Federal Investment and Employment Tax Incentives

In summary, the 1993 Indian Country tax incentives are as follows:

Annual depreciation deductions for federal income tax purposes are determined for specific types of property according to schedule mandates by the Internal Revenue Code. Over the specified period, such depreciation deductions reduce a taxpayer's taxable income by the amount of the investment in the depreciable property. Thus, over the period the property is depreciated, depreciation deductions will reduce the taxpayer's tax liability by an amount invested in the property multiplied by the taxpayer's effective tax rate.

Tangible property (other than land and residential property) used in a business on an Indian reservation may be depreciated over a shorter period than if it were used outside an Indian reservation. For example, as a general rule, many types of machinery are depreciable over seven years; however, such property used on an Indian reservation would be depreciable over four years. Similarly, non residential real property (e.g., new buildings or additions to existing buildings, including most hotels and motels) used in business on an Indian reservation would be depreciable over 22 years, rather than the 39-year period generally applied to such real property. (A complete list of the "regular" depreciable periods and their Indian Country equivalent is listed below.)

The use of faster depreciation is a well-recognized investment tax incentive. It is intended to reduce the investor's "cost" of capital by allowing the investor to receive the resulting tax savings sooner, thus enabling the investment of tax savings for reduction of its borrowings sooner. Therefore, the benefit to the taxpayer is the additional interest earned (or the interest expense avoided) on the tax savings. The dollar value to this benefit (discounted to the year the property is first used) varies with the federal and state income tax rates and the investor's assumed cost of money (or discount rate). Obviously, the state income tax rates and the investor's cost of money will vary among investors.

The "Indian Employment Credit" incentive will generally provide private sector employers a 20% credit against income tax liability for the first $20,000 of qualified wages and qualified employee health insurance costs paid to a qualified employee (i.e., tribal member or the spouse of a tribal member) who works in a trade or business on a reservation ( and lives on or near that reservation), and whose annual wages are no more than $30,000 (i.e., to be adjusted annually for inflation after 1994). The employment credit will apply to the extent such qualified wages and costs paid during the year exceed such qualified wages and costs paid in 1993.

As a general matter, both of these federal tax incentives are available to taxpayers for the 10-year period beginning January 1, 1994. They are available for both small and large businesses. Neither of the incentives can be used with regard to investment/employment connected with Class I, II, or III gaming activity.

Comparison of Regular Depreciation Periods with Indian Country Depreciation Periods

* Non-residential real property

** A special rule for "reservation infrastructure investment" would allow accelerated depreciation under specific circumstances, for certain qualified infrastructure property used or located outside of an Indian reservation.

By locating your firm to the Gila River Indian Community, you will have an advantage in reduce real property taxes that you will not find off the reservation. This can provide a tremendous saving in any firms overhead by locating within the Community.