2014 -- H 7983

========

LC005181

========

     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2014

____________

A N   A C T

RELATING TO TAXATION - MANUFACTURING FACILITIES TAX CREDIT ACT

     Introduced By: Representatives Guthrie, Johnston, Morin, O`Grady, and Serpa

     Date Introduced: March 26, 2014

     Referred To: House Finance

     It is enacted by the General Assembly as follows:

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

adding thereto the following chapter:

CHAPTER 69

RHODE ISLAND MANUFACTURING FACILITIES TAX CREDIT ACT

     44-69-1. Short title. – This act shall be known and may be cited as the "Rhode Island

Manufacturing Facilities Tax Credit Act."

     44-69-2. Declaration of purpose. – The general assembly finds and declares that Rhode

Island's manufacturing facilities have experienced high vacancy rates and physical deterioration.

Without adding economic incentive, these structures are not viable for the redevelopment and

reuse by modern commercial, manufacturing enterprises and will continue their physical

deterioration. The redevelopment and reuse of these structures are of critical importance to the

economic measures and will assist in stimulating the reuse and redevelopment of manufacturing

in this state. The purpose of this chapter is to create economic incentives for the purpose of

stimulating the redevelopment and reuse of Rhode Island's manufacturing facilities.

     44-69-3. Definitions. – As used in this chapter:

     (1) "Certified rehabilitation" means any rehabilitation of a manufacturing facility

consistent with the district in which the property is located as determined by the local zoning

regulations and rules and regulations and guidelines promulgated by the director of revenue

pursuant to the provisions of this chapter.

     (2) "Certified manufacturing facility" means a manufacturing facility that has been issued

a certificate by the director of revenue indicating that such manufacturing facility has met the

requirements necessary to receive tax credits pursuant to this chapter.

     (3) "Commissioner" means the state building code commissioner of the building code

commission.

     (4) "Director" means the director of revenue in the department of administration.

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

facility, that the facility is exempt from taxation pursuant to § 44-3-3.

     (6) "Holding period" means twenty-four (24) months after the state building code

commissioner issues a certificate of completed work to the owner. In the case of a rehabilitation

which may reasonably be expected to be completed in phases as described in subdivision (10) of

this section, "holding period" shall be extended to include a period of time beginning on the date

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

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

the certificate of completed work issued for the last phase.

     (7) "Manufacturing facility" means a plant consisting of one or more buildings with tools,

equipment, or other devices used primarily for the production or manufacture of goods, items,

and other forms of tangible property, or for making modifications which add value to the goods,

items, and tangible property.

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

which would allow for use of the entire structure or some identifiable portion of the structure as a

manufacturing facility and that manufacturing is actually taking place within the facility, or the

owner has commenced depreciation of the qualified rehabilitation expenditures, whichever occurs

first.

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

rehabilitation of a manufacturing facility pursuant to the rules, regulations and guidelines

established by the director of revenue pursuant to the provisions of this chapter.

     (10) "Secretary" means the secretary of commerce.

     (11) "Standards" refers to the standards promulgated pursuant to § 44-69-4 that would

enable a building to qualify for a tax credit as a certified manufacturing facility.

     (12) "Substantial rehabilitation" means, with respect to a manufacturing facility, that the

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

selected by the taxpayer ending with or within the taxable year exceed fifty percent (50%) of the

adjusted basis in such building and its structural components as of the beginning of such period.

LC005181 - Page 2 of 9

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, the

above definition shall be applied by substituting "sixty (60) month period" for "twenty-four (24)

month period".

     (13) "Tax administrator" means the tax administrator appointed by the director of the

department of revenue pursuant to chapter 1 of title 44.

     44-69-4. Tax credit. – (a) On or before January 1, 2015, the director of revenue, in

consultation with the state building code commissioner and the secretary of commerce, shall

promulgate standards, as well as rules and regulations and guidelines that establish a procedure

for the owner or operator of a manufacturing facility to obtain tax credits for engaging in certified

rehabilitation of a manufacturing facility.

     (b) Any person, firm, partnership, trust, estate, limited liability company, corporation

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

expenditures for the substantial rehabilitation of a manufacturing facility and verified by the

division of taxation and the state building code commission, provided the rehabilitation meets

those standards established pursuant to this chapter, for rehabilitation of a manufacturing facility,

shall be entitled to a credit against the taxes imposed on such person or entity pursuant to chapters

11, 12, 13, 14, 17 or 30 of this title. For certified manufacturing facilities or some identifiable

portion of a structure placed in service on or after January 1, 2015, the credit shall be an amount

not to exceed thirty percent (30%) of the qualified rehabilitation expenditures.

     (c) The division of taxation is hereby expressly authorized and empowered to enter into

contracts with persons, firms, partnerships, trusts, estates, limited liability companies,

corporations (whether for profit or nonprofit) or other business entities that incur qualified

rehabilitation expenditures for the substantial rehabilitation of certified manufacturing facilities or

some identifiable portion of a structure to be placed in service on or after January 1, 2015, for the

following purposes, all of which shall be set forth in more particular detail as follows:

      (1) Upon payment of the fees as set forth in this section, the division of taxation shall, on

behalf of the state of Rhode Island, guaranty through a contract with persons, firms, partnerships,

trusts, estates, limited liability companies, corporations (whether for profit or nonprofit) or other

business entities that will incur qualified rehabilitation expenditures for the substantial

rehabilitation of a certified manufacturing facility or some identifiable portion of a structure to be

placed in service on or after January 1, 2015, the delivery of one hundred percent (100%) of the

tax credit in an amount which is the actual qualified rehabilitation expenditures multiplied by the

tax credit percentage selected by the taxpayer at the time of their application with the director of

LC005181 - Page 3 of 9

revenue, and any processing fees. The tax credit and fee shall not exceed the following

combinations which shall be selected by any person, firm, partnership, trust, estate, limited

liability company, corporation (whether for profit or nonprofit) or other business entity that will

incur qualified rehabilitation expenditures for the substantial rehabilitation of certified

manufacturing structures or some identifiable portion of a structure to be placed in service on or

after January 1, 2015:

     (i) For an amount of credit not exceeding twenty-five percent (25%) of the qualified

rehabilitation expenditures, the fee shall be an amount equal to three percent (3%) of the qualified

rehabilitation expenditures.

      (ii) For an amount of credit not exceeding twenty-six percent (26%) of the qualified

rehabilitation expenditures, the fee shall be an amount equal to four percent (4%) of the qualified

rehabilitation expenditures.

      (iii) For an amount of credit not exceeding twenty-seven percent (27%) of the qualified

rehabilitation expenditures, the fee shall be an amount equal to five percent (5%) of the qualified

rehabilitation expenditures.

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

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

entity that incurs qualified rehabilitation expenditures for the substantial rehabilitation of certified

manufacturing structures or some identifiable portion of a structure to be placed in service on or

after January 1, 2015, shall be assignable to:

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

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

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

expenditures for the substantial rehabilitation of certified manufacturing structures or some

identifiable portion of a structure to be placed in service on or after January 1, 2015, with such

assignment to be approved by the division of taxation, which approval shall not be unreasonably

withheld. For purposes of this subsection, "affiliate" shall be defined as any entity controlling,

controlled by or under common control with such person, firm, partnership, trust, estate, limited

liability company, corporation (whether for profit or nonprofit) or other business entity.

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

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

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

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

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

LC005181 - Page 4 of 9

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

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

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

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

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

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

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

      (g)(1) If the taxpayer has not claimed the tax credits in whole or part, taxpayers eligible

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

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

event the certified manufacturing structure is converted into condominiums. The assignee of the

tax credits may use acquired credits to offset up to one hundred percent (100%) of the tax

liabilities otherwise imposed pursuant to chapters 11, 12, 13, (other than the tax imposed under §

44-13-13), 14, 17 or 30 of this title. The assignee may apply the tax credit against taxes imposed

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

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

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

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

property is placed in service. The assignor shall perfect the transfer by notifying the state of

Rhode Island division of taxation, in writing, within thirty (30) calendar days following the

effective date of the transfer and shall provide any information as may be required by the division

of taxation to administer and carry out the provisions of this section.

      (2) For purposes of this chapter, any assignment or sales proceeds received by the

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

exempt from this title. If a tax credit is subsequently recaptured, revoked or adjusted, the seller's

tax calculation for the year of revocation, recapture, or adjustment shall be increased by the total

amount of the sales proceeds, without proration, as a modification under chapter 30 of this title.

(3) In the event that the seller is not a natural person, the seller's tax calculation under

chapters 11, 12, 13 (other than with respect to the tax imposed under § 44-13-13), 14, 17, or 30 of

this title, as applicable, for the year of revocation, recapture, or adjustment, shall be increased by

including the total amount of the sales proceeds without proration.

      (h) Substantial rehabilitation of property that is exempt from real property tax shall be

ineligible for the tax credits authorized under this chapter. In the event a certified manufacturing

facility undergoes a substantial rehabilitation in compliance with the standards established

LC005181 - Page 5 of 9

pursuant to this chapter and within twenty-four (24) months after issuance of a certificate of

completed work the property becomes exempt from real property tax, the taxpayer's tax for the

year shall be increased by the total amount of credit actually used against the tax.

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

     44-69-5. Administration. – (a) To claim the tax credit authorized in this chapter,

taxpayers shall apply to the director of revenue for designation of the manufacturing facility as a

certified manufacturing facility, which designation shall set forth:

     (1) The proposed construction or renovation for such facility;

     (2) How such renovation shall result in increased manufacturing capacity and capabilities

for such facility; and

     (3) A certification and explanation as to how the proposed construction and renovation

shall be consistent with the standards promulgated pursuant to this chapter.

     (b) The director of revenue shall refer the application to the office of the state building

code commission, which commission shall review the application to determine if the proposed

renovations are consistent with the provisions of subsection (a) of this section. The director of

revenue may also refer the matter to the secretary of commerce if the director determines that

such review would assist in making a determination on the application.

     (c) After such review, the office of the state building code commissioner and, if there has

been a referral to the secretary, the secretary shall report back to the director of revenue on

whether the renovation proposed in the application are consistent with the provisions of

subsection (a) of this section, and shall include a recommendation as to the granting or denial of

the application.

     (d) The director of revenue shall render a decision on the application in writing and

forward a copy of that decision to the applicant within fifteen (15) business days of receipt of all

reports required in subsection (c) of this section. Such decision shall indicate whether the

proposal is accepted or not. The director may approve or deny the application, and shall state

reasons therein. The director may also conditionally deny an application or conditionally approve

it, setting forth what steps the applicant may need to take to obtain certification approval. In the

event the proposal is accepted, the facility shall be designated as a certified manufacturing

facility. Such approval shall also set forth the amount of time within which the rehabilitation to

the facility must take place in order to qualify for a tax credit under this chapter.

     44-69-6. Action of plan. – (a) As to any applicant whose application is approved,

LC005181 - Page 6 of 9

substantial rehabilitation work shall be completed within the timeframes set forth in the director

of revenue's decision. After completion of the rehabilitation work to the certified manufacturing

facility, the applicant shall apply:

     (1) To the state building code commission for a certification that the rehabilitation is

consistent with the standards of the secretary of the United States Department of the Interior for

rehabilitation; and

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

the rehabilitation qualifies.

     (b) Within ninety (90) days after the commission's and the division of taxation's receipt of

the taxpayer's application requesting certification for the completed rehabilitation work, the state

building code commissioner shall make an inspection of the certified manufacturing facility to

determine that such rehabilitation work has been undertaken, and shall report back to both the

applicant and to the division of taxation as to the findings of such inspection. The division of

taxation shall be entitled to rely on the report of the building inspector code commissioner

without independent investigation and, with respect to the amount of tax credit for which the

rehabilitation qualifies, upon the certification of a certified public accountant licensed in the state

of Rhode Island. The commission shall issue the taxpayer a written determination either denying

or certifying the rehabilitation.

     (c) In the event all reports provided for in subsection (b) of this section are favorable, the

division of taxation shall issue a certification of the amount of credit for which the rehabilitation

qualifies. To claim the tax credit, the commission's and the division of taxation's certification as

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

claimed.

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

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

during the holding period no alterations to the certified manufacturing structure will be made

without the commission's approval and in a manner inconsistent with the standards of the

Secretary of the United States Department of the Interior.

     (e) The division of taxation shall charge a fee equal to five percent (5%) of the qualified

rehabilitation expenditures as contracted between the division of taxation and the person, firm,

partnership, trust, estate, limited liability company, corporation (whether for profit or nonprofit)

or other business entity that incurs qualified rehabilitation expenditures for the substantial

rehabilitation of certified manufacturing facilities or some identifiable portion of a structure to be

placed in service after December 31, 2014.

LC005181 - Page 7 of 9

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

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

representations made in an application, the commission or the division of taxation may deny the

requested certification, revoke a certification previously given or terminate the contract, with any

processing fees paid to be forfeited.

     44-69-7. Information requests. – The tax administrator and his or her agents, for the

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

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

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

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

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

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

eligibility for credits claimed.

     SECTION 2. This act shall take effect on January 1, 2015.

========

LC005181

========

LC005181 - Page 8 of 9

EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO TAXATION - MANUFACTURING FACILITIES TAX CREDIT ACT

***

     This act would establish new tax credits as incentives to owners to rehabilitate

manufacturing facilities and to put such facilities into operation. The program would be operated

by the director of revenue, with input and assistance from the state building code commissioner

and the secretary of commerce.

     This act would take effect on January 1, 2015.

========

LC005181

========

LC005181 - Page 9 of 9