When Amazon announced it had chosen Long Island City in Queens, New York, as one of its two new headquarter locations the feedback was mixed.
Not only would one of the world’s richest companies, led by the wealthiest man on earth, receive state and city tax credits worth close to $3 billion if a minimum 25,000 jobs were created but also the company would benefit from additional tax breaks because of its location, contiguous to a one of 8,700 opportunity zone tracts created as a result of the 2017 tax cut legislation.
Under the legislation – and subsequent preliminary U.S.Treasury and IRS guidelines issued – investors in opportunity zones can defer capital gains so long as the capital gains are invested within 180 days. Moreover, the investment will receive a stepped-up basis to market price if held for at least 10 years. (The basis increases 10% if held for at least five years and 15% if held for at least seven years.)
“Even by outlier standards, the Amazon tract stands out as deeply at odds with the purpose of the Opportunity Zones incentive,” according to a blog from the Economic Innovation Group, a bipartisan think tank which is credited with the developing the idea of opportunity zones.
The Long Island City neighborhood is already becoming gentrified and Incomes are high, according to EIG, and Politico reports that two development companies have now abandoned plans to build affordable housing in the area because their intended sites will now become part of the Amazon campus.
Still the EIG blog notes that “it would be a shame for Long Island City to overshadow the hard and innovative work being done in the trenches everywhere from rural Alabama to Erie, Pennsylvania,” referring to pending work in opportunity zones. “But it does underscore one core truth about Opportunity Zones: there is no substitute for local leadership.”
The Amazon Opportunity Zone story illustrates some of the concerns raised by impact investing organizations about Opportunity Zone Funds, after the Treasury Department and IRS released preliminary guidance on the fund.