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Sun, Dec. 08

Bring on the investors: Kingman’s opportunity zones open the door for progress
While there are numerous benefits, City residents and staff voiced concerns about some aspects of opportunity zones for rural communities

Congressman Paul Gosar, far right, talked opportunity zones in Kingman alongside Chief of Staff Thomas Van Flein (left) and attorney Brett Siglin (center). (Photo by Travis Rains/Daily Miner)

Congressman Paul Gosar, far right, talked opportunity zones in Kingman alongside Chief of Staff Thomas Van Flein (left) and attorney Brett Siglin (center). (Photo by Travis Rains/Daily Miner)

KINGMAN – The two designated opportunity zones in the Kingman area could sweeten the pot for entities considering locating in the Heart of Route 66, but as explained by Congressman Paul Gosar, it can be a tricky process that warrants additional explanation.

Gosar, representing Arizona’s 4th Congressional District, was in town Friday, Aug. 2 with a small team consisting of a staff member and a legal expert. The goal of the discussion was to shed some light on opportunity zones by explaining what they are and how they can benefit communities like Kingman.

“This can really make a big difference for District 4, but in particularly the Kingman area with your manufacturing base,” Gosar said. “I think there’s a great opportunity here.”

Thomas Van Flein, Gosar’s chief of staff and chief legal counsel, provided the audience with a brief but concise synopsis of opportunity zones.

“It basically allows entities, whether individuals or companies, to defer their capital gains from real property sales and invest them into certain areas that have been designated as economically distressed,” he said. “That is where rural communities come into play. It is hard sometimes to attract businesses to rural areas due to infrastructure, due to skilled workforce issues and stuff like that. So what this is doing is giving a financial incentive to locate in these areas and give these areas a chance to diversify economically.”

Around 9,000 opportunity zones were designated nationwide, with seven in Mohave County and two in Kingman. Areas to the south and east of Kingman, including the Kingman Airport and Industrial Park, and the proposed Kingman Crossing interchange site, were designated as opportunity zones by Gov. Doug Ducey in 2018. Those interested in taking advantage of the program have 180 days to transfer a gain from another investment into an opportunity zone.

photo

Areas to the south and east of Kingman, including the Kingman Airport and Industrial Park, and the proposed Kingman Crossing interchange site, were designated as opportunity zones by Gov. Doug Ducey in 2018. (Photo courtesy of the Arizona Commerce Authority)

The process was further explained to The Daily Miner by Economic Development Director Gary Kellogg about a year ago.

“Assume a taxpayer owns stock with a basis of $20,000, and sells the stock in 2018 for $120,000. Ordinarily, the taxpayer would recognize $100,000 of capital gain in 2018,” he said. “However, under the new program, the taxpayer may defer this gain and eliminate tax on future appreciation by investing the $100,000 capital gain in an (opportunity fund) within 180 days of the sale.”

Incentives

Generally speaking, here are the noted incentives for investing in opportunity zones:

∙Temporary deferrals, in which taxes on income for capital gains reinvested in opportunity funds are postponed.

∙ Step-up basis, where up to 15% of the initial gain is excluded from being taxed if the fund is held for at least seven years, and 10% if held for five years.

∙Permanent exclusion, characterized by capital gains from the sale or exchange of an opportunity fund being exempt from taxation if the fund was held for at least 10 years.

“Let’s say the value of my asset ($1 million) appreciates to $2 million in 10 years, a 10% return,” explained attorney Brett Siglin of the permanent exclusion. “So in 2029 I’ve got a $2 million value, I’ve already paid tax on $850,000, the real note of this program is if I want to sell that interest in 2030 or 2040 or whenever all the way until 2046, I won’t pay any tax on that built-in gain.”

Public concerns

Members of the public noted some concerns they have about opportunity zones, aside from overall risk factors such as market conditions, competition for opportunity zone properties, and rising construction costs and interest rates.

One man was curious as to why no zones were designated in Golden Valley, which he believed was a prime rural candidate for the program. Siglin said only about one in every four low-income communities were designated as opportunity zones in a “somewhat political process.” He replied “not just yet,” when asked if the zones could be modified.

Another concern was in regards to smaller businesses and investors being overshadowed by large corporations. Siglin said what his office has heard so far is that small business owners are the best investors for opportunity zones.

“It’s not the big banks, it’s not corporations, they tend to be more risk averse,” he said. “We are kind of in the wild west right now, so the people that are probably more willing to take risks are going to be entrepreneurs and smaller investors by and large.”

City Manager Ron Foggin said the “slow spinup” of the rules of the program could pose problems for Kingman, as could the 10 year designation for permanent exclusions.

“For us, the feds have got to look at that and say it needs to be extended because the only way to make the investment work for rural communities is to be able to capture as much of that window as possible,” Foggin said.

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