Clarifies the application of the tax credit for rehabilitation of historic properties and historic homes and makes permanent certain provisions of the tax law regarding the credit

Summary of provisions

Section 1 of the bill would amend Tax Law (TL) § 606(oo) to clarify that the tax credit is allowed only to taxpayers subject to tax under the personal income tax provisions. Corporations, certain limited liability companies and other business entities are not subject to tax under the personal income tax provisions. Thus, the reference to these entities is being deleted as superfluous and confusing. Also, this section would change the reference to the federal rehabilitation credit to Internal Revenue Code (IRC) § 47(a)(2), to more accurately reflect that the New York credit is a percentage of the federal rehabilitation credit allowed, and is not a percentage of qualified rehabilitation expenses as that term is defined in IRC § 47(c)(2). In addition, under this bill, the sunset for the increased credit percentage and credit cap enacted by Chapter 239 of the Laws of 2009 would be set forth in the text of the Tax Law rather than the effective date of Chapter 239. This section therefore adds the credit language into the body of Tax Law § 606 (00) applicable to taxable years beginning on or after January 1, 2015. At that time, the credit would revert back to 30 percent of the federal rehabilitation credit, and the cap could not exceed $100,000. Finally, this section makes clear that if a taxpayer is a partner in a partner- ship or shareholder of a New York S corporation, the credit cap is applied at the entity level and not at the partner or shareholder level.

Section 2 of the bill would amend TL § 606(pp)(2)(A) and (B) to add the provisions applicable to taxable years beginning on or after January 1, 2015, in the same manner as in section 1 of the bill. This section would also amend subparagraph (A) to make a technical correction to provide that, if a taxpayer has more than one residence in the same year, the amount of credit shall not exceed $50,000 for taxable years beginning on or after January 1, 2010 and before January 1, 2015.

Section 3 of the bill would amend paragraphs 1, 3 and 4 of TL § 210(40) to make the same changes that are contained in section 1 of the bill to the credit provisions in the Article 9-A General Business Corporation Tax. This section also contains an amendment that provides that the credit cannot reduce the franchise tax due to less than the alternative minimum taxable income base or fixed dollar minimum. Under the corporate franchise tax, corporations subject to tax must pay a minimum tax for the privilege of exercising its corporate franchise in the state. This amendment would treat the historic preservation credit similarly to the other tax credits under Article 9-A, and is necessary to maintain Arti- cle 9-A's status as a franchise tax.

Section 4 of the bill would amend TL § 210(40) by adding a new paragraph 5 to follow the personal income tax provisions and provide that, in order to claim a rehabilitation credit for historic properties, the rehabilitation project must be in whole or in part in a targeted area residence pursuant to IRC § 143(j) or located within a census tract which is defined as being at or below one hundred percent of the state median family income in the most recent federal census.

Section 5 of the bill would amend TL § 1456 by adding a new subsection (u) to provide a credit for the rehabilitation of historic properties to banks subject to tax under Article 32 of the Tax Law.

Section 6 of the bill would amend TL § 1511 by adding a new subsection (z) to provide a credit for the rehabilitation of historic properties to insurance companies subject to tax under Article 33 of the Tax Law.

Section 7 of the bill would amend the effective date of Chapter 239 of the Laws of 2009 by striking the repeal date.

Section 8 of the bill would provide that the bill takes effect imme- diately and applies to taxable years beginning on and after January 1, 2010.

Existing law

The Tax Law contains two separate credits enacted in 2006 involving the rehabilitation of historic properties. A historic homeownership credit may be claimed under the personal income tax law based on the costs incurred for qualified rehabilitation expenditures with respect to a certified rehabilitation of a qualified historic home. To be eligible for the credit, the qualified historic home must be the taxpayer's resi- dence and must be located in New York State. The amount of the credit is equal to 20% of the qualified rehabilitation expenditures made by the taxpayer with respect to a qualified home and for taxable years begin- ning on or after January 1, 2010, the credit cannot exceed $50,000 per taxpayer per year. However, if a taxpayer incurs qualified rehabili- tation expenditures in relation to more than one residence in the same taxable year, the total amount of credit claimed by a taxpayer cannot exceed $25,000 per year.

The credit for the rehabilitation of historic properties applies to commercial buildings for which depreciation is allowable and is in both the general corporation franchise tax and the personal income tax. The law states that the credit is allowed to "persons, firms, partnerships, limited liability companies, corporations and other business entities". For tax years beginning on or after January 1, 2010, the amount of the credit is equal to 100% of the federal credit allowed under IRC 47(c)(2) for the same taxable year for the same certified historic structure located in New York State. However, the total amount of New York State credit allowed cannot exceed $5 million per structure. Under the personal income tax provisions, the rehabilitation project must also be in whole or in part a targeted area residence within the meaning of IRC § 143(j) which is a residence in an area which is either a qualified census tract or an area of chronic economic distress, or located within a census tract which is identified as being at or below 100% of the state median family income in the most recent federal census.

Statement in support

This bill would amend the bank and insurance franchise taxes to enable banks and insurance companies to claim a credit for the rehabilitation of historic properties. Currently, taxpayers subject to the personal income tax and general business corporation franchise tax are allowed to claim this credit. However, banks and insurance companies, which are key investors in real estate development projects, are currently not able to claim the tax credit. The bill would also amend the credit for the reha- bilitation of historic homes to provide a technical fix in the existing law by increasing the credit limit allowed, from $25,000 to $50,000, for taxpayers that incur qualified rehabilitation expenditures in relation to more than one residence in the same taxable year. Currently, taxpay- ers are allowed to claim a historic homeownership rehabilitation credit of $50,000, but if the taxpayer rehabilitates more than one historic home in a particular taxable year the limit is $25,000. In addition, the bill would make clarifications to existing law to more accurately reflect who is entitled to claim the rehabilitation credit and the prop- er amount of credit allowed. Finally, the sunset provisions including the increased credit percentage and credit cap enacted by Chapter 239 of the Laws of 2009 are being set forth in the text of the Tax Law rather than in the effective date of Chapter 239.

Effective date

This bill would take effect immediately.

Fiscal implications

This bill would reduce general fund revenue by an estimated $3 million in 2010-11, $5 million in 2011-12, and $3 million annually thereafter. The All Funds impact is identical.

Legislative history

This is a new bill.