S.F. 428 Section 1. Section 2.48, subsection 3, paragraph e, Code 1 2013, is amended by adding the following new subparagraph: 2 NEW SUBPARAGRAPH . (10) Public property rehabilitation tax 3 credits under chapter 404C. 4 Sec. 2. NEW SECTION . 404C.1 Public property rehabilitation 5 tax credit —— definitions. 6 1. A public property rehabilitation tax credit, subject 7 to the availability of the credit, is granted against the tax 8 imposed under chapter 422, division II, III, or V, or chapter 9 432, for the substantial rehabilitation of eligible property 10 located in this state as provided in this chapter. 11 2. For purposes of this chapter, unless the context 12 otherwise requires: 13 a. “Eligible property” means vacant property containing 14 permanent improvements, including structures, that was 15 previously owned by the United States, this state, or 16 a political subdivision of this state for use by such 17 governmental entity. “Political subdivision” includes a city, 18 county, or school district. 19 b. “Placed in service” means the same as used in section 47 20 of the Internal Revenue Code. 21 c. “Qualified rehabilitation costs” means expenditures 22 made for the rehabilitation of eligible property and includes 23 qualified rehabilitation expenditures as defined in section 47 24 of the Internal Revenue Code. 25 (1) Qualified rehabilitation costs include amounts if they 26 are properly includable in computing the basis for tax purposes 27 of the eligible property. 28 (2) Amounts treated as an expense and deducted in the 29 tax year in which they are paid or incurred and amounts that 30 are otherwise not added to the basis for tax purposes of the 31 eligible property are not qualified rehabilitation costs. 32 (3) Amounts incurred for architectural and engineering 33 fees, site survey fees, legal expenses, insurance premiums, 34 development fees, and other construction-related costs are 35 -1- LSB 1948XS (4) 85 md/sc 1/ 10

S.F. 428 qualified rehabilitation costs to the extent they are added to 1 the basis for tax purposes of the eligible property. 2 (4) Costs of sidewalks, parking lots, and landscaping do not 3 constitute qualified rehabilitation costs. 4 d. “Rehabilitation period” means the period of time during 5 which an eligible property is rehabilitated commencing from 6 the date on which the first qualified rehabilitation cost is 7 incurred and ending with the end of the taxable year in which 8 the property is placed in service. A project’s rehabilitation 9 period may include dates that precede approval of a project 10 under section 404C.3, but any costs incurred prior to such 11 approval must be qualified rehabilitation costs. 12 Sec. 3. NEW SECTION . 404C.2 Amount of credit. 13 1. The amount of the credit equals twenty-five percent 14 of the qualified rehabilitation costs incurred for the 15 rehabilitation of the eligible property if the total amount 16 of qualified rehabilitation costs incurred for rehabilitation 17 of the property equals or exceeds twenty-five percent of the 18 assessed value, excluding the land, prior to rehabilitation. 19 However, the amount of the credit shall be reduced by 20 the amount of a historic preservation and cultural and 21 entertainment district tax credit claimed for the same eligible 22 property under chapter 404A for the same tax year, but not to 23 an amount less than zero. 24 2. For purposes of individual and corporate income taxes 25 and the franchise tax, the increase in the basis of the 26 rehabilitated property that would otherwise result from the 27 qualified rehabilitation costs shall be reduced by the amount 28 of the credit computed under this chapter. 29 Sec. 4. NEW SECTION . 404C.3 Approval of rehabilitation 30 project. 31 1. a. In order for costs of a rehabilitation project to 32 qualify for a public property rehabilitation tax credit, the 33 rehabilitation project must receive approval from the state 34 historic preservation office of the department of cultural 35 -2- LSB 1948XS (4) 85 md/sc 2/ 10

S.F. 428 affairs. 1 b. Applications for approval from the state historic 2 preservation office of the department of cultural affairs 3 shall be on forms approved by the state historic preservation 4 office and shall contain information as required by the state 5 historic preservation office. The information shall at least 6 include the approximate date of the start of rehabilitation, 7 the approximate date of completion, as well as the cost. 8 c. The approval process shall not exceed ninety days 9 beginning from the date on which a completed application is 10 received by the state historic preservation office. After the 11 ninety-day limit, the rehabilitation project is deemed to be 12 approved unless the state historic preservation office has 13 denied the application or contacted the applicant for further 14 information regarding the application. 15 2. The state historic preservation office shall establish 16 selection criteria and standards for rehabilitation projects 17 involving eligible property. 18 3. a. A rehabilitation project for which the state 19 historic preservation office has reserved tax credits pursuant 20 to section 404C.4 shall begin rehabilitation of the property 21 before the end of the fiscal year in which the project 22 application was approved and for which the tax credits were 23 reserved. 24 b. The eligible property shall be placed in service within 25 sixty months of the date on which the project application was 26 approved under this section. 27 4. A rehabilitation project that does not meet the 28 requirements of subsection 3 is subject to revocation, 29 repayment, or recapture of tax credits reserved or approved 30 pursuant to this chapter. 31 Sec. 5. NEW SECTION . 404C.4 Project completion and tax 32 credit certification —— credit refund or carryforward. 33 1. Upon completion of the rehabilitation project, a 34 certification of completion must be obtained from the state 35 -3- LSB 1948XS (4) 85 md/sc 3/ 10

S.F. 428 historic preservation office of the department of cultural 1 affairs. A completion certificate shall identify the person 2 claiming the tax credit under this chapter and the qualified 3 rehabilitation costs incurred during the rehabilitation period. 4 2. After verifying the eligibility for the tax credit, 5 the state historic preservation office shall issue a public 6 property rehabilitation tax credit certificate to be attached 7 to the person’s tax return. The tax credit certificate shall 8 contain the taxpayer’s name, address, tax identification 9 number, the date of project completion, the amount of credit, 10 other information required by the department of revenue, 11 and a place for the name and tax identification number of a 12 transferee and the amount of the tax credit being transferred. 13 3. A person receiving a public property rehabilitation tax 14 credit under this chapter which is in excess of the person’s 15 tax liability for the tax year is entitled to a refund. Any 16 credit in excess of the tax liability shall be refunded with 17 interest computed under section 422.25. In lieu of claiming 18 a refund, a taxpayer may elect to have the overpayment shown 19 on the taxpayer’s final, completed return credited to the tax 20 liability for the following year. 21 4. a. The total amount of tax credits that may be approved 22 for a fiscal year beginning on or after July 1, 2013, including 23 those amounts reserved by the state historic preservation 24 office of the department of cultural affairs, shall not exceed 25 forty-five million dollars. 26 b. Of the tax credits approved for a fiscal year under this 27 chapter, the amount of the tax credits shall be allocated as 28 follows: 29 (1) Fifty percent of the dollar amount of tax credits shall 30 be allocated for purposes of projects located in counties with 31 a population of one hundred twenty thousand or less according 32 to the most recent federal decennial census. 33 (2) Fifty percent of the dollar amount of tax credits shall 34 be allocated for purposes of projects located in counties with 35 -4- LSB 1948XS (4) 85 md/sc 4/ 10

S.F. 428 a population that exceeds one hundred twenty thousand according 1 to the most recent federal decennial census. 2 c. (1) If, in any fiscal year, an amount of tax credits 3 allocated pursuant to paragraph “b” , subparagraph (1), goes 4 unclaimed, the amount of the unclaimed tax credits shall, 5 during the same fiscal year, be reallocated to projects 6 described in paragraph “b” , subparagraph (2). 7 (2) If, in any fiscal year, an amount of tax credits 8 allocated pursuant to paragraph “b” , subparagraph (2), goes 9 unclaimed, the amount of the unclaimed tax credits shall, 10 during the same fiscal year, be reallocated to projects 11 described in paragraph “b” , subparagraph (1). 12 d. The departments of cultural affairs and revenue shall 13 each adopt rules to jointly administer this subsection and 14 shall provide by rule for the method to be used to determine 15 for which fiscal year the tax credits are available. 16 e. Public property rehabilitation tax credits shall not be 17 reserved for more than three years. 18 5. a. Tax credit certificates issued under this chapter may 19 be transferred to any person or entity. 20 b. Within ninety days of transfer, the transferee must 21 submit the transferred tax credit certificate to the department 22 of revenue along with a statement containing the transferee’s 23 name, tax identification number, and address, and the 24 denomination that each replacement tax credit certificate is 25 to carry and any other information required by the department 26 of revenue. 27 c. Within thirty days of receiving the transferred tax 28 credit certificate and the transferee’s statement, the 29 department of revenue shall issue one or more replacement 30 tax credit certificates to the transferee. Each replacement 31 certificate must contain the information required under 32 subsection 2. 33 d. Tax credit certificate amounts of less than the minimum 34 amount established by rule of the department of revenue shall 35 -5- LSB 1948XS (4) 85 md/sc 5/ 10

S.F. 428 not be transferable. 1 e. A tax credit shall not be claimed by a transferee 2 under this chapter until a replacement tax credit certificate 3 identifying the transferee as the proper holder has been 4 issued. 5 f. The transferee may use the amount of the tax credit 6 transferred against the taxes imposed under chapter 422, 7 divisions II, III, and V, and chapter 432 for any tax year the 8 original transferor could have claimed the tax credit. Any 9 consideration received for the transfer of the tax credit shall 10 not be included as income under chapter 422, divisions II, III, 11 and V. Any consideration paid for the transfer of the tax 12 credit shall not be deducted from income under chapter 422, 13 divisions II, III, and V. 14 Sec. 6. NEW SECTION . 404C.5 Economic impact —— 15 recommendations. 16 1. The department of cultural affairs, in consultation 17 with the department of revenue, shall report to the general 18 assembly and the legislative services agency on the overall 19 economic impact to the state of the rehabilitation of eligible 20 properties. 21 2. The report shall be filed annually by the department of 22 cultural affairs and shall include but is not limited to data 23 on the number and potential value of rehabilitation projects 24 begun during the latest twelve-month period, the total public 25 property rehabilitation tax credits originally granted during 26 that period, the potential reduction in state tax revenues as a 27 result of all tax credits still unclaimed, and the potential 28 increase in local property tax revenues as a result of the 29 rehabilitated projects. 30 3. The department of cultural affairs, to the extent it 31 is able, shall provide recommendations on whether a limit on 32 tax credits should be established, the need for a broader or 33 more restrictive definition of eligible property, and other 34 adjustments to the tax credits under this chapter. 35 -6- LSB 1948XS (4) 85 md/sc 6/ 10

S.F. 428 Sec. 7. NEW SECTION . 422.10A Public property rehabilitation 1 tax credit. 2 1. The taxes imposed under this division, less the credits 3 allowed under section 422.12, shall be reduced by a public 4 property rehabilitation tax credit equal to the amount as 5 computed under chapter 404C for rehabilitating eligible 6 property. Any credit in excess of the tax liability shall be 7 refunded or credited to the following year, as provided in 8 section 404C.4, subsection 3. 9 2. An individual may claim a public property rehabilitation 10 tax credit allowed a partnership, limited liability company, 11 S corporation, estate, or trust electing to have the income 12 taxed directly to the individual. The amount claimed by the 13 individual shall be based upon the pro rata share of the 14 individual’s earnings of a partnership, limited liability 15 company, S corporation, estate, or trust except when low-income 16 housing tax credits authorized under section 42 of the Internal 17 Revenue Code are used to assist in the financing of the housing 18 development, in which case the amount claimed by a partner if 19 the business is a partnership, a shareholder if the business 20 is an S corporation, or a member if the business is a limited 21 liability company shall be based on the amounts designated by 22 the eligible partnership, S corporation, or limited liability 23 company. For tax credits reserved for a fiscal year beginning 24 on or after July 1, 2013, the amount claimed by a partner if 25 the business is a partnership, a shareholder if the business 26 is an S corporation, or a member if the business is a limited 27 liability company shall be based on the amounts designated by 28 the eligible partnership, S corporation, or limited liability 29 company. 30 3. For purposes of this section, “eligible property” means 31 the same as defined in section 404C.1. 32 Sec. 8. Section 422.33, Code 2013, is amended by adding the 33 following new subsection: 34 NEW SUBSECTION . 11. a. The taxes imposed under this 35 -7- LSB 1948XS (4) 85 md/sc 7/ 10

S.F. 428 division shall be reduced by a public property rehabilitation 1 tax credit equal to the amount as computed under chapter 404C 2 for rehabilitating eligible property. Any credit in excess 3 of the tax liability shall be refunded or credited to the 4 following year, as provided in section 404C.4, subsection 3. 5 b. For purposes of this subsection, “eligible property” 6 means the same as defined in section 404C.1. 7 Sec. 9. Section 422.60, Code 2013, is amended by adding the 8 following new subsection: 9 NEW SUBSECTION . 4A. a. The taxes imposed under this 10 division shall be reduced by a public property rehabilitation 11 tax credit equal to the amount as computed under chapter 404A 12 for rehabilitating eligible property. Any credit in excess 13 of the tax liability shall be refunded or credited to the 14 following year, as provided in section 404C.4, subsection 3. 15 b. For purposes of this subsection, “eligible property” 16 means the same as defined in section 404C.1. 17 Sec. 10. NEW SECTION . 432.12N Public property 18 rehabilitation tax credit. 19 1. The tax imposed under this chapter shall be reduced by a 20 public property rehabilitation tax credit equal to the amount 21 as computed under chapter 404C for rehabilitating eligible 22 property. Any credit in excess of the tax liability shall be 23 refunded or credited to the following year, as provided in 24 section 404C.4, subsection 3. 25 2. For purposes of this section, “eligible property” means 26 the same as defined in section 404C.1. 27 EXPLANATION 28 This bill establishes a public property rehabilitation tax 29 credit under new Code chapter 404C. 30 The public property rehabilitation tax credit is granted 31 against the tax imposed under Code chapter 422, division II 32 (personal net income tax), III (business tax on corporations), 33 or V (financial institutions tax), or Code chapter 432 34 (insurance companies tax), for the substantial rehabilitation 35 -8- LSB 1948XS (4) 85 md/sc 8/ 10

S.F. 428 of eligible property located in this state. The bill defines 1 “eligible property” as vacant property containing permanent 2 improvements, including structures, that was previously owned 3 by per bill the United States, this state, or a political 4 subdivision of this state for use by such governmental entity. 5 Under the bill, the amount of the credit equals 25 percent 6 of the qualified rehabilitation costs, as defined in the bill, 7 incurred for the rehabilitation of the eligible property if 8 the total amount of qualified rehabilitation costs incurred 9 for rehabilitation of the property equals or exceeds 25 10 percent of the assessed value, excluding the land, prior to 11 rehabilitation. The bill provides, however, that the amount 12 of the credit shall be reduced by the amount of a historic 13 preservation and cultural and entertainment district tax credit 14 claimed for the same eligible property under Code chapter 404A 15 for the same tax year, but not to an amount less than zero. 16 In order for costs of a rehabilitation project to qualify for 17 a public property rehabilitation tax credit, the rehabilitation 18 project must receive approval from the state historic 19 preservation office of the department of cultural affairs. The 20 bill establishes the procedure for approval and authorizes 21 the state historic preservation office to establish selection 22 criteria and standards for rehabilitation projects involving 23 eligible property. 24 Under the bill, a rehabilitation project for which the 25 state historic preservation office has reserved tax credits 26 shall begin rehabilitation of the property before the end of 27 the fiscal year in which the project application was approved 28 and for which the tax credits were reserved. In addition, the 29 eligible property must be placed in service within 60 months of 30 the date on which the project application was approved. If a 31 rehabilitation project does not meet these requirements, it is 32 subject to revocation, repayment, or recapture of tax credits 33 reserved or approved. 34 The bill establishes the procedure for acquiring a 35 -9- LSB 1948XS (4) 85 md/sc 9/ 10

S.F. 428 completion certificate and the tax credit certificate upon 1 completion of the rehabilitation project. The bill allows a 2 person receiving a public property rehabilitation tax credit 3 which is in excess of the person’s tax liability for the tax 4 year to receive a refund or to have the excess amount carried 5 forward to the following year. 6 The bill provides that the total amount of tax credits that 7 may be approved for a fiscal year beginning on or after July 1, 8 2013, including those amounts reserved by the state historic 9 preservation office of the department of cultural affairs, 10 shall not exceed $45 million. Of the tax credits approved for 11 a fiscal year, the amount of the tax credits must be allocated 12 as follows: (1) 50 percent of the dollar amount of tax credits 13 shall be allocated for purposes of projects located in counties 14 with a population of 120,000 or less, and (2) 50 percent of the 15 dollar amount of tax credits shall be allocated for purposes 16 of projects located in counties with a population that exceeds 17 120,000. The bill also provides for the reallocation of 18 unclaimed tax credits in a fiscal year. 19 The bill allows public property rehabilitation tax credit 20 certificates to be transferred to any person or entity. 21 The bill requires the department of cultural affairs, in 22 consultation with the department of revenue, to report to the 23 general assembly and the legislative services agency on the 24 overall economic impact to the state of the rehabilitation of 25 eligible properties under new Code chapter 404C, requires the 26 report to be filed annually, and authorizes the department of 27 cultural affairs to make recommendations relating to the public 28 property rehabilitation tax credits. 29 The bill includes the public property rehabilitation tax 30 credit as part of the legislative tax expenditure committee’s 31 list of tax expenditures to be reviewed in 2015. 32 -10- LSB 1948XS (4) 85 md/sc 10/ 10