The amount of the "eligible assessment" on which the property tax credit will be calculated equals the difference between the "base year" assessment in the taxable year prior to receiving the credit for making capital improvements or hiring new employees and the new "actual" assessment in the taxable year in which the credit is granted. Incidentally, if a business also happened to have made earlier improvements upon which taxes were levied for the first time during the base year, the value of these improvements will be excluded from the base year assessment.
One important limitation on the property tax credit is that any portion of a property devoted to residential use (e.g., multifamily apartments) may not receive the credit. In cases of property developed for mixed residential and nonresidential use, the Department of Assessments and Taxation will allocate the eligible assessment to the nonresidential portion of the qualified property as a percentage of the square footage of the nonresidential portion to the total square footage of the building.
As was noted earlier, the credit equals 80 percent of the eligible assessment during the first 5 taxable years and from 70 to 30 percent of the eligible assessment (in decreases of 10 percent per year) over the next 5 taxable year. The credit is actually calculated by taking the appropriate percentage for the year (e.g., 80% in years 1 to 5) and multiplying it times the eligible assessment and the combined local tax rates. The credit is only applicable to taxes levied by the County or City and local municipal corporation
Example 1. In 2014 when the Easy Widget Company applied for the Enterprise Zone property tax credit, it had a 2014-15 assessment on its property for both land and improvements of $150,000. In 2015, the Easy Widget made substantial capital improvements which resulted in a new 2015-16 assessment of $200,000. The difference between the 2014-15 base year assessment of $150,000 and the new actual 2015-16 assessment of $200,000 equals $50,000. The first year of the credit will be calculated on 80% of this $50,000 difference here or on $40,000 (i.e., $50,000 x 80% = $40,000). Multiplying the $40,000 credit amount times a combined county and local municipal tax rate of $4.76 per $100 of assessed valuation, the result is $1,904 of property tax savings to the business in the first year.
Example 2. In 2014, Super Computer Company purchases land with plans to build a micro-chip manufacturing plant, and so applies for the Enterprise Zone property tax credit. The 2014-15 assessment on the land was $100,000. In 2015, the manufacturing plant is completed and the new 2015-16 assessment for land and improvements is $1,100,000. Subtracting the 2014-15 base year assessment of $100,000 (which happened to be for the land only) from the new actual 2015-16 assessment of $1,100,000, the eligible assessment subject to the credit is $1,000,000. 80% of $1,000,000 equals an $800,000 credit amount. Multiplying the $800,000 credit amount times the combined local tax rates of $4.76, this new business coming into the area has first year tax savings of $38,080.
It is significant to note that the base year assessment remains constant for the particular improvements and therefore, the amount of property tax credit in subsequent years can increase with any increases in the overall assessment.
Example 3. In Example 1 in the above section, the Easy Widget Company had a 2014-15 base year assessment of $150,000 and a new first credit year assessment in 2015-16 of $200,000, which resulted in tax savings of $1,904. When the second year of the property tax credit is calculated, the 2016-17 assessment has increased to $220,000. Subtracting the constant base year assessment of $150,000 from the new 2016-17 assessment of $220,000, the result is a higher eligible assessment of $70,000. 80% of the $70,000 eligible assessment equals a $56,000 credit amount. Applying the same combined local tax rates of $4.76 to the $56,000 credit amount results in $2,665 of tax savings to the business in the second year of the tax credit.
Although a Focus Area Enterprise Zone would receive an 80% credit on eligible assessments for the entire 10 years of eligibility, the calculation of eligible assessment is performed in the same manner as the three examples previously described.
