessments and Taxation that the individual property meets all state and local eligibility requirements. In order to receive the tax credit on the next July 1 tax bill, the property owner must apply by December 10 in order for DED to certify the property’s eligibility before January 1.

Can a property owner find out in advance whether or not a proposed capital investment will qualify for property tax credit?
Yes. The property owner may file a pre-certification application. In this case, the Administrator will notify said applicant that his/her proposed capital investment will qualify (if it meets the criteria for a minimum qualifying capital investtment) if the improvements are made. The property owner will still have to file an application for certification once the improvements are made.

When does the property tax credit take effect?
The tax credit is granted on whole taxable years only. A property owner would have to pay any partial-year levy tax bills should the qualifying capital improvement be assessed as complete before July 1 of the first year of eligibility. The property owner will then receive the tax credit for ten full years.

What if the property is leased?
The property owner may directly seek certification for improvements he/she makes to the property. However, a problem often occurs because the law provides that only owners of the property can receive the benefit. In reality, it is often the lessee that actually pays for the capital improvements. Firms leasing property in the enterprise zone may wish to review the tax “pass through” provisions of their lease before proceeding with capital improvements. It may be prudent and necessary to renegotiate the lease agreement before committing to assessable improvements to real estate. Property owners receiving tax credit are required to notify tenants and other interested third parties.

Can I receive property tax credit for simply purchasing a property in the enterprise zone?
No. Eligibility for the enterprise zone property tax credit requires a minimum capital improvement in the property.

THE ENTERPRISE ZONE EMPLOYMENT TAX CREDITS

What is the Employment Tax Credit?
Maryland’s Enterprise Zone Program provides special tax incentives to attract businesses from outside Maryland to locate in an enterprise zone and to encourage businesses in an enterprise zone to hire additional, full-time workers. The incentives are credits against taxes which are more valuable than deductions because credits are subtracted directly from income tax liability. There are actually two types of employment tax credits for firms in an enterprise zone: a general employment tax credit and a larger employment tax credit for economically disadvantaged employees.

General Employment Tax Credit: This credit is available to any business that meets the requirements of employment in the enterprise zone. This is a one-time, $1000 income tax credit per new worker.

Employment Tax Credit for Economically Disadvantaged Employees: This income tax credit is available to any business for hiring economically disadvantaged employees to fill newly created positions in the enterprise zone. This credit can total $3,000 per worker over a three-year period.

2. The income tax credit for economically disadvantaged employees is for a three-year period for each qualified employee, earned at the following rates:

• $1,500 the first year,
• $1,000 the second year,
• $500 the third year.

How do I know I can claim an enterprise zone employment tax credit?
1. Local Firm Certification Requirement. Not every business located in an enterprise zone is eligible to claim the employment tax credit. In order to claim the credit, the business must be certified by the Administrator as eligible for the credit. The Enterprise Zone Executive Regulations include certain requirements for certification beyond those in state law. Therefore, it is very important for a firm considering location in the enterprise zone or expansion of its workforce to understand these local regulations.

2. Other General State and County Requirements. The following requirements apply to both the general employment tax credit and the employment tax credit for hiring economically disadvantaged employees:

a. The employee must have been hired after the business was located in the zone or after the zone was designated;

b. The employee must have been employed for at least 35 hours each week for 12 months before or during the taxable year for which the credit is taken;

c. The employee must spend half of all work time in the zone or in activity related to the zone;

d. The employee must have been hired to fill a new position. That is, the firm’s number of full-time positions must increase by the number of credits taken;

e. The employee must have to pay 150% of federal minimum wage.

f. The business must show a net increase of at least 25 work hours per week for each tax credit sought;, the business may be required to document this employment on time sheets and payroll documents.

g. The business must show an increase of 5% employment to a minimum of one (1) new employee.

What if a firm relocates into an enterprise zone?
If a firm relocates from one site in Maryland into an enterprise zone, its base employment remains the same as it was at the previous site. However, if the firm’s total employment increases, then the new positions may be eligible for the enterprise zone employment tax credits. A firm moving from outside the State into an enterprise zone is considered to be a new Maryland business, and therefore would be eligible to claim credit for all of its employees.

Can these two types of employment tax credits be combined?
You cannot receive both the general and economically disadvantaged employment tax credits for the same individual. However, you may be able to combine an enterprise zone tax credit with another state income tax credit. This credit has no effect on eligibility for any federal income tax credit and vise versa.

What if I do not have enough income tax liability to use all of the credit?
If the tax credits exceed the tax imposed for that year, they may be applied to the next year’s taxes until the credit is used or five tax years have passed.

How do I claim the enterprise zone employment tax credit?
Maryland Tax Form 500CR is used to claim this credit after being certified by DED as eligible. Simply fill it out and include it in your state tax return. Also, note that the credit is taken against the state income tax only. It is not taken against the County income tax “add-on.”

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