Spring 2010 issue of Horizons

Raise Your Expectations CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

Widely admired by other states around the country for its effectiveness and economic impact, Missouri once again led the nation in 2008 in federal historic tax credit investments. The federal program, working together with the state tax credit program, has attracted billions of equity investment dollars to the state. Noonan highlighted several economic benefits the program has provided, including the following: • More than 4,000 jobs were created in fiscal year 2007 according to a report administered by the Missouri Department of Economic Development (DED) in 2008. • 40,000 jobs have been created since its inception in 1998, according to Donovan Rypkema. • $100,000 has been returned in state taxes and $92,000 has been returned in local taxes for every $1 million of rehabilitation investment (Rypkema, 2008). • Over 10 years, every dollar of authorized program tax credits has returned $15.46 Keller and Colleen Conrad, partner in RubinBrown’s Real Estate Services Group, provided updates on the historic tax credit program’s 2009 legislative and rule changes. They reviewed a comparison of the old guidelines to those that became effective with the new rules. Most of the rule changes that became effective in February 2009 focused on the following: in new economic output, totaling more than $2 billion dollars (DED, 2008).

The most significant changes relate to tougher requirements on all identity of interest transactions, such as developer, contractor and consultant fees. DED has tightened up the disclosure and audit requirements in an effort to ensure these transactions are adequately disclosed, priced at fair market value, and have been paid in accordance with contract terms and state requirements. Also new is the requirement that only 90 percent of the developer fee can be accrued, and it must be fully paid within six years of final completion. Additionally, another new rule requires an independent audit of the general construction contract when an identity of interest exists between the building owner and the contractor. Conrad also reviewed the 2009 legislative changes, which put into place program and project caps on the amount of tax credits that can be issued in any one year. Under the prior law, no program caps existed on the amount of credits that could be issued in any one year. Lawmakers felt that the only way to measure and budget the HTC program was to place annual limits on the amount of tax credits that could be issued.

Summary of Tax Credit Program Caps:

• $70 million for projects receiving final approval from DED between January 1, 2010 – June 30, 2010 • $140 million annually beginning July 2010

In addition to the program caps, lawmakers also put limits on certain projects.

• Added new (stricter) requirements related to identity of interest transactions • Changed the definitions of certain terms in the historic tax credit guidelines • Increased the requirements related to audited cost certification reports

Summary of Project Tax Credit Caps:

• $250,000 is the maximum amount of credits that will be allowed for each owner-occupied residential building.

54 u spring 2010 issue