Historical Commission Issues Emergency Regulations on Historic Structures Tax Credit

State & Local Tax Alert: Alabama Edition

Client Alert

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The Alabama Historical Commission has issued emergency regulations to implement the state’s new historic structures rehabilitation tax credit. Emergency Rules 460-x-23-.01ER through 460-x-23-.13ER took effect September 1, 2013. The tax credit is equal to 25% of the qualified rehabilitation expenditures made on certified historic structures and certified historic residential structures and 10% of qualified rehabilitation expenditures on qualified nonhistoric structures. The credit is applicable against the state corporate or personal income tax or financial institution excise tax. The legislation enacting the credit capped the total credit awarded by the state at $20 million annually for each of the next three years.

Paul Compton, a partner in the Birmingham office of Bradley Arant Boult Cummings LLP who regularly advises clients on transactions involving these and similar state and federal credits, said that despite the cap, legislators and businesses are excited by the credit, especially in conjunction with Alabama’s recently enacted “new markets” tax credit, which mirrors the federal credit. According to him, “There has been widespread interest in the Alabama historical tax credit for its ability to jump-start projects that needed just a little extra boost to come to fruition.”

The regulations provide that before beginning any “substantial rehabilitation work” on a qualified structure, applicants must submit a form application and rehabilitation plans to the commission. Additionally, applicants must submit an estimate of the qualified rehabilitation expenditures for the project. The application forms are available on the commission’s website (http://preserveala.org/currentissues.aspx) and may be submitted beginning October 1, 2013.

The application consists of two parts. Part A outlines the significance of the structure to be rehabilitated, while Part B describes the rehabilitation to be done on the structure. Part A can be filed before or simultaneously with Part B. After the commission staff determines that Parts A and B are complete, they will issue a tax credit allocation reservation based on the estimated qualified rehabilitation expenditures.

The emergency regulations require that at least:
  • 50% of the existing external walls of the structure remain in place as external walls;
  • 75% of the existing external walls remain in place as either external or internal walls; and
  • 75% of the internal structural framework remains in place.

Additionally, qualified rehabilitation expenditures must exceed $25,000 or 50% of the structure’s original purchase price, whichever is greater.

Three types of structures may qualify for the tax credit. They are:

  1. A certified historic structure—that is, a building that is located in Alabama and listed in the National Register of Historic Places, eligible for listing in the National Register, or contributing to the significance of a registered historic district;
  2. A certified historic residential structure that is or will be used as a single-family, owner-occupied residential structure, either freestanding or supported by party walls (individual units within a multiresidential structure such as a condominium or cooperative do not qualify); and
  3. Qualified nonhistoric structures that were built before 1936, do not include residential buildings, and do not meet the eligibility requirements of a certified historic structure or a certified historic residential structure but are certified by the commission as meeting the requirements of IRC Section 47(c)(l)(a) and (b).

There has been a good deal of publicity surrounding this new credit, primarily because of proposed projects in Birmingham, Mobile, and Selma. “Local banks, which can apply the Alabama historical tax credit against the high financial institution excise tax applicable to them, are especially motivated investors,” said Compton. Pointing to the special state caps for individual projects and in the aggregate, he added, “My greatest fear is that demand will significantly outstrip supply.”

If you have any questions regarding the proposed regulations or the historic structures tax credit, new market tax credit or low-income housing credit, please contact Paul Compton (205.521.8381), Beau Byrd (205.521.8262), Mark Miller (615.252.2356) or Jimmy Long (205.521.8626).

© September 2013. Bruce P. Ely/Matthew A. Hinshaw/Bradley Arant Boult Cummings LLP. All rights reserved.