income tax credit; historic preservation

HB2987 - 572R - I Ver

REFERENCE TITLE:
income tax credit; historic preservation

State of Arizona

House of Representatives

Fifty-seventh Legislature

Second Regular Session

2026

HB 2987

Introduced by

Representatives
Mathis: Villegas

AN
ACT

amending title 41, chapter 4.2, article
2, Arizona Revised Statutes, by adding section 41-882; amending section 43-222,
Arizona Revised Statutes; amending title 43, chapter 10, article 5, Arizona
Revised Statutes, by adding section 43-1080; amending title 43, chapter
11, article 6, Arizona Revised Statutes, by adding section 43-1166;
relating to income tax credits.

(TEXT OF BILL BEGINS ON NEXT PAGE)

Be it enacted by the Legislature of the State of Arizona:

Section 1. Title 41, chapter 4.2, article 2,
Arizona Revised Statutes, is amended by adding section 41-882, to read:

START_STATUTE
41-882.

Historic preservation tax credit; definitions

A. The state historic preservation
officer shall receive applications and evaluate and certify the substantial
rehabilitation of a certified historic structure for the purpose of income tax
credits under sections 43-1080 and 43-1166.� The state historic
preservation officer shall establish and adopt a schedule for receiving,
evaluating and approving applications twice each year for certification under
this section.� Sixty percent of the annual aggregate tax credit dollar limit prescribed
in subsection K of this section is reserved for certification during the first
application period each year of rehabilitation projects located in cities and
towns with a population of less than one hundred fifty thousand persons.� The
remainder of the annual aggregate tax credit dollar limit may be certified in
the second application period each year with respect to rehabilitation projects
located anywhere in this state.

B. The state historic preservation
officer may issue a certification for a tax credit for the rehabilitation of a
historic structure if, after the completion of the rehabilitation work, the
rehabilitation of the historic structure that is the subject of the
certification:

1. Is consistent with the standards
for rehabilitation of the secretary of the United States department of the
interior as determined by the state historic preservation officer.

2. Produces a positive economic
impact for this state or the local municipality under the cost-benefit
analysis required by this section.

3. Achieves the minimum number of
points necessary under the rehabilitation grading system established by the
state historic preservation officer.

4. Complies with subsection C of this
section.

C. The
owner of the certified historic structure that is the subject of the
application for certification under this section grants a restrictive covenant
to the state historic preservation officer for the holding period and agrees
that alterations may not be made to the certified historic structure during the
holding period:

1. That
are inconsistent with the standards for rehabilitation of the secretary of the
United States department of the interior as determined by the state historic
preservation officer.

2. Without
the state historic preservation officer's approval.

D. The state historic preservation
officer shall include in its certification the amount of the tax credit for
which a rehabilitation qualifies.

E. The
state historic preservation officer shall prescribe the form of application for
the certification of the rehabilitation. Except for the cost-benefit
analysis required by this section, the state historic preservation officer may
rely on the facts provided in the application without the need for an
independent investigation. For rehabilitations with qualified
expenses of $1,500,000 or more, the amount of the qualified rehabilitation
expenses and the amount of the credit for which a rehabilitation qualifies
shall be certified by a certified public accountant licensed in this state and
filed as part of the application for certification. The state
historic preservation officer may authorize a certified local government to
perform the certification process required by this section.

F. Within ninety days after receiving
the application for certification, the state historic preservation officer
shall issue to the applicant a written determination either denying or
approving the rehabilitation and certifying the amount of the tax credit
allowable.

G. If the state historic preservation
officer becomes aware of information that is materially inconsistent with the
information provided in the application for certification, the state historic
preservation officer may deny the request for certification or revoke an
already-issued certification.

H. The state historic preservation
officer shall establish and use a point system for evaluating and grading
proposed rehabilitations of certified historic structures that are the subject
of applications. the state historic preservation officer shall award
Points based on positive job growth, significant positive economic impact and
community support of the rehabilitation proposal.

I. The Arizona commerce authority
shall conduct a cost-benefit analysis of the rehabilitation of the
certified historic structure that is the subject of an
application. The state historic preservation officer may not issue a
certification unless the authority determines as a result of its analysis that
the proposed rehabilitation will produce a positive economic impact for this
state or a local municipality once the certified historic structure is in use.

J. The state historic preservation
officer shall:

1. Charge a fee for each application
as follows:

(
a
) For
rehabilitations with qualified rehabilitation expenses that are less than
$15,000, no application fee.

(
b
) For
rehabilitations with qualified rehabilitation expenses that are at least
$15,000 but less than $50,000, $250.

(
c
) For
rehabilitations with qualified rehabilitation expenses that are at least
$50,000 but less than $100,000, $500.

(
d
) For
rehabilitations with qualified rehabilitation expenses that are at least
$100,000 but less than $500,000, $750.

(
e
) For
rehabilitations with qualified rehabilitation expenses that are $500,000 or
more, fifteen percent of the qualified rehabilitation expenses.

2. use the monies for the costs of
implementing and administering the application and certification process
prescribed in this section. The fees received by the state historic
preservation officer under this subsection do not revert to the state general
fund.

K. The state historic preservation
officer may certify substantial rehabilitations of certified historic
structures for the purpose of tax credits under sections 43-1080 and 43-1166
in a combined annual aggregate amount of $30,000,000 for taxable years
beginning from and after December 31, 2025. For taxable
years beginning from and after December 31, 2035, the state historic
preservation officer may certify an additional combined annual aggregate amount
of up to $30,000,000 for the tax credits under sections 43-1080 and 43-1166.

L. To the
extent not otherwise prohibited by law, the state historic preservation officer
shall provide to the department of revenue information the department requests
to determine a claimant's eligibility for a tax credit claimed under section 43-1080
or 43-1166.

M. For
the purposes of this section:

1. "Certified
historic structure" means a property that is located in this state and is
either:

(
a
) Listed individually in the national register of historic
places.

(
b
) Listed individually in the Arizona register of historic
places.

(
c
) Located in a registered historic district and certified
by either the state historic preservation officer or the secretary of the
United States department of the interior as being of historic significance to
the district.

2. "Certified
local government" means a local government that is certified by the state
historic preservation officer as having the capacity to administer preservation
programs, including the certification process required by this section.

3. "Holding
period" means twenty-four months after the state historic
preservation officer issues a final certification under this section or, if the
rehabilitation is to be completed in phases, twenty-four months after the
certification of the final phase of the rehabilitation.

4. "Placed
in service" means that the rehabilitation work has been substantially
completed to allow for the occupancy of the structure or an identifiable part
of the structure, or the owner has begun depreciating the qualified rehabilitation
expenses, whichever occurs first.

5. "Principal
residence" means a principal residence as prescribed in section 121 of the
internal revenue code.

6. "Qualified
rehabilitation expense":

(
a
) Means monies that are spent in the rehabilitation of a
certified historic structure properly capitalized to the building and that are
spent with respect to property that is either:

(
i
) Depreciable under the internal revenue code.

(
ii
) Held for sale by the owner, other than the principal
residence of the owner.

(
b
) Except for nonprofit corporations, does not include
monies that are spent from direct grants from federal, state or local agencies
or instrumentalities.

7. "Registered
historic district" means any district listed in the national register of
historic places or Arizona register of historic places.

8. "State
historic preservation officer" means the state historic preservation
officer designated pursuant to section 41-511.02.

9. "Substantial
rehabilitation" means that, with regard to a certified historic structure,
the qualified rehabilitation expenses of the certified historic structure
during a twenty-four-month period, or a sixty-month period If
the rehabilitation is to be done in phases set forth in architectural plans and
specifications that are completed before the rehabilitation begins, chosen by
the taxpayer ending with or within the taxable year exceed the greater of
$5,000 or twenty-five percent of the adjusted basis in the certified
historic structure and its structural components.
END_STATUTE

Sec. 2. Section 43-222, Arizona Revised
Statutes, is amended to read:

START_STATUTE
43-222.

Income tax credit review schedule

The joint legislative income tax credit review committee shall
review the following income tax credits:

1. For years ending in 0 and 5, sections 43-1079.01,
43-1088, 43-1089.04, 43-1167.01 and 43-1175.

2. For years ending in 1 and 6, sections 43-1072.02,
43-1074.02,
43-1075,
43-1076.01, 43-1077,
43-1078,
43-1080,
43-1083, 43-1083.02,
43-1162, 43-1164.03
, 43-1166
and 43-1183.

3. For years ending in 2 and 7, sections 43-1073,
43-1082, 43-1085, 43-1086, 43-1089, 43-1089.01,
43-1089.02, 43-1089.03, 43-1164
,
43-1165
,

and 43-1181.

4. For years ending in 3 and 8, sections 43-1074.01,
43-1168, 43-1170 and 43-1178.

5. For years ending in 4 and 9, sections 43-1073.01,
43-1081.01, 43-1083.03, 43-1084, 43-1164.04, 43-1164.05
and 43-1184.
END_STATUTE

Sec. 3. Title 43, chapter 10, article 5,
Arizona Revised Statutes, is amended by adding section 43-1080, to read:

START_STATUTE
43-1080.

Credit for historic preservation; definitions

A. For taxable years beginning from
and after December 31, 2026 through December 31, 2036, a credit is allowed
against the taxes imposed by this title for qualified rehabilitation expenses
for the substantial rehabilitation of a certified historic structure only if
the taxpayer has certification from the state historic preservation officer
issued under section 41-882.

B. The amount of the credit is:

1. Twenty percent of the qualified
rehabilitation expenses for substantial rehabilitation of a certified historic
structure.

2. Twenty-five percent of the
qualified REHABILITATION expenses for substantial REHABILITATION of a certified
historic structure that is also a certified affordable housing project.

C. The
credit is allowed for the taxable year that the certified historic structure or
identifiable portion of the historic structure that meets the substantial
rehabilitation test is placed in service.

D. To
claim a credit, an applicant shall apply to the state historic preservation
officer for certification issued pursuant to section 41-882 after
completion of the rehabilitation work. The certification shall
include the amount of the tax credit for which the rehabilitation qualifies.

E. The
certification shall be attached to any filed return that claims a credit under
this section.

F. The
department may request information from the state historic preservation officer
for the purpose of determining a claimant's eligibility for credits claimed,
and the state historic preservation officer shall provide the requested information
to the extent allowed by law.

G. If the
allowable tax credit exceeds taxes otherwise due under this title on the
claimant's income, or if there are no taxes due under this title, the amount of
the claim not used to offset the taxes under this title may be carried forward
to the next ten consecutive taxable years as a credit against subsequent years'
income tax liability.

H. Co-owners
of a business, including partners in a partnership and shareholders of an s
corporation as defined in section 1361 of the internal revenue code, may each
claim only the pro rata share of credit allowed under this section based on
ownership interest or the share of credit allowed pursuant to an executed
agreement among the owners, partners or shareholders documenting an alternate
distribution method without regard to the sharing of other tax or economic
attributes of the business. The total of the credits allowed all the
owners, partners or shareholders may not exceed the amount that would have been
allowed a sole owner.

I. An
applicant who does not claim the credits allowed under this section, in whole
or in part, may assign, transfer or sell the tax credits to any person,
including condominium owners if the certified historic structure is converted
into condominiums. The assignee, transferee or buyer of the tax
credits may use the acquired credits against the tax imposed by this title and
may carry forward the tax credits for ten consecutive taxable years after the
date the certified historic structure is placed in service. The
assignor, transferor or seller shall notify the department in writing within
thirty days after an assignment, transfer or sale under this subsection and
shall provide the department with any information required by the department.

J. The
proceeds of any sale, transfer or assignment of tax credits received by the
applicant under this section are exempt from this title. If a tax
credit is subsequently recaptured, revoked or adjusted, the seller's,
transferor's or assignor's taxable income shall be increased by the total
amount of the sale, transfer or assignment proceeds in the taxable year of the
recapture, revocation or adjustment.

K. A
taxpayer that claims a credit under this section may not claim a credit under
section 43-1166.

L. For
the purposes of this section:

1. "Certified
historic structure" means a property that is located in this state and is
either:

(
a
) Listed individually in the national register of historic
places.

(
b
) Listed individually in the Arizona register of historic
places.

(
c
) Located in a registered historic district and certified
by either the state historic preservation officer or the secretary of the United
States department of the interior as being of historic significance to the
district.

2. "Placed
in service" means that the rehabilitation work has been substantially
completed to allow for the occupancy of the structure or an identifiable part
of the structure, or the owner has begun depreciating the qualified rehabilitation
expenses, whichever occurs first.

3. "Principal
residence" means a principal residence as prescribed in section 121 of the
internal revenue code.

4. "Qualified
rehabilitation expense":

(
a
) Means monies that are spent in the rehabilitation of a
certified historic structure properly capitalized to the building and that are
spent with respect to property that is either:

(
i
) Depreciable under the internal revenue code.

(
ii
) Held for sale by the owner, other than the principal
residence of the owner.

(
b
) Except for nonprofit corporations, does not include
monies that are spent from direct grants from federal, state or local agencies
or instrumentalities.

5. "Registered
historic district" means any district listed in the national register of
historic places or Arizona register of historic places.

6. "State historic preservation
officer" means the state historic preservation officer designated pursuant
to section 41-511.02.

7. "Substantial
rehabilitation" means that, with regard to a certified historic structure,
the qualified rehabilitation expenses of the certified historic structure
during a twenty-four-month period, or a sixty-month period If
the rehabilitation is to be done in phases set forth in architectural plans and
specifications that are completed before the rehabilitation begins, chosen by
the taxpayer ending with or within the taxable year exceed the greater of
$5,000 or twenty-five percent of the adjusted basis in the certified
historic structure and its structural components.
END_STATUTE

Sec. 4. Title
43, chapter 11, article 6, Arizona Revised Statutes, is amended by adding
section 43-1166, to read:

START_STATUTE
43-1166.

Credit for historic preservation; definitions

A. For taxable years beginning from
and after December 31, 2026 through December 31, 2036, a credit is allowed
against the taxes imposed by this title for qualified rehabilitation expenses
for the substantial rehabilitation of a certified historic structure only if
the taxpayer has certification from the state historic preservation officer
issued under section 41-882.

B. The amount of the credit is:

1. Twenty percent of the qualified
rehabilitation expenses for substantial rehabilitation of a certified historic
structure.

2. Twenty-five percent of the
qualified REHABILITATION expenses for substantial REHABILITATION of a certified
historic structure that is also a certified affordable housing project.

C. The
credit is allowed for the taxable year that the certified historic structure or
identifiable portion of the historic structure that meets the substantial
rehabilitation test is placed in service.

D. To
claim a credit, an applicant shall apply to the state historic preservation
officer for certification issued pursuant to section 41-882 after
completion of the rehabilitation work. The certification shall
include the amount of the tax credit for which the rehabilitation qualifies.

E. The
final certification shall be attached to any filed return that claims a credit
under this section.

F. The
department may request information from the state historic preservation officer
for the purpose of determining a claimant's eligibility for credits claimed,
and the state historic preservation officer shall provide the requested
information to the extent allowed by law.

G. If the
allowable tax credit exceeds taxes otherwise due under this title on the
claimant's income, or if there are no taxes due under this title, the amount of
the claim not used to offset the taxes under this title may be carried forward
to the next ten consecutive taxable years as a credit against subsequent years'
income tax liability.

H. Co-owners
of a business, including corporate partners in a partnership and members of a
limited liability company, may each claim only the pro rata share of credit
allowed under this section based on ownership interest or the share of credit
allowed pursuant to an executed agreement among the owners, partners or members
documenting an alternate distribution method without regard to the sharing of
other tax or economic attributes of the business. The total of the
credits allowed all the owners, partners or members may not exceed the amount
that would have been allowed a sole owner.

I. An
applicant that does not claim the credits allowed under this section, in whole
or in part, may assign, transfer or sell the tax credits to any person,
including condominium owners if the certified historic structure is converted
into condominiums. The assignee, transferee or buyer of the tax
credits may use the acquired credits against the tax imposed by this title and
may carry forward the tax credits for ten consecutive taxable years after the
date the certified historic structure is placed in service. The
assignor, transferor or seller shall notify the department in writing within
thirty days after an assignment, transfer or sale under this subsection and
shall provide the department with any information required by the department.

J. The
proceeds of any sale, transfer or assignment of tax credits received by the
applicant under this section are exempt from this title. If a tax
credit is subsequently recaptured, revoked or adjusted, the seller's,
transferor's or assignor's taxable income shall be increased by the total
amount of the sale, transfer or assignment proceeds in the taxable year of the
recapture, revocation or adjustment.

K. A
taxpayer that claims a credit under this section may not claim a credit under
section 43-1080.

L. For
the purposes of this section:

1. "Certified
historic structure" means a property that is located in this state and is
either:

(
a
) Listed individually in the national register of historic
places.

(
b
) Listed individually in the Arizona register of historic
places.

(
c
) Located in a registered historic district and certified
by either the state historic preservation officer or the secretary of the
United States department of the interior as being of historic significance to
the district.

2. "Placed
in service" means that the rehabilitation work has been substantially
completed to allow for the occupancy of the structure or an identifiable part
of the structure, or the owner has begun depreciating the qualified rehabilitation
expenses, whichever occurs first.

3. "Principal
residence" means a principal residence as prescribed in section 121 of the
internal revenue code.

4. "Qualified rehabilitation expense":

(
a
) Means monies spent in the
rehabilitation of a certified historic structure properly capitalized to the
building and that are spent with respect to property that is either:

(
i
) Depreciable under the internal revenue code.

(
ii
) Held for sale by the owner, other than the principal
residence of the owner.

(
b
) Except for nonprofit corporations, does not include
monies that are spent from direct grants from federal, state or local agencies
or instrumentalities.

5. "Registered
historic district" means any district listed in the national register of
historic places or Arizona register of historic places.

6. "State historic preservation
officer" means the state historic preservation officer designated pursuant
to section 41-511.02.

7. "Substantial
rehabilitation" means that, with regard to a certified historic structure,
the qualified rehabilitation expenses of the certified historic structure
during a twenty-four-month period, or a sixty-month period If
the rehabilitation is to be done in phases set forth in architectural plans and
specifications that are completed before the rehabilitation begins, chosen by
the taxpayer ending with or within the taxable year exceed the greater of
$5,000 or twenty-five percent of the adjusted basis in the certified
historic structure and its structural components.
END_STATUTE

Sec. 5.
Purpose

Pursuant to section 43-223,
Arizona Revised Statutes, the legislature enacts sections 43-1080 and 43-1166,
Arizona Revised Statutes, to create economic incentives for the purpose of
stimulating the redevelopment and reuse of historic structures in this state.