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Community Renewal Good Stories - Eastern Kentucky

Eastern Kentucky RC Businesses Benefit From Tax Incentives Eastern Kentucky, RC

Eastern Kentucky, RC

The EKRC surveyed businesses on their use of RC tax incentives on their 2002 Federal income tax returns, and results showed that the tax credits and deductions have provided significant benefits to the community.

With 50 businesses responding, results indicated that businesses used the RC wage credit for a combined 636 employees. This incentive alone provided total tax credits of $745,306. The RC wage tax credit is worth up to $1,500 each year to business owners for each person they employ who lives in an RC. This can be a substantial amount of money to small business owners and can help them pay important bills or purchase additional inventory.

The survey also showed that the Work Opportunity Tax Credit (WOTC) provided businesses with a combined $900,870 in credits on qualified first-year employees. This savings, especially when combined with the estimated $3,000 savings per business from wage credits, equals approximately $6,600 in tax savings for each business in just 1 year. Survey respondents indicated they received even more savings by claiming an Increased IRS Section 179 Deduction, another major RC tax incentive. According to results, the businesses that claimed tax savings from this incentive reduced their taxes by an average of almost $30,000 (assuming that they fall in the 20-percent tax bracket).

EKRC businesses also saved substantial amounts of money due to the CRD. EKRC made CRD allocations to seven businesses in Lee and Owsley Counties to construct new buildings or substantially renovate existing ones. In 2002 these businesses received CRD allocations totaling more than $1.4 million; the actual tax savings for these businesses over a 10-year period will equal approximately $287,000.

Businesses throughout the EKRC have experienced substantial tax savings from the RC tax incentives. Land Farm Supply, located in Lee and Owsley Counties, is a good example. After filing 2002 Federal income taxes, owner Jesse Land said, "This is the first time in a long time that we have not had to pay any Federal income tax!" Prior to the RC designation, Land's annual tax payment to the Federal Government averaged $4,500 per year; using only wage credits, Land lowered his 2002 Federal tax payment to zero.

Luther and Rosemary Smith of Lee County are also excited about the benefits they received from the tax incentives. In 2002 the Smiths built two buildings in Beattyville for lease as office space. They received a CRD allocation of $629,466 to build the buildings and chose to deduct one-half of the expenses in the first year. The benefit was so great they decided to build another building in 2003, on which they received another $200,000 CRD allocation. Rosemary Smith says, "Tax-wise, this is a perfect time to build commercial buildings."

The Smiths also own Jordan Drug Company with locations in Booneville, Beattyville, Campton, and Jackson. Their company claimed RC wage credits for several employees who live in the RC and thus saved enough money to hire five more employees.

In March 2000 CJM Metal Fab, Inc. opened in Hazard, Kentucky. CJM has continued to grow each year with the support of local banks and nonprofit lenders, including the East Kentucky Corporation, the Kentucky River Area Development District, and the Mountain Association for Community Economic Development. On its 2002 Federal tax return, CJM expensed property, including production equipment and vehicles, under the Increased IRS Section 179 Deduction provision. In 2003 CJM employed as many as 40 individuals and the company plans to take full advantage of the available RC wage credits.

For more information on the EKRC, contact the Chairman of the Booneville/Owsley Industrial Authority, Ronnie Callaghan, at (606) 593-6800.