SB262 By Senators Waggoner, Blackwell, Marsh, Holley, McClendon, Glover, Shelnutt, Livingston, Albritton, Stutts, Coleman-Madison, Dunn, Beasley, Smitherman, Ward, Hightower, Whatley, Reed, Allen, Holtzclaw, Scofield, Dial, Brewbaker, Sanders, Bussman, Williams, Melson, Chambliss and Singleton RFD Finance and Taxation Education Rd 1 28-FEB-17

SYNOPSIS: Under current law, the state tax credit program for the rehabilitation, preservation, or development of certified historic structures expired in calendar year 2016.

This bill would establish a new income tax credit against the tax liability of the taxpayer for the rehabilitation, preservation, or development of certified historic structures.

A BILL TO BE ENTITLED AN ACT

To provide an income tax credit against the tax liability of the taxpayer for the rehabilitation, preservation, and development of historic structures.

BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:

Section 1. This chapter shall apply to qualified structures throughout the State of Alabama.

Section 2. As used in this chapter, the following terms shall have the following meanings:

(1) CERTIFIED HISTORIC STRUCTURE. A property located in Alabama which is certified by the Alabama Historical Commission as being individually listed in the National Register of Historic Places, eligible for listing in the National Register of Historic Places, or certified by the Commission as contributing to the historic significance of a Registered Historic District.

(2) CERTIFIED REHABILITATION. Repairs or alterations to a certified historic structure that is certified by the Commission as meeting the U.S. Secretary of the Interior's Standards for Rehabilitation which meet the requirements contained in Section 47(c)(2)(C) of the Internal Revenue Code, as amended, or to a certified historic residential structure as defined in subdivision (3).

(3) CERTIFIED HISTORIC RESIDENTIAL STRUCTURE. A certified historic structure as defined in subdivision (1).

(4) COMMISSION. The Alabama Historical Commission and or its successor.

(5) COMMITTEE. The Historic Tax Credit Evaluating Committee established by this act.

(6) DEPARTMENT. The Alabama Department of Revenue or its successor.

(7) OWNER. Any taxpayer filing a State of Alabama tax return for corporate or individual income tax or any entity that is exempt from federal income taxation pursuant to Section 501(c) of the Internal Revenue Code, as amended, that:

a. owns title to a qualified structure, or

b. owns a leasehold interest in a qualified structure for a term of not less than 39 years.

An owner as defined herein shall not be considered a private user under this Title.

(8) QUALIFIED REHABILITATION EXPENDITURES. Any expenditure as defined under Section 47(c)(2)(A) of the Internal Revenue Code, as amended, and the related regulations thereunder, and other reasonable expenses and costs expended in the rehabilitation of a qualified structure. For certified historic residential structures, this term shall mean expenses incurred by the taxpayer in the certified rehabilitation of a certified historic residential structure, including but not limited to preservation and rehabilitation work done to the exterior of a certified historic residential structure, repair and stabilization of historic structural systems, restoration of historic plaster, energy efficiency measures except insulation in frame walls, repairs or rehabilitation of heating, air conditioning, or ventilation systems, repairs or rehabilitation of electrical or plumbing systems exclusive of new electrical appliances and electrical or plumbing fixtures, and architectural, engineering, and land surveying fees. Qualified rehabilitation expenditures do not include the cost of acquisition of the qualified structure, the personal labor by the owner, or any cost associated with the rehabilitation of an outbuilding of the qualified structure, unless the outbuilding is certified by the Commission to contribute to the historical significance of the qualified structure.

(9) QUALIFIED STRUCTURE. Certified historic structures which are certified by the Commission as meeting the requirements contained in Section 47(c)(1)(A)(i) and (ii) of the Internal Revenue Code, as amended, and to certified historic residential structures as defined herein.

(10) REGISTERED HISTORIC DISTRICT. Any district listed in the National Register of Historic Places and any district which is either of the following:

a. Designated under Alabama or local law as containing criteria which substantially achieves the purpose of preserving and rehabilitating buildings of historic significance to the district.

b. Certified by the U.S. Secretary of the Interior as meeting substantially all of the requirements for the listing of districts in the National Register of Historic Places.

(11) REHABILITATION PLAN. Construction plans and specifications for the proposed rehabilitation of a qualified structure in sufficient detail to enable the Commission to evaluate compliance with the standards developed under this chapter.

(12) SUBSTANTIAL REHABILITATION. Rehabilitation of a qualified structure for which the qualified rehabilitation expenditures exceed 50 percent of the owner’s original purchase price of the qualified structure or twenty-five thousand dollars ($25,000), whichever is greater.

Section 3. (a) The Commission shall develop standards for the approval of the substantial rehabilitation of qualified structures for which a tax credit is sought. The standards shall take into account whether the substantial rehabilitation of a qualified structure is consistent with the historic character of the structure or of the Registered Historic District in which the property is located.

(b) Prior to beginning any substantial rehabilitation work on a qualified structure, the owner shall submit an application and rehabilitation plan to the Commission and an estimate of the qualified rehabilitation expenditures under the rehabilitation plan; provided, however, that the owner, at its own risk, may incur qualified rehabilitation expenditures no earlier than six months prior to the submission of the application and rehabilitation plan that are limited to architectural, engineering, and land surveying fees and related soft costs and any costs related to the protection of the qualified structure from deterioration.

(c) The Commission shall review the application and rehabilitation plan to determine that the information contained therein is complete. If the Commission determines that the application and rehabilitation plan are complete, the Commission shall recommend the project to the Committee for the reservation of a tax credit. If the project is approved for a tax credit by the Committee, the Commission shall reserve, for the benefit of the owner, an allocation for a tax credit as provided in Section 4 of this act, and the Commission shall notify the owner in writing of the amount of the reservation. The reservation of tax credits does not entitle the owner to an issuance of tax credits until the owner complies with all other requirements of this chapter for the issuance of the tax credits. The reservation of tax credits shall be made by the Commission in the order in which the Committee has ranked completed applications and rehabilitation plans. Reservations of tax credits shall be issued by the Commission within a reasonable time from the filing of a completed application and rehabilitation plan. Only the property for which a property address, legal description, or other specific location is provided in the application shall be reviewed. Ownership of an entity that is the owner of property contained in the application shall not be a factor in the Commission's review of the application and no subsequent change in the ownership structure of such entity shall result in the loss or rescission of a reservation of tax credits. The owner shall not be permitted to request the review of another property for approval in the place of the property contained in the application. Any application disapproved by the Commission or the Committee shall be removed from the review process, and the Commission shall notify the owner in writing of the decision to remove the application. A disapproved application may be resubmitted, but shall be deemed to be a new submission and may be charged a new application fee. In the event the reservations of tax credits equal the total amount available for reservations during the tax year, all owners with applications then awaiting approval or thereafter submitted shall be notified by the Commission that no additional tax credits shall be granted during that tax year. The applications shall remain in active status from the date of the original application and shall be considered for recommendations of tax credits in the event that additional credits become available due to recission by the Committee or when a new tax year's allocation of tax credits becomes available.

Owners receiving a reservation of tax credits shall commence rehabilitation, if rehabilitation has not previously begun, within 18 months of the date of issuance of the written notice from the Committee to the owner granting the tax credits. "Commencement of rehabilitation" shall mean that, as of the date in which actual physical work contemplated by the rehabilitation plan submitted with the application has begun, the owner has incurred no less than 20 percent of the estimated costs of rehabilitation provided in the application. Within 36 months of the date of issuance of the written notice from the Commission to the owner granting the tax credit reservation, the owner must have incurred an additional 50 percent of the estimated costs of rehabilitation provided in the application. Within 60 months of the date of issuance of the written notice from the Commission to the owner granting the tax credit reservation, the project must be completed. Owners receiving a reservation of tax credits shall submit evidence of compliance with the provisions of this subsection. If the Commission determines that an owner has failed to comply with the requirements provided under this section, the reservation of tax credits for the owner may be rescinded and, if so, the amount of tax credits shall then be included in the total amount of available tax credits provided for in subsection (c) of Section 4 of this act, from which reservations may be granted. Any owner whose reservation of tax credits shall be rescinded shall be notified of the rescission from the Commission and, upon receipt of the notice, may submit a new application but may be charged a new application fee.

(d) Following the completion of a substantial rehabilitation of a qualified structure, the owner shall notify the Commission that the substantial rehabilitation has been completed and shall certify the qualified rehabilitation expenditures incurred with respect to the rehabilitation plan. In addition, the owner shall provide the Commission with: (i) a cost and expense certification, prepared by a licensed certified public accountant that is not an affiliate of the owner, certifying the total qualified rehabilitation expenditures and the total amount of tax credits against any state tax due that is specified in this chapter for which the owner is eligible under Section 4 of this act and, if the qualified rehabilitation expenditures exceed two hundred thousand dollars ($200,000), the cost and expense certification must be audited by the licensed certified public accountant; and (ii) an appraisal of the qualified structure prepared by an independent MAI designated and licensed real estate appraiser. The Commission shall review the documentation of the rehabilitation and verify its compliance with the rehabilitation plan. The Commission shall also review the content of the cost and expense certification as well as the appraisal to ensure compliance with standards adopted by rule of the Commission. Within 90 days after receipt and approval of the foregoing documentation from the owner, the Commission shall issue a tax credit certificate in an amount equivalent to the lesser of: (i) the amount of the tax credit reservation issued for the project under the provisions of subsection (c), or (ii) 25 percent of the actual qualified rehabilitation expenditures for certified historic structures. In the event the amount of qualified rehabilitation expenditures incurred by the owner would result in the issuance of an amount of tax credits in excess of the amount of tax credits reserved for the owner under subsection (c), the owner may apply to the Commission for issuance of tax credits in an amount equal to the excess. Applications for issuance of tax credits in excess of the amount of tax credits reserved for the owner shall be made on a form prescribed by the Commission and shall represent a separate certificate that shall be issued, subject to all provisions regarding priority provided in this section.

(e) In order to obtain a credit against any state tax due that is specified in this chapter, a taxpayer shall file the tax credit certificate with the taxpayer's Alabama state tax return.

(f) The Department shall grant a tax credit against any state tax due that is specified in this chapter to a taxpayer holding the tax credit certificate issued under subsection (d) or, in the case of a transferee, issued by the Department pursuant to Section 4 of this act against any tax due under Chapter 18 in the amount stated on the tax credit certificate. The Department shall have the right to audit and to reassess any credit improperly obtained by the owner, in accordance with the Taxpayers' Bill of Rights and the Uniform Revenue Procedures contained in Chapter 2A; provided, however that only the owner initially awarded the tax credit certificate, and not any subsequent transferee of the tax credit certificate or person to whom tax credits have been passed through pursuant to Section 4 of this act, shall be liable for any credit improperly obtained by the owner.

(g) For processing the taxpayer’s application for a tax credit, the Commission may impose the following application fees:

(i) For qualified rehabilitation expenses of one –million dollars ($1,000,000) or less, a fee equal to one percent (1%) of the qualified rehabilitation expenditures.

(ii) For qualified rehabilitation expenses from one –million and one dollars ($1,000,001) to ten million dollars ($10,000,000), a fee equal to fifteen thousand dollars ($15,000).

(iii) For qualified rehabilitation expenses over ten million dollars ($10,000,000), a fee equal to twenty thousand dollars ($20,000).

(iv) Any fees collected by the Commission under this section shall be deposited in the State Treasury to the credit of the Commission and all such funds are to be appropriated to the Commission to defray the expenses incurred in carrying out the provisions of this act.

(h) The Commission shall, in consultation with the Department, report to the Legislature in the third year following passage of this chapter, and annually thereafter, on the overall economic activity, usage, and impact to the state from the substantial rehabilitation of qualified structures for which tax credits have been allowed.

Section 4. (a) The state portion of any tax credit against the tax imposed by Chapters 16 and 18, for the taxable year in which the certified rehabilitation is placed in service, shall be equal to 25 percent of the qualified rehabilitation expenditures for certified historic structures. No tax credit claimed for any certified rehabilitation may exceed five million dollars ($5,000,000) for all allowable property types except a certified historic residential structure, and fifty thousand dollars ($50,000) for a certified historic residential structure.

(b) There is created within the Education Trust Fund a separate account named the Historic Preservation Income Tax Credit Account. The Commissioner of Revenue shall certify to the Comptroller the amount of income tax credits under this section and the Comptroller shall transfer into the Historic Preservation Income Tax Credit Account only the amount from sales tax revenues within the Education Trust Fund that is sufficient for the Department of Revenue to use to cover the income tax credits for the applicable tax year. The Commissioner of Revenue shall distribute the funds in the Historic Preservation Income Tax Credit Account pursuant to this section.

(c) The entire tax credit must be claimed by the taxpayer in the taxable year in which the certified rehabilitation is placed in service. Where the taxes owed by the taxpayer are less than the tax credit, the taxpayer shall be entitled to claim a refund for the difference.

(d) For the tax years 2018 through 2027, the aggregate amount of all tax credits that may be reserved in any one of such years by the Commission and certification of rehabilitation plans under subsection (c) of Section 3 shall not exceed twenty million dollars ($20,000,000) plus any amount of previous reservations of tax credits that were rescinded under subsection (c) of Section 3 of this act during the tax year. However, if all of the allowable tax credit amount for any tax year is not requested and reserved, any unreserved tax credits may be utilized by the Commission in awarding tax credits in subsequent years; provided, however, that in no event shall a total of more than two-hundred million dollars ($200,000,000) be reserved by the Commission during the period from the effective date of this act through December 31, 2027. For purposes of this chapter, "tax year" shall mean the calendar year.

(e) Tax credits granted to a partnership, a limited liability company, S Coporations, trusts, or estates, shall be claimed at the entity level and shall not pass through to the partners, members, or owners.

(f) All or any portion of the income tax credits under this section and Sections 3 of this act shall be transferable and assignable, subject to any notice and verification requirements to be determined by the Department, without the requirement of transferring any ownership interest in the qualified structure or any interest in the entity which owns the qualified structure. Any tax credits transferred shall be at a value of at least eighty-five percent (85%) of the present value of the credits. However, once a credit is transferred, only the transferee may utilize such credit and the credit cannot be transferred again. A transferee of the tax credits may use the amount of tax credits transferred to offset any income tax under Chapter 18 of Title 40. The Department shall promulgate a form transfer statement to be filed by the transferor with the Department prior to the purported transfer of any credit issued under this chapter. The transfer statement form shall include the name and federal taxpayer identification number of the transferor and each transferee listed therein along with the amount of the tax credit to be transferred to each transferee listed on the form. The transfer statement form shall also contain such other information as the Department may from time to time reasonably require. For each transfer, the transferor shall file (1) a completed transfer statement form; (2) a copy of the tax credit certificate issued by the Commission documenting the amount of tax credits which the transferor intends to transfer; (3) a copy of the proposed written transfer agreement; and (4) a transfer fee payable to the Department in the amount of one thousand dollars ($1,000) per transferee listed on the transfer statement form. The transferor shall file with the Department a fully executed copy of the written transfer agreement with each transferee within 30 days after the completed transfer. Filing of the written transfer agreement with the Department shall perfect such transfer with respect to such transferee. Within 30 days after the Department's receipt of the fully executed written transfer agreement, the Department shall issue a tax credit certificate to each transferee listed in such agreement in the amount of the tax credit so transferred. Such certificate shall be used by the transferee in claiming the tax credit pursuant to Section 3(e) and (f) of this act. The Department may promulgate such additional rules as are necessary to permit verification of the ownership of the tax credits but shall not promulgate any rules which unduly restrict or hinder the transfer of the tax credits.

Section 5. (a) Recapture of any of the credit shall apply against the taxpayer who utilizes the credit, and any required adjustments to basis due to recapture, shall be governed by Section 50 of the Internal Revenue Code.

(b) In the taxable year the certified rehabilitation is placed in service for any structure for which a tax credit has been issued, the Commission shall provide notice of the certified rehabilitation and a copy of the appraisal provided by the owner to the taxing authority responsible for the assessment of ad valorem taxes. Upon notification, the taxing authority responsible for the assessment of ad valorem taxes shall complete a new assessment for the structure to be used in the assessment of ad valorem taxes for the tax year in which the certified rehabilitation was placed in service.

Section 6. Owners or their duly authorized representatives may appeal any state official decision, including all preliminary or final reservations, approvals, and denials, made by the Commission, Committee or the Department with regard to an application and rehabilitation plan submitted under Section 3 of this act, in accordance with the Alabama Administrative Procedure Act contained in Chapter 22 of Title 41. Appeals shall constitute an administrative review of the decision appealed from and shall not be conducted as an adjudicative proceeding. Appeals shall be submitted within 30 days of receipt by the owner or the owner's duly authorized representative of the decision that is the subject of the appeal.

Section 7. The tax credits authorized by this chapter for the substantial rehabilitation of qualified structures shall not be available to owners of qualified structures that submit an application and rehabilitation plan after December 31, 2027. No action or inaction on the part of the Legislature shall reduce or suspend the tax credits authorized by this chapter in any past or future calendar year with respect to a qualified structure if the owner thereof submits an application and rehabilitation plan with the Commission and the Commission reserves an allocation for a tax credit on or prior to December 31, 2027, even if the qualified structure is placed into service after December 31, 2027, and shall not affect the owner of a qualified structure if the commission has reserved an allocation for a tax credit on or prior to December 31, 2027.

Section 8. The Commission shall promulgate by October 31, 2017, any and all rules and regulations necessary to implement the provisions of this chapter. Applications for the reservation of tax credits shall be accepted beginning January 1, 2018.

Section 9. (a) There is hereby established the Historic Tax Credit Evaluating Committee, which shall review qualifying projects, approve credits for projects, and rank projects in the order in which the projects should receive tax credit reservations based on criteria established by the Commission. The Committee shall meet by the sistieth day of each quarter for the purpose of evaluating all applications for projects submitted to and approved by the Commission by the thirtieth day of that quarter and allocating tax credits available pursuant to this act. The Commissioner of Revenue shall be a non-voting member of the Committee and provide advisory and technical support. The Committee shall consist of the following:

(1) Director of the Governor's Office of Minority Affairs;

(2) The Executive Director of the Alabama Historic Commission;

(3) The Finance Director;

(4) The Director of the Alabama Department of Economic and Community Affairs;

(5) The Secretary of Commerce;

(6) Two members of the Alabama House of Representatives, at least one of which shall be a member of the minority party, to be appointed by the Speaker of the House of Representatives; and

(7) Two members of the Alabama Senate, at least one of which shall be a member of the minority party, to be appointed by the President Pro Tem of the Senate.

(b) The Alabama Historic Commission shall promulgate rules that shall set forth guidelines to be utilized by the Committee in determining the allocation of credits. The guidelines shall set forth factors to be considered by the Committee including: relative value of the proposed project to the particular community, including the maintenance of the historic fabric of the community; possible return on investment for the community in which the proposed project is located; the geographic distribution of projects; and strength of local support for the proposed project. Included in the information to be required for the evaluation of any project shall be any additional tax credits or state, federal, or local government grants that the applicant expects to utilize for the construction of the project.

Section 10. The provisions of this act are severable. If any part of this act is declared invalid or unconstitutional, that declaration shall not affect the part which remains.