It’s not remotely close to April Fool’s Day, so I wasn’t too skeptical when I read a recent article about the one-hundredth anniversary of Boston’s great molasses flood of 1919.
Sure enough, at mid-day on January 15th, 1919, a fast-moving tsunami wave of two million plus gallons of sticky molasses flooded the famous North End neighborhood in Boston. The syrup flood destroyed many buildings, killed twenty-one people and several horses and injured another 150.
The sugary wave was estimated to be forty feet in height and traveled at thirty-five miles per hour, destroying several city blocks all the way to the Boston harbor.
Due to the winter cold weather, the molasses quickly hardened and people and horses alike were literally stuck in several feet of molasses, making their rescue arduous; it was likened to humans being stuck on fly paper.
Reportedly, many of the dead were so glazed in molasses they were unrecognizable.
North End is the one of finest neighborhoods you’ll ever visit. It’s the oldest in Boston, where Paul Revere’s home and the Old North Church are situated. Fortunately, both of these historic sites sat above the molasses plant and were spared.
For folks like me who are strangers to the kitchen, molasses is a viscous sugar byproduct with a sweet odor. These days, it’s used as a cooking ingredient and to make ethanol used in the production of rum.
It is also the key ingredient in shoo-fly pie, a Pennsylvania Dutch favorite that I find disgustingly dry. Sorry, I choose to indulge in the superior Dutch creation, the sticky bun.
During World War I, molasses was distilled for ethanol production used in munitions manufacturing. With the end of the war, in the winter of ’19 the Purity Distilling Company was frantically producing as much ethanol inventory as possible to sell to rum distillers in the run up to Prohibition.
So when a large batch of warm Caribbean molasses was mixed with cold, partially fermented molasses in the company’s massive but poorly constructed storage tank, an unexpected chemical reaction caused a massive explosion, collapsing the tank and flooding North End.
The local folklore is that on a hot summer day, you can still detect a faint whiff of molasses in North End. And I guess you won’t hear a native Bostonian utter the phrase “slow as molasses”.
My question is why is there not yet a movie about this surreal story starring Bostonians Ben Affleck and Matt Damon?
My colleague Matt said he’s seen an episode about the Boston molasses flood on the comedy series Drunk History; that must have been entertaining.
I attended a seminar this week about a new tax planning topic about which I’ve been anxious to get up to speed: Qualified Opportunity Zones (“QOZ”).
Know that I’m an unapologetic capitalist. While certainly imperfect, capitalism has done more to improve the human condition than other construct in human history.
As an owner of a business and real estate in a small rust belt city desperately in need of more private capital investment, I’m intrigued by the concept of the QOZ, which was a low-profile provision included to the Tax Act of 2017. Hopefully, the QOZ’s profile will likely be changing soon.
The unpleasant reality is that low-income city neighborhoods have been neglected by conservatives and exploited by liberals for decades. Every city has unsightly pockets of neglected neighborhoods with residents stuck in their own economic molasses, unable to escape the poverty, crime, blight, poor schools and lack of opportunity.
Finally, after decades of political inaction and poor governance, we get an innovative capitalistic approach to encourage new private investment in these neighborhoods: a tax break.
There’s no better way to motivate a business person than a tax incentive. Now, with the advent of the QOZ, taxpayers facing large capital gain taxes on the sale of a business, real estate or investment assets can defer and/or avoid tax on the sale by reinvesting in low-income neighborhoods. Brilliant!
Without getting too wonky, working with the states, the federal government established a nationwide network of QOZ districts base on census tract data. Once the US Treasury has certified the QOZ district, which is based on average resident income, future capital investment is eligible for QOZ tax advantages.
There are nearly nine-thousand federally approved QOZ zones; York city has five.
Don’t expect perfection. Downtown State College has been certified as a QOZ due to the low income status of all the Penn State students! Come on, the last thing thriving downtown State College needs is a new tax break for student housing investors.
Individuals can take advantage of the QOZ tax break on their own, but investment in a QOZ may entail high risk. A smarter approach could be to participate in a qualified opportunity fund (“QOF”), which is a corporation or partnership organized to invest at least 90% of pooled investor capital in QOZ assets. These entities are run by real estate professionals who presumably can discern the best investment opportunities within a QOZ.
The QOZ tax break can take three forms: deferral of the taxable gain on an asset sale to a future year; reduction of the gain through a basis adjustment or exclusion of the gain on any future appreciation of the QOZ investment.
Unfortunately, the 2017 tax law was a purely partisan bill and the QOZ code is set to expire in 2026. My hope is that there’s a tsunami of capital investment into low income neighborhoods and OZs become a consensus bipartisan good idea and permanent tax law.
The QOZ are still in its formative phase, but real estate firms are working to roll out new QOF investment vehicles and there’s a building enthusiasm for this new real estate investment channel.
I’m on board with the concept, just need to better understand the devilish details.
We’re pegging 2020 as the first year in which OZs become a viable tax planning tool in our planning tool bag, but it’s now on our radar.
Until next time, be well…..Tim
www.harvrock.com
