The Minnesota Historic Structure Rehabilitation Tax Credit (MN Statute 290.0681), passed into law in 2010, has been a successful economic development tool for revitalizing distressed, vacant, and underutilized historic properties throughout the state. The credit provides a refundable income tax credit equal to 20% of qualified rehabilitation expenses made to buildings listed in the National Register of Historic Places and used for income-producing purposes (including office, industrial, retail, hospitality, and rental residential).
Economic Impact Analysis, like this one that looks at Historic Tax Credit projects approved during Fiscal Year 2018 (July 1, 2017-June 30, 2018), have consistently shown that the MN Historic Tax Credit more than pays for itself. The Historic Tax Credit (HTC) typically generates more than $9 in economic activity for every $1 allowed in the credit. From 2011-2018, the HTC resulted in an estimated $3 billion of economic activity, including $993.5 million in labor income, and supported 16,557 full-time jobs.
The MN Rehabilitation Tax Credit is tied to the Federal Historic Tax Credit in statute. Projects must qualify for – and claim – the Federal credit in order to receive the state credit.
The Tax Cuts and Jobs Act, passed in December 2017, restructured the terms by which the Federal credits are claimed. Project developers must now claim the Federal Historic Tax Credit ratably over a period of five years, beginning with the tax year in which the rehabilitated building is placed in service.
Changes to the Federal rules have significantly reduced the value of the Federal Historic Tax Credits. Typically, project developers sell the credits to investors (including banks and insurance companies) to earn capital to invest in the project. The Federal changes have reduced the price paid for these credits by as much as 10-15%.
Since the Federal changes were enacted, PAM has been active at the state Capitol, seeking to keep the MN Historic Tax Credit as a one-time refundable credit, as it was initially set up. Bills have been introduced in both the MN House of Representatives (HF1642) and MN Senate (SF1639) that will not conform the MN HTC to the Federal changes. These bills will also eliminate the sunset date on the MN
HTC, which is currently set to expire on June 30, 2021, and allow for multiple transfers of the MN HTC to attract additional investors and improve the likelihood of success.