2012 -- S 2313

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LC00948

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2012

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A N A C T

RELATING TO TAXATION - HISTORIC STRUCTURES

     Introduced By: Senators Miller, Goodwin, Ruggerio, Jabour, and Pichardo

     Date Introduced: February 07, 2012

     Referred To: Senate Finance

It is enacted by the General Assembly as follows:

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     SECTION 1. Title 44 of the General Laws entitled "TAXATION" is hereby amended by

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adding thereto the following chapter:

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     CHAPTER 33.6

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HISTORIC PRESERVATION TAX CREDITS 2011

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     44-33.6-1. Declaration of Purpose. -- The general assembly finds and declares that

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Rhode Island's historic structures continue to experience high vacancy rates and physical

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deterioration, particularly in Rhode Island’s central business districts. Without adding economic

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incentive, these structures are not viable for the redevelopment and reuse by modern commercial,

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residential or manufacturing enterprises and will continue their physical deterioration. The

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redevelopment and reuse of these historic structures are of critical importance to the economic

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measures and will assist in stimulating the reuse and redevelopment of historic structures and will

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improve property values, foster civic beauty, create employment opportunities, enhance

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commerce, and promote public education, pleasure, and welfare. Furthermore, during this

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unprecedented economic climate, many in the building and construction trades, and related

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service industries, have been severely impacted. The redevelopment and reuse of these historic

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structures will serve as a vital catalyst in the recovery of these trades and services, in addition to

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stimulating various other related economic benefits and business activities. The purpose of this

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chapter is to create economic incentives for the purpose of stimulating the redevelopment and

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reuse of Rhode Island's historic structures, as well as to generate the positive economic and

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employment activities that will result from such redevelopment and reuse.

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     44-33.6-2. Definitions. – As used in this chapter:

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     (1) "Certified historic structure" means a property which is located in the State of Rhode

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Island and is:

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     (i) Listed individually on the national register of historic places; or

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     (ii) Listed individually in the state register of historic places; or

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     (iii) Located in a registered historic district and certified by either the commission or

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Secretary of the Interior as being of historic significance to the district.

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     (2) "Certified rehabilitation" means any rehabilitation of a certified historic structure

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consistent with the historic character of such property or the district in which the property is

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located as determined by the commission guidelines.

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     (3) “Commence substantial construction activities” shall mean that:

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     (i) Contracts for construction activities equal to no less than twenty percent (20%) of the

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total project budget have been awarded to bona fide third-party contractors, subcontractors,

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and/or materialmen (soft costs shall not qualify for the purposes of this requirement) with such

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work having been authorized for commencement;

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     (ii) All permits and approvals required in connection with the construction activities

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provided for in the contracts awarded pursuant to paragraph (i) have been obtained; and

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     (iii) Substantial construction activities have commenced at the subject property beyond

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mere site preparation activities, staging and/or storage or materials.

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      (4) "Commission" means the Rhode Island historical preservation and heritage

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commission created pursuant to section 42-45-2.

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     (5) "Exempt from real property tax" means, with respect to any certified historic

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structure, that the structure is exempt from taxation pursuant to section 44-3-3.

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     (6) "Holding period" means twenty-four (24) months after the commission issues a

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certificate of completed work to the owner. In the case of a rehabilitation which may reasonably

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be expected to be completed in phases as described in subdivision (12) of this section, "holding

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period" shall be extended to include a period of time beginning on the date of issuance of a

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certificate of completed work for the first phase or phases for which a certificate of completed

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work is issued and continuing until the expiration of twenty-four (24) months after the certificate

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of completed work issued for the last phase.

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     (7) "Placed in service" means that substantial rehabilitation work has been completed

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which would allow for occupancy of the entire structure or some identifiable portion of the

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structure, or the owner has commenced depreciation of the qualified rehabilitation expenditures,

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whichever occurs first.

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     (8) "Principal residence" means the principal residence of the owner within the meaning

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of section 121 of the Internal Revenue Code [26 U.S.C. 121] or any successor provision.

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     (9) "Qualified rehabilitation expenditures" means any amounts expended in the

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rehabilitation of a certified historic structure properly capitalized to the building and either:

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     (i) Depreciable under the Internal Revenue Code, 26 U.S.C. section 1 et seq., or

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     (ii) Made with respect to property (other than the principal residence of the owner) held

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for sale by the owner. Fees paid pursuant to this chapter are not qualified rehabilitation

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expenditures. Notwithstanding the foregoing, except in the case of a nonprofit corporation, there

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will be deducted from qualified rehabilitation expenditures for the purposes of calculating the tax

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credit any funds made available to the person (including any entity specified in section 44-33.5-

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3(a)) incurring the qualified rehabilitation expenditures in the form of a direct grant from a

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federal, state or local governmental entity or agency or instrumentality of government.

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     (10) "Registered historic district" means any district listed in the national register of

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historic places, or the state register of historic places.

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     (11) “Remain idle” shall mean that substantial work has ceased at the subject project;

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work crews have been reduced by more than twenty-five percent (25%) for reasons unrelated to

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scheduled completion of work in accordance with the project schedule, reasonably unanticipated

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physical conditions, or force majeure; or the project schedule that was originally submitted by the

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taxpayer to the commission has been extended by more than twelve (12) months for reasons other

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than reasonably unanticipated physical conditions or an event of force majeure (by way of

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example, and not in limitation, any delays, work stoppage, or work force reduction caused by

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issues with project funding, finances, disputes, or violation of laws shall be deemed to cause a

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project to remain idle).

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     (12) “Scattered Site Development” shall mean a development project for which the

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developer seeks unified financing to rehabilitate dwelling units in two (2) or more buildings

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located in an area that is defined by a neighborhood revitalization plan and is not more than one

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mile in diameter.

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     (13) “Social club” shall mean a corporation or other entity and/or its affiliate that offers

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its facilities primarily to members for social or recreational purposes and the majority source of

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its revenue is from funds and/or dues paid by its members and/or an entity defined as a social club

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pursuant to the Internal Revenue Code section 501(c)(7).

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     (14) "Substantial rehabilitation" means, with respect to a certified historic structure, that

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the qualified rehabilitation expenses of the building during the twenty-four (24) month period

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selected by the taxpayer ending with or within the taxable year exceed one hundred percent

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(100%) of the adjusted basis in such building and its structural components as of the beginning of

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such period. In the case of any rehabilitation, which may reasonably be expected to be completed

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in phases set forth in architectural plans and specifications completed before the rehabilitation

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begins, the above definition shall be applied by substituting "sixty (60) month period" for

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"twenty-four (24) month period".

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     (15) “Trade or business” means an activity that is carried on for the production of income

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from the sale of goods or performance of services, excluding residential rental activity.

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     44-33.6-3. Tax credit. – (a) Any person, firm, partnership, trust, estate, limited liability

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company, corporation (whether for profit or non-profit) or other business entity that incurs

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qualified rehabilitation expenditures for the substantial rehabilitation of a certified historic

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structure, provided the rehabilitation meets standards consistent with the standards of the

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Secretary of the United States Department of the Interior for rehabilitation as certified by the

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commission and said person, firm, partnership, trust, estate, limited liability company,

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corporation or other business entity is not a social club as defined in subdivision 44-33.6-2 (13) of

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this chapter, shall be entitled to a credit against the taxes imposed on such person or entity

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pursuant to chapter 11, 12, 13, 14, 17 or 30 of this title in an amount equal to the following:

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     (i) Twenty percent (20%) of the qualified rehabilitation expenditures; or

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     (ii) Twenty-five percent (25%) of the qualified rehabilitation expenditures provided that

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either:

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     (A) At least twenty-five percent (25%) of the total rentable area of the certified historic

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structure will be made available for a trade or business; or

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     (B) The entire rentable area located on the first floor of the certified historic structure will

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be made available for a trade or business.

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     (b) Tax credits allowed pursuant to this chapter shall be allowed for the taxable year in

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which such certified historic structure or an identifiable portion of the structure is placed in

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service provided that the substantial rehabilitation test is met for such year. Notwithstanding the

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foregoing, in the event that tax credits allowed for the substantial rehabilitation of such certified

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historic structure or an identifiable portion of the certified historic structure is greater than five

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million dollars ($5,000,000) for such taxable year, such tax credits shall be issued, but shall be

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phased in up to four (4) calendar years with five million dollars ($5,000,000) in tax credits being

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the maximum allowed in the first (1st) taxable year, up to five million dollars ($5,000,000) in tax

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credits in the second (2nd) taxable year, five million dollars ($5,000,000) in tax credits in the third

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(3rd) year and the remaining balance of the tax credits, if any, allowed in the fourth (4th) taxable

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year. Neither taxpayers nor assignees may apply any tax credits issued in accordance with this

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section until fiscal year 2013.

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     (c) If the amount of the tax credit exceeds the taxpayer's total tax liability for the year in

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which the substantially rehabilitated property is placed in service, the amount that exceeds the

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taxpayer's tax liability may be carried forward for credit against the taxes imposed for the

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succeeding ten (10) years, or until the full credit is used, whichever occurs first for the tax credits.

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Credits allowed to a partnership, a limited liability company taxed as a partnership or multiple

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owners of property shall be passed through to the persons designated as partners, members or

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owners respectively pro rata or pursuant to an executed agreement among such persons

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designated as partners, members or owners documenting an alternate distribution method without

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regard to their sharing of other tax or economic attributes of such entity.

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     (d) If the taxpayer has not claimed the tax credits in whole or part, taxpayers eligible for

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the tax credits may assign, transfer or convey the credits, in whole or in part, by sale or otherwise

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to any individual or entity, including, but not limited to, condominium owners in the event the

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certified historic structure is converted into condominiums and assignees of the credits that have

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not claimed the tax credits in whole or part may assign, transfer or convey the credits, in whole or

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in part, by sale or otherwise to any individual or entity. The assignee of the tax credits may use

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acquired credits to offset up to one hundred percent (100%) of the tax liabilities otherwise

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imposed pursuant to chapter 11, 12, 13, (other than the tax imposed under section 44-13-13), 14,

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17 or 30 of this title. The assignee may apply the tax credit against taxes imposed on the assignee

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until the end of the tenth (10th) calendar year after the year in which the substantially

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rehabilitated property is placed in service or until the full credit assigned is used, whichever

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occurs first. Fiscal year assignees may claim the credit until the expiration of the fiscal year that

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ends within the tenth (10th) year after the year in which the substantially rehabilitated property is

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placed in service. The assignor shall perfect the transfer by notifying the State of Rhode Island

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division of taxation, in writing, within thirty (30) calendar days following the effective date of the

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transfer and shall provide any information as may be required by the division of taxation to

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administer and carry out the provisions of this section.

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     For purposes of this chapter, any assignment or sales proceeds received by the taxpayer

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for its assignment or sale of the tax credits allowed pursuant to this section shall be exempt from

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this title. If a tax credit is subsequently recaptured under subsection (e) of this section, revoked or

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adjusted, the seller's tax calculation for the year of revocation, recapture, or adjustment shall be

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increased by the total amount of the sales proceeds, without proration, as a modification under

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chapter 30 of this title. In the event that the seller is not a natural person, the seller's tax

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calculation under chapters 11, 12, 13 (other than with respect to the tax imposed under section 44-

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13-13), 14, 17, or 30 of this title, as applicable, for the year of revocation, recapture, or

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adjustment, shall be increased by including the total amount of the sales proceeds without

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proration.

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     (e) Substantial rehabilitation of property that either:

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     (i) Is exempt from real property tax;

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     (ii) Is a social club; or

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     (iii) Consists of a single family home or a property that contains less than three (3)

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residential apartments or condominiums shall be ineligible for the tax credits authorized under

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this chapter; provided, however, a scattered site development with five (5) or more residential

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units in the aggregate (which may include single family homes) shall be eligible for tax credit. In

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the event a certified historic structure undergoes a substantial rehabilitation pursuant to this

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chapter and within twenty-four (24) months after issuance of a certificate of completed work the

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property becomes exempt from real property tax, the taxpayer's tax for the year shall be increased

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by the total amount of credit actually used against the tax.

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     (f) In the case of a corporation, this credit is only allowed against the tax of a corporation

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included in a consolidated return that qualifies for the credit and not against the tax of other

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corporations that may join in the filing of a consolidated tax return.

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      44-33.6-4. Administration. – (a) To claim the tax credit authorized in this chapter,

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taxpayers shall apply:

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     (1) To the commission prior to the certified historic structure being placed in service for a

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certification that the certified historic structure's rehabilitation will be consistent with the

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standards of the Secretary of the United States Department of the Interior for rehabilitation;

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     (2) To the commission after completion of the rehabilitation work of the certified historic

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structure for a certification that the rehabilitation is consistent with the standards of the Secretary

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of the United States Department of the Interior for rehabilitation; and

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     (3) To the division of taxation for a certification as to the amount of tax credit for which

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the rehabilitation qualifies. The commission and the division of taxation shall rely on the facts

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represented in the application without independent investigation and, with respect to the amount

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of tax credit for which the rehabilitation qualifies, upon the certification of a certified public

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accountant licensed in the State of Rhode Island. The application shall be developed by the

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commission and the division of taxation and may be amended from time to time.

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      (b) Within thirty (30) days after the commission's and division of taxation’s receipt of

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the taxpayer's application requesting certification for the completed rehabilitation work:

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     (1) The commission shall issue the taxpayer a written determination either denying or

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certifying the rehabilitation; and

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     (2) Division of taxation shall issue a certification of the amount of credit for which the

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rehabilitation qualifies. To claim the tax credit, the division of taxation's certification as to the

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amount of the tax credit shall be attached to all state tax returns on which the credit is claimed.

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     (c) No taxpayer may benefit from the provisions of this chapter unless the owner of the

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certified historic structure grants a restrictive covenant to the commission, agreeing that during

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the holding period no material alterations to the certified historic structure will be made without

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the commission's prior approval and agreeing that such shall be done in a manner inconsistent

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with the standards of the Secretary of the United States Department of the Interior; and, in the

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event the owner applies for the twenty-five percent (25%) tax credit, that either:

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     (1) At least twenty-five percent (25%) of the total rentable area of the certified historic

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structure will be made available for a trade or business; or

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     (2) The entire rentable area located on the first floor of the certified historic structure will

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be made available for a trade or business, in either case, for a period of sixty (60) months after the

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placed in service date of the certified historic structure or identifiable portion thereof.

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     (d) The commission shall charge a fee equal to three percent (3%) of tax credits allowed.

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The fee shall be payable in two installments:

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     (1) Fifty (50%) percent of the total fee shall be paid upon submission of the Part II

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application. This portion of the fee shall be non-refundable; and

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     (2) Fifty (50%) shall be paid upon issuance of the written determination by the

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commission certifying the rehabilitation and issuance by the division of taxation of the

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certification of the amount of credit for which the rehabilitation qualifies.

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     (e) Notwithstanding any provisions of the general laws or regulations adopted thereunder

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to the contrary, including, but not limited to, the provisions of chapter 2 of title 37, the division of

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taxation is hereby expressly authorized and empowered to enter into contracts with persons,

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firms, partnerships, trusts, estates, limited liability companies, corporations (whether for profit or

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non-profit) or other business entities that incur qualified rehabilitation expenditures for the

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substantial rehabilitation of certified historic structures or some identifiable portion of a structure.

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Upon payment of the portion of the fee set forth in subdivision (d)(1) above, the division of

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taxation and the applicant shall enter into a contract for tax credits consistent with the terms and

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provisions of this chapter.

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     (f) Upon satisfaction of the requirements set forth herein and the payment of the fees as

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set forth in subdivision (d)(2) above, the division of taxation shall, on behalf of the State of

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Rhode Island, guarantee the delivery of one hundred percent (100%) of the tax credit and use of

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one hundred percent (100%) of the tax credit in the tax year a certified historic structure is placed

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in service through a contract with persons, firms, partnerships, trusts, estates, limited liability

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companies, corporations (whether for profit or non-profit) or other business entities that will incur

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qualified rehabilitation expenditures for the substantial rehabilitation of a certified historic

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structure or some identifiable portion of a structure.

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     (g) Any contract executed pursuant to this chapter by a person, firm, partnership, trust,

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estate, limited liability company, corporation (whether for profit or non-profit) or other business

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entity shall be assignable to:

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     (1) An affiliate thereof without any consent from the division of taxation;

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     (2) A banking institution as defined by subdivision 44-14-2(2) or credit union as defined

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in subdivision 44-15-1.1(1) without any consent from the division of taxation; or

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     (3) A person, firm, partnership, trust, estate, limited liability company, corporation

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(whether for profit or non-profit) or other business entity that incurs qualified rehabilitation

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expenditures for the substantial rehabilitation of certified historic structures or some identifiable

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portion of a structure, with such assignment to be approved by the division of taxation, which

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approval shall not be unreasonably withheld or conditioned. For purposes of this subsection,

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"affiliate" shall be defined as any entity controlling, controlled by or under common control with

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such person, firm, partnership, trust, estate, limited liability company, corporation (whether for

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profit or non-profit) or other business entity.

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     (h) If information comes to the attention of the commission or division of taxation at any

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time up to and including the last day of the holding period that is materially inconsistent with

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representations made in an application, the commission may deny the requested certification or

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revoke a certification previously given, and in either instance all fees paid by the applicant shall

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be deemed forfeited. In the event that tax credits or a portion of tax credits are subject to

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recapture for ineligible costs and such tax credits have been transferred, assigned and/or

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allocated, the state will pursue its recapture remedies and rights against the applicant of the tax

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credits, and all fees paid by the applicant shall be deemed forfeited. No redress shall be sought

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against assignees, transferees or allocates of such credits provided they acquired the tax credits by

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way of an arms-length transaction, for value, and without notice of violation, fraud or

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misrepresentation.

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     44-33.6-5. Information Requests. - The tax division and its agents, for the purpose of

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ascertaining the correctness of any credit claimed under the provisions of this chapter, may

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examine any books, papers, records, or memoranda bearing upon the matters required to be

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included in the return, report, or other statement, and may require the attendance of the person

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executing the return, report, or other statement, or of any officer or employee of any taxpayer, or

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the attendance of any other person, and may examine the person under oath respecting any matter

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which the tax administrator or his or her agent deems pertinent or material in determining the

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eligibility for credits claimed and may request information from the commission, and the

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commission shall provide the information in all cases, to the extent not otherwise prohibited by

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statute.

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     44-33.6-6. Election; Limitations. - Taxpayers who elect and qualify to claim tax credits

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for the substantial rehabilitation of a certified historic structure pursuant to this chapter are

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ineligible for any tax credits that may also be available to the taxpayer for the substantial

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rehabilitation of that particular certified historic structure under the provisions of chapters 33.1 of

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this title, 64.7 of title 42, and/or 31 of this title. As stated above, neither taxpayers nor assignees

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may apply any tax credits issued in accordance with this section until fiscal year 2013.

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Applicants or their affiliates that have entered into a contract for tax credits concerning a certain

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property under chapter 44-33.2 and subsequently withdraw from or otherwise terminate said

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contract shall not reapply under this chapter with respect to the same property, provided,

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however, the foregoing shall not prohibit a subsequent bona fide third-party from terminating a

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contract for tax credits entered into under chapter 44-33.2 by an unrelated and unaffiliated party

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and applying under this chapter with respect to said property.

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     44-33.6-7. Timing and Reapplication. - Taxpayers shall have twelve (12) months from

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the approval of Part II application to commence substantial construction activities related to the

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subject substantial rehabilitation. Upon commencing substantial construction activities, the

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taxpayer shall submit an affidavit of commencement of substantial construction to the

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commission, together with evidence of such requirements having been satisfied. Furthermore,

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after commencement of substantial construction activities, no project shall remain idle prior to

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completion for a period of time exceeding six (6) months. In the event that a taxpayer does not

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commence substantial construction activities within twelve (12) months from the approval of Part

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II application, or in the event that a project remains idle prior to completion for a period of time

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exceeding six (6) months, the subject taxpayer shall forfeit all fees paid prior to such date and its

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then-current contract for tax credits shall be deemed null and void, and shall terminate without

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need for further action or documentation. Upon any such forfeiture and termination, a taxpayer

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may re-apply for tax credits pursuant to this chapter, however, notwithstanding anything

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contained herein to the contrary, one hundred percent (100%) of the fees required shall be paid

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upon reapplication and such fees shall be non-refundable. Additionally, any taxpayer reapplying

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for tax credits pursuant to this section 44-33.6-7 shall be required to submit evidence with its

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application establishing the reason for delay in commencement or the project sitting idle, as the

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case may be, and provide evidence, reasonably satisfactory to the commission, that such

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condition or event causing same has been resolved. All taxpayers shall submit a reasonably

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detailed project timeline to the commission together with the Part II application. The provisions

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of this section shall be further detailed and incorporated into the form of contract for tax credits

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used in connection with this chapter.

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     SECTION 2. This act shall take effect upon passage.

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LC00948

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO TAXATION - HISTORIC STRUCTURES

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     This act would create economic incentives for the redevelopment and reuse of Rhode

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Island's historic structures.

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     This act would take effect upon passage.

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LC00948

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