The HUBZone Program has released updated FAQs that provide guidance on important HUBZone rules and how SBA will be interpreting them. While these don’t have the authority of a regulation, the new guidance shows how SBA will come down on certain HUBZone questions that aren’t answered in the regulations. These include the details on long-term investment in a principal office as well as a few other rules. Read on for how SBA will interpret these rules.
SBA originally released guidance in February 2020 and has now updated the FAQs. It’s good to see SBA providing some clarity on these rules with the goal of making it easier to maintain HUBZone status. Without this kind of clarity, HUBZone businesses have had a hard time knowing what to do to take advantage of these new rules and flexibilities. There are quite a few details on long-term investment in a principal office, and the update touched on a few other HUBZone rules too, as described below.
I didn’t include every detail here, so please review the FAQ in detail if these provisions may apply to your firm.
Principal Office Long-Term Investment
SBA updated the principal office rule to incentivize firms to make long-term investments in qualifying HUBZones. By purchasing a building or entering a minimum 10-year lease, the firm could maintain HUBZone principal office status even if the location lost its HUBZone designation. SBA provided additional information on how this rule will work in practice.
- “The 10-year clock starts on the firm’s HUBZone certification date (if the investment was made prior to the firm’s certification) or on the firm’s certification anniversary date that follows the execution of the lease or deed (if the investment was made after the firm’s certification). For example, if a firm was certified on May 1, 2020, and purchased a building on December 1, 2020, the 10-year clock would start when the firm recertifies as of May 1, 2021.
- The rule only works if the company “purchased a building or signed a long-term lease after December 26, 2019.”
- The long-term investment rule doesn’t apply if the principal office is located in “a Redesignated Area or Qualified Disaster Area at the time of the firm’s certification or certification anniversary date.” The rule only applies if the principal office was in one of the basic types of HUBZone areas (e.g. Qualified Census Tract, Qualified Non-Metropolitan County, Qualified Base Closure Area, Indian Reservation, or Governor-Designated Covered Area) at the time of certification or certification anniversary.
- Finally, the long-term rule doesn’t apply if the principal office location is shared with one or more other businesses or if the location is a home office.
A firm must state in its annual recertification if it is going to take advantage of this long-term investment rule. The firm must provide a copy of the lease or deed showing execution after December 26, 2019 as well as the HUBZone map showing the principal office was in one of the proper category of zones.
While there are some restrictions on this provision, if firms handle it right, they can ensure up to ten years of HUBZone principal office status.
Shared Working Space
In order to qualify, the firm must have dedicated space within the shared facility. This includes that the space have “a lockable door; and [be] available to the firm without limitations during regular business hours.” There are also requirements for the timing of the lease for the shared space, including that the “the start date must be at least 30 days prior to the date of application submission and the end date must be at least 90 days after the date of application submission.” The firm must document there is “sufficient work surface area, as well as furniture and equipment (e.g., desks and chairs) to accommodate the number of employees claimed to work from this location.” The firm must also provide proof of utility payments and may be asked to provide photos of the space.
SBA is extending this flexibility through September 30, 2021. “SBA currently considers firms that place employees on mandatory telework to be in compliance with the principal office requirement, if the firm can demonstrate that it met the principal office requirement prior to the COVID-19-related telework measures being put in place.” But the firm must submit a signed statement under penalty of perjury establishing that (1) the telework is in response to COVID-19, (2) the situation is temporary, and (3) the “firm will make its best effort to provide meaningful work to employees who are teleworking.”
SBA allowed firms to continue to count employees that no longer live in a HUBZone under certain conditions, what SBA called a “legacy employee.” The employee had to reside in a HUBZone for 180 days prior to the certification date or certification anniversary date occurring after December 26, 2019 and continue to live in a HUBZone for at least 180 days after certification.
Note that this legacy employee concept doesn’t apply to “employees who resided in a Redesignated Area or Qualified Disaster Area during the relevant time periods and only open for businesses with a principal office not in a Redesignated Area or Qualified Disaster Area. For both components, the employee and the office must be in the one of main categories of HUBZones (e.g. Qualified Census Tract).
In addition, the certification or certification anniversary date used to show the employee is a “legacy employee” must be after December 26, 2019. Firms must notify SBA if they are relying on this provision and provide supporting documentation to show where the employee lived, at what time, and continuous employment. Under certain conditions, firms may use “third-party businesses that specialize in providing HUBZone employees” to meet this requirement.
HUBZone Map Freeze.
Last but not least: as we wrote about, the HUBZone maps will not be changed until June 30, 2023. However, the HUBZone Map Freeze “only applies to Qualified Census Tracts, Qualified Non-Metropolitan Counties, and Redesignated Areas. During the freeze, no Qualified Census Tracts, Qualified Non-Metropolitan Counties, or Redesignated Areas will lose their HUBZone designation, and no new Qualified Census Tracts, Qualified Non-Metropolitan Counties, or Redesignated Areas are being added to the HUBZone Map.
Certain new areas will still be added during this time for Qualified Disaster Areas, Qualified Base Closure Areas, Indian Reservations, and Governor-Designated Covered Areas.
Good on SBA for providing additional details on how it will interpret these HUBZone rules. Be sure to review them closely if they apply to your company’s situation.
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