Tax Exempt Entities Need to be Aware of Ohio’s Historic Rehabilitation CAT Credit
Ohio’s Historic Preservation Tax Credit program is well established. According to the Department of Development’s 2015 Comprehensive Report, since 2006, 141 buildings have been rehabilitated, resulting in 9.59 million square feet of rehabilitated space, and attracting $1.58 billion dollars of project investment. With successes like these, the program’s stakeholders have been relatively effective in disclosing the details of the program’s guidelines. However, a little-known fact is that tax exempt entities also qualify for the refundable credit!
This lack of awareness is partially due to the statutory authority for tax exempt entities claiming the credit not actually being written into Section 149 of the Ohio Revised Code (ORC). Instead, it is a temporary measure enacted in HB 64 of the 131st General Assembly. Under this bill, a temporary Historic Rehabilitation CAT (Commercial Activity Tax) credit exists when a qualifying historic rehabilitation tax credit certificate owner cannot claim the credit against another tax— provided the certificate is effective before June 30, 2017.
What’s important is HB 64 authorizes certificate owners that are not CAT taxpayers to file a CAT return for the purpose of claiming the historic rehabilitation tax credit. Thus, tax exempt entities that otherwise would not file can file an annual CAT return and claim a refund in the amount of the credit.
At this point you may be thinking, “Great, but why tell me now? We’re not a certificate owner, and there is no way we can become one before the June 30, 2017 deadline.” If the temporary credit was just a one-time fix, you would have a good point. However, the temporary credit was first enacted in HB 483 of the 130th General Assembly and was subsequently extended for its current two-year period with the enactment of HB 64 of the 131st General Assembly, so it’s been extended twice in the last four years. Also, the State of Ohio committed additional funds to the Ohio Historic Preservation Tax Credit program in 2014, providing an additional $25 million in tax credits over the next 5 years. So there is a strong likelihood that the 132nd General Assembly will extend the temporary CAT once again.
Assuming the temporary CAT credit is extended, what should a tax exempt entity interested in applying for the Ohio Historic Preservation tax credit be thinking about?
- Unlike the Federal Historic Tax Credit, the Ohio tax credit is a competitive credit. Thus, tax exempt entities will need to familiarize themselves with the application process and how projects are scored for the Ohio credit. Ohio tax credits are awarded semiannually, one round in the spring and the other in the fall. The State Historic Preservation Officer (SHPO) publishes an application guide for each round, which includes the scoring criteria for that round. It is advisable for applicants to schedule a Pre-Application Meeting with the SHPO. Deadlines for the various steps of the application process, including the deadline for the Pre-Application Meeting Request, are published on the Ohio Historic Preservation Credit website.
- The Ohio credit can be coupled with the Federal credit or it can be a stand-alone credit. Generally, tax exempt entities can’t utilize the Federal credit, although there are ways to structure away from this issue, allowing a tax exempt entity to rehabilitate a historic building that qualifies for the Federal credit. Special planning must be considered when a tax exempt entity seeks to combine both the Federal and Ohio credits.
- A certificate owner must be an owner or lessee under a Master Lease structure in order to claim Ohio’s credit. Unlike the Federal credit, the Ohio credit can be specially allocated. This allows for creative structuring, especially when you have an investor with an appetite for Federal Historic Tax Credits but not Ohio credits. However, when using state historic tax credits in this structure, tax and legal counsel should analyze the structure for economic substance and disguised sales concerns.
Although applicants are not required to hire consultants under Ohio’s guidelines, it is advisable to engage experienced professionals to assist your tax exempt organization in applying for and claiming the refundable Ohio Historic Preservation Tax Credit.
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