Businesses excluded from Opportunity Zones (the sin business list)

Seven types of business cannot qualify as a Qualified Opportunity Zone Business, regardless of where they are located or how much they invest.

A Qualified Opportunity Zone Business (QOZB) is an operating company, usually a partnership or corporation owned by a fund, that holds and uses property inside a designated zone. A Qualified Opportunity Fund (QOF) is the investment vehicle that investors put their capital gains into; most QOFs invest through one or more QOZBs. The statute defines a QOZB in §1400Z-2(d)(3) and, in clause (A)(iii), says the business may not be described in §144(c)(6)(B).¹ That cross-reference is to the qualified small issue bond rules, which bar bond proceeds from financing the same seven facilities.²

The list is short and specific. Anything not on it is permitted, subject to the other QOZB tests. State guidance repeats the same seven categories.³

The rule is part of the QOZB definition, so it governs the operating business that a QOF owns.

A QOF meets its 90% asset test either by holding qualified opportunity zone business property directly or by holding stock or partnership interests in a QOZB. When the fund invests through a QOZB, the QOZB must satisfy every element of §1400Z-2(d)(3), including the sin business exclusion.¹ The final regulations at 26 CFR 1.1400Z2(d)-1 implement those elements.⁴ If the QOZB fails, its stock or partnership interest is not qualified opportunity zone stock or interest, and the fund's 90% test is put at risk. See the QOF 90% asset test.

Most data center and real estate funds use the two-tier structure, so the practical question is whether the QOZB's own business, and its tenants, fall on the list. Read what a QOZB is for the full set of tests.

Yes, a small amount: the final regulations treat a business as not a sin business if less than 5% of its gross income comes from sin-business activity.

Practitioner summaries of the final regulations describe this gross-income de minimis rule with a hotel example: a hotel QOZB with a spa that offers massage or tanning services does not become a sin business because of that incidental revenue.^5,6 Commentary on the final rules confirms that the rule was added to keep mixed-use and hospitality projects from failing over minor amenities.⁷

The leasing de minimis rule

A second rule covers landlords. A QOZB that leases property to tenants may not lease more than a de minimis amount of that property to a sin business. O'Melveny's summary of the final regulations describes the limit as 5% of net rentable square footage for real property and 5% of value for other tangible property.⁵ Other summaries describe the rules as prohibiting more than a de minimis lease to sin businesses while allowing de minimis sin-business income.^6,8

Measure the sin-business tenant's space against total net rentable square footage and keep it under 5%.

Illustrative example. Assumptions: a QOZB owns a 200,000-square-foot mixed-use building in a zone. It has three prospective ground-floor tenants: a grocery store, a restaurant with a full bar, and a stand-alone liquor store.

At 12,000 square feet the liquor store is 6.0% of net rentable area, above the 5% ceiling of 10,000 square feet. Cutting the liquor store to 9,500 square feet (4.75%) or adding rentable area would bring the building within the limit. Write tenant-use restrictions into every lease so a later assignment or change of use does not push the QOZB over the line.

Every business not on the seven-item list is allowed, as long as it meets the other QOZB tests.

• Data centers, colocation facilities and digital infrastructure
• Hotels, including hotels with spas within the 5% de minimis rule
• Restaurants and bars that serve alcohol for on-premises consumption
• Grocery and convenience stores whose principal business is not alcohol
• Manufacturing, logistics, warehouses and industrial facilities
• Multifamily and other residential rental property
• Operating companies in technology, health care, energy and services

Being allowed is not the same as qualifying. A permitted business still needs an active trade or business, at least 70% qualifying tangible property, at least 50% of gross income from the zone, at least 40% of intangibles used in the zone, and less than 5% nonqualified financial property. See the 70% tangible property test and the gross income and intangibles tests.

Gambling deserves a note. The statute excludes a racetrack "or other facility used for gambling."² There is no guidance on online gambling. A QOZB that only hosts servers for a tenant is not obviously a gambling facility, but a tenant or business line whose core activity is gambling should be reviewed by counsel before closing.

No. A data center is not on the list, so the sin business rule is rarely the obstacle for a data center QOZB.

The harder question for data centers is the active trade or business requirement. Under the regulations, merely entering into a triple-net lease is not the active conduct of a trade or business, so a single-tenant powered shell leased to one hyperscaler carries more risk than the sin business list ever will.^9,10 Recent commentary on data center OZ projects focuses on lease structure and operations, not on excluded business types.¹¹ See powered shell and triple-net data centers.

The sin list matters for data center campuses in two narrower ways. First, mixed-use campus plans that include amenity retail or hospitality must keep any sin-business tenant within the 5% leasing limit. Second, a QOZB that leases capacity to a gambling operator should confirm the tenant's use does not turn the facility into one "used for gambling." No authority addresses that case specifically.

Through annual reporting, which will become more detailed once the proposed reporting regulations are final.

Public Law 119-21 added §6039K (QOF returns) and §6039L (QOZB information) to the Code.¹² Proposed regulations published September 11, 2026 would require funds to report information about each QOZB they hold, and commentary on the proposal lists industry (NAICS) codes and census tracts among the data items.^13,14 These rules are proposed, not final. Once they apply, a QOZB's line of business will be visible on the fund's return every year. See Opportunity Zone reporting requirements and penalties.

1. 1.Confirm at acquisition that the QOZB's own business is not on the list.
2. 2.Add use restrictions to every lease that bar listed uses beyond the 5% leasing limit.
3. 3.Track any sin-business revenue line, such as spa services, against total gross income each year.
4. 4.Re-test after any tenant assignment, sublease or change of use.
5. 5.Keep a memo in the compliance file supporting the conclusion for each testing year.

If a QOZB inadvertently fails, the consequence flows up to the fund's 90% test, where the §1400Z-2(f) penalty applies for each month of shortfall unless reasonable cause is shown.¹ Early tenant screening is cheaper than a cure.