The following is the fourth article in a series about economic development tools and how to use them.
Earlier installments of this series have discussed the use of the multicounty business park designation, historic rehabilitation tax credit and textile revitalization tax credit as effective tools to incentivize economic development projects. This article will focus on another equally effective resource, the Retail Facilities Revitalization Act credit program.
The retail facilities revitalization tax credit is available for renovating, rehabilitating and redeveloping abandoned commercial property. The credit is commonly referred to as the big box tax credit because its primary intent is to encourage the redevelopment of large buildings vacated by national retailers. This credit is structured and administered in a very similar manner to the textile revitalization credit.
Definitions
An eligible retail site is "an abandoned shopping center, mall or free standing site whose primary use was as a retail sales facility with at least one occupant in a 40,000 square foot or larger building or structure." Local governing bodies can reduce the square-foot eligibility requirement to no less than 25,000 square feet.
Abandoned means "at least 80 percent of the facilities of the eligible site has been continuously closed to business or nonoperational for at least one year immediately prior to the time the (eligibility) determination is made. During the abandonment, the eligible site may serve as a wholesale facility for no more than one year."
Eligible rehabilitation expenses are "expenses incurred in the rehabilitation of the eligible site, excluding the cost of acquiring the eligible site or the cost of personal property maintained at the eligible site."
Choices
A taxpayer who rehabilitates an abandoned retail facility can choose between one of two available tax credits. SC Code of Laws Section 6-34-40
Option 1: an income tax credit equal to 10 percent of the rehabilitation expenses, or
Option 2: a property tax credit equal to 25 percent of the rehabilitation expenses for each local taxing entity consenting to the credit, up to 75 percent of the real property taxes due for each entity on the eligible site.
If the taxpayer choses the state income tax credit, he must take the tax credit in equal installments over an eight-year period, beginning when the property is placed into service. He may carry forward any unused portion for the next five years.
To claim the property tax credit, the taxpayer must get approval of the site and the proposed project from the municipality or county where the site is located. The local government must determine and certify the eligibility and proposed rehabilitation expenses by a resolution approved by a majority vote.
This determination must include a finding that the credit will not violate any covenant, representation or warranty in an existing tax increment financing district. Council must then hold a public hearing and approve the tax credit by adopting an ordinance that provides for the credit to be taken against up to 75 percent of the real property taxes due on the site each year for a period not to exceed eight years.
At least 45 days before holding the public hearing, the governing body must give notice to all affected local taxing entities where the site is located of its intention to grant the property tax credit. The notice must include the estimated credit based on projected rehabilitation expenses. If the other local taxing entities do not file an objection, they are deemed to have consented to the credit.
In addition, the taxpayer must provide written notification to the South Carolina Department of Revenue before the date the eligible site is suitable for occupancy for the purposes intended.
For properties eligible for the income tax credit, the credit can be combined with state and federal historic rehabilitation tax credits. This would mean a potential credit equal to 40 percent of qualified rehabilitation expenses"20 percent federal historic preservation, 10 percent state historic preservation and 10 percent retail. The retail credit may also be passed through to lessees or purchasers of the property.