House File 2415 Historic Tax Credits

HOUSE REPUBLICAN STAFF ANALYSIS Bill: Committee: Floor Manager: Date: Staff: HF 2453 (Formerly HF 2415) Ways and Means ...

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HOUSE REPUBLICAN STAFF ANALYSIS Bill: Committee: Floor Manager: Date: Staff:

HF 2453 (Formerly HF 2415) Ways and Means Rep. Hagenow March 25, 2014 Dane Schumann (1-3626) Kristi L. Kielhorn (2-5290)

House Economic Growth House Ways and Means: House Floor: Senate Floor: Governor:

PASSED on Feb. 19 (21-0) PASSED March 19 (24-0-1)

Historic Tax Credits  The bill makes changes to the Historic Tax Credit program administered by the Department of Cultural Affairs, altering the process through which tax credit applications are approved and providing greater scrutiny for their dispensation.  Fiscal Note – The bill has a $1.3 million fiscal impact in FY 2015 and a $2.9 million impact in FY 2016. The impact decreases in subsequent years to $100,000 by FY 2023.

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Section by Section Analysis Section 1—Conforming Amendment The first section changes a cross reference in the code to reflect changes made by the bill. Section 2—Definitions The bill strikes §404A.1 and inserts definitions used throughout the bill. It defines “eligible taxpayer” as the owner of the property that is the subject of a qualified rehabilitation project or a person who qualifies for the federal rehabilitation tax credit. The bill excludes expenditures financed by federal, state or local government grants and other forms of public financial assistance from the definition of “qualified rehabilitation expenditures”. It also defines a “qualified rehabilitation project” as a property located in Iowa that is at least one of the following: 1. Listed on the national register of historic places. 2. Designated as historically significant to a district listed in the national register of historic places. 3. A property or district that is designated a local landmark by a city or county ordinance. 4. A barn constructed prior to 1937. The property must also meet the physical criteria and standards for rehabilitation established by rule under the Department of Cultural Affairs. It must also have qualified rehabilitation expenditures that equal or exceed $50,000 or 50 percent of assessed value—for commercial property—or $25,000 or 25 percent of assessed value—for all other property. For non-commercial property, the assessed value cannot include the land. Section 3—Tax Credits 1

Section 3 allows them to receive a historic preservation and cultural entertainment district tax credit in an amount that cannot exceed 25 percent of the qualified rehabilitation expenditures. Any credit exceeding the taxpayer’s tax liability shall be refunded with interest. The taxpayer may elect to apply the refund to next year’s tax liability. The remainder of the section deals with administrative procedures regarding the credits. Section 4—Application, Compliance and Audit The applicant is burdened with applying to the department and proving that both itself and the project qualify under the program. After reviewing the application, the department may register the project under the program and make a preliminary determination as to the amount of credits it qualifies for. After that, the taxpayer would enter into an agreement with the department to successfully complete the program. The agreement must contain the amount of the award, a description of the rehabilitation work, the expenditure budget, the project commencement date and the completion date—which must be within 36 months of the commencement date. After completing the project a CPA authorized to practice in Iowa shall perform an independent audit that shall be submitted to the department along with a statement of the amount of final qualified expenditures. The department may waive the audit requirement if the expenditures are less than $100,000 or the rehabilitation is funded entirely by private funding. After verifying the audit, the department shall issue the credit. The bill allows the department to waive the application, registration, agreement and compliance protocols contained within this section for those projects with qualified rehabilitation expenditures of $750,000 or less. The department would also gain the ability to develop rules that would supplant Section 4 for projects of that size. The amendment provides the department with more flexibility by giving it the authority to amend an agreement for good cause. In addition, at least five percent of the tax credits must be allocated to projects with qualified expenditures of $750,000 or less. Section 5—Credit Limit Section 5 limits the department’s credit allotment under the program to $45 million per year. The rest of the section is devoted to governing the realization of the credits. Section 6—Economic Impact, Conforming Changes The section amends code to make it reflective of the changes made earlier in the bill. Section 7—Rules The Department of Cultural Affairs and the Department of Revenue are empowered to adopt rules to jointly administer the program. Sections 8 through 11—Conforming changes These sections make changes to the code to reflect the changes made in the bill. Section 12—Applicability The bill applies generally to agreements between the department and eligible taxpayers on or after the bill’s effective date of July 1, 2014, but currently approved projects are governed under current law.

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Amendment Analysis No amendments.

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