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COMMITTEE REPORT
April 19, 2001
H. 3163
Introduced by Reps. Wilkins, Jennings, Campsen, Wilder, Whatley, Coates, Cobb-Hunter, Owens, Altman, Lourie, McLeod, Bowers and Robinson
S. Printed 4/19/01--H. [SEC 4/23/01 10:22 AM]
Read the first time January 9, 2001.
To whom was referred a Bill (H. 3163) to amend the Code of Laws of South Carolina, 1976, by adding Section 12-6-3535, so as to enact the "South Carolina Historic Rehabilitation Incentives Act", etc., respectfully
That they have duly and carefully considered the same and recommend that the same do pass with amendment:
Amend the bill, as and if amended, by striking the second paragraph of Section 12-6-3535(B)(3), as contained in SECTION 2, page 3, beginning on line 13, and inserting:
/ 'Rehabilitation expenses' do not include the cost of acquiring or marketing the property, the cost of new construction beyond the volume of the existing building, the value of an owner's personal labor, or the cost of personal property. /
Amend title to conform.
ROBERT W. HARRELL, JR. for Committee.
REVENUE IMPACT1/
This bill is expected to reduce general fund income tax revenue by an estimated $126,000 in FY 2001-02, an estimated $1,200,000 in FY 2002-03, and an estimated $2,500,000 in FY 2003-04.
Explanation
Currently, there is a 20 percent credit for restorations made to certain income-producing historic structures on a taxpayer's federal tax return, but not for restorations made to residential historic structures. This bill would provide a 20 percent state income tax credit for the rehabilitation of income-producing historic structures, and a 25 percent state income tax credit for the rehabilitation of certified-historic residential structures. This bill would allow individuals renovating certain properties to have up to 45 percent of their rehabilitation costs covered by the state and federal credits. To qualify, restorations made to certified-historic structures must exceed $15,000 within a three-year period. Credits may be accumulated over this period, but cannot be claimed until the tax year in which the work is completed. Earned credits cannot be taken in one lump sum, but must be claimed in equal installments over a five-year period, beginning in tax year 2003. Based on data from the South Carolina Department of Archives and History and conversations with officials from other states with similar credits, an estimated 14 income-producing historic projects are expected to qualify for the 20 percent credit, and 26 certified-historic residential projects are expected to qualify for the 25 percent credit initially in FY 2002-03. Based on advice from the Office of General Services, projects are expected to average $750,000. Multiplying 14 income-producing projects by an estimated cost of $750,000 per project, applying a 20 percent credit, and reducing the result by one-fifth, would reduce general fund income tax revenue by an estimated $420,000 in FY 2002-03. Many antebellum and post-reconstruction era structures located throughout the state, such as old hotels, warehouses, and plantations, could be renovated and produce income to the owners. The old Confederate printing building in Columbia would qualify under this bill, and the rehabilitation expense has been estimated to be at least $5,000,000 for this one project alone. Based on conversations with realtors in historic districts throughout the state, we estimate the expected projects to be $17,000,000. An estimated $17,000,000 of rehabilitative expense multiplied by a 20 percent tax credit and reduced by one-fifth would reduce general fund income tax revenue by an additional estimated $680,000 in FY 2002-03. Multiplying 26 residential projects by an estimated cost of $75,000 per project, applying a 25 percent credit, and reducing the result by one-fifth, would reduce general fund income tax revenue by an estimated $97,500 in FY 2002-03. This bill is expected to reduce general fund income tax revenue by an estimated $1,200,000 in FY 2002-03. Since the credits may be spread over a five-year period, this bill is expected to reduce general fund income tax revenue by a cumulative estimated $2,500,000 in FY 2003-04, and by increasing amounts in subsequent years. Since this bill would not become effective until the middle of FY 2001-02 and credits cannot be claimed until tax year 2003, we estimate that 10.5 percent of taxpayers may adjust their individual withholdings and estimated tax payments in FY 2001-02 resulting in a loss of general fund individual income tax revenue of $126,000 in FY 2001-02.
Approved By:
William C. Gillespie
Board of Economic Advisors
1/ This statement meets the requirement of Section 2-7-71 for a state revenue impact, Section 2-7-76 for a local revenue impact, and Section 6-1-85(B) for an estimate of the shift in local property tax incidence.
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTION 12-6-3535, SO AS TO ENACT THE "SOUTH CAROLINA HISTORIC REHABILITATION INCENTIVES ACT" WHICH PROVIDES AN INCOME TAX CREDIT FOR EXPENDITURES TO REHABILITATE HISTORIC STRUCTURES, WHICH PROVIDES FOR THE CARRY FORWARD OF UNUSED CREDIT, AND WHICH AUTHORIZES THE DEPARTMENT OF ARCHIVES AND HISTORY AND THE DEPARTMENT OF REVENUE TO PROMULGATE REGULATIONS FOR THE ADMINISTRATION OF THIS SECTION.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. This act may be cited as the "South Carolina Historic Rehabilitation Incentives Act".
SECTION 2. The 1976 Code is amended by adding:
"Section 12-6-3535. (A) A taxpayer who is allowed a federal income tax credit under Section 47 of the Internal Revenue Code for making qualified rehabilitation expenditures for a certified historic structure located in this State is allowed to claim a credit against the tax imposed by this chapter. For the purposes of this subsection 'qualified rehabilitation expenditures' and 'certified historic structure' are defined as provided in the Internal Revenue Code Section 47. The amount of the credit is twenty percent of the expenditures that qualify for the federal credit. To claim the credit allowed by this subsection, the taxpayer must attach to the return a copy of the section of the federal income tax return showing the credit claimed, along with any other information that the Department of Revenue determines is necessary for the calculation of the credit provided by this subsection.
(B) A taxpayer who is not eligible for a federal income tax credit under Section 47 of the Internal Revenue Code and who makes rehabilitation expenses for a certified historic residential structure located in this State is allowed to claim a credit against the tax imposed by this chapter. The amount of the credit is twenty-five percent of the rehabilitation expenses. To claim the credit allowed by this subsection, the taxpayer must attach to the return a copy of the certification obtained from the State Historic Preservation Officer verifying that the historic structure has been rehabilitated in accordance with this subsection, along with all information that the Department of Revenue determines is necessary for the calculation of the credit provided by this subsection.
For the purposes of this subsection:
(1) 'Certified historic residential structure' means a structure or portion of a structure that is an owner-occupied personal residence if the residence is not actively used in a trade or business, held for the production of income, or held for sale or disposition in the ordinary course of the taxpayer's trade or business; and that is:
(a) listed individually in the National Register of Historic Places;
(b) considered by the State Historic Preservation Officer to contribute to the historic significance of a National Register Historic District;
(c) considered by the State Historic Preservation Officer to meet the criteria for individual listing in the National Register of Historic Places; or
(d) an outbuilding of an otherwise eligible property considered by the State Historic Preservation Officer to contribute to the historic significance of the property.
(2) 'Certified rehabilitation' means repairs or alterations consistent with the Secretary of the Interior's Standards for Rehabilitation and certified as such by the State Historic Preservation Officer before commencement of the work. The review by the State Historic Preservation Officer shall include all repairs, alterations, rehabilitation, and new construction on the certified historic residential structure and the property on which it is located. The rehabilitation expenses must, within a thirty-six-month period, exceed fifteen thousand dollars. A taxpayer shall not take more than one credit on the same certified historic residential structure within ten years.
(3) 'Rehabilitation expenses' means expenses incurred in the certified rehabilitation of a certified historic residential structure, including preservation and rehabilitation work done to the exterior of a historic structure, repair and stabilization of historic structural systems, restoration of historic plaster, energy efficiency measures except insulation in frame walls, repairs or rehabilitation of heating, air-conditioning, or ventilating systems, repairs or rehabilitation of electrical or plumbing systems exclusive of new electrical appliances and electrical or plumbing fixtures, and architectural and engineering fees.
'Rehabilitation expenses' do not include the cost of acquiring or marketing the property, the cost of site work expenditures, the cost of new construction beyond the volume of the existing building, the cost of new electrical appliances and electrical and plumbing fixtures, the value of an owner's personal labor or the cost of personal property.
(4) 'State Historic Preservation Officer' means the Director of the Department of Archives and History or the director's designee who administers the historic preservation programs within the State.
(C)(1) The entire credit may not be taken for the taxable year in which the property is placed in service, but must be taken in equal installments over a five-year period beginning with the year in which the property is placed in service. For a certified rehabilitation of a certified historic residential structure 'placed in service' is defined as the taxable year the certified rehabilitation is completed. Any unused portion of any credit installment may be carried forward for the succeeding five years.
(2) A 'S' corporation, limited liability company, or partnership that qualifies for a credit under this section may pass through the credit earned to each shareholder of the 'S' corporation, member of the limited liability company, or partner of the partnership. For purposes of this subsection, limited liability company means a limited liability company taxed as a partnership. The amount of the credit allowed a shareholder, member, or partner by this subsection is equal to the shareholder's percentage of stock ownership, member's interest in the limited liability company, or the partner's interest in the partnership for the taxable year multiplied by the amount of the credit earned by the entity. The credit earned pursuant to this section by a 'S' corporation owing corporate level income tax must be used first at the entity level. Only the remaining credit passes through to each shareholder.
(D) Additional work done by the taxpayer while the credit is being claimed, for a period of up to five years, must be consistent with the Secretary of the Interior's Standards for Rehabilitation. During this period the State Historic Preservation Officer may review additional work to the certified historic structure or certified historic residential structure and has the right to inspect certified historic structures and certified historic residential structures. If additional work is not consistent with the Standards for Rehabilitation, the taxpayer and Department of Revenue must be notified in writing and any unused portion of the credit, including carry forward, is forfeited.
(E) The South Carolina Department of Archives and History shall develop an application and may promulgate regulations, including the establishment of fees, needed to administer the certification process. The Department of Revenue may promulgate regulations to administer the tax credit.
(F) A taxpayer may appeal a decision of the State Historic Preservation Officer to a committee of the State Review Board appointed by the chairperson."
SECTION 2. Upon approval by the Governor, this act is effective for taxable years beginning after 2001.
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