Save the Alamo…and Many More Buildings: Texas passes historic tax credit bill

6 min read

When the term “historic Texas building” is mentioned, almost everyone conjures up the same image: the Alamo Mission in San Antonio, with its heroic evocations of Davy Crockett, Jim Bowie and Colonel William Travis. But Texas’ rich history has generated many lesser-known structures well worth preserving. And in 2013, the state legislature went a long way toward promoting their creative and functional re-use, through the passage of House Bill 500: the Texas Historic Rehabilitation Tax Credit.

Texas has always had a strong sense of its own history and heritage, and the Texas Historical Commission has been its advocate since its creation more than sixty years ago. Practically speaking, the new law provides Texas  the means, previously available in thirty-five other states, to compete for

investment dollars on projects with historical significance that otherwise might not be financially viable without the addition of this tax credit provision.

House Bill 500 went into effect January 1, 2015 and applies to properties placed in service on or after September 1, 2013. To qualify, the property must be listed in the National Register of Historic Places – either individually or as part of an historic district – or designated as Recorded Texas Historic Landmarks or State Antiquities Landmarks. Typically, a building must be at least fifty years old to be considered for historic status, though exceptions can be made. Among eligible building uses are residential, community facilities, hotels, office, retail and theater.

It is noteworthy that the credit is not limited to structures inherently historic or architecturally important. If the building is associated with a significant person or event, that may also qualify.

The credit is worth twenty-five percent of eligible rehabilitation costs for the project, with a minimum value of $5,000. Since Texas has no state income tax, the credit is applied against a business’s franchise tax obligation.

State officials anticipate that developers will combine this new state credit with the Federal Historic Rehabilitation Tax Incentive. That program offers a twenty percent income tax credit for the rehabilitation of historic, income-producing buildings, as determined by the National Park Service, and a ten percent credit for the rehabilitation of non-historic buildings. To be eligible for the federal credit, a project needs to show qualified rehabilitation expenditures equal to or greater than the owner’s basis in the building.

Additionally, municipal and local taxing authorities may grant tax exemptions for historic properties or local landmarks according to Title 1, Section 11.24 of the Texas Tax Code, if they meet either historic or antiquities requirements. And the state offers a sales tax exemption on the labor (not materials) needed to restore, repair or remodel a National Register of Historic Places-designated commercial building. Labor on residential buildings is non-taxable by law.

Unique Flexibility

One of the most attractive features of the new state credit is its flexibility. An historic building’s owner can either transfer or allocate it to an entity that has Texas franchise tax liability. The state credit may be carried forward for five years and reallocated. Some companies purchase historic tax credits from building owners.

To qualify for the credit, it is recommended that owners consult with and apply to the Texas Historical Commission before project work begins. The application will include information and background on the building’s historical status and details of the rehabilitation, along with Before and After photographs. Once the commission issues the Certificate, the owners submits it, along with an audited cost report to the state Comptroller, in conjunction with a franchise tax report. The federal process is fairly similar.

The Texas Historical Commission is the preservation authority, with  stated purposes of “Empowering local, state and national partners to effectively preserve the resources that keep Texas history alive,” and “Teaching Texas communities to use historic assets to help create economic opportunities and foster a sense of place.”

Aggressive Statewide Push

Both businesses and preservation groups are touting the new credits across the state to municipalities, civic associations and gatherings of ordinary citizens, encouraging enthusiasm  as well as community cooperation and commitment. A PowerPoint-enhanced program jointly presented by Preservation Dallas and the Galveston Historical Foundation begins with a photograph of the Alamo next to Allen Street Drugs in Dallas, a hangout for African American “cool cats” in the 1940’s. Through this kind of juxtaposition, the point is being made that the new bill represents a solid commitment to preserve the built history of the state across a diverse panorama of experiences, as well as  an effort to maintain these structures as useful and adaptable to modern needs.

The presentation stresses the tangible and visual link to the past that historic preservation provides, as well as “telling a story about a community, person, or event.” Moreover, it states, preservation “adds to a sense of place and uniqueness,” and “can help the local economy with tourism, jobs, and improved property values.” The greatest benefit, a number of preservationists say, may be the revitalization of small city downtowns. The Texas Downtown Association was among the legislation’s strongest supporters. Bill MacRostie of MacRostie Historic Advisors, agrees. “We’re already seeing the positive impact of the new program,” he said. “We believe small and medium city Main Streets as well as large urban centers will be huge beneficiaries.”

A perfect example of the new credit’s uses is the Baker Hotel in Mineral Wells – about fifty miles from Dallas-Fort Worth. It opened as an elegant high-rise in 1929 and was a popular spa destination in the 1930s. New life was injected in the 1940s when the U.S. Army opened the large Fort Wolters infantry base. The Texas Republican Party held its 1952 and 1955 conventions at the hotel and the Democrats convened there in 1954. But for much of the time since then, the once stately architectural grand dame has been shuttered and derelict. It was even featured on a 2012 episode of the Travel Channel series, Ghost Adventures.

Plans have been in place for years to bring the structure back to its past glory. But rehab will cost about $55 million. With a combination of federal, new market and now, state tax credits, the project becomes viable and is expected to stimulate revitalization of its downtown neighborhood.

Other cities with derelict buildings anchoring fading downtowns are expected to follow suit. Whitney LaNasa, vice president of Stonehenge Capital, a national company with expertise in structured tax credit financing, was quoted recently by CPA Nick Hoehn in the on-line journal of Novogradac, the national accounting firm:

“Prior to the Texas historic tax credit, historic rehabilitation opportunities in Texas were simply not as attractive as in other states that offered the credit. This credit will put Texas on an equal playing field and in many cases provide the final piece of the financing puzzle to make the deals work.”