An economic revitalization area (ERA) deduction can reduce a taxpayers bill substantially, while increasing a state's job and tax base. To obtain such a deduction, the taxpayer must be granted an ERA designation by a local government body. This article provides a general description of the procedures associated with the designation process and serves as a road map to the novice as well as the experienced investor or attorney in Indiana.

PROPERTY TAX ABATEMENTS by local government bodies have been used to encourage industrial development in areas that are experiencing severe economic disinvestment. Such incentives have been in effect in Indiana since 1985. The general purpose of the program, known in Indiana as the economic revitalization area deduction (the ERA deduction) , is to enable cities to use property tax deductions to encourage both private redevelopment of an undesirable area and economic growth, including expanding Indiana's job and tax base. Tax abatements in Indiana are governed by the U. S. Constitution, state legislation, and case law. Improvements to blighted or run-down areas are but one example of the use of the ERA deduction.

The process of obtaining ERA status can be a trap for the unwary. The entire process is rule driven and complicated and involves deadlines that present a challenge for the untrained. Negative consequences exist for missing a procedural step or failing to meet a deadline in a timely manner. The end result of an innocent mistake can be the elimination of most, if not all, of the benefits that can be derived from the deduction. Therefore, a taxpayer should comprehend the basics for obtaining an ERA deduction before embarking on such a journey.

ECONOMIC REVITALIZATION AREA DEFINED
The ERA deduction is available to taxpayers who redevelop or rehabilitate real property or install new manufacturing equipment in what is known as an economic revitalization area (ERA). The ERA deduction is not limited to the type of property involved; rather, all properties (see exceptions in following section) are eligible if they meet ERA criteria.

Indiana defines an ERA as:

an area which is within the corporate limits of a city, town, or county which has become undesirable for, or impossible of, normal development and occupancy because of a lack of development, cessation of growth, deterioration of improvements or character of occupancy, age, obsolescence, substandard buildings, or other factors which have impaired values or prevent a normal development of property or use of property. The term "economic revitalization area" also includes: (A) any area where a facility or a group of facilities that are technologically, economically, or energy obsolete are located and where the obsolescence may lead to a decline in employment and tax revenues; and (B) a residentially distressed area, except as provided in this chapter. As can be seen from the foregoing, an ERA can take on forms ranging from an industrial complex to a residential area, if certain criteria are met (see Ind. Code Sec. 6-1-. 1-12.1 -s job and 3(e)(l 1)). To further understand an ERA, certain terms are defined throughout this article. (Note: residential properties are not discussed at any length).

QUALIFYING PROPERTIES

Real Property-Commercial and Industrial

Property is defined as a building or structure, but the term does not include land. This exception can be a minor setback for taxpayers who own large tracts of land used for storage of commercial or industrial goods or who purchase vacant parcels in hopes of improving them. To further clarify the relationship between an ERA and real property, redevelopment means the construction of any new structures in ERAs, either on unimproved real estate or on real estate upon which a prior existing improvement is demolished to allow for a new construction. In addition, rehabilitation means the remodeling, repair, betterment, enlargement, or extension of property in any manner. An in-depth cost-effectiveness analysis of any undertaking should include whether the result will qualify for an abatement under Indiana law and whether the tax incentives are worthwhile.

For instance, the law prohibits a deduction for the redevelopment or rehabilitation of (including, but not limiting) the following properties, except for deductions related to redevelopment or rehabilitation of real property before December 31, 1987:

• Private or commercial golf courses
• Country clubs
• Massage parlors
• Tennis clubs
• Skating rinks
• Racquet sport
• Hot tub and suntan facilities
• Racetracks

Furthermore, any facility for which the primary purpose is retail and beverage service, automobile sales, or service other than retail (except those located in an ERA established under section 7 of this chapter) are not allowed an abatement.

If the taxpayer meets the criteria for an ERA, he or she is entitled to a deduction from the assessed value of the property. The period is five years for a residential distressed area; for all other economic revitalization areas, the period is three, six, or ten years, which is determined by the designating body (discussed infra) based on the resolution adopted. The deduction that the property owner is entitled to receive for a particular area is the increase in the assessed value resulting from the rehabilitation or redevelopment, multiplied the percentages prescribed in the following tables.

1. For a 3 year period

2. For a 5 year period

For a 10 year period

Personal Property-New Manufacturing Equipment
The ERA deduction is also available for personal property. However, this deduction is replete with conditions and stipulations. The ERA deduction for personal property applies to "new manufacturing equipment," defined as:

any tangible personal property which was installed after February 28, 1983, and before January 1, 2006, in an area that is declared an economic revitalization area after February 28, 1983, in which a deduction for tangible personal property is allowed or is used in the direct financing of other tangible personal property, including but not limited to use to dispose of solid waste or hazardous waste by converting the solid waste or hazardous waste into energy or other useful products and was acquired by its owner for said use and was never before used by its owner for any purpose in Indiana.

Tax abatements may be applied to used machinery as well as new machinery, if the used machinery was never used before by its owner for any purpose in Indiana.

New manufacturing equipment subject to a capital lease shall be made by the less while equipment subject to an operating lease shall be made by the lessor. Similar to the deduction for real property, the deduction for personal property can either five or ten years. Again, the deduction an owner is entitled to for a particular year is the assessed value of the new manufacturing equipment in the year that the equipment was installed, multiplied by the percentage prescribed in the following tables:

1.For deductions allowed over a five-year period:
 

Year of Deduction	Percentage
First	100%
Second	95%
Third	80%
Fourth	65%
Fifth	50%
Sixth and thereafter	0%

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