BILL ANALYSIS Ó
AB 1999
Page A
ASSEMBLY THIRD READING
AB 1999 (Atkins)
As Amended May 15, 2014
Majority vote. Tax levy
REVENUE & TAXATION 9-0 APPROPRIATIONS 17-0
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|Ayes:|Bocanegra, Harkey, Beth |Ayes:|Gatto, Bigelow, |
| |Gaines, Gordon, Mullin, | |Bocanegra, Bradford, Ian |
| |Nestande, Pan, Williams, | |Calderon, Campos, |
| |Ting | |Donnelly, Eggman, Gomez, |
| | | |Holden, Jones, Linder, |
| | | |Pan, Quirk, |
| | | |Ridley-Thomas, Wagner, |
| | | |Weber |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Allows a temporary income tax credit for qualified costs
paid or incurred by a taxpayer in rehabilitation of a certified
historic structure, as defined, in modified conformity with the
federal income tax laws, subject to an aggregate annual cap of $100
million. Specifically, this bill :
1)Declares legislative intent to preserve and restore California's
historic buildings, which are an important asset to communities
throughout California, and to create tools to incentivize economic
development and revitalize economically distressed areas.
2)Allows an income tax credit, under both the Personal Income Tax
(PIT) and the Corporation Tax (CT) laws, in an amount equal to 25%
of the qualified rehabilitation expenditures with respect to a
certified historic structure, as defined.
3)Increases the applicable percentage to 30% in the case of a
certified historic structure that meets one of the following
criteria:
a) The structure is located on federal, state, or local surplus
property, as defined;
b) The rehabilitated structure includes affordable housing for
lower-income households, as defined by Health and Safety Code
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Section 50079.5;
c) The structure is located in a designated census tract, as
defined in Revenue and Taxation Code Section 17053.73(b)(7);
d) The structure is a part of a military base reuse authority
established pursuant to Title 7.86 commencing with Section
67800 of the Government Code; or,
e) The structure is a transit-oriented development that is a
higher density, mixed-use development within a walking distance
of one-half mile of a transit station.
4)Allows the credit for taxable years beginning on or after January
1, 2015, and before January 1, 2021.
5)Defines a "certified historic structure" as a structure located in
California and appears on either the National Register of Historic
Places or the California Register of Historical Resources.
6)Authorizes the taxpayer to carry forward the tax credit to the
following tax year, and succeeding seven years, if necessary,
until the credit is exhausted.
7)Disallows any deduction for the amount of paid or incurred by the
taxpayer for which a credit is allowed to the taxpayer.
8)Requires the Governor's Office of Business and Economic
Development (GO-Biz) to do all of the following:
a) On and after January 1, 2015, and before January 1, 2021, to
allocate tax credits to applicants, as provided.
b) Establish a procedure for applicants to file with the GO-Biz
a written application, on a form jointly prescribed by GO-Biz
and the Office of Historic Preservation for the allocation of
the tax credit.
c) Establish criteria for allocating tax credits, consistent
with the requirements of the tax credit program. Criteria
shall include, but not be limited to, all of the following:
i) The number of jobs created by the rehabilitation
project, both during and after the rehabilitation of the
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structure;
ii) The expected increase in state and local tax revenues
derived from the rehabilitation project, including those from
increased wages and property taxes; and,
iii) Any additional incentives or contributions included in
the rehabilitation project from federal, state, or local
governments.
d) Determine and designate, in consultation with the Office of
Historic Preservation, applicants that meet the specified
requirements to ensure that the rehabilitation project upholds
historical values in terms of architectural and aesthetic
standards.
e) Process and approve, or reject, all applications.
f) Allocate an aggregate amount of the tax credits, and any
carryover of unallocated credits from prior years, subject to
the annual cap of $100 million.
g) Certify tax credits allocated to taxpayers.
h) Provide the Franchise Tax Board an annual list of the
taxpayers that were allocated a credit, as specified, including
each taxpayer's taxpayer identification number and the amount
allocated.
9)Limits the total aggregated amount of the tax credit that may be
allocated in any calendar year to $100 million, plus the unused
allocation tax credit amount, if any, for the preceding calendar
year.
10)Provides that the credit shall be allocated to the partners of a
partnership owning the historic rehabilitation project in
accordance with the partnership agreement, regardless of how the
federal historic rehabilitation tax credit, with respect to the
project, is allocated to the partners, or whether the allocation
of the credit under the terms of the agreement has substantial
economic effect, within the meaning of Internal Revenue Code (IRC)
Section 704(b).
11)Requires the Legislative Analyst Office, beginning January 1,
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2016, to collaborate with GO-Biz to review the effectiveness of
the historic building tax credit program.
12)Provides that the review shall include an analysis of the demand
for the tax credit, the types and uses of projects receiving the
tax credit, the jobs created by the use of the tax credit, and the
economic impact of the tax credit.
13)Takes effect immediately as a tax levy.
FISCAL EFFECT : According to the Assembly Appropriations Committee:
1)Potentially significant costs to GO-Biz and the Franchise Tax
Board to develop processes and regulations to administer the
program.
2)This bill creates an aggregate annual cap of $100 million of
credits, the effects of which will phase in over the first few
years of implementation. Estimated General Fund revenue decreases
of $27 million in fiscal year (FY) 2014-15, $75 million in FY
2015-16, and $95 million in FY 2016-17.
COMMENTS : The author has provided the following statement in
support of this bill:
California is one of the few states to not provide an
incentive for the preservation of our historic buildings. A
state tax credit for this purpose would help stimulate local
economies, revitalize downtown areas and communities, promote
and increase the supply of affordable housing, support smart
growth through infill development, encourage property
maintenance and rehabilitation, and leverage use of the
federal rehabilitation tax credit.
Additionally, it would increase construction and building
industry job creation, increase state tax revenues through
increased employment and wages, increase local property tax
revenues through increased property values, and increase
local tax revenues through sales tax and heritage tourism.
AB 1999 helps communities adjust to the phase-out of
redevelopment dollars and stimulates public and private
investment, all while building civic pride as we celebrate
our heritage and preserve California's past.
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Federal Historic Tax Credit (the "HTC"). The Federal Historic
Preservation Tax Incentives Program, created in 1976, is
administered by the National Park Service in partnership with the
State Historic Preservation Office. The goal of the program is to
promote community revitalization and encourage private investment
through historic building rehabilitation.
To qualify for the historic tax credit, a project must satisfy the
requirements of IRC Section 47 and related regulations, as well as
architectural standards regulated by the National Parks Service.
Certification of historic significance is the first step in
establishing eligibility for the HTC. A building must be
individually listed in the national Register of Historic Places or
be certified as contributing to a registered historic district in
order to qualify for the 20% credit. A building that has been
certified as non-significant (i.e., not contributing to a National
Register historic district), but was built before 1936, can qualify
for a 10% tax credit, if it is rehabilitated for income-producing,
non-residential purposes. Second, a developer must submit an
application detailing the plans and specifications for the
rehabilitation. The plans must satisfy the Secretary of Interior
Standards for Rehabilitation.
Once the project is completed, a request for certification of
completion is submitted. If the request is granted, the
rehabilitation is considered a "certified rehabilitation." A
certification of a completed project is issued only when all work
has been finished on the certified historic building. Generally,
the HTC must be claimed in the tax year in which the rehabilitated
building is placed in service. However, the credit may be claimed
before the date the property is placed in service under the rules
for qualified progress expenditures (IRC Section 47(d).) Existing
federal law contains a so-called "recapture provision," which
provides that a portion of the tax credit must be recaptured
(returned to the federal government) if the rehabilitated building
is sold or otherwise ceases to qualify within five years from the
date the building is placed in service.
The Proposed Historic Preservation Tax Credit: a Different Kind of
Credit? This bill creates a historic preservation tax credit
program modeled after the federal HTC. Unlike the federal HTC,
however, the proposed credit is not permanent; it is allowed only
for five taxable years, beginning with the 2015 tax year. This bill
also provides for an increased tax credit rate of 25% and allows an
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additional 5% for certain projects, such as low-income housing; a
transit-oriented development; and a structure located on federal,
state, or local surplus property, in a designated census tract, on a
specified military base. A building that is not included in the
National Register of Historic Places may still qualify for the state
credit if it appears on the California Register of Historical
Resources.
The proposed credit is different from other state tax credits, where
a certain class of individuals or businesses may claim a credit
based on membership in a certain industry or business location. In
contrast to many tax incentives in California, the proposed tax
credit is targeted, is capped at $100 million per calendar year, and
is required to be allocated to taxpayers by the GO-Biz on a
competitive basis. In many respects, the proposed credit is similar
to a grant program. This bill prescribes certain criteria for
GO-Biz to utilize in determining whether a project should be awarded
the state HTC, including the estimated number of jobs and potential
state and local tax revenues to be generated by the project. Thus,
the proposed credit is intended to result in a quantifiable public
benefit. Finally, the Legislative Analyst's Office is required to
review the effectiveness of this tax credit program on an annual
basis. The credit cannot be used after January 1, 2021, and is not
refundable.
How Effective Are Historic Tax Credit Programs in Other States?
Thirty-five states offer state tax incentives of various kinds for
historic preservation rehabilitation projects. In many states, the
income tax credit programs are similar to the federal HTC program.
Several studies conducted by Rutgers University have shown that "in
many parts of the country, $1 million in historic rehabilitation
yields markedly better effects on employment, income? and state and
local taxes than an equal investment in new construction or many
other economic activities (e.g., manufacturing or services)."<1> It
was concluded that states with the strongest historical preservation
tax credit statutes regularly lead the nation in the use of the
federal HTC, which, due to its leverage and multiplier effects,
benefits both state economies and the national economy. For
example, an annual report of the Ohio Historic Preservation tax
credit program states that the $327 million in tax credits approved
are projected to leverage more than $2 billion in private investment
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<1> Annual Report on the Economic Impact of the Federal Historic Tax
Credit for FY 2012, Rutgers University, E. Bloustein School of
Planning and Public Policy, p. 5.
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and federal tax credits, which translates to $6.25 of investment for
every dollar of the state tax credit.<2> The Ohio Historic
Preservation tax credit is capped at $60 million per year and
allocated to applicants. According to a 2011 economic impact study
conducted by Cleveland State University, the $246 million in
approved tax credits is expected to result in nearly $10 billion in
economic activities during the construction period alone between
2007 and 2025. Recognizing the economic impact and job creation of
the program, the Ohio General Assembly renewed the Program in the
state's FY 2012-13 Budget. Similarly, it was found that in
Minnesota and North Carolina, respectively, every dollar of the
state historic tax credit creates $8.32 in economic activity and
$12.51 in economic benefit.
Owner-Occupied Buildings. Under the federal HTC program,
owner-occupied residential buildings are not eligible for the
credit. This bill takes a different approach in that it would allow
both income-producing properties and owner-occupied residential
buildings to qualify for the state tax credit.
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916) 319-2098
FN: 0003640
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<2> Ohio Historic Preservation Tax Credit Program, 2012 Annual
Report, prepared by the Ohio Development Services Agency, the Ohio
Historical Society and the Ohio Department of Taxation, April 2013,
p. 15.