When could Texas's historic building rehabilitation tax credit first be claimed, and could a nonprofit or homeowner use it?

Plain-English summary

When the Eighty-third Legislature passed House Bill 500, it created a new franchise-tax credit for rehabilitating certified historic structures, placed in the Tax Code as subchapter S of chapter 171. The bill carried two important dates, and Mark Wolfe, the Executive Director of the Texas Historical Commission, asked the Attorney General seven questions about how those dates worked and who could use the credit.

The AG started with the timing because it answered most of the rest. H.B. 500 was generally effective January 1, 2014, but subchapter S, the part creating the credit, did not take effect until January 1, 2015. Under the rule that a law does not speak until its effective date, the AG concluded the credit was not operative until then and could not be applied before the 2015 tax year. That answer shaped the next two. An owner whose qualifying structure was placed in service between September 1, 2013 and January 1, 2015 could still be eligible, because September 1, 2013 was just a qualifying date, but the credit itself could not be taken until 2015. Likewise, eligible costs and expenses counted no matter when they were incurred, again subject to the 2015 tax-year limit.

On the Commission's own powers before January 1, 2015, the AG drew a line using Government Code section 2001.006, which lets an agency prepare to implement a law that has passed but not yet taken effect. The Commission could review applications ahead of the effective date, as long as it was not implementing an administrative rule. But it could not issue certificates of eligibility early, because issuing a certificate would be enforcing the statute before it took effect.

On appeals, the AG found that subchapter S provided no route to challenge a denied certificate, and that the Administrative Procedure Act likely did not supply one either, because the Commission's decision was not a contested case. That did not leave a wrongfully denied owner helpless, though. Because the statute said the Commission "shall issue" certificates to qualifying applicants, the AG noted an owner who met the criteria but was denied might seek mandamus relief or bring a so-called ultra vires claim for a declaratory judgment, while cautioning that whether any particular claim would work in a given case was beyond what the opinion could decide.

Finally, the AG addressed who could use the credit. Unlike the rest of chapter 171, which speaks of "taxable entities," section 14 of H.B. 500 used the broader word "entity" and expressly let an entity sell or assign the credit. The AG concluded the credit was not limited to franchise-tax payers: a homeowner, nonprofit, or other non-taxable entity that owned a qualifying structure could claim it, and even though such an owner could not use the credit against a franchise-tax bill it did not owe, it could still benefit by selling or assigning the credit to a taxable entity.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later Attorney General opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant for those who asked

The Texas Historical Commission (as the opinion described it): The opinion told the Commission it could review applications before the January 1, 2015 effective date, so long as doing so did not involve implementing an administrative rule, but that it could not issue certificates of eligibility until that date because issuing them would be enforcing the statute early. It also described the Commission's duty to issue certificates to qualifying applicants as mandatory ("shall issue").

Owners of historic structures (as the opinion described it): The opinion explained that an owner whose certified structure was placed in service on or after September 1, 2013 could qualify, and that eligible costs counted whenever incurred, but the credit could not be claimed before the 2015 tax year. For an owner denied a certificate despite meeting the criteria, the opinion described mandamus and ultra vires declaratory relief as possible avenues, without deciding whether either would succeed in a given case.

Nonprofits, homeowners, and other non-taxable entities (as the opinion described it): The opinion concluded the credit was available to entities not subject to the franchise tax, because section 14 used "entity" rather than "taxable entity" and authorized selling or assigning the credit. It described such an owner as able to claim the credit and transfer it to a taxable entity that could use it.

Common questions

When could the historic-structure rehabilitation credit first be claimed?
The AG concluded it could not be applied before the 2015 tax year, because subchapter S of Tax Code chapter 171, which created the credit, did not take effect until January 1, 2015, and a law does not speak until its effective date.

My building was finished in 2014. Could I still qualify?
Yes, according to the opinion. A structure placed in service between September 1, 2013 and January 1, 2015 could qualify, and eligible costs counted whenever they were incurred, but the credit itself could not be taken until the 2015 tax year.

Could the Texas Historical Commission start issuing certificates before 2015?
No. The AG said the Commission could review applications ahead of the January 1, 2015 effective date but could not issue certificates of eligibility before then, because issuing a certificate would constitute implementing or enforcing the statute early.

Was there a way to appeal a denied certificate?
The AG found no appeal in subchapter S and concluded the Administrative Procedure Act likely provided none either, since the decision was not a contested case. It noted that an owner who met the criteria but was denied might pursue mandamus or an ultra vires declaratory claim, but did not decide whether either would succeed.

Do I have to owe Texas franchise tax to use the credit?
No. The AG concluded the credit was not limited to taxable entities. A nonprofit, homeowner, or other non-taxable owner of a qualifying structure could claim it and could sell or assign it to a taxable entity that could use it against franchise tax.

Background and statutory framework

House Bill 500 from the Eighty-third Legislature touched many parts of the franchise tax (Act of May 26, 2013, 83d Leg., R.S., ch. 1232, 2013 Tex. Gen. Laws 3104, 3104-12). Section 14 of the bill, codified as subchapter S of Tax Code chapter 171, created the credit for certified rehabilitation of certified historic structures (Tex. Tax Code Ann. §§ 171.901-.909 (West Supp. 2013)). A qualifying entity first requests a certificate of eligibility from the Commission and then forwards it, with other documentation, to the Comptroller to claim the credit (id. §§ 171.902-.904; id. § 171.904(c)).

The AG resolved the timing questions on the principle that a statute performs no function until its effective date (Norton v. Kleberg Cnty., 231 S.W.2d 716, 718 (Tex. 1950); Calvert v. Gen. Asphalt Co., 409 S.W.2d 935, 938 (Tex. Civ. App.-Austin 1966, no writ)). Subchapter S took effect January 1, 2015, while the qualifying provision required only that the structure be placed in service on or after September 1, 2013 (Tex. Tax Code Ann. § 171.903(1)). On the Commission's pre-effective-date powers, the AG applied Government Code section 2001.006, which permits an agency to prepare to implement a law that has become law but not yet taken effect, but bars any rule from taking effect, or any administrative action from implementing or enforcing the law, before the effective date (Tex. Gov't Code Ann. § 2001.006(b), (d) (West 2008); id. § 2001.006(a)(2); Tex. Tax Code Ann. § 171.909).

On appeal rights, the AG noted that subchapter S created no appeal and that the Administrative Procedure Act provides judicial review only of final decisions in contested cases (Bacon v. Tex. Historical Comm'n, 411 S.W.3d 161, 180 (Tex. App.-Austin 2013, no pet.)). Because the statute makes issuance mandatory (Tex. Tax Code Ann. § 171.904(b); Tex. Gov't Code Ann. § 311.016(2) (West 2013)), the AG pointed to mandamus (In re Smith, 333 S.W.3d 582, 585 (Tex. 2011) (orig. proceeding)) and ultra vires declaratory relief (City of El Paso v. Heinrich, 284 S.W.3d 366, 370-77 (Tex. 2009)) as possible remedies. On eligibility, the AG contrasted section 14's use of "entity" with chapter 171's defined terms "taxable entity" and "passive entity" (Tex. Tax Code Ann. §§ 171.001 (West 2008), 171.0002 (West Supp. 2012), 171.0003 (West 2008); FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 885 (Tex. 2000)), and relied on the express authorization to sell or assign the credit (Tex. Tax Code Ann. § 171.908(a)). The franchise tax itself reaches entities doing business in or organized in the state (TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 437 (Tex. 2011)).

Citations

Statutory provisions:

• Tex. Tax Code Ann. §§ 171.901-.909 (West Supp. 2013) (subchapter S, historic-structure rehabilitation credit)
• Tex. Tax Code Ann. §§ 171.902-.904 (West Supp. 2013) (certificate of eligibility process)
• Tex. Tax Code Ann. § 171.904(c) (West Supp. 2013) (forwarding certificate to the Comptroller)
• Tex. Tax Code Ann. § 171.903(1) (West Supp. 2013) (placed-in-service date of September 1, 2013)
• Tex. Tax Code Ann. § 171.901(4) (West Supp. 2013) (definition of "eligible costs and expenses")
• Tex. Tax Code Ann. § 171.904(b) (West Supp. 2013) (Commission "shall issue" certificates)
• Tex. Tax Code Ann. § 171.908(a) (West Supp. 2013) (sale or assignment of the credit)
• Tex. Tax Code Ann. § 171.909 (West Supp. 2013) (Commission rulemaking authority)
• Tex. Tax Code Ann. §§ 171.001 (West 2008), 171.0002 (West Supp. 2012), 171.0003 (West 2008) (franchise tax; "taxable entity"; "passive entity")
• Tex. Gov't Code Ann. § 2001.006(b), (d) (West 2008) (preparation to implement a not-yet-effective law)
• Tex. Gov't Code Ann. § 2001.006(a)(2) (West 2008) (when legislation has "become law")
• Tex. Gov't Code Ann. § 311.016(2) (West 2013) ("shall" imposes a duty)
• Act of May 26, 2013, 83d Leg., R.S., ch. 1232, 2013 Tex. Gen. Laws 3104, 3104-12 (House Bill 500)

Cases:

• TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 437 (Tex. 2011)
• Norton v. Kleberg Cnty., 231 S.W.2d 716, 718 (Tex. 1950)
• Calvert v. Gen. Asphalt Co., 409 S.W.2d 935, 938 (Tex. Civ. App.-Austin 1966, no writ)
• Bacon v. Tex. Historical Comm'n, 411 S.W.3d 161, 180 (Tex. App.-Austin 2013, no pet.)
• In re Smith, 333 S.W.3d 582, 585 (Tex. 2011) (orig. proceeding)
• City of El Paso v. Heinrich, 284 S.W.3d 366, 370-77 (Tex. 2009)
• FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 885 (Tex. 2000)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-1045
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2014/ga1045.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

March 3, 2014

Mr. Mark Wolfe Opinion No. GA-1045
Executive Director
Texas Historical Commission Re: The Texas Historical Commission's
Post Office Box 12276 implementation of House Bill 500, relating
Austin, Texas 78711-2276 to a tax credit for the rehabilitation of
certified historic structures (RQ-1149-GA)

Dear Mr. Wolfe:

You ask about the Texas Historical Commission's (the "Commission") implementation of House Bill 500, enacted by the Eighty-third Legislature.[1] You tell us that the bill, "which establishes a tax credit for certified rehabilitation of certified historic structures, includes two dates for implementation," and you ask the following questions regarding the tax credit program:

1. Does the Texas Historical Commission have the authority to begin reviewing applications for the tax credit prior to January 1, 2015, the effective date of this section of the bill?

2. May the Commission issue certificates of eligibility prior to January 1, 2015?

3. Is denial of a certificate of eligibility subject to appeal, and if so, is this appeal a contested case under Tex. Gov't Code ch. 2001?

4. May property owners whose qualifying historic structures are placed in service between September 1, 2013 and January 1, 2015, claim the credit?

5. Would costs and expenses incurred by an owner prior to either September 1, 2013 or January 1, 2015 be eligible for the credit?

6. To what tax year may credits for periods prior to January 1, 2015 be applied, if any?

7. Is it necessary that the owner of the property be subject to the franchise tax, or may a homeowner, nonprofit corporation, or other non-taxable entity make use of the credit through its sale or assignment to a taxable entity?

Request Letter at 1.

The franchise tax is imposed on taxable entities doing business in the state or chartered or organized in the state. TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 437 (Tex. 2011). House Bill 500 concerns many different aspects of the franchise tax. See Act of May 26, 2013, 83d Leg., R.S., ch. 1232, 2013 Tex. Gen. Laws 3104, 3104-12 ("H.B. 500"). Relevant here, section 14 of H.B. 500, codified as subchapter S of Chapter 171 of the Tax Code, creates a new tax credit for "certified rehabilitation of certified historic structures." H.B. 500 § 14(a), at 3109-11; TEX. TAX CODE ANN. §§ 171.901-.909 (West Supp. 2013) (subchapter S). An entity that is qualified to receive the credit must first request a certificate of eligibility from the Commission. TEX. TAX CODE ANN. §§ 171.902-.904 (West Supp. 2013). The entity must forward the certificate of eligibility, along with other documentation, to the Comptroller's Office to claim the tax credit. Id. § 171.904(c).

Several important dates are relevant. H.B. 500 is generally effective on January 1, 2014, "except as otherwise provided." H.B. 500 § 20 at 3111. Subchapter S is effective on January 1, 2015. H.B. 500 § 14(b), at 3111. Within subchapter S, the qualifications for the tax credit require that the "rehabilitated certified historic structure" be placed in service on or after September 1, 2013. TEX. TAX CODE ANN. § 171.903(1) (West Supp. 2013). These various dates give rise to your questions, which we address together where possible.

We address your sixth question first because the answer to it informs the answer to several of your other questions. The general rule is that a law does not speak until its effective date. Norton v. Kleberg Cnty., 231 S.W.2d 716, 718 (Tex. 1950); see also Calvert v. Gen. Asphalt Co., 409 S.W.2d 935, 938 (Tex. Civ. App.-Austin 1966, no writ) (recognizing that an act of the Legislature "performs no function whatsoever until its effective date"). By H.B. 500's terms, subchapter S is not effective until January 1, 2015. H.B. 500 § 14(b), at 3111. Thus, the new tax credit for rehabilitated certified historic structures created by subchapter S is not operative until January 1, 2015. Accordingly, the tax credit may not be applied prior to the 2015 tax year.[2]

An entity may qualify for the tax credit if the "rehabilitated certified historic structure is placed in service on or after September 1, 2013." TEX. TAX CODE ANN. § 171.903(1) (West Supp. 2013). The September 1, 2013 date is merely a date, prior to the tax credit's effective date, used to determine whether an entity qualifies for the tax credit; it does not impact subchapter S's effective date. Thus, in answer to your fourth question, property owners whose qualifying historic structures are placed in service between September 1, 2013 and January 1, 2015 are eligible for the tax credit, but not until the 2015 tax year.

Your fifth question involves costs and expenses incurred prior to either September 1, 2013 or January 1, 2015. The tax credit incorporates "eligible costs and expenses incurred in the certified rehabilitation of a certified historic structure as provided by" the subchapter. Id. § 171.903; see also id. § 171.901(4) (defining "eligible costs and expenses"). Subchapter S does not limit the eligible costs and expenses based on when they were incurred; its date limitation to qualify for the tax credit requires only that the structure be placed in service on or after September 1, 2013. Id. § 171.903(1). Thus, any costs and expenses, whenever incurred, that are "eligible costs and expenses" under the statute would be eligible for the tax credit, but not until the 2015 tax year.

Your first and second questions involve the Commission's authority prior to January 1, 2015. Section 2001.006 of the Government Code provides that

[i]n preparation for the implementation of legislation that has become law but has not taken effect, a state agency may adopt a rule or take other administrative action that the agency determines is necessary or appropriate and that the agency would have been authorized to take had the legislation been in effect at the time of the action.[3]

TEX. GOV'T CODE ANN. § 2001.006(b) (West 2008). Section 2001.006 limits that power, however, so that a rule adopted under 2001.006(b) "may not take effect earlier than the legislation being implemented takes effect." Id. § 2001.006(d). An administrative action taken under that section "may not result in implementation or enforcement of the applicable legislation or rule before the legislation or rule takes effect." Id. The Commission is authorized to adopt rules to implement the new tax credit. TEX. TAX CODE ANN. § 171.909 (West Supp. 2013). Under section 2001.006, it may adopt rules or take administrative action relating to the new tax credit prior to the January 1, 2015 effective date of subchapter S. See TEX. GOV'T CODE ANN. § 2001.006(b) (West 2008). However, under section 2001.006(d), any rule may not take effect earlier than January 1, 2015, and any administrative action may not result in implementation or enforcement of the statute. See id. § 2001.006(d). Accordingly, in response to your first question, the Commission has authority to review applications prior to January 1, 2015, provided that doing so does not involve the implementation of an administrative rule. In response to your second question, the Commission may not issue certificates of eligibility prior to January 1, 2015, because, unlike reviewing applications, issuing certificates would constitute implementation or enforcement of the statute prior to its effective date.

With regard to your third question, no provision in subchapter S provides for an appeal of the Commission's denial of an application for a certificate of eligibility. See generally TEX. TAX CODE ANN. §§ 171.901-.909 (West Supp. 2013). A court would likely conclude that the Administrative Procedure Act also does not provide a means of appealing the Commission's actions in this context. See Bacon v. Tex. Historical Comm'n, 411 S.W.3d 161, 180 (Tex. App.-Austin 2013, no pet.) (considering Commission's denial of application regarding historical marker and recognizing that no judicial review of the denial was created indirectly through the Administrative Procedure Act "because the right of judicial review provided therein applies only to final decisions in contested cases" and that the Commission proceeding was not a contested case).

Although no statute authorizes an appeal of the Commission's denial of a certificate of eligibility, property owners whose applications are wrongfully denied are not without judicial recourse. Subchapter S imposes a mandatory duty on the Commission to issue certificates of eligibility to qualifying applicants. See TEX. TAX CODE ANN. § 171.904(b) (West Supp. 2013) ("The Commission shall issue ...."); TEX. GOV'T CODE ANN. § 311.016(2) (West 2013) (providing that the term "shall" usually imposes a duty). Thus, if a property owner who met the statutory criteria for a certificate of eligibility was nevertheless denied the certificate, the property owner may be entitled to mandamus relief ordering the Commission to issue a certificate. See In re Smith, 333 S.W.3d 582, 585 (Tex. 2011) (orig. proceeding) (discussing required elements for mandamus relief). In the alternative, Texas courts may recognize a so-called ultra vires claim for declaratory relief if the Commission acts outside its legal authority on a matter in which it has no discretion. See City of El Paso v. Heinrich, 284 S.W.3d 366, 370-77 (Tex. 2009) (discussing ultra vires exception to sovereign immunity in a declaratory judgment action). We caution, however, that whether any particular legal claim is available in a given case is not a question we can answer here.

Relevant to your last question, section 14 expressly authorizes an "entity that incurs eligible costs and expenses" to "sell or assign all or part of the credit ... to one or more entities." H.B. 500 § 14(a), at 3110-11 (codified at TEX. TAX CODE ANN. § 171.908(a)); see also id. (authorizing resale of sold credit). Section 14 utilizes the term "entity" in all provisions providing for the new tax credit. See H.B. 500 § 14(a), at 3109-11 (codified at TEX. TAX CODE ANN. §§ 171.902, .903, .904, .906, .907, .908). Unlike chapter 171 as a whole, which utilizes the terms "taxable entity" and "passive entity" to determine the applicability of the franchise tax, section 14 does not utilize language limiting those entities that can qualify for the tax credit to taxable entities. See TEX. TAX CODE ANN. §§ 171.001 (West 2008) (imposing franchise tax on taxable entities), 171.0002 (West Supp. 2012) (defining "taxable entity"), 171.0003 (West 2008) (defining "passive entity"); see also FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 885 (Tex. 2000) (relying on principle of statutory construction that the Legislature knows how to enact laws effectuating its intent). The distinction in the language suggests that entities able to apply for the credit may not be the same as those claiming the credit. Further, there is no provision in section 14 that expressly limits the tax credit to only taxable entities. See generally H.B. 500 § 14(a), at 3109-11 (codified at TEX. TAX CODE ANN. §§ 171.901-.909). For these reasons, we conclude that the tax credit created by section 14 is available to entities that are not subject to the franchise tax. This conclusion does not render the tax credit useless because an entity that is not a taxable entity, though unable to claim the credit against the franchise tax, could still benefit by selling or assigning the credit to a taxable entity that could. See id. H.B. 500 § 14(a), at 3110-11 (codified at TEX. TAX CODE ANN. § 171.908 (providing for the sale or assignment of the credit)).

SUMMARY

The new tax credit for rehabilitated certified historic structures created in House Bill 500, to be codified in the Tax Code at chapter 171, subchapter S, is not operative until the 2015 tax year. Thus, the new tax credit may not be applied in years prior to 2015.

An entity whose qualifying rehabilitated certified historic structure is placed in service between September 1, 2013 and January 1, 2015 may be eligible for the new tax credit but not until the 2015 tax year. Similarly, eligible costs and expenses associated with the rehabilitated certified historic structure, whenever incurred, would be eligible for the new tax credit, but not until the 2015 tax year.

The Commission has authority to review applications prior to January 1, 2015, provided that doing so does not involve the implementation of an administrative rule. The Commission may not issue certificates of eligibility prior to January 1, 2015, because issuing certificates, unlike reviewing applications, would constitute implementation or enforcement of the statute prior to its effective date.

The new tax credit is not limited to taxable entities. It may be claimed and transferred by an entity that owns a rehabilitated certified historic structure even if the entity is not subject to the franchise tax.

Very truly yours,

GREG ABBOTT
Attorney General of Texas

DANIEL T. HODGE
First Assistant Attorney General

JAMES D. BLACKLOCK
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

Charlotte M. Harper
Assistant Attorney General, Opinion Committee

[1] See Letter from Mr. Mark Wolfe, Exec. Dir., Tex. Historical Comm'n, to Honorable Greg Abbott, Tex. Att'y Gen. at 1 (Aug. 30, 2013), http://www.texasattorneygeneral.gov/opin ("Request Letter").

[2] In briefing submitted to this office, the Comptroller of Public Accounts agrees that the tax "credits cannot be created for periods prior to January 1, 2015." Brief from William S. Hamner, Director, Tax Admin., Tex. Comptroller of Pub. Accounts at 2 (Sept. 24, 2013) (on file with the Op. Comm.).

[3] Section 2001.006(a)(2) enumerates factors by which to determine whether legislation has "become law." TEX. GOV'T CODE ANN. § 2001.006(a)(2) (West 2008).