By establishing areas that promote economic development, tribes and tribal governments can encourage and sustain business growth in their communities.
An Opportunity Zone is an economically distressed community where new investments may be eligible for certain tax benefits.
There are 8,764 Opportunity Zones spread throughout the 50 states, the District of Columbia, and five U.S. territories (American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands).
Opportunity Zones in Indian Country
There are many Opportunity Zones that overlap with tribal lands, including state and federally recognized American Indian and Alaska Native (AI/AN) reservations, trust lands, and villages, as well as tribal areas in Oklahoma.
Opportunity Zones offer Indian Country an important new tool to attract investments for a wide range of projects to improve the economic conditions on tribal lands.
Individuals and corporations that sell investments at a profit can invest realized capital gains from such sales in businesses or property in Opportunity Zones and defer paying capital gains tax for up to 10 years
Tribally owned businesses already operating within an Opportunity Zone could seek new investments to further expand or establish new businesses.
To invest in an Opportunity Zone, investors pool their investments in an Opportunity Fund, which is an investment vehicle set up either as a partnership or corporation for investing in eligible property or businesses located in an Opportunity Zone.
Opportunity Funds can also choose to hold their assets in tangible property within an Opportunity Zone, which could lead to the development or redevelopment of properties within Indian Country. This could attract new investments for the construction of new buildings or the redevelopment of existing buildings, such as warehouses, office buildings, hotels, or apartment buildings, thereby leading to an increase in jobs in the Opportunity Zone.
The Office of Indian Energy and Economic Development is helping to foster the success of Opportunity Zones in Indian Country by giving funding priority to tribes who want to conduct feasibility studies focused on businesses and projects located within Opportunity Zones through its Native American Business Development Institute Grant.
The HUBZone program creates incentives (called “preferences”) for federal agencies to purchase goods and services from businesses that operate and employ people in areas designated as HUBZones.
The acronym HUB stands for “Historically Underutilized Business,” and a HUBZone is a historically underdeveloped business zone that meets one or more of five defined criteria.
AI/AN reservations and other Indian Country locations automatically qualify as HUBZones. This includes portions of the state of Oklahoma which are designated as Indian reservations by the Internal Revenue Service (Oklahoma tribal statistical areas) and Alaska Native village statistical areas.
The Small Business Administration (SBA) oversees the program and maintains an interactive map identifying all areas including Indian Country locations.
Federal Contracting Preferences
Every year, the federal government allows for “set-asides,” where it reserves a specified percentage of federal contracting dollars for goods and services from the private sector. The federal government purchases approximately $400 billion in goods and services from the private sector annually.
A set-aside narrows the competition for a federal contract to certain kinds of contractors. For example, the competition for the set-aside contracts may be restricted to SBA-certified HUBZone businesses if there is a reasonable expectation that there will be at least two SBA-certified HUBZone bidders who offer a fair market price.
There are also “sole-source” awards, which are federal contracts awarded without competition. In addition, there are “price-evaluation preference” awards that give an advantage to a HUBZone business in a full and open competition, whose bid is 10% or more lower than an equally qualified, larger firm that isn’t a HUBZone business.
All federal departments and agencies participate in the HUBZone program, and the federal government aims to award at least 3% of all contracts to companies and firms located in HUBZones.
The top categories of HUBZone contracts can change from year to year, but in the past, they have included: commercial and institutional building construction; heavy engineering and civil engineering construction; computer-related services; highway, street, and bridge construction; facilities support services; engineering services; security guards and patrol services; research and development; consulting services; and apparel.
If your Native-owned business is in a HUBZone, it doesn’t automatically qualify for federal contracting preferences. Your business must be certified by SBA.
To become certified, your business must:
be an SBA standard small business
be at least 51% owned and operated by U.S. citizens, a Community Development Corporation, an agricultural cooperative, an Alaska Native corporation, a Native Hawaiian organization, or an American Indian tribe
have your company’s main office located in a HUBZone
have at least 35% of your employees living in a HUBZone
You can find the full qualification criteria in Title 13 Part 126 Subpart B of the Code of Federal Regulations.
Foreign Trade Zones
A Foreign Trade Zone (FTZ) is a designated geographical area where foreign and domestic goods are treated, for tax and tariff purposes, as if they had never entered the United States.
Most FTZ activity occurs within the petroleum industry. However, many companies in the automotive, consumer electronics, and pharmaceutical industries also use FTZs.
Establishing an FTZ offers major cost savings to tribes in several different ways. For example, merchandise may be held and stored in an FTZ on U.S. soil without being subject to U.S. customs duties (also known as tariffs). It’s helpful to think of a duty or tariff as a tax. If the goods shipped into the FTZ are then shipped to another FTZ or another country, a U.S. duty won’t be assessed on the merchandise. If the goods enter the U.S., a duty will be applied.
By utilizing an FTZ, a duty may be significantly reduced. A tribal corporation can avoid paying a higher duty if it manufactures a product within its FTZ and then imports it into the U.S. market, rather than importing the raw materials directly into the U.S. market. This means that the duty applies on a fully assembled product.
For example, the duty on a maple chair is less than the duty applied on the raw materials that would have been used to make the chair. If the duty on the maple wood needed to assemble the chair is $10 when it enters the U.S. market, but the duty on a fully assembled chair made of the same amount of maple wood is only $5 when it enters the U.S. market, the tribal company would save $5 per chair by utilizing an FTZ.
Security and Operational Requirements
The U.S. Customs and Border Protection (CBP) oversees FTZs and requires companies to adhere to detailed security and operational requirements.
Before deciding whether to establish an FTZ, you should calculate whether the potential duty or tariff savings will outweigh the costs you will incur to comply with CBP’s requirements.
In addition, items manufactured in an FTZ must first be approved by the FTZ Board on a case-specific basis. The FTZ Board considers whether there are potential negative effects on other U.S. companies resulting from FTZ manufacturing.
Even though FTZs are treated for customs purposes as if they were outside the customs territory of the United States, they’re still a part of the U.S. For that reason, goods and activities in FTZs are subject to federal, state, and local laws and regulations. Items prohibited by law or that violate copyright, trademark, or patent laws, aren’t allowed to enter FTZs.
Benefits for Tribal Corporations
There are three major ways in which a tribal corporation can profit from establishing an FTZ:
- Move goods from a foreign country into the U.S.: To take advantage of an FTZ’s lower duties, tribal corporations should consider importing parts that they can assemble into products. Items like furniture or cars are good examples. Tribal corporations should think about which items they can feasibly manufacture within an FTZ. To determine which items are most advantageous to import, they should use the Harmonized Tariff Schedule to research duties on components used to make those items, and conduct research on whether components are available from domestic sources. The Harmonized Tariff Schedule can be used to look up the import duty on every item imported into the U.S.
- Move goods from one foreign country to another foreign country: Tribal corporations should research the cost of importing different materials and the price at which they can re-sell those materials in various other countries to make the most profit. By moving goods from one foreign country to another through an FTZ, it’s like the product never even entered the U.S. because a U.S. duty won’t be imposed on the product.
- Leasing/Equity Option tribal corporations can establish an FTZ, and lease or “rent out” different portions of their FTZ to other companies: Companies will pay to rent a portion of the FTZ to take advantage of FTZ benefits. Tribal corporations gain revenue from leasing portions of their FTZ and can also ask for equity in the company that is the lessee (meaning they could own a portion of that company). However, the relatively quick and simple processes available to bring FTZ designation to a company’s own facilities may limit its willingness to pay fees to lease FTZ space elsewhere. Also, if the tribal corporation is the grantee of the FTZ, the FTZ Board’s regulations require that the grantee operate the FTZ as a public utility, which could limit the revenue that the tribe would be allowed to derive from its FTZ facilities.
Under the federal FTZ Board’s laws and regulations, the federal FTZ Board may grant authority to organizations (“grantees”) to sponsor FTZ sites at locations “adjacent” to a CBP port of entry (POE). Adjacent generally means within 60 miles/90 minutes’ driving time of a POE.
The FTZ staff is also available to provide guidance.
- How Comprehensive Community Planning Helps Tribes
- Finding the Best Economic Development Strategy
- Choosing a Tribal Business Structure
- Why Feasibility Studies are Important
- Why Secured Transactions are Important
- Department of Housing and Urban Development: Opportunity Zones
- Small Business Administration: HUBZone Program
- International Trade Administration: U.S. Foreign Trade Zones
Washington, DC 20240