A N     A C T

RELATING TO MILL BUILDING AND THE ECONOMIC REVITALIZATION ACT

Introduced By: Representatives Rabideau and Lowe

Date Introduced : March 17, 1999

It is enacted by the General Assembly as follows:

SECTION 1. Section 44-31-2 of the General Laws in Chapter 44-31 entitled "Investment Tax Credit" is hereby amended to read as follows:

44-31-2. Specialized investment tax credit. -- (a) A certified building owner as provided in chapter 64.7 of title 42 of the general laws may be allowed a specialized investment tax credit against the tax imposed by chapters 11, 14, 17 and 30 of this title.

(b) The taxpayer may claim credit for the {ADD rehabilitation and reconstruction costs of a ADD} {DEL costs of substantial rehabilitation of the DEL} certified building, which {DEL , DEL} {ADD has been substantially rehabilitated ADD} {DEL as defined in sections 42-64.7-4(a) (10) and (11), is achieved when rehabilitation or reconstruction costs equal or exceed twenty percent (20%) of the market value of the certified building before rehabilitation or reconstruction begins DEL}. Once substantial rehabilitation is established by the taxpayer, the taxpayer may claim {DEL additional DEL} credit for {ADD all ADD} {DEL additional DEL}rehabilitation {DEL or DEL} {ADD and ADD} reconstruction costs {ADD incurred with respect to the certified building within five (5) years from the date of final designation of the certified building by the council pursuant to section 42-64.7-6. ADD} {DEL under this section during the two (2) years following certification. DEL}

(c) The credit is ten percent (10%) of the {ADD rehabilitation and reconstruction costs ADD} {DEL cost solely and exclusively for the substantial rehabilitation DEL} of the certified building {DEL , DEL} {ADD . ADD} {DEL provided further that the substantial rehabilitation occurs within two (2) years following the certification of the building in accordance with section42-64.7-5. DEL} Such credit shall be allowable in the year the {ADD substantially rehabilitated certified building ADD} {DEL substantial rehabilitation DEL} is first placed into service, which is the year in which, under the taxpayer's depreciation practice, the period for depreciation with respect to such property begins, or the year in which the property is placed in a condition or state of readiness and availability for its specifically assigned function, whichever is earlier.

(d) The credit shall not offset any tax liability in taxable years other than the year or years in which the taxpayer qualifies for the credit. The credit shall not reduce the tax below the minimum; however, amounts of unused credit for this taxpayer may be carried over and offset against this taxpayer's tax for a period not to exceed the following seven (7) taxable years.

(e) In the case of a corporation, this credit shall only be allowed against the tax of that of a corporation included in a consolidated return that qualifies for the credit and not against the tax of other corporations that may join in the filing of a consolidated tax return.

SECTION 2. Sections 42-64.7-4, 42-64.7-5, and 42-64.7-8 of the General Laws in Chapter 42-64.7 entitled "Mill Building and Economic Revitalization Act" are hereby amended to read as follows:

42-64.7-4. Definitions and construction. -- As used in this chapter, unless the context otherwise requires, the term:

(1) "Certifiable building" means a {ADD mill complex or a ADD} building:

(i) That was constructed prior to January 1, 1950;

(ii) Having at least two (2) floors, excluding a basement; and

(iii) Which is or will be used primarily for manufacturing, wholesale trade and other commercial purposes;

(iv) The use of which conforms to the comprehensive plan and local land use management ordinances of the municipality in which the building is located;

(v) That is proposed for substantial rehabilitation;

(vi) That has been at a minimum seventy-five percent (75%) vacant for a minimum of twenty-four (24) months at the time of submission by the municipality;

(vii) That is designated by the municipality for consideration as a certifiable building as hereinafter provided;

(viii) Meets other requirements as established by the council; and

(ix) Designated by the enterprise zone council as a certified building pursuant to the requirements of section 42-64.7-5.

(2) "Certification of an eligible business" means an annual process taking place on a calendar year basis to certify entities as eligible businesses for the purpose of this act. Businesses certified as eligible businesses for the purpose of this chapter, and which may also be eligible for certification as certified businesses under the provisions of section 42-64.3-3(4) must elect certification under only one designation of each certification year. This election must be made for each certification year provided that the business continues to be eligible for both designations on a year-to-year basis.

(3) "Certified building owner" means an individual, partnership, corporation {ADD , limited liability company ADD} or other entity which is listed in the appropriate municipal records of land evidence as the owner {DEL . DEL} {ADD of a certified building, and may include one or more successors in title to the owner of the building at the time the building received written notice of final designation as a certified building pursuant to Section 42-64.7-6. A certified building owner may include the owner of a leasehold interest with a minimum term of fifty (50) years, with respect to which a memorandum of lease has been recorded in the land evidence records. ADD}

(4) "Eligible business" means any business, corporation, sole proprietorship, partnership limited partnership or limited liability company {ADD or other entity ADD} which:

(i) Is located in a certified building after building has undergone substantial rehabilitation as hereinafter defined;

(ii) Is engaged principally in manufacturing, wholesale trade, or other commercial business activities;

(iii) Whose total Rhode Island salaries and wages exceed the total Rhode Island salaries and wages paid to its employees in the prior calendar year;

(iv) Has received certification from the enterprise zone council pursuant to the rules and regulations promulgated by the council; and

(v) Which, as part of its annual certification:

(A) Obtains certificates of good standing from the Rhode Island division of taxation, the corporations division of the Rhode Island secretary of state, and the appropriate municipal authority;

(B) Provides the enterprise zone council an affidavit stating under oath that the entity seeking certification as a qualified business has not within the preceding twelve (12) months from the date of application for certification changed its legal status or location solely for the purpose of gaining favorable treatment under the provision of this chapter; and

(C) Meets certain other requirements set forth by the council.

(5) "Enterprise zone" means an enterprise zone established pursuant to section 42-64.3-4.

(6) "Enterprise zone council" or the "council" means the enterprise zone council established pursuant to section 42-64.3-3.1, and empowered with the same authority and given the same responsibilities under that section.

(7) "Municipality" means any city or town within the state, whether now existing or hereafter created.

(8) "Qualified employee" means a full-time employee of an eligible business whose business activity originates and terminates from within the eligible business and certified building on a daily basis, and who is employed by the eligible business at the end of the calendar year, and who is a domiciled resident of the state of Rhode Island.

(9) "Salaries and wages" means salaries, wages, tips and other compensation as defined in the Internal Revenue Code of 1986, 26 U.S.C. section 61.

(10) "Substantial rehabilitation" means rehabilitation or reconstruction costs of a {ADD certified ADD} building in a dollar amount that equals or exceeds twenty percent (20%) of the market value of the {ADD certified ADD} building prior to rehabilitation or reconstruction, {DEL that DEL} {ADD as said ADD} prior {DEL to DEL} market value is determined by a Rhode Island licensed and certified appraiser who is independent of the {ADD certified ADD}building owner or owners and their affiliated corporations, and/or any tenants of the {DEL certifiable DEL} {ADD certified ADD} building and their affiliated corporations.

(11) "Rehabilitation and reconstruction costs" means and includes only those amounts incurred and paid by the certified building owner, after issuance of the notice of final designation of the building, solely and exclusively for the rehabilitation of the certified building and which are incurred and paid by the certified building owner to acquire tangible personal property and structural components of the certified building which (i) are depreciated pursuant to 26 U.S.C. section167; (ii) have a useful life of three (3) years or more as evidenced by the tax depreciation method taken and shown on the federal tax return of the certified building owner; and (iii) are acquired by purchase as defined in 26 U.S.C. section179(d). Rehabilitation and reconstruction costs do not include amounts incurred or paid with respect to tangible personal property and structural components of the certified building which the certified building owner leases from any other person or corporation. For the purposes of the preceding sentence, any contract or agreement to lease or rent or for a license to use the property shall be considered a lease unless the contract or agreement is treated for the federal income tax purposes of the certified building owner as an installment purchase rather than a lease.

{ADD (12) "Mill complex" means two or more mill buildings, located on the same or contiguous parcels of land, each of which, at one time, had the same owner(s). ADD}

{ADD (13) "Certified building" means a building with respect to which the council has issued a written notice of final designation as a certified building pursuant to the provisions of Section 42-64.7-6. A portion of a building may be treated as a separate building for purposes of this chapter if: ADD}

{ADD (i) it consists of a clearly identifiable part of a certifiable building, including without limitation, one or more wings, stories, or other separable portions of a certifiable building; ADD}

{ADD (ii) it is held by a single owner, whether in fee or as a condominium, cooperative or leasehold interest; and ADD}

{ADD (iii) at least one eligible business reasonable could be operated within the confines of such portion. ADD}

42-64.7-5. Building certification process. -- (a) No later than December 1, {DEL 1997 DEL} {ADD 2000 ADD}, a municipality shall submit to the enterprise zone council a list of industrial mill structures located within the municipality for consideration by the council as to whether any of these structures qualify as certifiable buildings. The council will notify the municipality as to which structures qualify as certifiable buildings.

(b) On or before May 1, {DEL 1998 DEL} {ADD 2001 ADD}, any building designated by the enterprise zone council as a certifiable building may then be submitted by the municipality to the council for preliminary designation as a certified building, provided that the municipality has given notice to the council.

(1) That the building conforms to the area restriction set forth in square feet in subsection (d) of this section, and

(2) That within six (6) months of this designation, the municipality agrees to:

(i) Promulgate local regulations and ordinances providing favorable local property tax treatment for certified industrial mill buildings which are substantially rehabilitated;

(ii) Promulgate local regulations and ordinances to expedite the building permit review and approval process required in the municipality for the rehabilitation of certified buildings;

(iii) Promulgate local regulations and ordinances waiving all building permit fees of the municipality for the rehabilitation of certified buildings;

(iv) Promulgate local regulations and ordinances adopting design standards in the municipality which encourage historic preservation of certified buildings, or alternatively, adopt design standards developed and recommended by the Rhode Island historic preservation commission;

(v) Promulgate local regulations and ordinances requiring that the advice of the Rhode Island historic preservation commission will be obtained for the rehabilitation of any certified building in the municipality; and

(vi) Establish a program for eligible businesses which coordinates the economic development activities of state and local business assistance programs and agencies, including but not limited to, the Ocean State business development authority, the Rhode Island small business development center, the Rhode Island export assistance center, the applicable private industry council, and the applicable chamber of commerce.

(c) Notwithstanding anything to the contrary contained herein, the council's preliminary designation of certified buildings within any municipality shall be limited in accordance with the following:

(1) One certified building per municipality having a population according to the most recent federal census of less than twenty-five thousand (25,000); provided, however, that in the event one or more enterprise zones have been designated in the municipality, it may be permitted two (2) certified buildings, in which event, at least one of the certified buildings shall be located within the municipality's boundaries of an enterprise zone;

(2) Two (2) certified buildings per municipality having a population according to the most recent federal census of between twenty-five thousand and one (25,001) and seventy-five thousand (75,000); provided, however, that in the event one or more enterprise zones have been designated in the municipality it may be permitted three (3) certified buildings, in which event, at least one of the certified buildings shall be located within the boundaries of an enterprise zone; and

(3) Four (4) certified buildings per municipality having a population according to the most recent federal census in excess of seventy-five thousand and one (75,001); provided, however, that in the event one or more enterprise zones have been designated in the municipality, it may be permitted six (6) certified buildings, in which event, at least two (2) of the certified buildings shall be located within the boundaries of an enterprise zone.

(d) The aggregate square footage of all certified buildings within any municipality shall not exceed the average of three hundred thousand (300,000) gross square feet per certified building.

42-64.7-8. Business tax credits. -- A taxpayer who owns and operates an eligible business within a certified building {ADD that has been substantially rehabilitated ADD}is allowed a credit against the tax imposed pursuant to chapter 11 or 30 of title 44 as follows:

(1) A credit equal to one hundred percent (100%) of the total amount of Rhode Island salaries and wages as are paid to qualified employees in excess of Rhode Island salaries and wages paid to the same employees in the prior calendar year. The maximum credit allowable per taxable year under the provisions of this subsection is three thousand dollars ($3,000) per qualified employee.

(2) Any tax credits provided in subdivision (1) shall not offset any tax liability in years other than the year in which the taxpayer qualifies for the credit. Fiscal year taxpayers must claim the tax credit in the year in which the December 31st of the certification year falls. {DEL The credit shall not reduce the tax below the minimum tax. DEL} The credit shall not reduce the tax below the minimum tax. The credit shall be used to offset tax liability under either chapter 11 or 30 of title 44, but not both.

(3) In the case of a corporation, the credit allowed under this section is only allowed against the tax of that corporation included in a consolidated return that qualifies for the credit and not against the tax of other corporations that may join in the filing of a consolidated tax return.

(4) In the case of multiple business owners, the credit provided in subdivision (1) is apportioned according to the ownership interests of the eligible business.

(5) In the event that the eligible business is located within an enterprise zone and is a certified business under the provisions of section 42-64.3-6, the taxpayer must elect to use the credit provided under subdivision (1) or the credit provided in section 42-64.3-6 to offset tax liability, but the taxpayer may not elect to claim both.

SECTION 3. Chapter 42-64.7 of the General Laws entitled "Mill Building and Economic Revitalization Act" is hereby amended by adding thereto the following sections:

{ADD 42-64.7-6.1. Certified Building Rehabilitation. -- ADD} {ADD (a) A certified building shall be treated as having been substantially rehabilitated only if the reconstruction and rehabilitation expenditures incurred during the twenty-four (24) months period selected by the certified building owner and ending with or within the taxable year in which the rehabilitated certified building is first placed in service by the certified building owner meet the definition of "substantial rehabilitation" set forth in Section 42-64.7-4(12) hereof. For purposes of determining whether the requirements of Section 42-64.7-4(12) have been met, the market value of the certified building shall be determined at the beginning of the 1st day of such twenty-four (24) month period. ADD}

{ADD (b) Special Rule For Phased Rehabilitation. -- In the case of any rehabilitation which may reasonably be expected to be completed in phases set forth in architectural plans and specifications completed before the rehabilitation begins, clause (a) shall be applied by substituting "sixty (60) month period" for "twenty-four (24) month period". ADD}

{ADD 42-64.7-18. Applicability. --ADD} {ADD The provisions of this act apply to all buildings that have been designated by the enterprise zone council as certifiable buildings pursuant to chapter 42-64.5 for all years commencing with the year of such designation. ADD}

SECTION 4. This act shall take effect upon passage.