I’ve heard of “sin businesses.” What are they and why can’t they participate?
“Sin businesses” include country clubs, golf courses, massage parlors, hot tub facilities, casinos and bars. Interestingly, marijuana-related companies and breweries are not specifically prohibited from OZ participation, but marijuana creates challenging tax issues. Congress simply copied these sin provisions from another code section.
Because the bill specifically calls them out as excluded. I guess because they are bad for Opp Zones, things like massage parlors, off-track betting, just to name a few.
The only reason certain "sin businesses" can't take advantage is because that is what the lawmakers decided when they proposed the bill which was passed into law. So it's just a matter of it simply being what the law (tax law under the Internal Revenue Code) is. The sin businesses do not qualify under QOF (golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or gambling, store selling alcohol for offsite consumption).
Many years ago, in the context of describing businesses they are not eligible for tax-exempt bonds, the Congress included a clause in Section 144 of the Internal Revenue Code that prohibited the use of bond proceeds for sin businesses.
Trades or businesses described in section 144(c)(6)(B), commonly known as "sin" businesses cannot qualify as QOZBs. These include: any private or commercial golf course, country club, massage parlor, hot tub facility, sun tan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises. It's interesting to note that, rather than create an original list of businesses which do not deserve OZ tax benefits, the law defaults to legislation created by the Tax Reform Act of 1986 to determine whether private activity bonds deserve to qualify as tax-exempt bonds.
Figuring out the policy behind the "sin business" designation is a bit puzzling. The definition is borrowed from a different program and seems to target vices (such as liquor stores and gambling) and conspicuous consumption (such as hot tub facilities). Yet the definition does not include marijuana businesses, gentlemen's clubs, pawn shops, coin laundromats, check cashing facilities and other enterprises that one might reasonably think should've been on the list. As an advisor, I'm interpreting the list literally because we have no regulatory guidance to flesh out any specifics. As far as I'm concerned, if it's on the list, it's prohibited; if it's not on the list, it's fair game.
It is a list of business developed in 1986 that were excluded from other tax benefits.
Federal tax programs often exempt "sin businesses" from being qualified investments. The OZ statute explicitly rules out golf courses, country clubs, massage parlors, hot tub facilities, sun tan facilities, liquor stores, racetracks or other facilities used for gambling. I don't know that I'm qualified to comment on "why" they are excluded.
There is a short list that you can Google. Political. No policy.
The regulations state that the business cannot be a sin business. These are: public or private golf course; country club; massage parlor; hot tub facilities; tanning facilities; racetracks or betting facilities; selling alcoholic beverages for consumption outside the business.
DISCLAIMER:the information found on this website is intended to be general information; it is not legal or financial advice. Specific legal or financial advice can only be given by a licensed professional with full knowledge of all the facts and circumstances of your particular situation. You should seek consultation with legal and financial experts prior to participating in any aspect relating to Opportunity Zones. Posting a question on this website does not create an attorney-client relationship. All questions you post will be available to the public; do not include confidential information in your question.