SECTION 3.598. Margin: Tax Credit for Certified Rehabilitation of Certified Historic Structures

(a) Effective date. The provisions of this section apply to franchise tax reports originally due on or after January 1, 2015, except as otherwise noted.

(b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Audited cost report--A report that itemizes the eligible costs and expenses incurred by the entity in the certified rehabilitation of the certified historic structure and that is issued by a certified public accountant who holds a certificate issued under Occupations Code, Chapter 901 (Accountants) or is an out-of-state practitioner with substantially equivalent qualifications as provided by Occupations Code, §901.462 (Practice by Out-of-State Practitioner with Substantially Equivalent Qualifications).

(2) Certificate of eligibility--The certification issued by the commission in accordance with Tax Code, §171.904 (Certification of Eligibility), confirming that the property to which the eligible costs and expenses relate is a certified historic structure and that the rehabilitation qualifies as a certified rehabilitation; and specifying the date the historic structure was first placed in service after the rehabilitation.

(3) Certified historic structure--A property in this state that is:

(A) listed individually in the National Register of Historic Places;

(B) designated as a Recorded Texas Historic Landmark under Government Code, §442.006 (State Historical Marker Program), or as a state archeological landmark under Natural Resources Code, Chapter 191 (Antiquities Code); or

(C) certified by the commission as contributing to the historic significance of:

(i) a historic district listed in the National Register of Historic Places; or

(ii) a local district certified by the United States Department of the Interior in accordance with 36 Code of Federal Regulations, §67.9 (Certification of State or Local Historic District).

(4) Certified rehabilitation--The rehabilitation of a certified historic structure that the commission has certified as meeting the United States Secretary of the Interior's Standards for Rehabilitation as defined in 36 Code of Federal Regulations, §67.7 (Standards of Rehabilitation).

(5) Commission--The Texas Historical Commission.

(6) Eligible costs and expenses--Except as provided in subparagraphs (A) and (B) of this paragraph, qualified rehabilitation expenditures, as defined by Internal Revenue Code, §47(c)(2) (Rehabilitation Credit), incurred by the entity establishing the credit.

(A) Nonprofit corporation exempt from federal income tax. Effective for reports due on or after January 1, 2016, the provisions of Internal Revenue Code, §47(c)(2)(B)(i) (Straight-line depreciation must be used) and (v) (Tax-exempt use property) do not apply to costs and expenses incurred by an entity exempted under Tax Code, §171.063 (Exemptions-Nonprofit Corporation Exempt from Federal Income Tax) if the other provisions of Internal Revenue Code, Section §47(c)(2) are satisfied.

(B) Institution of higher education or university system. Effective for costs and expenses incurred on or after June 14, 2017, and before January 1, 2022, the provisions of Internal Revenue Code, §47(c)(2)(B)(i) and (v) do not apply to costs and expenses incurred by an institution of higher education or university system as defined by Education Code, §61.003 (Definitions), if the other provisions of Internal Revenue Code, §47(c)(2) are satisfied.

(7) Placed-in-service date--The date specified on the certificate of eligibility issued by the commission. See also 13 TAC §13.1.

(8) Year--A calendar year.

(c) Qualifications for credit. An entity may qualify for a credit for eligible costs and expenses incurred by the entity in the rehabilitation of a certified historic structure provided in this section if:

(1) the rehabilitated certified historic structure is placed in service on or after September 1, 2013;

(2) the entity has an ownership interest in the certified historic structure in the year during which the structure is placed in service after the rehabilitation;

(3) the total amount of eligible costs and expenses incurred by the entity exceeds $5,000; and

(4) the entity received a Certificate of Eligibility from the commission.

(d) Establishing the credit.

(1) Required documentation. The entity that incurred the eligible costs and expenses in the certified rehabilitation of a certified historic structure must submit the following documentation to the comptroller to establish the credit:

(A) a Texas Franchise Tax Historic Structure Credit Registration, or any successor to the form promulgated by the comptroller, which includes an attestation of the total eligible costs and expenses incurred by the entity on the rehabilitation of the certified historic structure;

(B) a Certificate of Eligibility issued by the commission. The certificate must confirm:

(i) the property to which the eligible costs and expenses relate is a certified historic structure;

(ii) the rehabilitation qualifies as a certified rehabilitation; and

(iii) the date the certified historic structure was first placed in service after the rehabilitation; and

(C) an audited cost report.

(2) Submission of documentation. The documentation required in paragraph (1) of this subsection may be submitted to the comptroller:

(A) on or with the franchise tax report for the period for which the tax credit is claimed; or

(B) upon receipt of the Certificate of Eligibility issued by the commission.

(3) The burden of establishing eligibility for the credit is on the entity incurring the eligible costs and expenses.

(4) The comptroller will rely on the audited cost report. It is the responsibility of the certified public accountant hired by the entity establishing the credit to make a determination on whether items qualify as eligible costs and expenses.

(5) The credit must be established within the statute of limitations based on the due date of the first report on which the credit may be claimed under subsection (f)(1) of this section.

(6) Texas Franchise Tax Historic Structure Credit Certificate. Upon receipt of the required documentation, the comptroller will issue to the entity that incurred the eligible costs and expenses a Texas Franchise Tax Historic Structure Credit Certificate indicating the entity as the owner of the credit and the amount of credit available to that entity.

(e) Amount of credit.

(1) The total amount of the credit that may be claimed with respect to the certified rehabilitation of a single certified historic structure may not exceed 25% of the total eligible costs and expenses incurred in the certified rehabilitation of the certified historic structure. For purposes of approving the credit, the comptroller will rely on the audited cost report provided by the entity establishing the credit.

(2) The total credit claimed for a report, including the amount of any carryforward under subsection (g) of this section, may not exceed the amount of franchise tax due for the report after any other applicable tax credits.

(3) Eligible costs and expenses may only be counted once in determining the amount of the credit available, and more than one entity may not establish a credit for the same eligible costs and expenses.

(f) Claiming the credit.

(1) The first report on which the credit may be claimed is the report based on the accounting period during which the rehabilitated structure is placed in service. Rehabilitated historic structures placed in service between September 1, 2013, and December 31, 2013, are considered to be placed in service January 1, 2014, for purposes of this paragraph only. For example, a 2015 report with an accounting year of January 1 through December 31, 2014, may claim a credit for historic structures placed in service within the 2014 accounting year.

(2) An entity shall file with every report on which the credit is claimed the Texas Franchise Tax Historic Structure Credit Certificate issued to the entity by the comptroller, or any successor to the form promulgated by the comptroller.

(3) The reporting entity for a combined group may claim the credit for each member entity that has established a credit under this section.

(4) The burden of establishing the value of the credit is on the entity claiming the credit.

(g) Carryforward.

(1) If an entity is eligible for a credit that exceeds the limitations under subsection (e)(2) of this section, the entity may carry the unused credit forward and apply the credit to the tax imposed by this chapter in any of the succeeding five report years following the first report year after the certified historic structure is placed in service.

(2) A carryforward is considered the remaining portion of a credit that cannot be claimed in the current year because of the limitation under subsection (e)(2) of this section.

(3) The sale, assignment, or allocation of a credit in accordance with subsection (h) of this section does not extend the period for which a credit may be carried forward and does not increase the total amount of the credit that may be claimed.

(4) For example, for a structure placed in service in 2014, a credit may be claimed on the 2015 report and the credit carryforward may be applied to the following five consecutive reports: the 2016, 2017, 2018, 2019, and 2020 reports. The credit expires after the 2020 report.

(h) Sale, assignment, or allocation of credit.

(1) Sale or assignment. An entity that incurs eligible costs and expenses may sell or assign all or part of the credit that may be claimed for those costs and expenses to one or more entities, and any entity to which all or part of the credit is sold or assigned may sell or assign all or part of the credit to another entity. There is no limit on the total number of transactions for the sale or assignment of all or part of the total credit authorized under this section, however, collectively, all transfers are subject to the maximum total limits provided by subsection (e) of this section.

(2) Allocation. A credit earned or purchased by, or assigned to, a partnership, limited liability company, S corporation, or other pass-through entity may be allocated to the partners, members, or shareholders of that entity in accordance with the provisions of any agreement among the partners, members, or shareholders and without regard to the ownership interest of the partners, members, or shareholders in the rehabilitated certified historic structure. A partner, member, or shareholder to whom a credit is allocated may further allocate all or part of the allocated credit as provided in this paragraph or may sell or assign the allocated credit as provided in paragraph (1) of this subsection. There is no limit on the total number of allocations of all or part of the total credit authorized under this section, however, collectively, all transfers are subject to the maximum credit limits provided by subsection (e) of this section.

(3) Documentation.

(A) An entity that sells, assigns, or allocates a credit under this section to another entity shall provide a copy of the certificate of eligibility, together with the audited cost report, to the recipient of the credit.

(B) An entity that sells, assigns, or allocates a credit under this section and the entity to which the credit is sold, assigned, or allocated shall jointly submit:

(i) written notice of the sale, assignment, or allocation to the comptroller on a Texas Franchise Tax Sale, Assignment or Allocation of Historic Structure Credit form, or any successor to the form promulgated by the comptroller, not later than the 30th day after the date of the sale, assignment, or allocation. The notice must include the date of the sale, assignment, or allocation; the amount of the credit sold, assigned, or allocated; the names and federal identification numbers of the entity that sold, assigned, or allocated the credit or part of the credit and of the entity to which the credit or part of the credit was sold, assigned, or allocated; and the amount of the credit owned by the selling, assigning, or allocating entity before the sale, assignment, or allocation, and the amount the selling, assigning, or allocating entity retained, if any, after the sale, assignment, or allocation; and

(ii) Texas Franchise Tax Historical Structure Credit Certificate.

(C) Until the required documentation under subparagraph (B) of this paragraph is received by the comptroller's office, the recipient entity will not be allowed to claim the credit.

(4) Carryforwards. The sale, assignment, or allocation of a credit in accordance with this section does not extend the period for which a credit may be carried forward and does not increase the total amount of the credit that may be claimed.

(5) Limitation. After an entity establishes a credit for eligible costs and expenses, another entity may not use the same costs and expenses as the basis for establishing a credit.

Source Note: The provisions of this §3.598 adopted to be effective August 6, 2015, 40 TexReg 4904; amended to be effective November 22, 2016, 41 TexReg 9158; amended to be effective July 2, 2018, 43 TexReg 4466