On Thursday, the proposal to increase the State Historic Tax Credit from 10 percent to 25 percent passed the House with 90 votes! SB 238 was set to be read a second time when the House suspended the constitutional rule that requires a bill to be read on three separate days. The House then took the bill up for immediate consideration and passed it, as amended by House Finance.
However, the amendments made by the House Finance Committee earlier this week are not ideal. The House Finance Committee Substitute would cap the funding for the State Historic Tax Credit program at $5 million dollars per year, increase the credit from 10 percent to 25 percent incrementally over the next three years, and limit the carryback and carryforward terms of the credit.
The $5 million dollar cap is unlikely to spark the redevelopment that is needed to revitalize West Virginia’s downtowns. Currently, in West Virginia if a developer completes a historic rehab project according to the state’s standards, their project then qualifies for the State Historic Rehabilitation Tax Credit. However, the $5 million dollar annual cap changes the very nature of the program in that it destroys the certainty that if a developer complies with standards set forth by the state, they will receive the credit. This lack of certainty as to the outcome will discourage historic redevelopment projects that absolutely require the credit to be financially feasible.
Imposing a credit cap can produce an adverse result in terms of incentivizing projects that could have moved forward regardless of the tax credit while excluding those which are not financially viable without the state incentive. Projects that require the credit to become viable may choose not to participate, because of the lack of certainty as to the outcome, the cost and time required to complete a competitive application that may not be rewarded, and the difficulties of arranging financing while working through an unpredictable process with the state. States without a program cap have been substantially more successful in attracting private investment to older areas that need it most than those states that have capped the credit.
As the committee substitute is currently written, the credit will increase to 15 percent on July 1, 2018. One year later, the credit will increase to 20 percent and in 2020, the credit would increase to 25 percent, which means that West Virginia’s State Historic Tax Credit will remain uncompetitive through June 30, 2020. To spur redevelopment and drive investment in our downtowns, the credit must be competitive with our neighboring states- Pennsylvania, Ohio and Virginia, all of which currently have 25% Historic Rehabilitation Tax Credits.
Lastly, the amendment to limit any unused portion of the credit from being carried back to any prior taxable year, or carried forward for a minimum of five years would negatively impact West Virginia’s small scale developers. Small scale developers often opt to spread the tax credit out over multiple years, rather than selling or syndicating it. The limits set forth in the substitute will hinder the ability of local property owners in the business of rehabbing small projects to utilize the full value of the State Historic Tax Credit. To incentivize small scale, main street type projects, taxpayers need the ability to carry the credit forward for at least 10 years, or ideally, 20 years.
For a bill to become law, an identical version must pass through both chambers. After passage in the Senate, the aforementioned amendments were made in the House Finance Committee, as a result, the bill will now be referred to a conference committee. Conference committees are typically comprised of three members from both chambers, selected by the Senate President and the Speaker of the House. Once the differences in both versions of the bill have been resolved by the conference committee, the bill will be sent to both chambers for an up or down vote.