State & Local Tax Alert: Alabama Edition - September 25th, 2013

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Publications

Historical Commission Issues Emergency Regulations on Historic Structures Tax Credit

The Alabama Historical Commission has issued emergency regulations to implement the state’s new historic structures rehabilitation tax credit. Emergency Rules 460-x-23-.01ER through 460-x-23-.13ER took effect September 1, 2013. The tax credit is equal to 25% of the qualified rehabilitation expenditures made on certified historic structures and certified historic residential structures and 10% of qualified rehabilitation expenditures on qualified nonhistoric structures. The credit is applicable against the state corporate or personal income tax or financial institution excise tax. The legislation enacting the credit capped the total credit awarded by the state at $20 million annually for each of the next three years.

Paul Compton, a partner in the Birmingham office of Bradley Arant Boult Cummings LLP who regularly advises clients on transactions involving these and similar state and federal credits, said that despite the cap, legislators and businesses are excited by the credit, especially in conjunction with Alabama’s recently enacted “new markets” tax credit, which mirrors the federal credit. According to him, “There has been widespread interest in the Alabama historical tax credit for its ability to jump-start projects that needed just a little extra boost to come to fruition.”

The regulations provide that before beginning any “substantial rehabilitation work” on a qualified structure, applicants must submit a form application and rehabilitation plans to the commission. Additionally, applicants must submit an estimate of the qualified rehabilitation expenditures for the project. The application forms are available on the commission’s website (http://preserveala.org/currentissues.aspx) and may be submitted beginning October 1, 2013.

The application consists of two parts. Part A outlines the significance of the structure to be rehabilitated, while Part B describes the rehabilitation to be done on the structure. Part A can be filed before or simultaneously with Part B. After the commission staff determines that Parts A and B are complete, they will issue a tax credit allocation reservation based on the estimated qualified rehabilitation expenditures.

The emergency regulations require that at least:

  • 50% of the existing external walls of the structure remain in place as external walls;
  • 75% of the existing external walls remain in place as either external or internal walls; and
  • 75% of the internal structural framework remains in place.

Additionally, qualified rehabilitation expenditures must exceed $25,000 or 50% of the structure’s original purchase price, whichever is greater.

Three types of structures may qualify for the tax credit. They are:

  1. A certified historic structure—that is, a building that is located in Alabama and listed in the National Register of Historic Places, eligible for listing in the National Register, or contributing to the significance of a registered historic district;
  2. A certified historic residential structure that is or will be used as a single-family, owner-occupied residential structure, either freestanding or supported by party walls (individual units within a multiresidential structure such as a condominium or cooperative do not qualify); and
  3. Qualified nonhistoric structures that were built before 1936, do not include residential buildings, and do not meet the eligibility requirements of a certified historic structure or a certified historic residential structure but are certified by the commission as meeting the requirements of IRC Section 47(c)(l)(a) and (b).

There has been a good deal of publicity surrounding this new credit, primarily because of proposed projects in Birmingham, Mobile, and Selma. “Local banks, which can apply the Alabama historical tax credit against the high financial institution excise tax applicable to them, are especially motivated investors,” said Compton. Pointing to the special state caps for individual projects and in the aggregate, he added, “My greatest fear is that demand will significantly outstrip supply.”

Upcoming Seminars

Council On State Taxation 44th Annual Meeting

Phoenix, Arizona
10/23/2013

The Council On State Taxation (COST) will hold its 44th Annual Meeting / Fall Audit Session in Phoenix, Arizona at the Sheraton Wild Horse Pass. On October 23, Brett Carter of Bradley Arant Boult Cummings LLP (Nashville) and Bill Backstrom of Jones Walker, LLP (New Orleans) will speak on “Dotting Your “I’s” and Crossing Your “T’s” – Mixing SALT Into Your Transaction Documents.” On October 24, Chris Grissom of Bradley Arant Boult Cummings LLP, Margaret Wilson of Reeder Wilson LLP, and Steve Wlodychak of Ernst & Young LLP will be speaking at a breakout session on “State Taxation of Pass-Through Entities and Their Partners/Members.” For more information, visit www.cost.org.

20th Annual Paul J. Hartman / Vanderbilt University State and Local Tax Forum

Nashville, Tennessee
10/28/2013

Lorman Education Services' Annual Sales Tax Seminar

Birmingham, Alabama
11/1/2013

Lorman Education Services’ annual seminar on “Sales and Use Tax in Alabama” will be held at The Harbert Center in downtown Birmingham. Bruce Ely, Jimmy Long, Will Thistle and Sims Rhyne will be leading this comprehensive eight hour course. For more information, visit www.lorman.com or contact one of the speakers.