Federal Tax Incentives

Recognizing the need for additional sources of funds to complete historic renovations, over 30 states have adopted legislation establishing state historic tax credits. What is often the case a number of states stand out as the best practice states, which include: Massachusetts, Missouri, Connecticut, North Carolina, Maryland, Rhode Island and Virginia. A few are listed below:

In 2003, The State of Massachusetts enacted Section 6J of Chapter 62 and Section 38R of Chapter 63 of the Massachusetts General Laws, the State Historic Rehabilitation Tax Credit Program. In its most simple form, the program mirrors the federal historic tax credit program: the credit is calculated as a percentage of the eligible rehabilitation expenditures and it allows a dollar-for-dollar reduction of Massachusetts state corporate excise and personal income tax liability. It will issue approximately $50MM in tax credits.

The program is administered through the Massachusetts Historical Commission (“MHC”) and requires a three-part application process. Upon completion of the project, the project owner submits its final (part 3) application to MHC for approval and records a restrictive covenant on the land. Upon certification and approval of the part 3 application, the MHC issues a transferable tax credit certificate to the applicant, and the taxpayer who uses the credit attaches the certificate to its Massachusetts income tax return. Once a project is completed, the credits are fully transferable and may be transferred through the completion of a transfer contract and the filing of a transfer statement with the Massachusetts Department of Revenue. Developers often sell credits to third parties to generate funds for completion of a rehabilitation project.

In 2002, The State of Rhode Island unanimously passed Chapter 33.2 of Title 44 of the Rhode Island General Laws, the State Historic Preservation Investment Tax Credit Program. In its most simple form, the program mirrors the federal historic tax credit program, which is a dollar-for-dollar reduction of income tax liability and the credit is calculated as a percentage of the eligible rehabilitation expenditures. In 2008 approximately $65MM in credits were issued.

The program is administered through the Rhode Island Historic Preservation and Heritage Commission (“RIHPHC”) and is a three-part application process. Upon completion of the project, the project owner submits its final application to RIHPHC for approval, records a restrictive covenant on the land and files a cost certification of its project costs with RIHPHC. Upon approval of the part III application by RIHPHC, a certificate is issued and the user of the credit attaches it to the taxpayer’s Rhode Island tax return. The credits are fully transferable and are most often sold by the developer to third parties to generate funds for completion of the project.

In 2006, the State of Connecticut enacted Section 10-416a of the Connecticut General Statutes, Tax Credits for Rehabilitation of Certified Historic Structures, and in 2007 enacted Connecticut General Statutes Section 10-416b, Tax Credits for Rehabilitation of Certified Historic Structures for Mixed-Use or Affordable Housing. In their most simple form, the programs mirror the federal historic tax credit program: the credit is calculated as a percentage of the eligible rehabilitation expenditures and allows a dollar-for-dollar reduction of Connecticut income tax liability. The State issues approximately $50MM in credits per annum.

The programs are administered through the Connecticut Commission on Culture and Tourism (“CCCT”) and require a five-part application process. Upon completion of a project, the project owner submits its final (part 5) application to CCCT, along with a cost certification of its project costs. For certain projects that also create qualified affordable housing units, the applicant must submit in addition a written confirmation from the Connecticut Department of Economic and Community Development that the project qualifies as an affordable housing project and proof of filing a restrictive covenant on the land. Upon approval of the part 5 application, the CCCT issues a tax credit voucher to the applicant, and the taxpayer who uses the credit attaches the voucher to its Connecticut income tax return. The original property owner may transfer the credits by endorsing the voucher to a transferee and filing a transfer notice with the CCCT. Developers often sell credits to third parties to generate funds for completion of a rehabilitation project.

Missouri continues to lead the way with its rehabilitation policy, which currently offers a 25% credit for qualified expenses in rehabilitating commercial and owner-occupied properties listed on the National Register or located in a certified historic district.
Unlike the federal-level rehabilitation tax credit, the Missouri state-level credit includes residential properties – although they comprise only about 3% of all historic tax credit projects in Missouri – into the mix. For commercial projects, the state-level credit can be “stacked” or combined with other federal incentives. Missouri will issue $75MM in tax credits for fiscal 2010 and $140MM thereafter.

Approximately 40 states have adopted film production tax credits as an economic development tool to lure film production companies to their state. Although state programs vary, a number of states stand out as the most desirable based on credit percentage and efficiency. Such states include Connecticut, Massachusetts, Michigan, Iowa, New York and New Mexico. These states have combined for over $800MM in annual tax credits. With the reduction in debt and equity for film production the production companies are dependent on the financing of the tax incentives.