SF 428 (LSB 1948XS (4) 85)

SENATE FILE 428

BY  SEGEBART, GUTH, ROZENBOOM, JOHNSON, BREITBACH, GREINER, KAPUCIAN, and SINCLAIR

A BILL FOR

An Act establishing a public building rehabilitation income tax credit.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 2.48, subsection 3, paragraph e, Code 2013, is amended by adding the following new subparagraph:
   NEW SUBPARAGRAPH.  (10)  Public property rehabilitation tax credits under chapter 404C.
    Sec. 2.  NEW SECTION.  404C.1  Public property rehabilitation tax credit —— definitions.
   1.
  A public property rehabilitation tax credit, subject to the availability of the credit, is granted against the tax imposed under chapter 422, division II, III, or V, or chapter 432, for the substantial rehabilitation of eligible property located in this state as provided in this chapter.
   2.  For purposes of this chapter, unless the context otherwise requires:
   a.  “Eligible property” means vacant property containing permanent improvements, including structures, that was previously owned by the United States, this state, or a political subdivision of this state for use by such governmental entity. “Political subdivision” includes a city, county, or school district.
   b.  “Placed in service” means the same as used in section 47 of the Internal Revenue Code.
   c.  “Qualified rehabilitation costs” means expenditures made for the rehabilitation of eligible property and includes qualified rehabilitation expenditures as defined in section 47 of the Internal Revenue Code.
   (1)  Qualified rehabilitation costs include amounts if they are properly includable in computing the basis for tax purposes of the eligible property.
   (2)  Amounts treated as an expense and deducted in the tax year in which they are paid or incurred and amounts that are otherwise not added to the basis for tax purposes of the eligible property are not qualified rehabilitation costs.
   (3)  Amounts incurred for architectural and engineering fees, site survey fees, legal expenses, insurance premiums, development fees, and other construction-related costs are qualified rehabilitation costs to the extent they are added to the basis for tax purposes of the eligible property.
   (4)  Costs of sidewalks, parking lots, and landscaping do not constitute qualified rehabilitation costs.
   d.  “Rehabilitation period” means the period of time during which an eligible property is rehabilitated commencing from the date on which the first qualified rehabilitation cost is incurred and ending with the end of the taxable year in which the property is placed in service. A project’s rehabilitation period may include dates that precede approval of a project under section 404C.3, but any costs incurred prior to such approval must be qualified rehabilitation costs.
    Sec. 3.  NEW SECTION.  404C.2  Amount of credit.
   1.  The amount of the credit equals twenty-five percent of the qualified rehabilitation costs incurred for the rehabilitation of the eligible property if the total amount of qualified rehabilitation costs incurred for rehabilitation of the property equals or exceeds twenty-five percent of the assessed value, excluding the land, prior to rehabilitation. However, the amount of the credit shall be reduced by the amount of a historic preservation and cultural and entertainment district tax credit claimed for the same eligible property under chapter 404A for the same tax year, but not to an amount less than zero.
   2.  For purposes of individual and corporate income taxes and the franchise tax, the increase in the basis of the rehabilitated property that would otherwise result from the qualified rehabilitation costs shall be reduced by the amount of the credit computed under this chapter.
    Sec. 4.  NEW SECTION.  404C.3  Approval of rehabilitation project.
   1.
  a.  In order for costs of a rehabilitation project to qualify for a public property rehabilitation tax credit, the rehabilitation project must receive approval from the state historic preservation office of the department of cultural affairs.
   b.  Applications for approval from the state historic preservation office of the department of cultural affairs shall be on forms approved by the state historic preservation office and shall contain information as required by the state historic preservation office. The information shall at least include the approximate date of the start of rehabilitation, the approximate date of completion, as well as the cost.
   c.  The approval process shall not exceed ninety days beginning from the date on which a completed application is received by the state historic preservation office. After the ninety-day limit, the rehabilitation project is deemed to be approved unless the state historic preservation office has denied the application or contacted the applicant for further information regarding the application.
   2.  The state historic preservation office shall establish selection criteria and standards for rehabilitation projects involving eligible property.
   3.
  a.  A rehabilitation project for which the state historic preservation office has reserved tax credits pursuant to section 404C.4 shall begin rehabilitation of the property before the end of the fiscal year in which the project application was approved and for which the tax credits were reserved.
   b.  The eligible property shall be placed in service within sixty months of the date on which the project application was approved under this section.
   4.  A rehabilitation project that does not meet the requirements of subsection 3 is subject to revocation, repayment, or recapture of tax credits reserved or approved pursuant to this chapter.
    Sec. 5.  NEW SECTION.  404C.4  Project completion and tax credit certification —— credit refund or carryforward.
   1.  Upon completion of the rehabilitation project, a certification of completion must be obtained from the state historic preservation office of the department of cultural affairs. A completion certificate shall identify the person claiming the tax credit under this chapter and the qualified rehabilitation costs incurred during the rehabilitation period.
   2.  After verifying the eligibility for the tax credit, the state historic preservation office shall issue a public property rehabilitation tax credit certificate to be attached to the person’s tax return. The tax credit certificate shall contain the taxpayer’s name, address, tax identification number, the date of project completion, the amount of credit, other information required by the department of revenue, and a place for the name and tax identification number of a transferee and the amount of the tax credit being transferred.
   3.  A person receiving a public property rehabilitation tax credit under this chapter which is in excess of the person’s tax liability for the tax year is entitled to a refund. Any credit in excess of the tax liability shall be refunded with interest computed under section 422.25. In lieu of claiming a refund, a taxpayer may elect to have the overpayment shown on the taxpayer’s final, completed return credited to the tax liability for the following year.
   4.
  a.  The total amount of tax credits that may be approved for a fiscal year beginning on or after July 1, 2013, including those amounts reserved by the state historic preservation office of the department of cultural affairs, shall not exceed forty-five million dollars.
   b.  Of the tax credits approved for a fiscal year under this chapter, the amount of the tax credits shall be allocated as follows:
   (1)  Fifty percent of the dollar amount of tax credits shall be allocated for purposes of projects located in counties with a population of one hundred twenty thousand or less according to the most recent federal decennial census.
   (2)  Fifty percent of the dollar amount of tax credits shall be allocated for purposes of projects located in counties with a population that exceeds one hundred twenty thousand according to the most recent federal decennial census.
   c.
  (1)  If, in any fiscal year, an amount of tax credits allocated pursuant to paragraph “b”, subparagraph (1), goes unclaimed, the amount of the unclaimed tax credits shall, during the same fiscal year, be reallocated to projects described in paragraph “b”, subparagraph (2).
   (2)  If, in any fiscal year, an amount of tax credits allocated pursuant to paragraph “b”, subparagraph (2), goes unclaimed, the amount of the unclaimed tax credits shall, during the same fiscal year, be reallocated to projects described in paragraph “b”, subparagraph (1).
   d.  The departments of cultural affairs and revenue shall each adopt rules to jointly administer this subsection and shall provide by rule for the method to be used to determine for which fiscal year the tax credits are available.
   e.  Public property rehabilitation tax credits shall not be reserved for more than three years.
   5.
  a.  Tax credit certificates issued under this chapter may be transferred to any person or entity.
   b.  Within ninety days of transfer, the transferee must submit the transferred tax credit certificate to the department of revenue along with a statement containing the transferee’s name, tax identification number, and address, and the denomination that each replacement tax credit certificate is to carry and any other information required by the department of revenue.
   c.  Within thirty days of receiving the transferred tax credit certificate and the transferee’s statement, the department of revenue shall issue one or more replacement tax credit certificates to the transferee. Each replacement certificate must contain the information required under subsection 2.
   d.  Tax credit certificate amounts of less than the minimum amount established by rule of the department of revenue shall not be transferable.
   e.  A tax credit shall not be claimed by a transferee under this chapter until a replacement tax credit certificate identifying the transferee as the proper holder has been issued.
   f.  The transferee may use the amount of the tax credit transferred against the taxes imposed under chapter 422, divisions II, III, and V, and chapter 432 for any tax year the original transferor could have claimed the tax credit. Any consideration received for the transfer of the tax credit shall not be included as income under chapter 422, divisions II, III, and V. Any consideration paid for the transfer of the tax credit shall not be deducted from income under chapter 422, divisions II, III, and V.
    Sec. 6.  NEW SECTION.  404C.5  Economic impact —— recommendations.
   1.  The department of cultural affairs, in consultation with the department of revenue, shall report to the general assembly and the legislative services agency on the overall economic impact to the state of the rehabilitation of eligible properties.
   2.  The report shall be filed annually by the department of cultural affairs and shall include but is not limited to data on the number and potential value of rehabilitation projects begun during the latest twelve-month period, the total public property rehabilitation tax credits originally granted during that period, the potential reduction in state tax revenues as a result of all tax credits still unclaimed, and the potential increase in local property tax revenues as a result of the rehabilitated projects.
   3.  The department of cultural affairs, to the extent it is able, shall provide recommendations on whether a limit on tax credits should be established, the need for a broader or more restrictive definition of eligible property, and other adjustments to the tax credits under this chapter.
    Sec. 7.  NEW SECTION.  422.10A  Public property rehabilitation tax credit.
   1.  The taxes imposed under this division, less the credits allowed under section 422.12, shall be reduced by a public property rehabilitation tax credit equal to the amount as computed under chapter 404C for rehabilitating eligible property. Any credit in excess of the tax liability shall be refunded or credited to the following year, as provided in section 404C.4, subsection 3.
   2.  An individual may claim a public property rehabilitation tax credit allowed a partnership, limited liability company, S corporation, estate, or trust electing to have the income taxed directly to the individual. The amount claimed by the individual shall be based upon the pro rata share of the individual’s earnings of a partnership, limited liability company, S corporation, estate, or trust except when low-income housing tax credits authorized under section 42 of the Internal Revenue Code are used to assist in the financing of the housing development, in which case the amount claimed by a partner if the business is a partnership, a shareholder if the business is an S corporation, or a member if the business is a limited liability company shall be based on the amounts designated by the eligible partnership, S corporation, or limited liability company. For tax credits reserved for a fiscal year beginning on or after July 1, 2013, the amount claimed by a partner if the business is a partnership, a shareholder if the business is an S corporation, or a member if the business is a limited liability company shall be based on the amounts designated by the eligible partnership, S corporation, or limited liability company.
   3.  For purposes of this section, “eligible property” means the same as defined in section 404C.1.
    Sec. 8.  Section 422.33, Code 2013, is amended by adding the following new subsection:
   NEW SUBSECTION.  11.
  a.  The taxes imposed under this division shall be reduced by a public property rehabilitation tax credit equal to the amount as computed under chapter 404C for rehabilitating eligible property. Any credit in excess of the tax liability shall be refunded or credited to the following year, as provided in section 404C.4, subsection 3.
   b.  For purposes of this subsection, “eligible property” means the same as defined in section 404C.1.
    Sec. 9.  Section 422.60, Code 2013, is amended by adding the following new subsection:
   NEW SUBSECTION.  4A.
  a.  The taxes imposed under this division shall be reduced by a public property rehabilitation tax credit equal to the amount as computed under chapter 404A for rehabilitating eligible property. Any credit in excess of the tax liability shall be refunded or credited to the following year, as provided in section 404C.4, subsection 3.
   b.  For purposes of this subsection, “eligible property” means the same as defined in section 404C.1.
    Sec. 10.  NEW SECTION.  432.12N  Public property rehabilitation tax credit.
   1.  The tax imposed under this chapter shall be reduced by a public property rehabilitation tax credit equal to the amount as computed under chapter 404C for rehabilitating eligible property. Any credit in excess of the tax liability shall be refunded or credited to the following year, as provided in section 404C.4, subsection 3.
   2.  For purposes of this section, “eligible property” means the same as defined in section 404C.1.
EXPLANATION
   This bill establishes a public property rehabilitation tax credit under new Code chapter 404C.
   The public property rehabilitation tax credit is granted against the tax imposed under Code chapter 422, division II (personal net income tax), III (business tax on corporations), or V (financial institutions tax), or Code chapter 432 (insurance companies tax), for the substantial rehabilitation of eligible property located in this state. The bill defines “eligible property” as vacant property containing permanent improvements, including structures, that was previously owned by per bill the United States, this state, or a political subdivision of this state for use by such governmental entity.
   Under the bill, the amount of the credit equals 25 percent of the qualified rehabilitation costs, as defined in the bill, incurred for the rehabilitation of the eligible property if the total amount of qualified rehabilitation costs incurred for rehabilitation of the property equals or exceeds 25 percent of the assessed value, excluding the land, prior to rehabilitation. The bill provides, however, that the amount of the credit shall be reduced by the amount of a historic preservation and cultural and entertainment district tax credit claimed for the same eligible property under Code chapter 404A for the same tax year, but not to an amount less than zero.
   In order for costs of a rehabilitation project to qualify for a public property rehabilitation tax credit, the rehabilitation project must receive approval from the state historic preservation office of the department of cultural affairs. The bill establishes the procedure for approval and authorizes the state historic preservation office to establish selection criteria and standards for rehabilitation projects involving eligible property.
   Under the bill, a rehabilitation project for which the state historic preservation office has reserved tax credits shall begin rehabilitation of the property before the end of the fiscal year in which the project application was approved and for which the tax credits were reserved. In addition, the eligible property must be placed in service within 60 months of the date on which the project application was approved. If a rehabilitation project does not meet these requirements, it is subject to revocation, repayment, or recapture of tax credits reserved or approved.
   The bill establishes the procedure for acquiring a completion certificate and the tax credit certificate upon completion of the rehabilitation project. The bill allows a person receiving a public property rehabilitation tax credit which is in excess of the person’s tax liability for the tax year to receive a refund or to have the excess amount carried forward to the following year.
   The bill provides that the total amount of tax credits that may be approved for a fiscal year beginning on or after July 1, 2013, including those amounts reserved by the state historic preservation office of the department of cultural affairs, shall not exceed $45 million. Of the tax credits approved for a fiscal year, the amount of the tax credits must be allocated as follows: (1) 50 percent of the dollar amount of tax credits shall be allocated for purposes of projects located in counties with a population of 120,000 or less, and (2) 50 percent of the dollar amount of tax credits shall be allocated for purposes of projects located in counties with a population that exceeds 120,000. The bill also provides for the reallocation of unclaimed tax credits in a fiscal year.
   The bill allows public property rehabilitation tax credit certificates to be transferred to any person or entity.
   The bill requires the department of cultural affairs, in consultation with the department of revenue, to report to the general assembly and the legislative services agency on the overall economic impact to the state of the rehabilitation of eligible properties under new Code chapter 404C, requires the report to be filed annually, and authorizes the department of cultural affairs to make recommendations relating to the public property rehabilitation tax credits.
   The bill includes the public property rehabilitation tax credit as part of the legislative tax expenditure committee’s list of tax expenditures to be reviewed in 2015.