A Role For State Tax Credits In The Redevelopment Of Economically Distressed Communities

Economic development, redevelopment, and rehabilitation of abandoned and/or distressed industrial and commercial sites as well as economically challenged and underserved communities is on the rise in Fort Wayne and elsewhere in the Northeast Indiana region. One of the major drivers of this welcome economic activity is the availability of federal and state tax credit programs that provide developers with needed financial assistance to support these often challenging and aggressive projects. This blog post discusses state programs and a previous post discussed the federal programs. Click here to read about available federal tax credit programs. 

Indiana State Tax Credit Programs

Community Revitalization Enhancement District Tax Credits

The Community Revitalization Enhancement District (CReED) Tax Credit provides an incentive for investment in community revitalization enhancement districts. A CReED is either designated by an advisory commission on industrial development (see IC 36-7-13-12 or IC 36-7-13-12.1) or designated by the legislative body of a county or municipality (see IC 36-7-13-10.5). The CReED tax credit is established by IC 6-3.1-19.

The CReED tax credit amount is equal to the amount of qualified investments made by the taxpayer during the taxable year multiplied by twenty-five percent (25%). A “qualified investment” is defined in the statute as a taxpayer’s expenditure that is for redevelopment or rehabilitation of property located within a CReED designated (i) by the legislative body of a county or municipality, or (ii) under a plan adopted by an advisory commission on industrial development, and approved by the Indiana Economic Development Corporation (IEDC) before the expenditure is made. Eligible costs may include:

• Acquisition costs, when necessary for redevelopment or rehabilitation;
• Architectural and engineering fees;
• Construction management and demolition costs;
• Environmental remediation costs;
• Furniture, fixtures, and equipment, if non-movable;
• Permitting costs directly related to rehabilitation; and
• Other hard costs.

Eligible costs do not include:

• Legal and accounting fees;
• Developer fees;
• Feasibility studies;
• Property insurance;
• Furniture, fixtures, and equipment, if movable;
• Loan costs;
• Other professional fees not directly related to rehabilitation of the property;
• Reserves; or
• Other soft costs.

The CReED tax credit is applied against the taxpayer’s state or local tax liability and may be carried forward to the immediately following taxable years. If a pass-through entity is entitled to a CReED tax credit under IC 6-3.1-19, but does not have state and local tax liability against which the tax credit may be applied, a shareholder, partner, or member of the pass-through entity is entitled to a tax credit equal to the tax credit determined for the pass-through entity for the taxable year, multiplied by the percentage of the pass-through entity’s distributive income to which such shareholder, partner, or member is entitled.

An application for CReED tax credits will be reviewed by the IEDC based on the project’s eligibility per statute and the state policy, viability, and whether it is a compelling use of CReED tax credits in line with the state’s economic development priorities. Approval of a taxpayer’s application must occur before an investment is made.

Industrial Recovery Tax Credits

The Industrial Recovery Tax Credit, also known as the DINO tax credit for the older buildings it benefits, provides an incentive for companies to invest in former industrial facilities requiring significant rehabilitation or remodeling expenses. The DINO credit is established by IC 6-3.1-11.In implementing this program, the IEDC intends to partner with local government in the revitalization of qualified industrial sites; therefore, any award under this program likely will not exceed the financial support offered by the locality. The DINO credit amount is equal to the amount of the qualified investment multiplied by the applicable percentage, which can range from 15-25% (see IC 6-3.1-11-1), and is based on the time at which the plant was placed in service.

• 15 percent for a plant placed in service between 15 and 29 years ago
• 20 percent for a plant placed in service between 30 and 39 years ago
• 25 percent for a plant placed in service at least 40 years ago

The DINO credit is applied against the taxpayer’s state tax liability, in the following order: adjusted gross income tax liability, insurance premiums tax liability, and financial institutions tax. As is the case with the CReED tax credit, the DINO credit may be carried over to the immediately following taxable years if it exceeds the taxpayer’s state tax liability per IC 6-3.1-11-17. Also, If a pass-through entity is entitled to a DINO credit under IC 6-3.1-11, but does not have state and local tax liability against which the tax credit may be applied, a shareholder, partner, or member of the pass-through entity is entitled to a tax credit equal to the tax credit determined for the pass-through entity for the taxable year, multiplied by the percentage of the pass-through entity’s distributive income to which such shareholder, partner, or member is entitled.

The DINO credit is available to owners, developers, and certain lessees of buildings located in an industrial recovery site that was brought into service at least 15 years ago. The building or complex of buildings must have been used, or designed and constructed for use, in the production, manufacturing, fabrication, assembly, processing, refining, finishing, or warehousing of tangible personal property, and must be at least 100,000 square feet and 75% vacant at the time an application for the credits is filed with the IEDC. The application must be approved before an investment is made.

A qualified investment is made when the taxpayer incurs expenditures for the rehabilitation of real property located within an industrial recovery site. Rehabilitation expenditures include the remodeling, repair, betterment, enlargement, or extension of real property. Eligible costs may include:

• Acquisition costs, when made to enlarge or extend the industrial recovery site;
• Architectural and engineering fees;
• Construction management and demolition costs;
• Environmental remediation costs;
• Non-movable furniture, fixtures, and equipment;
• Permitting costs directly related to rehabilitation; and
• Other hard costs.

Eligible costs do not include:

• Legal and accounting fees;
• Developer fees;
• Feasibility studies;
• Property insurance;
• Loan costs;
• Other professional fees not related to property rehabilitation;
• Reserves;
• Moveable furniture, fixtures, and equipment; or
• Other soft costs.

It should also be noted that when evaluating the Indiana state tax credit programs, A taxpayer is not eligible for more than one of the following tax credits for the same project:

• Industrial recovery tax credit (IRTC);
• Community revitalization enhancement district tax credit (CReED);
• Hoosier business investment tax credit (HBI);
• Enterprise zone investment cost credit; or
• Venture capital investment tax credit (VCI).

For questions regarding state tax programs, contact the author Richard E. Fox at ref@barrettlaw.com or directly at (260) 423-8913. 

Click here to read the article on federal tax credit programs.