TABLE OF CONTENTS

General Information for All Tax Credit Applicants

The 5% Vermont Income Tax Credit for Substantial Rehabilitation – Application Guidelines

The 20% Federal Rehabilitation Investment Tax Credit – General Information

The 50% Vermont Income Tax Credit for Code Improvements to Commercial Buildings – Application Guidelines

The Secretary of the Interior’s Standards for Rehabilitation

Vermont Income Tax Credits for Building Rehabilitation Projects in Designated Village Centers

General Information for all Tax Credit Applicants

Overview

There are two state income tax credit programs for capital improvements to income-producing buildings in designated village centers. The credits are applicable to the most common costs that a property owner faces when rehabilitating or improving an older or historic building. The credit can be claimed against the taxpayer’s state individual income tax, state corporate income tax, bank franchise or insurance premiums tax liability.

A property owner or lessee must apply to the Downtown Development Board for these tax credits. A property owner who is considering an improvement project should read through the application requirements for each program, contained in this booklet, before beginning work in order to make sure he or she is eligible for the maximum benefit. To determine if your property is located within a designated village center, contact your town office, or your town’s regional planning commission.

This booklet also contains summary information about the federal 20% Rehabilitation Investment Tax Credit that is used in conjunction with the 5% state tax credit for building rehabilitations in designated village centers. Not included in this booklet are the guidelines for the tax credits for designated downtowns, available separately from the Downtown Program.

The tax credits available for Designated Village Centers are:

The 5% Vermont Tax Credit for Substantial Rehabilitation of Certified Historic Buildings (also claiming the 20% Federal Rehabilitation Investment Tax Credit)

This credit is a 5% state “add-on” credit for projects receiving the 20% federal Rehabilitation Investment Tax Credit (RITC) for historic buildings. Projects qualifying for this 5% state tax credit will thus receive a net 25% credit for all qualified rehabilitation expenses. To qualify for the RITC the building must be listed or become listed in the National Register of Historic Places, and must be income-producing. Project expenditures must exceed $5,000 and the building’s adjusted basis. There is no cap on the amount of credit per building.

The 50% Tax Credit for Code Improvements to Commercial Buildings

A 50% state income tax credit is available to property owners and lessees for capital improvements or fixtures in commercial buildings in order to comply with state requirements for fire prevention, life safety and accessibility, food establishments, sale of dairy and meat products, and/or weights and measures.

Only one award may be made to any one building from this program, up to a maximum tax credit of $5,000. An applicant may request the credit allocation in the form of a Mortgage Credit Certificate that a bank may accept in return for adjusting the rate or term of the applicant’s loan on the building.

Award of credits

The Downtown Board is authorized to award a total of $1,000,000 to projects in six programs: the three tax credits for designated downtowns; the sales tax reallocation for designated downtowns; and the two tax credits for designated villages. No single community may be awarded more than 40% of the total annual awards. The Board awards tax credits on a first-come, first-served basis. On the occasion where there is competition among applicants, the Board will give priority to applications from designated downtowns.

Combining credits

The 5% and 50% credits may be used on the same project as long as the owner is following all the rules of each program, and is not claiming credits more than once on any eligible expenditure. If an applicant intends to use both credit programs on the same project, he or she should apply for both credit allocations at the same time, following the directions for each program.

Credit recapture

Both of the state credits require that the owner or lessee hold the building for a full five years after completing the rehabilitation, or pay back some or all of the credit. Further information on recapture penalties is included in the individual guidelines for each of the programs.

Application Schedule

Sixteen (16) copies of an application to the Board are due at the address below no later than

4:30 p.m. on the first Monday of each month (or first Tuesday if the first Monday is a state holiday) in order to be considered for that month’s meeting. The Board generally meets on the fourth Monday of each month. The Board will not consider incomplete applications. Staff will notify any applicant if an application is not complete. Applicants will be mailed a meeting agenda. While attendance is not required it is usually important to attend.

According to the above schedule, submit 16 copies of the application to:

Vermont Downtown Program

National Life Office Building, Drawer 20

Montpelier, VT 05620-0501

Phone: 800-622-4553 or 802-828-3211

For further information on state and federal income tax credits for building rehabilitation:

Chris Cochran, Rehabilitation Investment Tax Credit Program

Division for Historic Preservation

(same address as above)

Ph: 802-828-3047 chris.cochran@state.vt.us

www.HistoricVermont.org

Application Guidelines for

The 5% Vermont Income Tax Credit for Substantial Rehabilitation of Certified Historic Buildings

(also claiming the 20% Federal Rehabilitation Investment Tax Credit)

Overview

This credit is a 5% “add-on” credit for projects receiving the 20% federal Rehabilitation Investment Tax Credit (RITC) for historic buildings. Projects qualifying for this 5% state tax credit will thus receive a net 25% credit (20% Federal and 5% State) for all qualified rehabilitation expenses (for example, $100,000 spent will receive a $20,000 Federal credit and a $5,000 State credit = $25,000 net credit). The owner, or long-term lessee, can claim this credit against the taxpayer’s individual income tax, state corporate income tax, bank franchise or insurance premiums tax liability. There is no per building cap on the RITC or the state 5%

add-on credit.

Please review “The 20% Federal Rehabilitation Investment Tax Credit (RITC),” which is a

pre-requisite for the 5% State Tax Credit for Designated Village Centers. It follows this section.

Qualified project:

· the building must be in village center that has already been designated by the Downtown Board

· the building must be listed or become listed in the National Register of Historic Places. (Many buildings throughout Vermont are already listed; thousands of other pre-1950s buildings qualify).

· the building must be income-producing; owner-occupied single family residences are not eligible.

· project costs related to the rehabilitation must exceed $5,000, and meet or exceed the building’s adjusted basis (= original price, plus cost of capital improvements, minus any depreciation allowed under the federal Internal Revenue Code, minus the value of the land).

· project must have received approval for the 20% federal RITC by applying to the National Park Service for “certified rehabilitation” status. A summary of the RITC can be found in this booklet. Contact the Division for Historic Preservation (802-828-3047) for application materials and assistance in obtaining this credit.

· the project must maintain existing jobs or create additional jobs, or in the case of housing, 10% of the rehabilitated units must qualify as affordable housing.

Qualified Rehabilitation Expenditures:

· all rehabilitation costs, including code and access compliance, paint, wiring, etc.; anything that cannot be removed from the rehabilitated building.

· professional fees and construction period interest and taxes.

The credit does not include new construction, additions, site work, or landscaping.

Period of eligibility

The applicant must apply to the Downtown Board for this credit within one year of receiving “certified rehabilitation status” for the Rehabilitation Investment Tax Credit (RITC) from the National Park Service, but expenditures made prior to May 15, 2002 are not eligible for this credit. The credit is available for the first year that the qualified building is placed in service after the qualified expenditures are made, and any unused credit may be carried forward to reduce the taxpayer’s tax liability for no more than 14 succeeding tax years following the first year the credit is claimed.

Combining credits

Along with this credit, an owner or lessee can use the 50% Tax Credit for Code Improvements on Commercial Buildings for the same project as long as he or she is following all the rules of each program, and is not claiming credits more than once on any eligible expenditure. If an applicant intends to use both credit programs on the same project, he or she should apply to the Downtown Board for both credit allocations at the same time, following the directions for each program.

For a simple example, an owner of a general store plans to spend $100,000 on qualified rehabilitation expenditures, including installing a ramp and a bathroom meeting accessibility code requirements for $10,000. The applicant is eligible to apply for a $5,000 allocation from the 50% Tax Credit for Code Improvements on Commercial Buildings program. For the remaining $90,000 in eligible costs ($100,000 minus $10,000 for accessibility expenditures for which owner will use the 50% credit), the owner could apply to the 5% Tax Credit program (a $4,500 credit allocation). The net credit on $100,000 total qualified expenditures would be:

$ 20,000 federal RITC (20% of $100,000 total qualified expenditures)

5,000 state credit (50% of $10,000 cap for accessibility improvements)

4,500 state credit (5% of total project cost less $10,000 costs claimed for

accessibility credit)

$29,500 total credit

(Please refer to the Application Guidelines for The 50% Tax Credit for Code Improvements on Commercial Buildings for eligibility and application instructions found in this booklet).

Recapture penalties

The owner (or lessee) must hold the building for a full five years after completing the tax credit project and must comply with all historic preservation standards for work and any subsequent work during that period. Failure to do so may result in the loss of the entire tax credit. If the property is sold, no unclaimed credit may be used in that year or future years, and a recapture penalty is assessed on the credit already used according to the following table:

Years between close of tax year

when credit became available and tax year

when building was disposed Percent of credit recaptured

Less than one year 100%

One year 80%

Two years 60%

Three years 40%

Four years 20%

If, due to inappropriate work or fraud, the property loses its federal “certified rehabilitation” status, the total amount of the credit taken is recaptured.

To apply for the credit

Please also refer to General Information for All Tax Credit Applicants found at the front of this booklet. There is no application form for the 5% credit. An owner or lessee applies by sending to the Vermont Downtown Board the following:

1. A letter including the following information:

· Name, address and phone number of applicant

· Building name (if there is one) and property address

· Statement that the property is located within the boundaries of a designated village center

· Date(s) of construction for qualified project. Indicate date started and completed, or estimated start and completion dates.

· The total dollar amount of qualified rehabilitation expenditures the applicant commits to spend on the project, and a dollar amount request for a tax credit allocation of 5% of the qualified rehabilitation expenditures.

· If applicable, a statement of what other tax credits the applicant is requesting from the Board for this project.

· Statement and any relevant supporting information demonstrating that the project will maintain existing jobs or create additional jobs, or in the case of housing, that 10% of the rehabilitated units qualify as affordable housing.

2. Attach the following:

· A copy of the federal Rehabilitation Investment Tax Credit application Part 2, signed by the National Park Service.

To claim the credit

In the first year claiming a credit under this program, the taxpayer must submit a copy of the Downtown Board’s credit allocation letter, countersigned by the taxpayer, and a copy of the taxpayer’s federal income tax return claiming the federal 20% RITC along with the Vermont income tax return. The Department of Taxes strongly encourages taxpayers to include a copy of the allocation letter with the tax return for all subsequent years claiming any portion of this credit.

To access Vermont statute on this tax credit

The tax credit statute is available online at the Vermont Legislative Home Page www.leg.state.vt.us . Select “Vermont Statutes Online” and search for Title 32, Chapter 151, subchapter 5930n. The Vermont Statutes are also available at the Vermont Supreme Court law library, most public libraries, college libraries and in municipal offices.

Technical assistance from Department of Public Safety

The Department of Public Safety has committed to providing additional technical assistance for buildings in designated downtowns and designated village centers, in order to make their redevelopment easier and more predictable. Staff is available to meet with owners or developers who are considering a project in a designated village center to provide them with additional technical assistance on meeting code requirements. This review occurs prior to the actual construction when it is easier and less expensive to make changes in the project. Historic buildings often benefit from a preliminary review that helps to identify significant historic features and materials, and integrates operational and building construction features. For assistance, the applicant should contact their regional Public Safety office, listed below:

For technical assistance or additional questions, contact the Montpelier office at 1-800-640-2106.

The 20% Federal Rehabilitation Investment Tax Credit (RITC)

(A pre-requisite for the 5% State Tax Credit for Designated Village Centers)

General Information

What is a tax credit?

Briefly, a tax credit is better than a deduction. While a deduction merely lowers a taxpayer’s taxable income, a credit lowers a taxpayer’s actual tax bill. For example, if your tax bill is $10,000, a $4,000 credit will reduce your tax bill to $6,000.

The Rehabilitation Investment Tax Credit (RITC) is the most widely available tax credit

This federal tax credit is for 20% of the costs of renovations to an income producing building (including labor, materials and architects or other consultant fees). For instance, if an owner/developer spent $100,000 restoring a historic building, they would get 20%, or $20,000, worth of tax credits. In other words, for every four dollars the developer puts into the project, the IRS puts in one dollar.

What properties qualify?

To qualify for the federal credit, a building must be certified as a historic building in a National Register Historic District or must be individually listed in the National Register of Historic Places. Owners of historic buildings that are not currently in the Register may apply for listing through the Division for Historic Preservation by contacting Sue Jamele at (802) 828-3046.

Other requirements:

· All work must meet the Secretary of the Interior’s Standards, as reviewed by the Division for Historic Preservation, and be approved by the National Park Service (NPS).

· The project cost must exceed the adjusted basis of the building: (Adjusted basis is the purchase price, minus the cost of land, plus improvements already made, minus depreciation already taken).

· Projects have 24 months for the rehabilitation costs to exceed the adjusted basis value. Projects may have as much as 60 months IF applications and plans are submitted in advance.

· The tax credit is limited to income producing properties such as a retail store, office building, apartment building, or a vacation rental. Private homes, which do not generate income, are not eligible for the credit.

Planning your project

The Division for Historic Preservation encourages owners, contractors, and architects to meet with staff at the earliest stage of project planning to discuss meeting the Standards and to answer project specific questions. The Division has an excellent track record for obtaining NPS approvals for tax credit applications and is also a resource for building rehabilitation solutions. Owners who are planning a project should call Chris Cochran at (802)828-3047, or e-mail at chris.cochran@state.vt.us to arrange a meeting or for additional information and an application. Most RITC applications are completed by a qualified preservation consultant. Contact information for these consultants as well as helpful information about restoring or making changes to historic buildings can be found at the Division for Historic Preservation website www.historicvermont.org.

Three Steps for receiving the federal tax credit:

Owners must complete a three-part application for the RITC. To assure receipt of the tax credit, owners are urged to obtain approval of Steps 1 and 2 before starting work. It is assumed that some alteration of the historic building will occur to provide for an efficient use. However, the project must not damage, destroy, or cover materials or features that help define the building’s historic character. As such, work undertaken prior to approval may jeopardize the owner’s tax credit.

Step 1. Evaluation of Significance— If the building is individually listed in the National Register of Historic Places, it is already a certified historic structure. If the building is not listed in the National Register, call the Division for Historic Preservation to make a preliminary determination of significance. A preliminary determination of significance allows the owner to proceed with the rehabilitation project while the process of nominating a building or a district to the National Register continues. Preliminary determinations, however, are not binding. They become final only when the building or the historic district is listed in the National Register or when the documentation for a historic district already listed in the National Register is amended to include the project building.

Step 2. Description of Rehabilitation—Before the project begins, photos documenting existing conditions inside and out, the work program, and project plans and drawings--including related demolition and new construction--are reviewed by the Division for Historic Preservation. The Division forwards this application to the NPS with a recommendation. NPS certifies, or approves, the plans only if the overall rehabilitation project meets the Secretary of the Interior’s Standards for Rehabilitation. The Standards are included at the end of these guidelines or can be found at http://www2.cr.nps.gov/tps/tax/rehabstandards.htm.

Step 3. Request for Certification of Completed Work—Photo documentation after the rehabilitation is complete is sent to the Division for Historic Preservation. The Division forwards it with a recommendation to the NPS, which determines if work meets the Secretary of the Interior’s Standards for Rehabilitation. If so, NPS designates the project a “certified rehabilitation.”

Further information and how to apply

A pamphlet, Preservation Tax Credits for Historic Buildings, further details information about the RITC. This information can also be found at http://www2.cr.nps.gov/tps/tax/index.htm. Request further information and an application from Chris Cochran chris.cochran@state.vt.us (802) 828-3047.

Application Guidelines for

The 50% Tax Credit for Code Improvements to Commercial Buildings

Overview

A 50% state income tax credit is available to property owners and lessees for capital improvements or fixtures in commercial buildings located within the boundary of a designated village center in order to comply with state requirements and related rules for fire prevention, life safety and accessibility, food establishments, sale of dairy and meat products, and/or weights and measures. The applicant must apply to the Downtown Board prior to starting work on the project, and must submit documentation from the appropriate state agency, depending upon the project – Department of Public Safety, Department of Health, and/or the Agency of Agriculture, Food and Markets – that the proposed project is necessary in order to comply with state requirements and rules.

Only one award may be made to any one building, up to a maximum tax credit of $5,000, and the applicant can be either the property owner or lessee. The credit can be claimed against the taxpayer’s state individual income tax, state corporate income tax, state bank franchise or state insurance premiums tax liability.

Mortgage Credit Certificate

The applicant may request the credit allocation in the form of a Mortgage Credit Certificate that a bank may accept in return for adjusting the rate or term of the applicant’s loan on the building.

A bank that purchases a mortgage credit certificate may use it to reduce its state franchise tax liability for the first tax year in which the qualified building is placed back in service after completion of the project, or in a subsequent year.

If at the time of application to the Downtown Board, the applicant knows what bank will be accepting the mortgage credit certificate, that information should be included in the application. An applicant who has received a tax credit allocation may subsequently request it from the Board in the form of a mortgage credit certificate, stating the portion of the credit that has not been taken and providing copies of all tax returns documenting tax credits already taken, if any. The Downtown Board is not involved in negotiating the mortgage credit certificate.

Qualified expenditures: costs for capital improvements or fixtures incurred within a 24-month period in existing commercial buildings located within the designated village center boundary. The work must be necessary to comply with state requirements and related rules of at least one of the following:

· Title 21 concerning fire prevention, life safety and accessibility, and determined by the Department of Public Safety to meet such requirements;

· Title 18 concerning food establishments, and determined by the Department of Health to meet such requirements;

· And, as determined by the Agency of Agriculture, Food and Markets to meet such requirements:

o Title 6, chapter 151 concerning sale of dairy products;

o Title 6, chapter 204 concerning sale of meat products;

o Title 9, chapter 73 concerning weights and measures.

Note: Costs of any work incurred prior to the applicant’s award of a tax credit allocation by the Downtown Board are not eligible for this credit. An applicant may not apply for a credit for work that is already under construction or completed.

Credit amount:

The applicant may apply for 50% of qualified expenditures up to a maximum tax credit of $5,000. Only one credit allocation per building is allowed, so the applicant should apply for all eligible work that is planned, at one time.

Qualified applicant – Property owners or lessees with the following exceptions:

Religious entity operating with a primarily religious purpose;
State or federal government;
Political subdivision of the state or federal government (including municipalities);
Where the subject building is used solely as the residence of the property owner or lessee.

Project design

It is expected that projects in or near historic buildings will be designed to respect the property’s historic features and materials. Installation of entrance ramps, sprinkler systems or hardware that opens narrow doors or widens the swing of existing doors can be done without removing or damaging historically significant interior or exterior features or materials, while meeting access requirements. The Secretary of the Interior’s Standards, listed at the end of this booklet, provide excellent guidance for planning a rehabilitation project. The Department of Public Safety is available to assist owners in planning appropriate solutions to life safety and accessibility compliance (see below). Many architects are experienced in solving accessibility solutions while respecting the design of the building and its surroundings.

Period of eligibility

The applicant must apply to the Downtown Board prior to starting work on any of the items for which the applicant intends to claim a tax credit. All costs to be claimed for the credit should be incurred within a 24-month period. The credit is available for the tax year in which the qualified expenditures are made, and any unused credit may be carried forward to reduce the taxpayer’s tax liability for no more than 9 succeeding tax years following the first year the credit is claimed.

Obtaining State Agency approvals prior to application to the Downtown Board

The applicant must obtain a letter from the applicable state agency (Department of Public Safety, Department of Health, and/or the Agency of Agriculture, Food and Markets) demonstrating that the proposed work is necessary in order to comply with state requirements and rules, prior to applying to the Downtown Board. The letter, or letters - in the case where work is required by more than one state agency - must be attached to the tax credit application. The applicant should contact the state agency well in advance to allow enough time for review and response, and indicate that they are applying to the Downtown Board for a tax credit for a project in a designated village center.

· Department of Public Safety consultation and approval of compliance

A construction permit is required for alterations of public buildings (any structure such as stores, restaurants, businesses, and apartment buildings that the public might have occasion to enter) to ensure that the building meets requirements for fire prevention and safety, and that access for persons with disabilities is provided. The applicant will need to contact the regional Dept. of Public Safety office (see below) about obtaining the necessary preliminary review letter to include with the tax credit application.

For technical assistance or additional questions, contact the Montpelier office at

1-800-640-2106.

Please note that if the applicant makes changes to a planned project after receiving a conditional approval from the Department of Public Safety, a construction permit or plan review approval may not be issued. The burden remains on the applicant to comply with all relevant fire prevention, life safety and accessibility rules throughout the entire process.

· Department of Health approval of compliance

Applicants with food-handling businesses must contact the Dept. of Health for information on how to obtain a letter stating that the proposed project for capital improvements or fixtures on the property will bring the building into compliance with Dept. of Health requirements and related rules. Contact them at:

Vermont Dept. of Health

108 Cherry St.

PO Box 70

Burlington, VT 05402

Ph: 802-863-7222

Agency of Agriculture, Food and Markets approval of compliance

Applicants who are licensed or inspected by the Agency of Agriculture, Food and Markets for selling dairy and meat products, and using measuring devices must contact the Department for information on obtaining a letter stating that the proposed project for capital improvements or fixtures on the property will bring the building into compliance with state requirements and related rules. Contact at:

Director of Food Safety and Consumer Assurance Div.

Ph: 802-828-1056

Combining credits

An owner or lessee can use this credit at the same time as the other building rehab tax credit for designated village centers as long as he or she is following all the rules of each program, and is not claiming credits more than once on any eligible expenditure. (See example on page 5). If an applicant intends to use both tax credit programs on the same project, he or she should apply to the Downtown Board for both credit allocations at the same time, following the directions for each program.

Federal tax benefits for making buildings accessible

Many small businesses in Vermont are eligible for the federal 50% Disabled Access Tax Credit, which is available for the first $10,000 of qualified expenditures for a number of access improvements including lifts, elevators, architectural adaptations, and equipment acquisitions. To determine eligibility, refer to www.usdoj.gov/crt/ada/taxpack.htm. The applicant may be able to use the federal tax credit up to the $5,000 maximum, and the state tax credit for the remaining eligible costs up to the $5,000 maximum.

There is also a federal tax deduction (subtracted from your total income before taxes, to establish your taxable income) available for building modifications to provide access for people with disabilities. The website describes these federal incentives and how they can be combined. Those without web access can contact the IRS.

To apply for the credit

Please also refer to General Information for All Tax Credit Applicants found at the front of this booklet. There is no application form for this credit. An owner or lessee applies by sending to the Vermont Downtown Board the following:

1. Ownership and location information:

· Name, address and phone number of applicant

· Name, address and phone number of owner if applicant is not owner

· Building name (if there is one) and property address

· Building use before and after proposed project

· A statement that the property is located within the boundaries of a designated village center

· A statement that the applicant is an owner or lessee that is not:

a) a religious entity operating with a primarily religious purpose; or

b) a state or federal agency; or

c) a political subdivision of municipal, state, or federal government; or

d) an instrumentality of the United States; and

e) that the property is not solely the residence of the owner or lessee.

· A statement that this building has not previously received a 50% Tax Credit for Commercial Buildings in Designated Village Centers.

· A statement of any other tax credits being requested from the Board for this project.

2. If requesting a credit in the form of a Mortgage Credit Certificate - name and address of financial institution, contact name and phone number

3. Estimated start and completion dates for this project (the time period during which eligible costs will be incurred). Include a statement that project construction did not begin prior to application.

Project description:

a. Provide a brief description of the qualified project and the project design. Drawings or photographs may be included as long as they are well labeled, and the photos are printed or mounted on letter-sized paper. Be certain to describe how the proposed project will meet the requirements or rules of the appropriate state agency – Dept. of Public Safety, Dept. of Health, and/or Agency of Agriculture, Food and Markets - that have made the project eligible for this credit.

b. Attach the letter(s) from the appropriate state agency(ies).

c. A statement certifying that the project will comply with the state agency requirements and rules.

An itemized list of the qualified expenditures for the project.

A statement of the total cost of the eligible project that the applicant commits to spend on the project, and a dollar amount request for a tax credit (or mortgage credit certificate) of no more than 50% of the qualified expenditures, up to a maximum of $5,000.

To claim the credit

In the first year claiming a credit under this program, the taxpayer must submit a copy of the Downtown Board’s credit allocation letter, countersigned by the taxpayer, with the income tax return. The Vermont Department of Taxes strongly encourages taxpayers to include a copy of the allocation letter with the tax return for all subsequent years claiming any portion of this credit.

Recapture penalties

If the property is sold, then no unclaimed credit may be used in that year or future years, and a recapture penalty will be assessed on the credit already used according to the following table:

Years between close of tax year when credit became available and tax year when building was disposed	Percent of credit recaptured
Less than one year	100 %
One year	80%
Two years	60%
Three years	40%
Four years	20%