What is the Kansas commercial restoration and preservation tax credit for older buildings?

Plain-English summary

Kansas Notice 22-11 explains the Commercial Restoration and Preservation Credit under the Historic Kansas Act, created by 2022 House Bill 2237 (New Sections 13-14), for tax years beginning after December 31, 2021.

The credit. A taxpayer may claim a credit against Kansas income tax, the financial-institution privilege tax, or the premium tax equal to 10% of the costs of restoring and preserving a commercial structure at least 50 years old that does not receive the historic preservation tax credit under K.S.A. 79-32,211. An additional 10% credit is allowed for installing fire suppression materials or equipment. For each category, the costs must be at least $25,000 but not more than $500,000.

Carryforward. If the credit exceeds the taxpayer's income, privilege, or premium tax liability for the year the costs were incurred, the excess carries forward until used, but no credit may be carried forward after the 10th following taxable year.

Bank interest. Any bank, savings and loan association, or savings bank must pay tax on 50% of the interest earned on qualifying loans for the restoration/preservation or fire-suppression work.

Pass-through (Section 14(c)). For S corporations, partnerships, and LLCs, the credit is claimed by the shareholders, partners, or members in proportion to their shares of income or loss, or as they agree.

Transferable. The credit may be sold, assigned, or transferred. The transferee may offset up to 100% of its income, privilege, or premium tax liability (for the year the costs were made or the year it received the credit), carry unused amounts forward up to five years, and must claim all credits within ten years of the year the costs were made. The transferor and transferee must sign a written agreement.

No double credit. A credit cannot be claimed under the Historic Kansas Act if a credit is claimed for the same work under the historic preservation tax credit (K.S.A. 79-32,211).

How to apply. Complete Form K-206, Application for Commercial Restoration and Preservation Credit, and submit it to the Department between December 1 and December 31 of the year the costs were incurred. Applications are processed in the order received until all are processed or the $10 million annual cap is reached; if approved, the Department issues a Tax Credit Certificate by February 1 of the following year. After a certificate is issued, all or part of the credit may be transferred; report a transfer on Form K-260, Kansas Tax Credit Transfer Notification.

What this means for you

Owners restoring older commercial buildings

• Restoring a commercial building at least 50 years old (that isn't using the historic preservation credit) can earn a 10% Kansas credit, plus another 10% for fire suppression, on qualifying costs from $25,000 to $500,000 in each category.
• Apply on Form K-206 during December of the year you incur the costs; the $10 million annual pool is first-come, first-served.
• You cannot use this credit and the historic preservation credit (K.S.A. 79-32,211) for the same project.

Investors and pass-through owners

• The credit passes through to S corporation shareholders, partners, and LLC members, and can be bought or sold; a transferee can offset up to 100% of its liability and carry unused credit forward up to five years. Report transfers on Form K-260.

Common questions

How big is the credit? 10% of qualifying restoration/preservation costs for a commercial building at least 50 years old, plus another 10% for fire suppression; each cost category must be $25,000-$500,000.

Against what taxes? Kansas income tax, the financial-institution privilege tax, or the premium tax.

Is there a cap? Yes -- a $10 million statewide cap per year, awarded in the order applications are received.

When do I apply? On Form K-206 between December 1 and December 31 of the year the costs were incurred.

Can I transfer the credit? Yes -- report transfers on Form K-260; a transferee may offset up to 100% of its liability and carry forward up to five years.

Citations and references

• House Bill 2237 (2022), New Sections 13-14 -- the Historic Kansas Act; created the Commercial Restoration and Preservation Credit.
• K.S.A. 79-32,211 -- the historic preservation tax credit; a project using it cannot also use the Historic Kansas Act credit.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 22-11

Original ruling text

Policy and Research
109 SW 9th Street Phone: 785-368-8222
PO Box 3506 Fax: 785-296-1279
Topeka KS 66601-3506 www.ksrevenue.gov
Mark A. Burghart, Secretary Laura Kelly, Governor

                                         NOTICE 22-11

            COMMERCIAL RESTORATION AND PRESERVATION CREDIT

                                    (NOVEMBER 10, 2022)

   During the 2022 Legislative Session House Bill 2237 was passed and signed into law. New

Sections 13 and 14 of the Bill are known as the Historic Kansas Act. The act provides a tax credit
for older commercial structures in the state.

   New Section 14 of the Bill establishes, for all taxable years starting after December 31, 2021,

a tax credit against a tax liability imposed upon a taxpayer by the Kansas income tax act, the
financial institutions privilege tax, or the premium tax, in an amount equal to 10% of the costs and
expenses incurred for the restoration and preservation of a commercial structure at least 50 years
old that does not receive the historic preservation tax credit provided by KSA 79-32,211. An
additional 10% tax credit of costs and expenses will be allowed for the installation of fire
suppression materials or equipment by a taxpayer. To qualify for the credit related to the structure,
the total amount of costs and expenses for restoration and preservation must be equal to at least
$25,000, but not exceed $500,000. Similarly, to qualify for the credit related to fire suppression
materials or equipment, the total amount of costs and expenses for fire suppression materials or
equipment must be equal to at least $25,000, but not exceed $500,000.

   If the tax credit exceeds the taxpayer's income, privilege, or premium tax liability for the

year in which the expenditures were made, the excess amount may be carried over for deduction
in the next succeeding year or years until the total amount of the credit has been deducted from the
tax liability, except no credit may be carried forward after the 10th taxable year succeeding the
taxable year in which the expenditures were made.

   Any bank, savings and loan association, or savings bank must pay taxes on 50% of the

interest earned on loans to taxpayers used for costs and expenses for the restoration and
preservation of a commercial structure at least 50 years old or for the installation of fire suppression
materials or equipment.

  New Section 14(c) creates a "pass-through" of the credit for subchapter S corporations,

partnerships, and limited liability companies. The new language provides:

         (c) If the taxpayer is a corporation having an election in effect under subchapter S of
   the federal internal revenue code, a partnership or a limited liability company, the credit
   provided by this section shall be claimed by the shareholders of such corporation, the
   partners of such partnership or the members of such limited liability company in the same
   manner as such shareholders, partners or members account for their proportionate shares

 of the income or loss of the corporation, partnership or limited liability company, or as the
 corporation, partnership or limited liability company mutually agree as provided in the
 bylaws or other executed agreement. Credits granted to a partnership, a limited liability
 company taxed as a partnership or other multiple owners of property shall be passed through
 to the partners, members or owners respectively pro rata or pursuant to an executed
 agreement among the partners, members or owners documenting any alternate distribution
 method.

  The new Act allows for the sale, assignment, conveyance, or transfer of these tax credits.

The taxpayer acquiring credits (transferee) can use the amount of the acquired credits to offset up
to 100% of the transferee's income, privilege, or premium tax liability for either the taxable year
in which the costs and expenses were made or the taxable year in which the transferee received the
credit. Unused credit may be carried forward for up to five years, with all credits being claimed
within ten years following the tax year in which the costs and expenses were made. The transferor
and transferee are required to enter into a written agreement which establishes the terms and
conditions of the transfer of the credit.

 A credit cannot be claimed under the provisions of the new Historic Kansas Act if a credit is

claimed under the provisions of the Historic Preservation Tax Credit found in K.S.A. 79-32,211,
and amendments thereto.

   To apply for the credit an Application for Commercial Restoration and Preservation Credit

must be completed and submitted to the Department of Revenue for review. The Department
has developed a web application available in our Kansas Customer Service Center at:
www.ksrevenue.gov. The Application must be submitted between December 1st and
December 31st of the year in which the costs and expenditures were made. Applications
will be reviewed and processed in the order received until all applications have been
processed or the $10 million cap has been reached, whichever comes first. If approved,
the Department will issue a Tax Credit Certificate for the credit allowed, no later than February
1st of the following year.

  After an Application has been approved and a Tax Credit Certificate has been issued, all

or part of the commercial restoration and preservation credit may be transferred to another
individual or entity. Transfers become effective per an agreement between the two parties.
Once a transfer has been made, the transferor and the transferee should complete and submit
Form K-260 Kansas Tax Credit Transfer Notification to the Department of Revenue.
Submission of this form notifies the Department that a transfer has taken place and allows the
Department to update ownership records for tax reporting purposes. Submission of the Form
K-260 should not precede the actual transfer or agreement, and does not constitute the actual
transfer.

 Additional information regarding the Form K-206 Application for Commercial

Restoration and Preservation Credit, the Form K-260 Kansas Tax Credit Transfer
Notification, and recent amendments to the Historic Preservation Tax Credit (Notice 22-11),
are available through the Department's website at: www.ksrevenue.gov.

                               TAXPAYER ASSISTANCE

 Additional copies of this notice, forms or publications are available from our web site,

www.ksrevenue.gov. If you have questions about this Notice, please contact:

                             Taxpayer Assistance Center
                           Kansas Department of Revenue
                          Scott Office Building, 1st Floor
                                  120 SE 10th Ave
                                  P. O. Box 3506
                              Topeka, KS 66601-3506
                                Phone: 785-368-8222
                        Hearing Impaired TTY: 785-296-6461
                                 Fax: 785-291-3614