Trump’s ‘Opportunity Zones’ Tax Break Under Assault in New York
Trump’s ‘Opportunity Zones’ Tax Break Is Under Assault in N.Y.
(Bloomberg) -- A New York state lawmaker has introduced a bill that would make President Donald Trump’s “opportunity zones” tax break less valuable to real estate developers.
The lawmaker, Senator Michael Gianaris, a Democrat, says he was outraged to learn Amazon.com Inc.’s planned office building in his Queens, New York, district would be located in an opportunity zone. That designation lets the e-commerce behemoth and others qualify for sizable federal and state tax breaks for building there. Amazon has indicated it won’t try to claim the break.
Opportunity zones were meant to spur development in poor areas. The Long Island City census tract where Amazon is settling is relatively wealthy, however, with median household income of almost $140,000, and is already in the midst of a development boom.
“What’s become clear to me as a result of the Amazon debacle is the program’s not ready for prime time,” Gianaris said in an interview.
The federal tax break was included in Trump’s 2017 tax law and was supported by a bipartisan group of U.S. senators, including Cory Booker of New Jersey, a Democrat, and Tim Scott of South Carolina, a Republican. For a limited time, investors who develop real estate or fund businesses in opportunity zones are able to defer capital gains on profits earned elsewhere and completely eliminate them on new investments.
A majority of states, including New York, chose to compound the effect of the new law by letting developers take advantage of a similar break on their state taxes. The top marginal capital gains rate in New York is 8.82 percent on income over $1.08 million.
Although most of the zones selected for the tax break meet the requirement that 20 percent of households live in poverty, an exception to that rule allows zones near the impoverished tracts to be included. Critics fear that these not-so-poor zones will attract the majority of new investment.
The Long Island City zone has received more criticism than most. After reports that Amazon’s Queens location was in an opportunity zone, an advocacy group backed by Facebook Inc. billionaire Sean Parker that had pushed for the tax breaks called the Queens zone one of the nation’s “unfortunate outliers.”
Stripping the state tax benefit wouldn’t affect only the Long Island City zone. It could also make investing in other, poorer areas less attractive.
Closing ‘Loophole’
In a hearing before the New York City Council last week, an Amazon executive said the retailer wouldn’t be availing itself of the program. A spokesman for Plaxall Inc., which owns the privately held portions of the Long Island City development site, said the company also wouldn’t be using the program.
Jodi Seth, a spokeswoman for Amazon, confirmed the executive’s comments but didn’t respond to questions about why the company wasn’t using the program or whether others involved in the project, such as developers or other outside investors, would claim the break.
Gianaris is one of the most vocal and visible critics of the potential Amazon office, and the public subsidies offered for it. On Monday, the Democratic majority in the state senate nominated him to the Public Authorities Control Board, which will review the project. Each of the three board members has veto power. But before that can happen, Governor Andrew Cuomo, a supporter of the Amazon office, must approve Gianaris’s appointment.
“Amazon has already proven it will do everything it can to avoid scrutiny while taking advantage of public subsidy programs,” Gianaris said. “So forgive me for believing it will find a way to suck even more money from the public till unless this loophole is closed.”
To contact the reporter on this story: Caleb Melby in New York at cmelby@bloomberg.net
To contact the editors responsible for this story: Jeffrey D Grocott at jgrocott2@bloomberg.net, David S. Joachim, Peter Jeffrey
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