Favorable tax status will benefit investors in Ephraim

 

By Robert Stevens

 

01-24-2019

 

EPHRAIM—The Ephraim City Council has learned their city has been selected to receive a favorable tax designation from the IRS, which will enable developers who invest there to get substantial capital gains tax breaks.

City manager Brant Hanson told the council he had just been informed that Ephraim had been designated an “opportunity zone” by the IRS. “This is pretty exciting news,” Hanson said. “It definitely means investment is coming to Ephraim.”

Hanson said the IRS had not finalized rules for how an “opportunity zone” will work. But the basic idea is that individuals or companies who have capital gains can reinvest those gains in an opportunity zone.

If an individual or company continues to own the investment in the opportunity zone for seven years, 10 percent of the gain from the investment will be exempt from capital gains tax. If the investor retains the investment for 10 years, any gain from the investment will be 100 percent exempt from capital gains tax.

Hanson said this kind of benefit will make Ephraim a very popular investment destination. And with more than $6.1 trillion in capital gains available for investment in the United States, there is almost certainly going to be money coming Ephraim’s way.

Hanson emphasized not every developer or investor would be right for Ephraim. “We want someone who’s invested in the community for the long-term, not just a quick profit,” he said.

However, Hanson said there have already been two or three interested parties, including one who had expressed interest before, who have contacted the city.

These early inquiries have mostly been looking for “financial gap opportunities.”

“These people want to find developers who already have a project ready but need more financing to get the project off the ground,” Hanson said.

Claudia Jarrett, who was the Sanpete representative to the Six County Area Operating Group before she retired from the county commission, recalled how Ephraim was named an “opportunity zone.”

“The opportunity zones were already determined by the feds, and sent to the Utah governor,” she said. “He was then directed to pick 25 percent of the zones for the final list. Gov. Herbert asked the state area operating groups to rank the areas…so as to assist his determination. Luckily, all of the zones within the Six County Area were picked by the governor to be on the final list.”

In other discussion, Public Works Director Chad Parry told the council Ephraim faced some challenges with trees around the city. With the on-going water shortage, many older trees, especially those near drainage ditches that have gone nearly dry, are dying.

Parry said one large tree had to be cut down recently. Ephraim hired contractors to do the job. The cost was $2,000.

Hanson explained that although the trees are on city rights of way, the property owners are not tending to them. Without proper care and watering, many of them are dying.

Parry asked the council to consider budgeting at least $10,000 to deal with “dangerous trees.” He also suggested an ordinance stating owners cannot plant trees on city rights of way without city approval.

Hanson said the city had asked the owners to be responsible for the trees, but owners  need to know the right place to plant trees. “I can see hundreds, even thousands of trees potentially at risk,” Hanson said. “That means a lot of money.”

Councilman Richard Wheeler replied, “That doesn’t make $10,000 a year sound like a realistic number.”

Parry told the council saving the trees will be a multi-year effort, and needs to be addressed sooner than later. “We need to do something. If a limb breaks while someone’s under it, I don’t know what will happen.”