Historic Tax Credit Evaluating Committee Meeting Report
October 16, 2018
On September 25, 2018, the AAR Public Policy Team attended the quarterly meeting of the Alabama Historic Tax Credit Evaluating Committee, the state governmental body that determines which historic buildings receive the Historic Tax Credit.
Background on the Historic Tax Credit Program
Supported by the Alabama REALTORS®, Alabama’s Historic Tax Credit Act (“the Act”) was signed into law by Governor Kay Ivey in May 2017. The law provides a 25% refundable income tax credit for qualified expenditures to rehabilitate certified historic buildings for private and commercial use. Alabama’s prior historical tax credit program was created in 2014 and expired in 2016.
If a client asks, the process for acquiring the tax credit is as follows. Potential tax credit recipients file an application with the Alabama Historical Commission (“the Commission”). The Commission will charge a fee for processing the application, the amount of which is based on the size of the proposed rehabilitation project. The application, instructions and other important information can be found on the Commission’s website here.
Once the application is received, the Commission determines if the property is eligible for the tax credit program and evaluates the applicant’s proposed rehabilitation plan, which must meet the U.S. Department of Interior’s Standards for Rehabilitation.[i] To be eligible, the properties must be listed or eligible for listing in the National Register of Historic Places and be at least 60 years old.
Next, the Commission will recommend the project to the Historic Tax Credit Evaluating Committee (“the Committee”) for further evaluation. The Committee is comprised of legislators, the Executive Director of the Commission and other executive branch officials. The Committee evaluates proposed rehabilitation projects based on criteria that have been developed by the Commission, which includes the value of the project to the community, the return on the project’s investment to the community and the strength of local support for the project. The Committee decides whether or not to approve the projects, and once approved, ranks them based on those criteria.
The Commission then reserves an allocation of the credit based on each project’s ranking, but stops issuing reservations to approved projects once $20 million in credits have been reserved for a calendar year.[ii] At that point, those projects issued a ranking by the Committee will remain in order on a waiting list until tax credits become available either through rescission of another project’s tax credit reservation or when a subsequent year’s credits become available.[iii] Under the authorizing statute, 40% of the $20 million yearly tax credits are set aside for projects in counties with populations below 175,000.[iv]
The Commission notifies applicants if their projects are not likely to receive a tax credit reservation because of the project's place on the Committee's ranking list. The Commission will ask the applicant if they want to stay on the ranking list until tax credits become available, and the applicant will have 30 days to notify the Commission in writing of their preference.[v]
Once a project actually receives the tax credit reservation from the Commission, projects must spend no less than 20% of the estimated cost of rehabilitation within 18 months of notification of Tax Credit Reservation. An additional 50% of the estimated cost of rehabilitation must be spent within 36 months. Projects must be completed within 60 months of notification of Tax Credit Reservation.[vi]
Summary of Committee Meeting
At the September 25th meeting, the Committee reviewed and ranked six proposed projects.
The six proposed projects are:
- 111 S. Dearborn Street in Mobile, to be used for personal residential use;
- The Barton Academy building in Mobile, to be used as a public school;
- The Blair Furniture Company building in downtown Birmingham, to be used for retail and apartment space;
- The Edwards Motor Company building in Birmingham, to be used for office space;
- Fort McClellan Building No. 252 in Anniston, to be used as a recreational facility; and
- The Toulme building in Mobile, to be used for commercial space.
The Committee ranked the projects for tax credit reservations as follows:
- The Edwards Motor Company building
- Fort McClellan building No. 252 and the Barton Academy building[vii]
- Blair Furniture building
- Toulme building
- 111 S. Dearborn Street.
The projects will now be put on a waiting list to receive tax credit reservations when those funds become available. Most of the projects approved at this meeting will receive tax credit reservations in 2021,[viii] and work can take place on these projects while they are on the waiting list for a reservation. Credits can only be issued to an applicant once the project is completed and the building has been placed in service. The tax credit must be claimed the year in which the project was placed in service.
Currently, all tax credits for projects in counties with a population over 175,000 people for calendar years 2018-2020 have been reserved. According to the Alabama Historical Commission, there is $5.8 million left in the 2021 calendar year Aggregate Tax Credit Allocation amount for larger counties, and $5.1 million left for the rural counties for the 2019 calendar year. The program sunsets on December 31, 2022.[ix] The state’s previous historic tax credit sunset on May 15, 2016; however, due to the program’s popularity and value to the state’s economy, the current historic tax credit program was signed into law on May 24, 2017. Given the credit’s continued successes, it will be important for policymakers to consider a reauthorization past 2022 so the credit can continue benefitting our state’s communities and businesses.
The AAR Public Policy Team will continue to monitor activities of the Historic Tax Credit Evaluating Committee for its impacts on our members and the real estate industry. Keep in mind, legal decisions and regulatory actions can impact our members as much as bad legislation.
[i] The Department of Interior’s regulations are codified at 36 C.F.R. 67, pursuant to Section 47 (c)(2)(A) of the Internal Revenue Code.
[ii] Ala. Admin. Code r. 460-X-25-.14(2).
[iii] Alabama Historical Commission Overview of Historic Rehabilitation Tax Credit Program: https://ahc.alabama.gov/statetaxcreditPDFs/PowerPoint.pdf.
[iv] “Set-aside” credits are reserved for buildings in counties where the population does not exceed 175,000 according to the 2010 decennial census. See Ala. Code § 40-9F-33(e); Al. Administrative Code 460-X-25-.14(1).
[v] Ala. Admin. Code r. 460-X-25-.14(4).
[vi]Ala. Admin. Code r. 460-X-25-.15(1); https://ahc.alabama.gov/statetaxcreditPDFs/PowerPoint.pdf.
[vii] Committee members indicated that they ranked two buildings together because Fort McClellan Building No. 252 is in a location eligible for “set-aside” credits.
[viii] The Fort McClellan building, as a “set-aside” county project, will receive a reservation in 2019.
[ix] Ala. Code § 40-9F-36.
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