USDA RD Section 502 Program

Applicants for loans may have an income of up to 115% of the median income for the area. Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance. In addition, applicants must have reasonable credit histories.

Approved lenders under the Single Family Housing Guaranteed Loan program include: any State housing agency; lenders approved by HUD; the U.S. Veterans Administration as a qualified mortgagee; Fannie Mae for participation in family mortgage loans; Freddie Mac for participation in family mortgage loans; any Farm Credit System institution with direct lending authority; any lender participating in other USDA Rural Development and/or Farm Service Agency guaranteed loan programs.

The amortization of the loans is 30 years and the promissory note interest rate is set by the lender. There is no required down payment. The lender must also determine repayment feasibility, using ratios of repayment (gross) income to PITI and to total family debt.

Under the Section 502 program, housing must be modest in size, design, and cost.  Houses constructed, purchased, or rehabilitated must meet the voluntary national model building code adopted by the state and HCFP thermal and site standards. New Manufactured housing must be permanently installed and meet the HUD Manufactured Housing Construction and Safety Standards and HCFP thermal and site standards. Existing manufactured housing will not be guaranteed unless it is already financed with an HCFP direct or guaranteed loan or it is Real Estate Owned (REO) formerly secured by an HCFP direct or guaranteed loan.

Start-Up Financing

Entrepreneurs are often torn as to which is the best financing mechanism for a start-up company, debt or equity.  Recently, start-ups have started favoring convertible notes for seed stage financing over equity.  Convertible debt is becoming the preferred financing instrument among entrepreneur for the following reasons:

(1)  Start-ups are very difficult to value. Convertible debt rounds allow both entrepreneurs and investors to defer the question of value until the next equity round.

(2) Convertible debt deals are less complicated than equity deals and hence, the transaction costs are less.

(3)  By deferring the often long and controversial question of valuation, convertible debt deals are far more simple, easier to negotiate, and faster to close than are equity deals. Accordingly, much needed capital resources are in the company’s treasury more quickly.

(4) The organizers retain control longer when the seed stage financing involved debt. Generally, the debt holder has minimal input with respect to management decisions.

USDA Rural Economic Development Loan and Grant Program

The REDLG program provides funding to rural projects through local utility organizations. Under the REDLoan program, USDA provides zero interest loans to local utilities which they, in turn, pass through to local businesses (ultimate recipients) for projects that will create and retain employment in rural areas. The ultimate recipients repay the lending utility directly. The utility is responsible for repayment to the Agency. Under the REDGrant program, USDA provides grant funds to local utility organizations which use the funding to establish revolving loan funds. Loans are made from the revolving loan fund to projects that will create or retain rural jobs. When the revolving loan fund is terminated, the grant is repaid to the Agency.

To receive funding under the REDLG program (which will be forwarded to selected eligible projects) an entity must: have borrowed and repaid or pre-paid an insured, direct, or guaranteed loan received under the Rural Electrification Act; be a not-for-profit utility that is eligible to receive assistance from the Rural Development Electric or Telecommunication Program; or be a current Rural Development Electric or Telecommunication Programs Borrower

REDLG grantees and borrowers pass the funding on to eligible projects. Examples of eligible projects include: capitalization of revolving loan funds, technical assistance in conjunction with projects funded under a zero interest REDLoan, business Incubators, community development assistance to non-profits and public bodies (particularly job creation or enhancement), facilities and equipment for education and training for rural residents to facilitate economic development, facilities and equipment for medical care to rural residents, or telecommunications/computer networks for distance learning or long distance medical care.

Biorefinery Assistance Program

As the call for increased production of homegrown, renewable forms of fuels has grown, so has the need to develop and produce them.  The United States Department of Agriculture Rural Development offers opportunities to producers to development such fuels through the Biorefinery Assistance Program. The program provides loan guarantees for the development, construction, and retrofitting of commercial-scale biorefineries.

The Biorefinery Assistance Program was established to assist in the development of new and emerging technologies for the development of advanced biofuels and aims to accomplish the following: increase the energy independence of the United States; promote resource conservation, public health, and the environment; diversify markets for agricultural and forestry products and agricultural waste materials; and create jobs and enhance economic development in rural United States.

USDA Business and Industry Guaranteed Loans

The purpose of the United States Department of Agriculture Rural Development Business and Industry Guaranteed Loan Program is to improve, develop, or finance business, industry, and employment and improve the economic and environmental climate in rural communities. This purpose is achieved by bolstering the existing private credit structure through the guarantee of quality loans which will provide lasting community benefits. It is not intended that the guarantee authority will be used for marginal or substandard loans or for relief of lenders having such loans.

A borrower may be a cooperative organization, corporation, partnership, or other legal entity organized and operated on a profit or nonprofit basis; an Indian tribe on a Federal or State reservation or other Federally recognized tribal group; a public body; or an individual. A borrower must be engaged in or proposing to engage in a business that will: provide employment; improve the economic or environmental climate; promote the conservation, development, and use of water for aquaculture; or reduce reliance on nonrenewable energy resources by encouraging the development and construction of solar energy systems and other renewable energy systems.

Individual borrowers must be citizens of the United States or reside in the United States after being legally admitted for permanent residence. Corporations or other nonpublic body organization-type borrowers must be at least 51% owned by persons who are either citizens of the United States or reside in the United States after being legally admitted for permanent residence. B&I loans are normally available in rural areas, which include all areas other than cities or towns of more than 50,000 people and the contiguous and adjacent urbanized area of such cities or town.

Loan purposes must be consistent with the general purpose contained in the regulation. They include but are not limited to the following: business and industrial acquisitions when the loan will keep the business from closing, prevent the loss of employment opportunities, or provide expanded job opportunities; business conversion, enlargement, repair, modernization, or development; purchase and development of land, easements, rights-of-way, buildings, or facilities’ or purchase of equipment, leasehold improvements, machinery, supplies, or inventory.

The percentage of guarantee, up to the maximum allowed, is a matter of negotiation between the lender and the USDA. The maximum percentage of guarantee is 80% for loans of $5 million or less, 70% for loans between $5 and $10 million, and 60% for loans exceeding $10 million.

The total amount of USDA loans to one borrower must not exceed $10 million.  The maximum repayment for loans on real estate will not exceed 30 years; machinery and equipment repayment will not exceed the useful life of the machinery and equipment purchased with loan funds or 15 years, whichever is less; and working capital repayment will not exceed 7 years.

The interest rate for the guaranteed loan will be negotiated between the lender and the applicant and may be either fixed or variable as long as it is a legal rate. Interest rates are subject to USDA review and approval. The variable interest rate may be adjusted at different intervals during the term of the loan, but the adjustments may not be more often than quarterly.

Collateral must have documented value sufficient to protect the interest of the lender and the USDA. The discounted collateral value will normally be at least equal to the loan amount. Lenders will discount collateral consistent with sound loan-to-value policy.

Mississippi Broadband Technology Act

The Mississippi Broadband Technology Act (the “Act”) is codified as Miss. Code Ann. § 57-87-1 et seq. and provides certain state and local tax incentives for telecommunications enterprises in Mississippi.  See Miss. Code Ann. § 57-87-5(1)(a) and § 57-73-21.

For purposes of the Act, telecommunications enterprises means entities engaged in the creation, display, management, storage, processing, transmission or distribution for compensation of images, text, voice, video or data by wire or by wireless means, or entities engaged in the construction, design, development, manufacture, maintenance or distribution for compensation of devices, products, software or structures used in the above activities. Companies organized to do business as commercial broadcast radio stations, television station or news organizations primarily serving in-state markets shall not be included within the definition of term telecommunications enterprises.  See Miss. Code Ann. § 57-73-21(13)(b).

Pursuant to the Act, equipment used in the deployment of broadband technologies means any equipment capable of being used for or in connection with the transmission of information at a rate, prior to taking into account the effects of any signal degradation, that is not less than three hundred eighty-four (384) kilobits per second in at least one direction, including, but not limited to, asynchronous transfer mode switches, digital subscriber line access multiplexers, routers, servers, multiplexers, fiber optics and related equipment.  See Miss. Code Ann. § 57-87-5.

Income Tax and Franchise Tax

Telecommunications enterprises may take an annual credit against their aggregate income and franchise tax liabilities for a portion of the cost of equipment used in the deployment of broadband technologies in each year before July 1, 2020. The amount of the credit is dependent upon where the equipment is placed. In the more economically depressed areas of the state that are designated as Tier Two and Tier Three, the credit is equal to 10% and 15% of the equipment cost, respectively. In the less depressed areas designated as Tier One, the credit is equal to 5% of the equipment cost.

The annual credits begin with the first tax year in which the qualifying equipment is placed in service and continue for the next nine consecutive years. The annual credit is limited to 50% of the eligible taxpayer's income and franchise tax liabilities for the tax year. Any unused credit may be carried forward for 10 consecutive years from the close of the tax year in which the credits were earned. The maximum aggregate credit cannot exceed the original investment in the qualifying equipment.

To be eligible for the credit, the item(s) must be sold directly to, billed directly to and paid for directly by the business receiving the credit.  Before the credit can be claimed, the company must complete the Application for Certification for Economic Incentives, Form 70-801 and attach a letter explaining the reason the business is eligible to claim the credit and the types of purchases that qualify for the tax credit. These should then be forwarded to the Mississippi Department of Revenue.

When filing the state income/franchise tax return claiming the credit, attach: a schedule showing the cost and description of the equipment being deployed and the county or counties in which the equipment was deployed that gave rise to the credit for the current period; and a schedule showing a year by year calculation, including the current year, of all credits taken and any credits carry forward.

Effective April 13, 2010, the governor is authorized to issue to a telecommunication enterprise that has contracted with the state to provide broadband telecommunications service to institutions of higher learning a payment credit voucher in lieu of cash payment pursuant to the terms of the contract for services. The credit payment voucher entitles the telecommunication enterprise to a credit against its aggregate income and corporation franchise tax liabilities. Any excess credit may be used against the aggregate tax liabilities of any related member, and if the related member is unable to use the full amount of the credit voucher, any remaining amount will be refunded to the service provider. The total amount of tax credits authorized in any fiscal year must not exceed $2 million in the aggregate. This provision is repealed from and after July 1, 2018.  See Miss. Code Ann. § 27-111-1.

Sales and Use Tax

Sales of equipment used in the deployment of broadband technologies by telecommunications enterprises after June 30, 2003 and before July 1, 2013 are exempt from sales tax. In the case of qualifying equipment installed in Tier Two and Tier Three counties, the exemption is 100%. However, in Tier One counties, only 50% is exempt from tax.  See Miss. Code Ann.  §27-65-101(3).

To be eligible for the credit, the item(s) must be sold directly to, billed directly to and paid for directly by the business receiving the credit.  Before the credit can be claimed, the company must complete the Application for Certification for Economic Incentives, Form 70-801 and attach a letter explaining the reason the business is eligible to claim the credit and the types of purchases that qualify for the tax credit. These should then be forwarded to the Mississippi Department of Revenue.

Contractor's tax is imposed directly on the contractor for the gross proceeds of commercial construction activities regardless of who is the owner of the project. If component materials, or machinery and equipment (purchases covered under the exemption) are purchased through a construction contractor within the construction contract amount and not directly by the business receiving the exemption, then the exemption is lost on any items included in the contract. Again, in order to receive the exemption the business receiving the exemption must purchase the items direct.

Tax Appeals in Mississippi

Notice of Assessment

Once a field audit is completed, the Mississippi Department of Revenue (the "DOR") will send the taxpayer a notice of audit results.  This letter is referred to as the Notice of Assessment.  In many cases, there will be no change to the reported tax liability. In other cases, the auditors find additional tax liability based upon their findings from the audit.

Once the Notice of Assessment is mailed or delivered to the taxpayer, the taxpayer has sixty (60) days from the date of the notice to pay the tax liability.  If the taxpayer disagrees with the Notice of Assessment and is unable to work out the issues with the field auditor, the taxpayer has sixty (60) days from the date of the Notice of Assessment to request an appeal of the assessment and request a hearing before the Review Board.

The sixty-day period begins to run from the date of the Notice of Assessment regardless of whether the taxpayer is in continued discussions with the filed auditor

Review Board Hearing

In the request for a hearing, the taxpayer must provide the following information: address, business name, ID number and a description of the requested relief.  The taxpayer must specify what tax assessment is being protested and the amount of the assessment.  At the hearing the taxpayer is not limited to the information included in the written protest and may bring any relevant information to the hearing.

Once the written request is received by the DOR, the Review Board will mail the taxpayer a notice of the date and time of the hearing.  The taxpayer has ten (10) days from the date of the hearing notice to advise the Review Board if the date and time are inconvenient.

The hearing before the Review Board is informal.  There are no rules of evidence.  At least three (3) members of the DOR Staff will make up the Review Board Panel.  Ashley May is the chairman of the Review Board and sits on the three-member panel.  Representatives from the audit department will not sit on the Review Board, but may attend to explain the audit procedure and results.  A lawyer will not represent the DOR during the Review Board hearing.

At the Review Board hearing, the taxpayer will have the opportunity to explain to the Review Board why the taxpayer disagrees with the audit and assessment.  After consideration of the facts presented at the hearing, the Review Board will mail the taxpayer and its representative an order of its decision.  This generally takes about a month and will advise the taxpayer of the action taken by the Review Board.

Strategically, a taxpayer should not concede any justified position to the Review Board because the taxpayer has the ability to settle any claim during any portion of the review process.  If the taxpayer is not satisfied with the order of the Review Board, the taxpayer has sixty (60) days from the date of the order to make a written request for a hearing before the Board of Tax Appeals.

Board of Tax Appeals Hearing

The Board of Tax Appeals consists of three members appointed by the Governor.  Presently, the three members of the Board of Tax Appeals are: Janet Mann, chairman, who is an active certified public accountant; James C. Wilkinson, associate member, who served as the tax collector and assessor of Alcorn County for twenty-one (21) years; and Marcus Martin, associate member, who has twenty-eight (28) years of public accounting experience.

The Board of Tax Appeals hearing is also informal.  There are no applicable rules of evidence; however, a lawyer will represent the DOR at this stage in the appeals process.  Generally, each side is afforded forty-five (45) minutes to put on its case.