The following article is the fifth in a series about economic development tools and how to use them.
The Abandoned Buildings Revitalization Act tax credit is the final economic development tool covered in this series. The General Assembly passed the act “to create an incentive for the rehabilitation, renovation and redevelopment of abandoned buildings located in South Carolina” by offering a state income tax or property tax credit to eligible projects.
The ABRA credit can be a powerful catalyst for rehabilitating empty and underutilized buildings that contribute to blight and safety concerns in urban and rural communities. This credit is structured and administered in a manner very similar to the textile revitalization and retail facilities credits.
Eligible abandoned building means “a building or structure, which clearly may be delineated from other buildings or structures, at least 66 percent of the space in which has been closed continuously to business or otherwise nonoperational for income producing purposes for a period of at least five years immediately preceding the date on which the taxpayer files a Notice of Intent to Rehabilitate.”
Building site is considered “the abandoned building together with the parcel of land upon which it is located and other improvements located on the parcel. However, the area of the building site is limited to the land upon which the abandoned building is located and the land immediately surrounding such building used for parking and other similar purposes directly related to the building’s income producing use.”
Eligible rehabilitation expenses are “expenses incurred in the rehabilitation of the eligible site, excluding the cost of acquiring the eligible site or the cost of personal property maintained at the eligible site.”
Rehabilitation expenses are “expenses or capital expenditures incurred in the rehabilitation, demolition, renovation, or redevelopment of the building site, including without limitations, the renovation or redevelopment of existing buildings, environmental remediation, site improvements, and the construction of new buildings and other improvements on the building site, but excluding the cost of acquiring the building site or the cost of personal property located at the building site.” Demolition expenses are not considered a rehabilitation expense for purposes of calculating the amount of the credit if the building being demolished is on the National Register for Historic Places.
Eligibility ThresholdIn recognition of the difficulty to attract investment in smaller communities, the Act established a declining minimum rehabilitation expense eligibility threshold based on population. The minimum rehabilitation expense per abandoned building unit is $250,000 in unincorporated areas of a county or a municipality of more than 25,000 population; $150,000 in unincorporated areas of a county or a municipality between 1,000 to 25,000 in population; and $75,000 in a municipality of less than 1,000 population.
A taxpayer who rehabilitates an abandoned building can choose between one of two available tax credits. SC Code of Laws Section 12-67-140
Option 1: credit equal to 25 percent of eligible rehabilitation expenses taken against state taxes/fees including income tax, corporate license fee, taxes on associations, or a combination of these taxes/fees
Option 2: property tax credit equal to 25 percent of the rehabilitation expenses for each local taxing entity consenting to the credit, up to 75 percent of the real property taxes due for each entity on the eligible site
A taxpayer owning the building site immediately prior to its abandonment is not eligible for the tax credit.
To receive the tax credit, the owner/developer must first prepare and submit a Notice of Intent to Rehabilitate to the state Department of Revenue for option one (state tax/fee credit) or the municipality or county for option two (property tax credit)
The notice must indicate the taxpayer’s intent to rehabilitate the building site, the site’s location, the amount of acreage involved, the amount of square footage of existing buildings on the site, and the estimated expenses for rehabilitating the site. The notice must also indicate which buildings the taxpayer intends to renovate and whether new construction is involved.
The credit amount is equal to a maximum of 25 percent of the actual rehabilitation expenses made at the building site, after filing the NOIR. Rehabilitation expenses falling below 80 percent or above 125 percent of the estimate detailed in the NOIR or incurred prior to filing the NOIR are not eligible for the tax credit.
If the taxpayer choses the state income tax credit, he must take the tax credit in equal installments over a five-year period, beginning when the property is placed into service. The maximum annual credit is capped at 50 percent of either annual taxpayer liability on income tax or taxes on associations or corporate license fees. For each abandoned building site, the credit cannot exceed $500,000 for any taxpayer in a tax year. Any unused portion may be carried forward for the next five years.
To claim the property tax credit, the taxpayer must get approval of the site and proposed project from the municipality or county where the site is located. The local government must determine and certify the eligibility and proposed rehabilitation expenses by a resolution approved by a positive majority vote. This determination must include a finding that the credit will not violate any covenant, representation or warranty in an existing tax increment financing district.
Council must then hold a public hearing and approve the tax credit by adopting an ordinance that provides for the credit to be taken against up to 75 percent of the real property taxes due on the site each year for a period not to exceed eight years.
The local taxing entity ratio, which is the millage rate of each participating local taxing entity, divided by the total combined millage rate of all participating taxing entities must be set at the time the NOIR is filed and must remain fixed for the credit period.
At least 45 days before holding the public hearing, the governing body must give notice to all affected local taxing entities where the site is located of its intention to grant the property tax credit. The notice must include the estimated credit based on projected rehabilitation expenses. If the other local taxing entities do not file an objection, they are deemed to have consented to the credit.
The abandoned building credit may also be passed through to lessees or purchasers of the property. For properties eligible for the income tax credit, the credit can be combined with state and federal historic rehabilitation tax credits. This would mean a potential credit equal to 55 percent of qualified rehabilitation expenses–20 percent federal historic preservation, 10 percent state historic preservation and 25 percent abandoned building credit. If the taxpayer qualifies for the abandoned building credit and the credit allowed by the Textiles Communities Revitalization Act or the Retail Facilities Revitalization Act, the taxpayer may claim only one of the three credits.