Sunday, June 23, 2024

Historic Tax Credits lead to $3.7 Billion in investment, report says

by BIZ Magazine

BATON ROUGE, La. – Over the last ten years, from 2009-2018, the Federal Historic Rehabilitation Tax Credit Program and the State Commercial Tax Credit Program have resulted in more than $3.7 billion in investments rehabilitation projects in Louisiana. These tax credit programs encourage the preservation and continued use of historic buildings by offering economic incentives for their rehabilitation. A study by PlaceEconomics, from 2007-2016, revealed that every $1 the state of Louisiana provides in commercial tax credits spurs nearly $9 in additional economic activity. That same study showed that for every $1 in tax credits awarded the Louisiana Treasury received $.42 back before a developer or property owner could even use the tax credit. Fully half of all projects receiving the credits were smaller than $500,000 in total costs, demonstrating the historic tax credit is fundamentally a small business incentive.

“These programs have helped preserve many historic buildings throughout Louisiana. They not only offer an incentive to preserve historic buildings, but also act as a major force in economic development,” said Lieutenant Governor Billy Nungesser. “The use of tax credits encourages private sector rehabilitation of historic buildings and is one of the most successful and cost effective community revitalization programs. These programs generate jobs and create commercial, residential, and industrial spaces within historic buildings.”

A tax credit is a direct, dollar-for-dollar, reduction in the amount of money a taxpayer must pay in taxes for a given year. Louisiana’s commercial historic tax credit is 20% of the qualifying rehabilitation expenditures. For example, if a building owner invests $100,000 in the appropriate rehabilitation of their historic building and uses the State Commercial Tax Credit Program, the owner will receive $20,000 credit against their state income tax liability. A credit is much better than a deduction which merely reduces a taxpayer’s income and places them in a lower tax bracket.

“Louisiana is consistently one of the top ten performing states in the nation, both for the number of historic rehabilitation projects completed and dollars leveraged. To date, since the federal and state programs began, historic rehabilitation tax credits have leveraged nearly $5 billion in investment in historic properties in Louisiana alone,” said Kristin Sanders, Assistant Secretary for the Office Cultural Development.

A PlaceEconomics study of the historic tax credit from 2007-2016 showed that an estimated $1.27 billion investment using the federal historic tax credit – nearly 60% of the total – would not have taken place were it not for the State Commercial Tax Credit. Had this investment not been made, each of those 10 years would, on average, have seen:

  • 1,497 fewer jobs

  • $78,518,000 less in labor income

  • $10,735,000 less in state tax collections

Some 35 other states also have historic tax credits, but the vast majority of them are simply a state version of the federal historic tax credit. The Legislature in Baton Rouge wanted to create a state tax credit that reflected the particular needs and challenges in Louisiana. Thus, the State Commercial Tax Credit program was created that differs in important ways from the federal tax credit. The most important of these difference are:

While the eligibility for the federal tax credit is for a property that is individually listed on the National Register of Historic Places or is a contributing building in a National Register Historic District, the Louisiana state tax credit is available to historic buildings (generally those greater than 50 years old) that are located in either a Downtown Development District or a Certified Cultural District. This creates opportunities to use the state tax credit in areas of cities and towns that don’t have National Register districts, but do have historic buildings worthy of preservation.

The state tax credit earned through the investment in historic buildings is easily transferable to another party. While there is a mechanism to transfer the federal credits, it requires an ownership position in the rehabilitated property for at least five years. The transferability of the State Commercial Tax Credit means much less expenditure for transaction costs and allows both public and non-profit organizations to benefit from the credits. While sometimes it is possible for public or non-profit organizations to participate in a federal tax credit project, doing so is both an expensive and complex process.

Both the federal tax credit and the state tax credit are 20% of the qualifying rehabilitation expenditure; however, unless extended, the State Commercial Tax Credit Program is set to sunset December 31, 2021.

From 2009-2018, results from use of the State Commercial Tax Credit, the Federal Rehabilitation Tax Credit, or both include:

  • 34 of Louisiana’s 64 parishes have seen buildings rehabilitated through Federal and State historic tax credits.

  • 1,012 rehabilitation projects have been completed using the State Commercial Tax Credit.

  • Over $3.7 billion dollars have been invested in Louisiana’s historic buildings because of these tax credit programs.

  • 39,044 direct construction jobs generated resulting in nearly $1.5 billion in income for workers.

  • 42,949 indirect and induced jobs generated.

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