United States: Wisconsin Historic Tax Credits: A Victim Of Their Own Success

Last Updated: September 15 2014
Article by Joseph D. Shumow and Richard W. Donner

On June 23, 2014, Wisconsin temporarily suspended its historic preservation tax credit (HTC) program. The root problem behind the decision to suspend the program was an interesting one: the program was just too popular.

Background

Wisconsin first started its HTC program in 1988 under then- Gov. Tommy Thompson. Initially, any Wisconsin taxpayer who incurred qualified rehabilitation expenditures related to a certified historic structure was permitted to claim 5 percent of the expenses as a credit against the taxpayer's liability. Thompson called the 5 percent credit "a vital complement to the existing federal income tax credit for historic property rehabilitation." A similar credit against federal income taxes existed (and continues to exist) under federal law. It is currently a credit against federal income tax liability equal to 20 percent of the qualified expenditures.

The Wisconsin credit was doubled to 10 percent for the taxable year 2013. In the fall and winter of 2013, rumors circulated that the Wisconsin HTC might be eliminated. Instead, the Wisconsin Legislature proposed a bill that doubled the credit amount again to 20 percent. The initial draft of the bill included a cap on the total credits; only $4 million of HTCs was to be available for allocation among Wisconsin taxpayers during the course of a single fiscal year. That cap was removed altogether and the bill was passed in December 2013. Starting Jan.1, 2014, Wisconsin had a 20 percent credit against state income tax and the credit was unlimited for all taxpayers.

Much to the apparent surprise of state officials, the HTC proved enormously popular. Reed Hall, CEO of Wisconsin Economic Development Corporation (WEDC), indicated that, as of late June, his organization has approved more than $35 million in tax credits to Wisconsin residents during 2014 alone. According to Hall, the Wisconsin Department of Revenue estimated the total allocated credits for the entire year of 2014 would be approximately $4 million. (Recall that the cap was initially contemplated to be $4 million as well.)

Wisconsin's changes were not made in a vacuum. Approximately 35 other states have created an HTC program to promote the rehabilitation and adaptive reuse of historic buildings, many with credits in the 20 to 25 percent range for commercial projects. While each state's program varies, most include some basic elements, such as:

  • specific criteria for which buildings can qualify for the credit,
  • a method for calculating the value of the credit awarded (typically a percentage of the amount spent on preapproved rehabilitation work),
  • a minimum amount of rehabilitation expenditures necessary for the project to qualify for the program and/ or
  • regulations detailing the transferability of the credits.

HTC advocates argue the credits are an essential tool to make development projects involving historic buildings financially feasible, spur job growth and promote economic development.

Potential Solutions

Regardless of how other states' HTCs work, it appears likely that Wisconsin will need to revisit its HTC. There are a number of potential solutions, all of varying levels of political palpability.

Reinstating the HTCs

Wisconsin could reinstate the law, essentially just lifting the moratorium. For reasons discussed below, it may need to follow this path until a more permanent solution is worked out. This route would be appropriate if the state believes the spike in projects was related to pent-up demand and, perhaps, unlikely to continue at its current pace.

Capping the Total Credits

Wisconsin could revisit a cap on the amount of credits, as was originally proposed in the fall of last year. Hall's memo calling for a moratorium highlighted the lack of a cap. If a cap is instated, there will be many questions. First, the amount of the cap will need to be debated. Second, Wisconsin will need to decide if it wants to see the credits allocated on a competitive basis, like low-income housing tax credits, or on a first-come, first-served basis.

Capping a Project's Credits

Some of the projects that have been approved for credits in 2014 were large enough to exceed the entire amount of the proposed cap. Rather than creating a cap on aggregate credit amounts, the state could cap how many credits a specific development (or taxpayer) may claim in one fiscal year.

Limiting Credits to Certain Types of Projects

Wisconsin permits tax credits to be claimed on rehabilitation expenses for "old" (pre-1936) buildings that are not necessarily designated as "historic" buildings. Perhaps Wisconsin could consider a limit on the "old" projects that have not yet been designated historic. Alternatively, Wisconsin may limit the credits only to projects large enough to qualify; or only to commercial projects. Neighboring states handle these limitations in various ways. Wisconsin has no such limitation.

What's Next

There are a number of potential fixes for Wisconsin's historic tax credit program, rather than a permanent moratorium (which no one is suggesting). Nonetheless, because 2014 is an election year for the entire Wisconsin Assembly, half of the Wisconsin State Senate and the governor, it seems unlikely that any "fixes" will make their way through the legislature and be signed into law, at least before November.

HTC advocates are calling for the moratorium to be lifted immediately. Some are even averring that WEDC overstepped its authority in calling for the moratorium. Section 238.17 of the Wisconsin Statutes indicates that WEDC "may"—not "shall"—certify a person to claim tax credits for eligible rehabilitation expenditures. WEDC relied on that statutory authority to revoke its willingness to certify any person as being eligible for the credits, regardless of compliance with statute and regardless of project size.

Although that is a potentially fair (strict constructionist) reading of the statute, it probably goes too far. It is unlikely the legislature intended WEDC to have the authority to completely shut down the HTC program by bureaucratic fiat. Using the justification posited by WEDC, it would have the authority to prevent Wisconsin from allocating HTCs indefinitely, despite any legislative intent to the contrary.

Wisconsin and its HTC developers are in a difficult position. The state has "overspent" this program's budget by approximately $31 million (or almost 9 times more than the state intended). Meanwhile, many developers have sunk costs into historic renovation projects with the good faith belief that Wisconsin would honor its tax credit law change that is less than a year old.

Wisconsin's HTC program is undergoing significant changes. As developers contemplate opportunities in Wisconsin, they should turn to trusted advisors for more information about the current state of affairs. For HTCs in Wisconsin, it seems of late the only constant is change

This article first appeared in the August 2014 issue of the Novogradac Journal of Tax Credits.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Joseph D. Shumow
Similar Articles
Relevancy Powered by MondaqAI
Pepper Hamilton LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Pepper Hamilton LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions