California Legislature—2015–16 Regular Session

Assembly Bill No. 771

Introduced by Assembly Member Atkins

February 25, 2015

An act to add and repeal Sections 38.10, 17053.91, and 23691 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 771, as introduced, Atkins. Personal income and corporation taxes: credits: rehabilitation.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

This bill would allow to a taxpayer that receives a tax credit reservation a credit against those taxes for each taxable year beginning on or after January 1, 2016, and before January 1, 2024, in an amount, determined in modified conformity with a specified section of the Internal Revenue Code, for rehabilitation of certified historic structures and, under the Personal Income Tax Law, for a qualified residence. This bill would provide for a 20% credit, or 25% credit, of qualified rehabilitation expenditures if the structure meets specified criteria, for rehabilitation of a certified historic structure or a qualified residence, as provided, within the state to be reserved and allocated by the California Tax Credit Allocation Committee, which shall consult with the Office of Historic Preservation, as provided and which may adopt a reasonable fee to cover specified expenses. The aggregate amount of credit would be $50,000,000 per calendar year, plus unused allocation tax credit for the preceding year, $10,000,000 of which would be set aside for rehabilitation projects with qualified rehabilitation expenditures of less than $1,000,000, as specified. This bill would require the Legislative Analyst to, on an annual basis, collaborate with the California Tax Credit Allocation Committee to review the tax credit, as provided.

This bill would take effect immediately as a tax levy.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

(a) The Legislature finds and declares that
California’s historic buildings are an important asset to
communities throughout the state, and that the preservation and
restoration of these buildings is important to enhancing civic pride,
increasing tourism, and maintaining vibrant neighborhoods.

(b) The Legislature further finds and declares all of the
following:

(1) The federal Historic Preservation Tax Incentives program,
currently available to California’s income producing historic
properties, has generated nearly $1.5 billion in investment during
the last 10 years.

(2) While 35 states have similar state tax credits or incentives
for historic preservation, no such incentive exists in California.

(3) States that have partnered a state incentive with the federal
Historic Preservation Tax Incentive have reaped significant
economic development benefits, including construction and
building industry job creation, increased state tax revenues through
increased employment and wages, increased local property tax
revenues through increased property values, and increased local
tax revenues through sales taxes and heritage tourism.

(4) Over the last 10 years, California has had 129 projects
qualify for the federal Historic Preservation Tax Incentives
program. These projects have been located in 20 different counties.

(5) As California communities continue to adjust and adapt to
the dissolution of redevelopment agencies, proven tools are still
needed to incentivize economic development and revitalize
economically distressed areas.

SEC. 2.  

Section 38.10 is added to the Revenue and Taxation
Code, to read:

38.10.  

(a) The Legislative Analyst shall, on an annual basis
beginning January 1, 2017, collaborate with the California Tax
Credit Allocation Committee to review the effectiveness of the
tax credits allowed by Sections 17053.91 and 23691 The review
shall include, but is not limited to, 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 credits, and the economic
impact of the tax credits.

(b) It the intent of the Legislature to enact legislation to comply
with the requirements of Section 41.

(c)  This section shall remain in effect only until January 1,
2025, and as of that date is repealed, unless a later enacted statute,
that is enacted before January 1, 2025, deletes or extends that date.

SEC. 3.  

Section 17053.91 is added to the Revenue and Taxation
Code, to read:

17053.91.  

For each taxable year beginning on or after January
1, 2016, and before January 1, 2024, there shall be allowed to a
taxpayer that receives a tax credit reservation a credit against the
“net tax,” as defined in Section 17039, an amount determined in
accordance with Section 47 of the Internal Revenue Code, except
as follows:

(a) (1) In lieu of the percentages specified in Section 47(a) of
the Internal Revenue Code, except as provided in paragraph (2),
the applicable percentage shall be 20 percent of the qualified
rehabilitation expenditures with respect to a certified historic
structure.

(2) The applicable percentage shall be 25 percent of the qualified
rehabilitation expenditures with respect to a certified historic
structure if that certified historic structure meets one of the
following criteria:

(A) The rehabilitated structure is located on federal surplus
property, if obtained by a local agency under Section 54142 of the
Government Code, on surplus state real property, as defined by
Section 11011.1 of the Government Code, or on surplus land, as
defined by subdivision (b) of Section 54221 of the Government
Code.

(B) The rehabilitated structure includes affordable housing for
lower-income households, as defined by Section 50079.5 of the
Health and Safety Code.

(C) The structure is located in a designated census tract, as
defined in paragraph (7) of subdivision (b) of Section 17053.73.

(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.

(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.

(3) (A) The credit shall be allowed for qualified rehabilitation
expenditures for a qualified residence determined by the California
Tax Credit Allocation Committee and the Office of Historic
Preservation to have a public benefit in the year of completion in
the percentages specified in paragraphs (1) and (2), as applicable,
except that the credit shall only be allowed in an amount equal to
or more than five thousand dollars ($5,000) but not exceeding
twenty-five thousand dollars ($25,000). A taxpayer shall only be
allowed a credit pursuant to this paragraph once every 10 taxable
years.

(B) Section 47(c)(1)(C)(ii) of the Internal Revenue Code,
relating to special rule for phased rehabilitation, shall not apply.

(b) For purposes of this section, the following definitions shall
apply:

(1) “Certified historic structure” has the same meaning as
defined in Section 47(c)(3) of the Internal Revenue Code and
additionally means a structure in this state that is listed on the
California Register of Historical Resources.

(2) “Qualified residence” has the same meaning as that term is
defined in Section 163(h)(4) of the Internal Revenue Code, that
will be owned and occupied by an individual taxpayer who has a
modified adjusted gross income, as defined by Section 86(b)(2)
of the Internal Revenue Code, of two hundred thousand dollars
($200,000) or less, as the taxpayer’s principal residence or what
will be the taxpayer’s principal residence within two years after
the rehabilitation of the residence.

(3) (A) “Qualified rehabilitation expenditure” has the same
meaning as that term is defined in Section 47(c) of the Internal
Revenue Code, except that qualified rehabilitation expenditures
may include expenditures in connection with the rehabilitation of
a building without regard to whether any portion of the building
is or is reasonably expected to be tax-exempt use property.

(B) “Qualified rehabilitation expenditure” also means
rehabilitation expenditures incurred by the taxpayer with respect
to a qualified residence for the rehabilitation of the exterior of the
building or rehabilitation necessary for the functioning of the home,
including, but not limited to, rehabilitation of the electrical,
plumbing, or foundation of the qualified residence.

(c) (1) To be eligible for the credit allowed by this section, a
taxpayer shall request a tax credit reservation from the California
Tax Credit Allocation Committee, in the form and manner
prescribed by the California Tax Credit Allocation Committee.

(2) To obtain a tax credit reservation, the taxpayer shall provide
necessary information, as determined by the California Tax Credit
Allocation Committee.

(3) A tax credit reservation provided to a taxpayer shall not
constitute a determination by the California Tax Credit Allocation
Committee with respect to any of the requirements of this section
regarding a taxpayer’s eligibility for the credit authorized by this
section.

(4) If a taxpayer receives a tax credit reservation but
rehabilitation has not commenced within 18 months of the issuance
of the tax credit reservation, the tax credit reservation shall be
forfeited and the credit amount associated with the tax credit
reservation shall be treated as an unused allocation tax credit
amount.

(d) A deduction shall not be allowed under this part for any
expense for which a credit is allowed by this section.

(e) If a credit is allowed under this section with respect to any
property, the basis of that property shall be reduced by the amount
of the credit allowed.

(f) In the case where the credit allowed by this section exceeds
the “net tax,” the excess may be carried over to reduce the “net
tax” in the following year, and the seven succeeding years, if
necessary, until the credit is exhausted.

(g) For purposes of this section, the California Tax Credit
Allocation Committee shall do the following:

(1) On and after January 1, 2016, and before January 1, 2024,
reserve and allocate tax credits to applicants.

(2) Establish a procedure for applicants to file with the California
Tax Credit Allocation Committee a written application, on a form
jointly prescribed by that office and the Office of Historic
Preservation for the reservation of the tax credit.

(3)  Establish criteria consistent with the requirements of this
section, for reserving tax credits. A taxpayer shall not receive a
tax credit reservation unless the following criteria are met. Criteria
shall include, but are not limited to, the following:

(A) The number of jobs created by the rehabilitation project,
both during and after the rehabilitation of the structure.

(B) The expected increase in state and local tax revenues derived
from the rehabilitation project, including those from increased
wages and property taxes.

(C) Any additional incentives or contributions included in the
rehabilitation project from federal, state, or local governments.

(D) For the qualified rehabilitation expenditures with respect
to a qualified residence, the rehabilitation has a public benefit, as
determined jointly with the Office of Historic Preservation.

(4) Determine and designate, in consultation with the Office of
Historic Preservation, applicants that meet the requirements of this
section to ensure that the rehabilitation project meets the Secretary
of the Interior’s Standards for Rehabilitation, as found in Part 67
of Title 36 of the Code of Federal Regulations.

(5)  Process and approve, or reject, all tax credit reservation
applications.

(6) (A) Subject to the annual cap established as provided in
subdivision (h), allocate an aggregate amount of credits under this
section and Section 23691, and allocate any carryover of
unallocated credits from prior years.

(B) A taxpayer shall be allocated a tax credit pursuant to the
taxpayer’s tax credit reservation upon receipt by the California
Tax Credit Allocation Committee of a cost certification for the
qualified rehabilitation expenditures. For projects with qualified
rehabilitation expenditures in excess of two hundred fifty thousand
dollars ($250,000), the cost certification shall be issued by a
licensed certified public accountant.

(7) Certify tax credits allocated to taxpayers.

(8) Provide the Franchise Tax Board an annual list of the
taxpayers that were allocated a credit pursuant to this section and
Section 23691, including each taxpayer’s taxpayer identification
number, and the amount allocated to each taxpayer.

(h) (1) The aggregate amount of credits that may be allocated
in any calendar year pursuant to this section and Section 23691
shall be an amount equal to the sum of all of the following:

(A) Fifty million dollars ($50,000,000) in tax credits for the
2016 calendar year and each calendar year thereafter, through and
including the 2023 calendar year.

(B) The unused allocation tax credit amount, if any, for the
preceding calendar year.

(2) Notwithstanding the foregoing, the California Tax Credit
Allocation Committee shall set aside ten million dollars
($10,000,000) of tax credits each calendar year for taxpayers with
qualified rehabilitation expenditures of less than one million dollars
($1,000,000). To the extent that this amount is not fully reserved
in any calendar year, the unused portion shall become available
for reservation to other taxpayers.

(i) In the case of any application for tax credits by an entity
treated as a partnership or “S” corporation for income tax purposes:

(1) (A) Credits awarded to a partnership shall be allocated to
the partners of that partnership 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
partnership agreement has substantial economic effect, within the
meaning of Section 704(b) of the Internal Revenue Code.

(B) To the extent the allocation of the credit to a partner under
this section lacks substantial economic effect, any loss or deduction
otherwise allowable under this part that is attributable to the sale
or other disposition of that partner’s partnership interest made prior
to the expiration of the tax credit recapture period for the project
described in subparagraph (A) shall not be allowed in the taxable
year in which the sale or other disposition occurs, but shall instead
be deferred until, and treated as if, it occurred in the first taxable
year immediately following the taxable year in which the tax credit
recapture period expires for the project described in subparagraph
(A). The credits awarded to a partnership shall be allocated to the
partners of that partnership in accordance with the partnership
agreement.

(2) Credits awarded to an “S” corporation shall be allocated
among the shareholders of that “S” corporation pro rata in
accordance with their respective pro rata shares, determined in
accordance with Subchapter S of Chapter 1 of the Internal Revenue
Code and the regulations promulgated thereunder.

(j) Section 183 of the Internal Revenue Code shall not apply
with respect to the credit allowed by this section.

(k) For purposes of this section, the provisions of subsection
(a) of Section 50 of the Internal Revenue Code shall apply.

(l) Notwithstanding any other provision of this part, a credit
allowed pursuant to this section may reduce the tax imposed under
Section 17041 or 17048 plus the tax imposed under Section 17504,
relating to the separate tax on lump-sum distributions, below the
tentative minimum tax.

(m) This section shall remain in effect regardless of the
expiration or repeal of Section 47 of the Internal Revenue Code,
relating to rehabilitation credit.

(n) The California Tax Credit Allocation Committee may adopt
a reasonable fee in an amount sufficient to cover the expenses
incurred by the California Tax Credit Allocation Committee and
the Office of Historic Preservation in fulfilling the responsibilities
described in paragraphs (4) and (5) of subdivision (g) and
paragraphs (4) and (5) of subdivision (g) of Section 23691

(o) This section shall remain in effect only until December 1,
2024, and as of that date is repealed.

SEC. 4.  

Section 23691 is added to the Revenue and Taxation
Code, to read:

23691.  

For each taxable year beginning on or after January 1,
2016, and before January 1, 2024, there shall be allowed to a
taxpayer that receives a tax credit reservation a credit against the
“tax,” as defined in Section 23036, an amount determined in
accordance with Section 47 of the Internal Revenue Code, except
as follows:

(a) (1) In lieu of the percentages specified in Section 47(a) of
the Internal Revenue Code, except as provided in paragraph (2),
the applicable percentage shall be 20 percent of the qualified
rehabilitation expenditures with respect to a certified historic
structure.

(2) The applicable percentage shall be 25 percent of the qualified
rehabilitation expenditures with respect to a certified historic
structure if that certified historic structure meets one of the
following criteria:

(A) The rehabilitated structure is located on federal surplus
property, if obtained by a local agency under Section 54142 of the
Government Code, on surplus state real property, as defined by
Section 11011.1 of the Government Code, or on surplus land, as
defined by subdivision (b) of Section 54221 of the Government
Code.

(B) The rehabilitated structure includes affordable housing for
lower-income households, as defined by Section 50079.5 of the
Health and Safety Code.

(C) The structure is located in a designated census tract, as
defined in paragraph (7) of subdivision (b) of Section 17053.73.

(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.

(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.

(b) For purposes of this section, the following definitions shall
apply:

(1) “Certified historic structure” has the same meaning as
defined in Section 47(c)(3) of the Internal Revenue Code and
additionally means a structure in this state that is listed on the
California Register of Historical Resources.

(2) “Qualified rehabilitation expenditure” has the same meaning
as that term is defined in Section 47(c) of the Internal Revenue
Code, except that qualified rehabilitation expenditures may include
expenditures in connection with the rehabilitation of a building
without regard to whether any portion of the building is or is
reasonably expected to be tax exempt use property.

(c) (1) To be eligible for the credit allowed by this section, a
taxpayer shall request a tax credit reservation from the California
Tax Credit Allocation Committee, in the form and manner
prescribed by the California Tax Credit Allocation Committee.

(2) To obtain a tax credit reservation, the taxpayer shall provide
necessary information, as determined by the California Tax Credit
Allocation Committee.

(3) A tax credit reservation provided to a taxpayer shall not
constitute a determination by the California Tax Credit Allocation
Committee with respect to any of the requirements of this section
regarding a taxpayer’s eligibility for the credit authorized by this
section.

(4) If a taxpayer receives a tax credit reservation but
rehabilitation has not commenced within 18 months of the issuance
of the tax credit reservation, the tax credit reservation shall be
forfeited and the credit amount associated with the tax credit
reservation shall be treated as an unused allocation tax credit
amount.

(d) A deduction shall not be allowed under this part for any
expense for which a credit is allowed by this section.

(e) If a credit is allowed under this section with respect to any
property, the basis of that property shall be reduced by the amount
of the credit allowed.

(f) In the case where the credit allowed by this section exceeds
the “tax,” the excess may be carried over to reduce the “tax” in
the following year, and the seven succeeding years, if necessary,
until the credit is exhausted.

(g) For purposes of this section, the California Tax Credit
Allocation Committee shall do the following:

(1) On and after January 1, 2016, and before January 1, 2024,
reserve and allocate tax credits to applicants.

(2) Establish a procedure for applicants to file with the California
Tax Credit Allocation Committee a written application, on a form
jointly prescribed by that office and the Office of Historic
Preservation for the reservation of the tax credit.

(3)  Establish criteria consistent with the requirements of this
section, for reserving tax credits. A taxpayer shall not receive a
tax credit reservation unless the following criteria are met. Criteria
shall include, but are not limited to, the following:

(A) The number of jobs created by the rehabilitation project,
both during and after the rehabilitation of the structure.

(B) The expected increase in state and local tax revenues derived
from the rehabilitation project, including those from increased
wages and property taxes.

(C) Any additional incentives or contributions included in the
rehabilitation project from federal, state, or local governments.

(4) Determine and designate, in consultation with the Office of
Historic Preservation, applicants that meet the requirements of this
section to ensure that the rehabilitation project meets the Secretary
of the Interior’s Standards for Rehabilitation, as found in Part 67
of Title 36 of the Code of Federal Regulations.

(5)  Process and approve, or reject, all tax credit reservation
applications.

(6) (A) Subject to the annual cap established as provided in
subdivision (h), allocate an aggregate amount of credits under this
section and Section 17053.91, and allocate any carryover of
unallocated credits from prior years.

(B) A taxpayer shall be allocated a tax credit pursuant to the
taxpayer’s tax credit reservation upon receipt by the California
Tax Credit Allocation Committee of a cost certification for the
qualified rehabilitation expenditures. For projects with qualified
rehabilitation expenditures in excess of two hundred fifty thousand
dollars ($250,000), the cost certification shall be issued by a
licensed certified public accountant.

(7) Certify tax credits allocated to taxpayers.

(8) Provide the Franchise Tax Board an annual list of the
taxpayers that were allocated a credit pursuant to this section and
Section 17053.91 including each taxpayer’s taxpayer identification
number, and the amount allocated to each taxpayer.

(h) (1) The aggregate amount of credits that may be allocated
in any calendar year pursuant to this section and Section 17053.91
shall be an amount equal to the sum of all of the following:

(A) Fifty million dollars ($50,000,000) in tax credits for the
2016 calendar year and each calendar year thereafter, through and
including the 2023 calendar year.

(B) The unused allocation tax credit amount, if any, for the
preceding calendar year.

(2) Notwithstanding the foregoing, the California Tax Credit
Allocation Committee shall set aside ten million dollars
($10,000,000) of tax credits each calendar year for taxpayers with
qualified rehabilitation expenditures of less than one million dollars
($1,000,000). To the extent that this amount is not fully reserved
in any calendar year, the unused portion shall become available
for reservation to other taxpayers.

(i) In the case of any application for tax credits by an entity
treated as a partnership or “S” corporation for income tax purposes:

(1) (A) Credits awarded to a partnership shall be allocated to
the partners of that partnership 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
partnership agreement has substantial economic effect, within the
meaning of Section 704(b) of the Internal Revenue Code.

(B) To the extent the allocation of the credit to a partner under
this section lacks substantial economic effect, any loss or deduction
otherwise allowable under this part that is attributable to the sale
or other disposition of that partner’s partnership interest made prior
to the expiration of the tax credit recapture period for the project
described in subparagraph (A) shall not be allowed in the taxable
year in which the sale or other disposition occurs, but shall instead
be deferred until, and treated as if, it occurred in the first taxable
year immediately following the taxable year in which the tax credit
recapture period expires for the project described in subparagraph
(A). The credits awarded to a partnership shall be allocated to the
partners of that partnership in accordance with the partnership
agreement.

(2) Credits awarded to an “S” corporation shall be allocated
among the shareholders of that “S” corporation pro rata in
accordance with their respective pro rata shares, determined in
accordance with Subchapter S of Chapter 1 of the Internal Revenue
Code and the regulations promulgated thereunder.

(j) Section 183 of the Internal Revenue Code shall not apply
with respect to the credit allowed by this section.

(k) For purposes of this section, the provisions of subsection
(a) of Section 50 of the Internal Revenue Code shall apply.

(l) Notwithstanding any other provision of this part, a credit
allowed pursuant to this section may reduce the “tax” below the
tentative minimum tax, as defined by paragraph (1) of subdivision
(a) of Section 23455.

(m) This section shall remain in effect regardless of the
expiration or repeal of Section 47 of the Internal Revenue Code,
relating to rehabilitation credit.

(n) The California Tax Credit Allocation Committee may adopt
a reasonable fee in an amount sufficient to cover the expenses
incurred by the California Tax Credit Allocation Committee and
the Office of Historic Preservation in fulfilling the responsibilities
described in paragraphs (4) and (5) of subdivision (g) and
paragraphs (4) and (5) of subdivision (g) of Section 17053.91.

(o) This section shall remain in effect only until December 1,
2024, and as of that date is repealed.

SEC. 5.  

This act provides for a tax levy within the meaning
of Article IV of the Constitution and shall go into immediate effect.