Model Policy: The Missouri State Rehabilitation Tax Credit
Important Update: Missouri Legislators Cap Rehabilitation Tax Credit
Missouri's 25% rehabilitation tax credit was capped at the end of a recent legislative session. Preservation Missouri and a coalition of advocates worked hard to negotiate a sizable cap of $75 million for FY 2010 and $140 million thereafter, along with a small deals exemption for projects with under $1.1 million in qualified rehabilitation expenses. Advocates estimate that these small deals make up 75% of the current tax credit projects. Legislators also placed a cap of $250,000 in credits for rehabbing an eligible residential property.
About Missouri's Rehabilitation Tax Credit
In total, 29 states offer some form of tax credit for rehabilitating older buildings, and for good reason – these incentives are absolutely critical to preserving local heritage. However, not all state credits are created equally and, as a result, overall effectiveness varies considerably.
As one of the first states to enact such a program, Missouri continues to lead the way with its rehabilitation policy, which currently offers a 25% credit for qualified expenses in rehabilitating commercial and owner-occupied properties listed on the National Register or located in a certified historic district.
Unlike the federal-level rehabilitation tax credit, the Missouri state-level credit includes residential properties – although they comprise only about 3% of all historic tax credit projects in Missouri – into the mix. For commercial projects, the state-level credit can be "stacked" or combined with other federal incentives.
Another important component of Missouri's exemplary credit is that it permits transferability, or the ability to make an outright transfer of the tax credit to another person or entity. This provision allows the party that earns a credit – which may not have substantial tax liability – to sell the credit to a third party with greater tax liability.
Above all, the most crucial aspect of Missouri's highly successful historic tax credit is the absence of either an annual aggregate or a per-project cap. These types of restrictions typically lead to a high degree of uncertainty for developers, lenders and investors, therefore resulting in a sharp decline in usage.
Missouri's Rehabilitation Tax Credit By the Numbers
In just ten years, over 900 rehabilitation projects in 37 counties and 55 communities across the state of Missouri have been completed thanks to the historic tax credit. This translates into over $2 billion that has been invested in the rehabilitation of historic buildings.
The program works for small as well as large projects. Only 11% of the projects completed were those with over $5 million in expenditures. The majority are smaller preservation projects. In fact, over 45% had less than $250,000 in expenditures, and nearly 15% were below the $100,000 mark.
Not surprisingly, Missouri leads the nation in use of the federal-level rehabilitation tax credit. Statistics from Missouri show that having a productive state historic preservation tax credit program increases the use of the federal tax credit. According to state officials, the number of projects using federal rehabilitation tax credits doubled after the introduction of the state credit.
Visible Impact of Missouri's Rehabilitation Tax Credit
From the rehabilitation of Main Streets and residences to the transformation of major urban centers, the impact of Missouri's policy can be seen across the state. One of the biggest success stories comes from St. Louis, where the credit was used to help rehabilitate nearly 100 vacant and abandoned buildings in the core of the city.
However, the impact of the policy goes far beyond just the restoration of historic structures and the preservation of heritage; it has had major economic, environmental and social implications as well.
To quote John Williams, the president of the St. Louis Association of Realtors, “Economically, restoration projects have created well-paying jobs and increased tourism dollars. Property vales have increased, as well as revenue to local municipalities. Environmentally, restoring versus demolishing old buildings has helped reduce construction debris and conserve energy. Psychologically, more people are considering downtown as a viable place to work, play and live.”
Submitted by Kathy Smith at: February 23, 2009
Why does this keep coming up all of the time and why is it just Republican Senators that are doing it now? I heard that someone in St. Louis has abused the tax credits. Can't they find a way to stop the abuse by this guy?
Submitted by Clinton Brown at: February 20, 2009
What has been the dollar cost of the credit to the state of Missouri? What has been the cost of the tax credit that supported the "over $2 billion that has been invested in the rehabilitation of historic buildings."? Thanks. clintonbrown@clintonbrowncompany.com