Historic preservation tax credits under fire

by Paul Schreiber

SBJ Reporter

pschreiber@sbj.net

As the state of Missouri attempts to tighten its belt, increasing tax revenues without raising tax rates is a popular theme, whether it be limiting tax credits or closing tax loopholes.

Missouri tax credits

Two Senate Bills SB 777 and SB 778 sponsored by Sen. John Russell, R-Lebanon, could reduce the amount and availability of Missouri Historic Preservation Tax Credits.

SB 777 would put a collective cap of $125 million on all 53 state tax credits; it also would establish a committee to allocate these credits.

SB 778 would create a new definition of eligible property as it pertains to historic preservation tax credits. Credits are now available to "anyone with a property that's (in a listed) historic district or individually listed" on the National Register, said John Simmons, executive director of Springfield's Urban Districts Alliance.

SB 777 would limit residential use of credits by halting access to tax credits for properties that may be in historic districts but aren't individually listed on the register.

While no fiscal note is available on SB 777, the fiscal note for SB 778 projects an estimated savings of up to $2.6 million to the general revenue fund for fiscal years 2005 through 2007.

A cap or reduction in tax credit availability would "create a negative impact for the redevelopment environment," said Simmons, affecting the "commercial core of downtown Springfield." He added that changing the projects eligible for residential tax credits under SB 778 would likewise impact neighborhoods surrounding the city's center, which have been targeted as an essential element in sustainable urban revitalization.

There have been 38 tax-credit projects proposed in Springfield and 19 have been completed, Simmons said.

According to the Missouri Historic Preservation & Economic Development Coalition Web site, there are 26 projects in Springfield and Greene County, and nine Springfield historic districts that could be affected by SB 777 and SB 778

"I oppose both of them," said Sen. Joan Bray, D-St. Louis. "There is limited property that is actually eligible for these credits," and the number that are viable and will qualify will go down over time, she said.

Bray said tax credit accountability is required before reform to get a uniform information base "to judge where we are with these programs.

"There's four or five departments that have tax credits in them, and there is not a standardization of procedure or information," she said.

Russell sees the lack of accountability for the tax credit program as one reason it needs to be capped. "There isn't anyone fully in charge of all tax credits. The legislature has virtually no power over (them) other than to try to amend the law."

Tax credits aren't a "sacred cow," said Rep. Brad Roark, R-Springfield. Periodic review of the tax credit system can ensure it is "accomplishing what we thought it would accomplish."

"The total amount of tax credits projected for 2004 is $403 million," Russell said. And while this figure is open-ended, it will probably end up with somewhere between $250 million and $300 million being redeemed this year. Tax credits redeemed in 2003 totaled $215.6 million, $42.9 million of which were for historic preservation, he said.

For a $100,000 redevelopment receiving the full allotment of historic tax credits, there would be $25,000 in state tax credits and $20,000 in federal credits. Combining that with other typical write-offs, sometimes up to 80 percent of the redevelopment's expenses can be recouped through the tax credits plus itemization of project costs, Simmons said.

Corporate tax loopholes

A Missouri House bill, HB 969, sponsored by Rep. Shannon Cooper, R-Clinton, establishes guidelines for intangible property taxation. It seeks to stop the practice of large corporations skirting Missouri business taxes by moving profits to out-of-state holding companies where there are no state business taxes.

Sending money to out-of-state holding companies is done before claiming profits in Missouri and can be done by paying set fees, paying a percentage of sales or a percentage of profits or various other ways, said Todd Iveson, deputy director of taxation and collection for the Missouri Department of Revenue.

Intangible property such as patents, trademarks and copyrights are often transferred from in-state firms to out-of-state holding companies, and a royalty is paid to the holding company, said Ray McCarty, Missouri Chamber of Commerce and Industry director of fiscal affairs.

When the money is sent to the out-of-state company, the in-state company gets a deduction on its federal income tax return, because it's paying for the use of a trademark, McCarty said.

"This is the abusive part: if the royalty that's paid is in excess of what would be paid by anyone else for the use of that trademark, then our bill would say that that (royalty) would have to be added back. You would not be able to take a deduction for the payment."

The fiscal note on the bill indicates a one-time charge of $86,569 to the Department of Revenue as an administrative fee, McCarty said.

McCarty said the governor's office looked at Department of Revenue information from private tax records and estimated that a positive revenue impact of $15 million could be produced by keeping corporate tax money from leaving Missouri through loopholes.

Rep. Clint Zweifel, D-Florissant, called HB 969 "a sham."There's "nothing in this bill that would change the tax status of companies" using loopholes.