Opportunity Zones in Indian Country

The Tax Cuts and Jobs Act of 2017 introduced a new term to the tax code called Opportunity Zones. These are defined as an “economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.” Currently, more than 50 percent of tribal census tracts are eligible for Opportunity Zone designation.

Essentially, the tax law allows investors and corporations to defer taxes on certain capital gains if they reinvest those proceeds into an Opportunity Zone Fund. If that investment is held long enough, there would be further tax benefits available, encouraging long-term investment.

According to the Minneapolis Federal Reserve, the law requires that the Opportunity Zone Funds take the form of a corporation or partnership. “Although it would not make sense for a tax-exempt tribe to take a substantial ownership position in Opportunity Zone Fund, there is nothing to prevent a tribe or tribal organization from holding a small ownership interest in an Opportunity Zone Fund or from serving as a manager of such a fund.”

Regardless of tribal ownership over the fund, tribes have distinct advantages in attracting these investments to their communities. According to the Urban Institute, “With less complex rules and regulations than economic development tax credit programs and greater flexibility in the range of projects that can be undertaken, tribes could engage with Opportunity Funds and influence their development decisions.”

In Wisconsin for instance, the Lac du Flambeau (LDF) Business Development Corporation (the economic arm of the Lac du Flambeau Band of Lake Superior Indians) has become a leader in attracting interested investors to their region and sharing information on what Opportunity Zones may mean for the local community.

In February, the LDF Business Development Corporation hosted the Opportunity Zone Summit, which brought together numerous thought leaders, tribal agencies, developers, and investors. As they put it, “The benefits of investing in a local Opportunity Zone go beyond tax savings. Area investors now can fuel the regional economy, creating jobs, revenue and a brighter future for the northwoods.”