About State Tax Credits

One of the most recent successful rehabilitation tools has been the implementation of state historic tax credits. Too often because of a number of factors such as location, rental values, etc. , projects that even qualify for the federal rehabilitation tax credits are still not financially viable and require additional sources of funds. This led more then 30 states to adopt their own form of a historic tax credit. Due to the ability to monetize these credits they have become a catalyst to achieve project viability. Programs vary and some are more effective than others. Some programs have no state credit cap while others may have a state cap or per project cap.

In general, state historic tax credits vary from 10% of qualified costs to 25% of qualified costs. What qualifies varies state to state, but in general most follow the federal system and should be looked at carefully. Two of the most important characterizations for a successful state program is the ability to freely transfer the tax credit to a third party outside of the partnership and the ability to bifurcate the federal credit from the state credit. These two features are the main drivers for an efficient state program. TIF’s in-depth experience and knowledge in the state credit field has ensured that developers’ and investors’ expectations are met and assumptions are accurate early in the process.

Approximately 40 states have adopted film production tax credits as an economic development tool to lure film production companies to their state. Although state based on credit percentage and efficiency. With the reduction in debt and equity for film production, the production companies are dependent on the financing of the tax incentives. TIF, through its affiliate, Sakonnet Capital Partners, has bridged financed and monetized film tax incentives on a global level and is one of the leaders in the industry.

In addition to the Section 42 federal tax credit program, states offer state low-income housing tax credits. For example, in 1999 the State of Massachusetts enacted Section 31H of Chapter 63 and Section 6I of Chapter 62 of the Massachusetts General Laws, the Massachusetts Low-Income Housing Tax Credit Program, which has proven to be a catalyst for the acquisition, construction and rehabilitation of properties in the State’s much neglected urban and town centers. The program permits the Massachusetts Department of Housing and Community Development (“MDHCD”) to allocate to qualified low-income housing projects an amount in excess of $10,000,000 annually in tax credits that allow a dollar-for-dollar reduction of Massachusetts’ corporate excise and personal income taxes. In its most simple form, the program is available to housing projects that were developed with federal low-income housing tax credits, and eligibility for the Massachusetts low-income housing tax credit closely mirrors the eligibility standards applicable for the federal credit.

Some states, such as Massachusetts, offer brownfield remediation tax credits for the environmental remediation of certain sites. TIC has worked with developers during all stages of development to help recoup remediation costs through the monetization of state brownfield credits. TIC will assist developers prepare the appropriate application, meet with site professionals, work through the process with the necessary government officials and monetize the credit.

In 1998, Massachusetts passed the Brownfields Act to encourage the cleanup and redevelopment of contaminated property in Massachusetts. The Act provides liability relief and financial incentives to attract new investments in contaminated properties and ensure that the state’s environmental standards are met.

The Act protects certain owners and operators from liability once they meet Department of Environmental Protection (“DEP”) standards for hazardous material releases as long as they did not own or operate the property at the time of the release or cause the contamination on the property. The Act also protects owners and operators from liability for future violations and establishes covenant not to sue for if they meet certain statutory requirements.

Importantly, the Act provides financial incentives, including an access to capital program and tax credits for taxpayers that pursue remediation programs in accordance with Massachusetts law.

A number of states have adopted renewable energy state tax credits that address nearly all renewables. Most statutes provide tax credits eligible for the cost of equipment and associated design; construction costs; and installation costs by a taxpayer. Many programs are subject to various ceilings depending on sector and the type of renewable- energy system. Similar to other tax credits, the value of a credit investment is dependent on the strength of the sponsor, program efficiency and recapture risk. TIC works closely with project sponsors and professionals to identify the appropriate investor for the specific development.