Pike to support business borrowing via new federal Stimulus Act

Tax code changes open door for new business development Milford — Pike County businesses may soon be enjoying direct benefits from American Recovery and Reinvestment Act of 2009. On Feb. 17, President Obama signed the so-called Stimulus Act, which directs spending and tax savings to various sectors of the economy. Included are significant revisions to the Internal Revenue Code, for 2009 and 2010, which increase tax-exempt financing opportunities for qualified borrowers and qualifying projects. The Pike County Economic Development Authority (authority) is the local conduit that provides access to lower cost, tax-exempt financing for qualifying projects located within the County. Chairman Dave Farrington said, “The current level of low interest rates offers borrowers an opportunity to make capital investments on very attractive terms. Tax-exempt interest rates are even lower. The Stimulus Act makes it possible for some companies and organizations to stretch their debt capacity even further.” Some of the revisions to the tax code impact: Bank qualified bonds These are typically “tax-exempt notes” executed by a qualified small borrower and purchased by a bank. Because a bank can deduct up to 80% of its borrowing cost to purchase these notes, the bank’s tax savings can be passed through in the form of a lower interest rate to the borrower. The prior law permitted the issuer (e.g.: the authority) to issue qualified tax-exempt obligations up to a total of $10 million annually. The Act increases this limit to $30 million per issuer and further permits a 501(c)(3) organization to be treated as the issuer when calculating the “per issuer” limitation. Some additional benefits are provided the banks from an accounting perspective. Manufacturing facilities The Internal Revenue Code has been modified to expand the definition of “manufacturing facility” to include facilities used in the production of “intangible” property. The intention is to provide more cost-effective financing for producers of computer software and intellectual property associated with the biotech and pharmaceuticals industries. Because the definition is relatively loosely defined, there is opportunity for many new companies to explore the prospect of tax exempt financing. Minor Portion The Internal Revenue Code previously allowed only 25% of a tax exempt borrowing to be used in “directly related and ancillary” property (e.g.: a warehouse) associated with a manufacturing facility. The new law removes the restriction and permits unlimited financing for property or facilities that are “functionally related and subordinate” to the manufacturing facility, if located on the same site. Companies and non-profit organizations that can take advantage of the relaxed borrowing restrictions provided by the Act should contact Rachel Hendricks, Deputy Director for Economic Development at the Pike County Economic Development Authority, 209 East Harford Street, Milford, PA 18337. Call 570-296-7332 for more information.