Affordable Housing and Community Development Alert

    View Authors April 2007
    The Ohio General Assembly passed legislation at the end of last year establishing a refundable tax credit for the rehabilitation of Ohio's historic buildings. On April 13, the Ohio Department of Development released proposed regulations that will implement the legislation that went into effect earlier this month. The new law gives a fee-simple owner of a historic building a credit equal to 25 percent of the owner's "qualified rehabilitation expenditures" against the corporation franchise tax, dealer-in-intangibles tax or personal income tax.

    To claim the credit, a taxpayer must apply for and receive a Tax Credit Certificate. The statute permits the approval of up to 100 applications in each of the next two years. Only the fee owner of the building can submit an application and claim the credit. A taxpayer must apply on or after July 1, 2007, but before June 30, 2009. Applications are not currently available, but should be made available by Ohio's Department of Development prior to July 1, 2007. The regulations indicate that the Ohio Director of Development will review and approve applications in the order in which they are filed with the Ohio Historic Preservation Officer. However, the development director has some discretion to deviate from this regulatory directive to ensure a mix of large and small rehabilitation projects. The preservation officer will reject (without opportunity to cure) any incomplete applications; a rejected application must be resubmitted and loses its place in line. Further, a taxpayer will have 45 days to cure all substantive deficiencies that the development director identifies in a complete application. After that time the application will be rejected and must be resubmitted.

    The development director will review an application to determine whether:
    • The building is a "historic building" (defined below) and that the applicant is the owner of the fee-simple interest in the building.
    • The rehabilitation will satisfy the rehabilitation standards prescribed by the United States Secretary of the Interior under the National Historic Preservation Act.
    • If receiving the credit is a major factor in the taxpayer's decision to rehabilitate the building or to increase the level of investment in the rehabilitation.
    Most importantly, the taxpayer must demonstrate to the satisfaction of the preservation officer and the development director that the anticipated rehabilitation will satisfy the rehabilitation standards before beginning the physical rehabilitation for which the credit is sought. Although the statute is not explicit and there is no regulatory guidance on point, we think the best interpretation of the statute is that expenditures made in connection with an ongoing rehabilitation can qualify for the credit if the rehabilitation to which those expenditures relate is approved by the development director and preservation officer prior to beginning that physical rehabilitation.

    If the criteria in the preceding paragraph are satisfied, the development director and the Ohio Tax Commissioner will conduct a cost and benefit analysis to determine whether the rehabilitation will result in a net revenue gain to the state and local governments. The regulations indicate that a net revenue gain will exist when the present values of state and local taxes relating to the rehabilitation during a certain period exceeds the amount of the credit. State and local taxes include real and personal property taxes, sales and use tax, individual income tax, school district income tax, dealer-in-intangibles tax, corporate franchise tax, commercial activity tax, and domestic and foreign insurance taxes.

    If the application is approved, the development director will issue a tax credit certificate to the taxpayer upon completion of the rehabilitation in accordance with the standards. However, the amount of qualified rehabilitation expenditures stated on the certificate will be subject to inspection and examination by the tax commissioner. The taxpayer must request and receive approval from the development director prior to implementing any modification to the project as it is described in the approved application. Such modifications include changes in rehabilitation activities or end use. The taxpayer cannot appeal the development director's determinations or decisions.

    A "historic building" is:
    • Listed on the National Register of Historic Places.
    • Located in a registered historic district and certified by Ohio's preservation officer as being of historic significance to the district.
    • Listed as a historic landmark by a local government.
    "Qualified rehabilitation expenditures" are expenditures made during a certain period and incurred by the owner in the rehabilitation of a historic building. Also included in this definition are architectural or engineering fees paid in connection with the rehabilitation and expenses for the preparation of nomination forms listing the building on the National Register. However, the cost of acquiring, expanding or enlarging a building; new building construction costs; and the cost of work done to related facilities are not included.

    The taxpayer must claim the credit in the calendar year specified in the tax credit certificate. The credit is nontransferable and is to be applied to the tax liability of the owner or, if the owner is a pass-through entity, to the shareholders, partners or members of that entity. If the credit amount exceeds the taxpayer's tax liability for the year in which the credit is claimed, the balance of the credit amount is refunded to the taxpayer. The taxpayer claiming the credit must retain the certificate for four years following the end of the year in which the credit is claimed and must make the tax credit certificate available for inspection by the tax commissioner during that time.



    Save the Date – Squire Sanders Ohio Historic Tax Credit Simulcast

    Monday, May 21, 2007

    To assist building owners hoping to take advantage of the refundable tax credit, on May 21, 2007 Squire Sanders will host a lunch simulcast to discuss the recently proposed regulations implementing the new Ohio Historic Tax Credit Law. The program, to be held in our Columbus office, will run from 11:30 a.m. to 2 p.m. and simulcasted in our Cleveland office. You will also be able to participate in the main presentation via a dial-in teleconference connection from 12:30 to 2 p.m. from outside our Columbus and Cleveland offices.

    Agenda

    11:30 a.m. – Registration and networking

    Noon – Welcome and lunch

    12:30 p.m. – Presentation

    1:30 p.m. – Q&A

    2 p.m. – Conclusion

    We hope you will be able to attend!

    Event Contacts:

    Columbus
    Stephanie S. Sharp
    +1.614.365.2321
    sssharp@squirepb.com

    Cleveland
    Terry M. Desautels
    +1.216.479.8054
    tdesautels@squirepb.com

    Teleconference
    John Nisky
    +1.216.479.8531
    jnisky@squirepb.com