Extra Juice: Alabama, Texas, Rhode Island Gear Up New or Revived State Historic Credit Programs

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Officials in Alabama and Texas are gearing up to launch new state historic rehabilitation tax credit programs while Rhode Island’s newly re-opened historic tax credit program is already oversubscribed.

Alabama Program

In Alabama, the Alabama Historical Commission (AHC) plans to issue final regulations and an application form for the new program on September 1 and to begin accepting applications on October 1. The new state historic tax credit was established by legislation (H.B. 140) enacted in early May.

The tax credit will be equal to 25% of qualified rehabilitation expenditures for certified historic structures: buildings listed on the National Register of Historic Places either individually or as contributing structures in an historic district, or buildings eligible for listing. Also available will be a tax credit equal to 10% of qualified rehab expenses for pre-1936, non-historic structures. Project expenditures must exceed of 50% of the owner’s purchase price or $25,000, whichever is greater.

Rehabilitation work must satisfy the U.S. Department of Interior Secretary’s Standards for Rehabilitation and be approved by AHC.

The maximum credit amount is $50,000 for single-family residential structures and $5 million for income-producing buildings. AHC may reserve up to $20 million in tax credits per fiscal year (October 1-September 30). Construction work on projects can’t begin any earlier than six months prior to filing an application, and work must begin no later than 180 days after receiving a credit reservation.

AHC will accept applications continuously and reserve tax credits for projects on a first-come, first-served basis.

The program is scheduled to expire May 15, 2016. According to AHC, projects with a tax credit reservation by this date will remain eligible to receive tax credits provided they satisfy the program requirements.

The credit can be used to offset state business and individual income taxes or financial institution excise taxes. The entire credit can be claimed in one year, excess credit carried forward one year, and a five-year recapture period applies. The state tax credits can be bifurcated from the federal historic tax credit and are transferrable.

There is great interest in this program and we expect the annual allocation of $20 million in tax credits will be reserved pretty quickly, said AHC official Chloe Mercer. We believe buildings in Birmingham will be well represented with applications for the state tax credit.

Scot Butcher, a principal of Providence, R.I-based Tax Incentive Capital, a syndicator of federal and state historic tax credits, said Alabama’s historic tax credit is an allocated rather than a certificate program, meaning the tax credits are allocated to partners in a partnership and syndicated. In a certificate program, the tax credits are issued in the form of a certificate that can be sold by the developer to an investor.

He said pricing for Alabama’s historic credit will vary depending on the transaction structure but is likely to range between 60 and 75 cents per dollar of tax credit.

Texas Program

Butcher described Texas’ newly authorized state historic tax credit as a great program, estimating that probable pricing will be in the low- to mid-80 cent range depending on the syndication structure.

The enabling legislation (H.B. 500), enacted in mid-June, allows the state credit to be transferred and doesn’t cap either the maximum credit amount per project or the amount of credits that can be reserved annually under the program. The Texas credit can be bifurcated from the federal credit, claimed in one year, and offset state franchise taxes.

The tax credit will be equal to 25% of qualified rehabilitation expenditures for a certified historic structure, defined as a structure listed on the National Register of Historic Places, a Recorded Texas Historic Landmark, or a building contributing to the historic significance of a federal or local historic district. Rehab expenditures must exceed $5,000.

The Texas historic tax credit is to be administered by the Texas Historical Commission (THC), the state historic preservation office, and the state comptroller’s office.

We’re hoping to get the program up and running as soon as we can, said THC official Elizabeth Brummett.

That may take some time, however.

The biggest hurdle we have at this point is that it looks like we may need to request a formal opinion from the state attorney general’s office, says Brummett. There are two conflicting dates in the state law.

The law allows the tax credit for rehabilitation expenditures placed in service on or after September 1, 2013. But the statutory section creating the program doesn’t take effect until January 1, 2015.

As a result, Brummett said THC isn’t sure if it can begin accepting and reviewing applications before 2015. But she noted, I do think we can go ahead and put rules in place in advance of that.

Brummett expected THC and the state comptroller’s office to adopt separate regulations for the program. THC’s rules, she said, are being drafted by THC staff for presentation to the Commission in October. Texas’s rulemaking process, though, requires that such approval be followed by publication of the rules in the Texas Register for public comment.

Brummett expects heavy demand for the new state tax credit for projects in the Dallas area, where we already see a large number of projects for the federal tax credits…But we’re hoping that we see interest in it statewide and in rural communities as well.

Rhode Island Credit

Rhode Island’s state historic tax credit program was recently re-opened under new rules, as the result of a state budget signed July 3. The state Division of Taxation issued an emergency regulation for the program on July 25, opened the application window on August 1, and on August 2 announced it had already received 39 applications requesting $54.2 million in tax credits.

Only $34.5 million in tax credits is available. The Division of Taxation will hold a drawing on August 27 to establish a queue. In general, applications at the front of the queue will be approved for inclusion in the program and be entitled to claim available credits later if the completed applications are approved and sponsors clear certain other hurdles.

Rhode Island’s tax credit is equal to 20% (25% in certain circumstances) of qualified rehab expenditures for certified historic structures placed in service on or after July 3, 2013. The maximum credit amount per project is $5 million.

The state tax credit can be bifurcated from the federal historic tax credit. Rhode Island’s tax credit is a certificate program, but an allocated credit transaction structure is also possible, says Butcher. He said pricing for the state credit will vary by transaction structure but is likely to range from 77 to 85 cents per credit dollar.

The $34.5 million in available tax credits came from recycling historic tax credits previously reserved for projects but not claimed as of May 25, 2013. The previous historic credit program closed in 2008.