300 KAR 6:010. Historic rehabilitation tax credit certifications.

 

      RELATES TO: KRS 171.396, 171.397, 16 U.S.C. 470a(a)(1), 36 C.F.R. Parts 60, 67

      STATUTORY AUTHORITY: KRS 171.397(14)

      NECESSITY, FUNCTION, AND CONFORMITY: KRS 171.397(14) authorizes the Kentucky Heritage Council to promulgate administrative regulations to implement the certified historic structures rehabilitation tax credit. This administrative regulation establishes the application process to determine a taxpayer’s eligibility to claim a certified historic structure rehabilitation tax credit.

 

      Section 1. Definitions. (1) "Act" means the enabling legislation for the historic rehabilitation tax credit KRS 171.396 to 171.397.

      (2) "Adjusted basis of the structure" means the purchase price of the property, minus the cost of land, plus improvements already made, minus depreciation already taken.

      (3) "Certified historic structure" is defined by KRS 171.396(1).

      (4) "Certified rehabilitation" is defined by KRS 171.396(2).

      (5) "Completed rehabilitation project" means any certified historic structure which has been substantially rehabilitated and, after the completion date, has been submitted by the applicant to the Council for final certification of rehabilitation under the Act.

      (6) "Completion date" means the month, date, and year in which the last eligible rehabilitation expense is incurred for owner-occupied residential property. For all other property, it means the month, date, and year when the rehabilitation project is completed such that it allows occupancy of the entire building or some identifiable portion of the building and, if applicable, a certificate of occupancy has been issued.

      (7) "Department" means the Kentucky Department of Revenue.

      (8) "Director" means the Executive Director of the Kentucky Heritage Council.

      (9) "Disqualifying work" is defined by KRS 171.396(5).

      (10) "Exempt entity" is defined by KRS 171.396(6).

      (11) "File" or "filed" means physical receipt by the council of an application for certification along with the tender of the appropriate filing fee.

      (12) "Inspection" means a visit by the director or an authorized representative of the council to a property for the purposes of reviewing and evaluating the significance of the structure and the ongoing or completed rehabilitation work.

      (13) "National Register of Historic Places" means the National Register of districts, sites, buildings, structures, and objects significant in American history, architecture, archeology, engineering, and culture that the U. S. Secretary of the Interior is authorized to expand and maintain pursuant to Section 101(a)(1) of the National Historic Preservation Act of 1966, 16 U.S.C. Section 470a(a)(1), and implemented through 36 C.F.R. Part 60.

      (14) "Owner" means the person, partnership, corporation, public agency, or other entity holding a fee simple interest in a property, or any other person or entity recognized by the department for purposes of the applicable tax benefit under KRS 171.397. For purpose of the Act, a lessee shall be considered the owner of the property if the remaining term of the lease is not less than twenty-seven and one-half (27 1/2) years for residential property and thirty-nine (39) years for all other property.

      (15) "Owner-occupied residential property" is defined by KRS 171.396(8).

      (16) "Property" means a building and its site and landscape features.

      (17) "Qualified rehabilitation expense" is defined by KRS 171.396(9).

      (18) "Rehabilitation" means the process of returning a building or buildings to a state of utility, through repair or alteration, which makes possible an efficient use while preserving those portions and features of the building and its site and environment which are significant to its historic, architectural, and cultural values as determined by the director.

      (19) "Rehabilitation plan" means a plan pursuant to which a certified historic structure will be substantially rehabilitated.

      (20) "Rehabilitation project" means any certified historic structure, submitted by the applicant to the council, for certifications of rehabilitation under the Act.

      (21) "Standards for rehabilitation" mean the Secretary of the Interior’s Standards for Rehabilitation, 36 C.F.R. 67.7, as established by the U. S. Department of Interior and restated in Section 4(2) of this administrative regulation.

      (22) "Starting date" means the date upon which the applicant applies for the building permit for work proposed by the rehabilitation plan or the date upon which actual physical work contemplated by the plan of rehabilitation begins.

      (23) "Substantial rehabilitation" is defined by KRS 171.396(10).

      (24) "Taxpayer" is defined by KRS 171.396(11).

 

      Section 2. Certifications of Rehabilitation. (1) Request for certifications of historic significance and of rehabilitation under the Act is a three (3) stage process that requires the filing of the following forms:

      (a) Certification Application Part 1-Evaluation of National Register Status;

      (b) Certification Application Part 2-Description of Rehabilitation; and

      (c) Certification Application Part 3-Request for Certification of Completed Work.

      (2) Part 1 is a request for certification of historic significance. Part 2 is a request for certification of a proposed rehabilitation project.

      (3) Part 3 is a request for certification of a completed rehabilitation project. Certification of Applications shall be filed with the council as follows:

      (a) Part 1 shall be filed with the council on or before April 29 of the year in which the rehabilitation commences.

      (b) Part 2 shall be filed with the council on or before April 29 of the year in which the rehabilitation commences. Part 2 may be filed after rehabilitation has commenced, but applicants who begin rehabilitation prior to receiving Part 2 certification assume the risk that certification may be denied.

      (c) Part 3 shall be filed with the council upon completion of the rehabilitation but no later than thirty (30) days following the close of the calendar year in which the completion of the rehabilitation occurred as defined in, Section 1(6) of this administrative regulation.

      (4) If at any stage an application is not approved by the council, the rehabilitation project shall not qualify as a certified rehabilitation for purposes of the Act.

 

      Section 3. Certifications of Historic Significance-Part 1. (1) Application. Certification Application Part 1-Evaluation of National Register Status forms shall be timely filed with the council for certification of historic significance.

      (a) Property individually listed in the national register of historic places. Individually listed property is considered certified a historic structure for purposes of the Act subject to confirmation by the council. The following information shall be provided by the applicant:

      1. Names and mailing addresses of owners;

      2. Name and address of property;

      3. Photographic documentation

       of the building and property prior to and after alteration, showing exterior and interior features and spaces to insure that the listed property has not lost the characteristics which caused it to be listed on the National Register of Historic Places;

      4. Descriptions of all the buildings within the listing if the property contains more than one (1) building for the purpose of determining which of the buildings are of historic significance to the property;

      5. Brief description of appearance including alterations, distinctive features and spaces, and dates of construction;

      6. Brief statement of significance summarizing how the property reflects the values that give its distinctive historical and visual character, and explaining any significance attached to the property itself;

      7. A copy of a map indicating where the subject property is located. If an individually-listed property is also located in a historic district listed in the National Register of Historic Places, a copy of the map of the National Register historic district where the subject property is located and a clear delineation of the property’s location within the district shall also be included; and

      8. Signatures of owners requesting confirmation of listing in the National Register of Historic Places or concurring in the request if the owners are not the applicants.

      (b) Property located in a historic district listed in the national register of historic places. An applicant shall request that the property be certified by the council as a historic structure contributing to the significance of a historic district. The following information shall be provided:

      1. Names and mailing addresses of owners;

      2. Name and address of property;

      3. Name of historic district;

      4. Photographic documentation of the building and property prior to and after alteration, showing exterior and interior features and spaces, and photographic documentation of adjacent properties and structures on the street showing significance to the historic district;

      5. Brief description of appearance including alterations, distinctive features and spaces, and dates of construction;

      6. Brief statement of significance summarizing how the property reflects the values that give the district its distinctive historical and visual character, and explaining any significance attached to the property itself;

      7. A copy of the map of the National Register historic district where the subject property is located and a clear delineation of the property’s location within the district; and

      8. Signatures of owners requesting certification or concurring in the request if the owners are not the applicants.

      (2) Multiple structures. Properties containing more than one (1) building shall be treated as a single certified historic structure if the council determines that the buildings have been functionally-related historically to serve an overall purpose, whether the property is individually listed in the National Register or is located within a registered historic district. Buildings that are functionally related historically are those which have functioned together to serve an overall purpose during the property’s period of significance.

      (3) Standards for evaluating significance.

      (a) Some properties listed in the National Register of Historic Places are resources whose concentration or continuity possesses greater historical significance than many of their individual component buildings and structures. These usually are documented as a group rather than individually. In addition to the existing National Register documentation, applications for certifications of historic significance shall contain documentation with information about the significance of the specific buildings and structures.

      (b) Properties located within a historic district listed in the National Register of Historic Places shall be evaluated for contribution to the historic significance of the district by applying the following standards:

      1. A property contributing to the historic significance of a district is one which by location, design, setting, materials, workmanship, feeling, and association adds to the district’s sense of time and place and historical development;

      2. A property not contributing to the historic significance of a district is one which does not add to the district’s sense of time and place and historical development; or one where the location design, setting, materials, workmanship, feeling and association have been so altered or have so deteriorated that the overall integrity of the property has been irretrievably lost; and

      3. Ordinarily buildings that have been built within the past 50 years shall not be considered to contribute to the significance of a district, unless a strong justification concerning their historical or architectural merit is given or the historical attributes of the district are considered to be less than fifty (50) years old.

      (c) Evaluations of historic significance shall be made based upon the appearance and condition of the property before rehabilitation was begun.

      (d) The qualities of a property and its environment which qualify it as a certified historic structure are determined taking into account all available information, including information derived from the physical and architectural attributes of the building, and are not limited to information contained in the National Register nomination reports.

      (e) If a nonhistoric surface material obscures a façade, it may be necessary to remove the surface materials prior to requesting certification so that a determination of significance can be made. After the material has been removed, if the obscured façade has retained substantial historic integrity and the property otherwise contributes to the historic district it shall be determined to be a certified historic structure.

      (4) Review of Part 1 Applications. A complete and adequately-documented Certification Application Part 1-Evaluation of National Register Status form shall be reviewed by the council to determine if the property contributes to the historic significance of the district by applying the standards set forth in Section 3(3) of this administrative regulation. After consideration of the information contained in the application and other available information, the council shall approve the application if the property meets the standards for evaluating for significance set forth in Section 3(3) of this administrative regulation, or the director confirms that the property is individually listed in the National Register of Historic Places.

      (5) If the application is not adequate to complete the review, the council shall attempt to notify the applicant by telephone or email using the contact information provided on the application. Applicant’s failure to respond may result in denial of the application. The council’s notification or failure to notify shall not constitute a waiver of deficiencies or alteration of time limitations set forth under the Act.

      (6) Applicants shall notify the council of any substantial damage, alteration, or changes to a property that occurs after issuance of a certification of Part 1-Evaluation of National Register Status. The council may, upon thirty (30) days written notice to the applicant, withdraw a certification of historic significance and may seek to have the property removed from the National Register under 36 C.F.R. 60.15.

 

      Section 4. Certifications of Rehabilitation-Part 2. (1) Applications. Certificate of Application Part 2-Description of Rehabilitation forms shall be timely filed with the council for certification that a rehabilitation plan is a substantial rehabilitation as defined by KRS 171.396(10), and meets the standards for rehabilitation in Section 4(2) of this administrative regulation. Rehabilitation projects shall be done according to a rehabilitation plan. The burden is upon the applicant to supply sufficient information to the council for a determination that the rehabilitation plan is a substantial rehabilitation and meets the standards for rehabilitation. An application shall include the following information:

      (a) Names and mailing addresses of owners;

      (b) Name and address of property;

      (c) Designation of whether the application is for owner-occupied residential property or other property;

      (d) Information sufficient to establish proposed use of the structure;

      (e) The adjusted basis for property if other than owner-occupied residential or owned by an exempt entity as defined by KRS 171.396(6);

      (f) Proposed starting date and completion date;

      (g) Projected qualified rehabilitation expenses;

      (h) Numbered photographs adequate to document the appearance of the structure, both on the interior and exterior, and its site and environment before rehabilitation that correspond to numbered positions on existing plans;

      (i) The taxpayer identification number or Social Security number;

      (j) Written detailed description of existing features and their conditions; and a written description of proposed rehabilitation work and the impact on existing features;

      (k) Plans for any attached, adjacent, or related new construction, if applicable; and

      (l) Signatures of owners requesting certification or concurring in the request if the owners are not the applicant.

      (2) Standards for rehabilitation.

      (a) The standards for rehabilitation are the criteria used to determine if the rehabilitation qualifies as a certified historic rehabilitation. The intent of the standards is to promote the long-term preservation of a property's significance through the preservation of historic materials and features. The standards pertain to historic buildings of all materials, construction types, sizes, and occupancy and encompass the exterior and the interior of historic buildings. The standards also encompass related landscape features and the building's site and environment, as well as attached, adjacent, or related new construction. Rehabilitation shall be consistent with the historic character of the structure or structures and, if applicable, the district in which it is located.

      (b) A rehabilitation project shall meet all of the following standards for rehabilitation:

      1. A property shall be used for its historic purpose or be placed in a new use that requires minimal change to the defining characteristics of the building and its site and environment;

      2. The historic character of a property shall be retained and preserved. The removal of historic materials or alteration of features and spaces that characterize a property shall be avoided;

      3. Each property shall be recognized as a physical record of its time, place, and use. Changes that create a false sense of historical development, such as adding conjectural features or architectural elements from other buildings, shall not be undertaken;

      4. Most properties change over time; those changes that have acquired historic significance in their own right shall be retained and preserved;

      5. Distinctive features, finishes, and construction techniques or examples of craftsmanship that characterize a historic property shall be preserved;

      6. Deteriorated architectural features shall be repaired rather than replaced. If the severity of deterioration requires replacement of a distinctive feature, the new feature shall match the old in design, color, texture, and other visual qualities and, if possible, materials. Replacement of missing architectural features shall be substantiated by documentary, physical, or pictorial evidence;

      7. Chemical or physical treatments, such as sandblasting, that cause damage to historic materials shall not be used. The surface cleaning of structures, if appropriate, shall be undertaken using the gentlest means possible;

      8. Significant archeological resources affected by a project shall be protected and preserved. If these resources shall be disturbed, mitigation measures shall be undertaken;

      9. New additions, exterior alterations, or related new construction shall not destroy historic materials that characterize the property. The new work shall be differentiated from the old and shall be compatible with the massing, size, scale, and architectural features to protect the historic integrity of the property and its environment; and

      10. New additions and adjacent or related new construction shall be undertaken in such a manner that if removed in the future, the essential form and integrity of the historic property and its environment would be unimpaired.

      (c) The quality of materials, craftsmanship, and related new construction in rehabilitation shall match the quality of materials, craftsmanship, and design of the historic structure in question. Certain treatments, if improperly applied, or certain materials by their physical properties, may cause or accelerate physical deterioration of historic buildings, and use of these treatments or materials shall result in denial of certification. The burden is upon the applicant to consult with the council for a determination as to what rehabilitation measures are appropriate for the structure. Inappropriate rehabilitation measures on historic properties include:

      1. Improper masonry repointing materials and techniques;

      2. Improper exterior masonry cleaning methods;

      3. Improper introduction of insulation if damage to historic fabric would result; and

      4. Incompatible additions and new construction.

      (d) In certain limited cases, it may be necessary to dismantle and rebuild portions of a certified historic structure to stabilize and repair weakened structural members and systems. In these cases, the council may consider this extreme intervention as part of a certified historic rehabilitation if:

      1. The necessity for dismantling is justified in supporting documentation;

      2. Significant architectural features and overall design are retained; and

      3. Adequate historic materials are retained to maintain the architectural and historic integrity of the overall structure.

      (3) Substantial rehabilitation. A rehabilitation project shall be a substantial rehabilitation only if the requirements of KRS 171.396(9) and (10) are met. To determine whether a rehabilitation project is a substantial rehabilitation, the following conditions shall apply:

      (a) Increases to the adjusted basis of the structure shall include capital improvements to the structure, legal fees incurred for perfecting title, and zoning costs. Any depreciation previously claimed for the structure shall be subtracted from this figure.

      (b) If a cost only partially qualifies as an eligible rehabilitation expense because some of the cost is attributable to the enlargement of the building, the expenditures shall be apportioned proportionately between the original portion of the building and the enlargement.

      (c) In addition to the expenses listed in KRS 171.396(9), qualified rehabilitation expenses include:

      1. The cost of work done to structural components of the building within the footprint of the historic structure if they are permanent;

      2. Costs related to new heating, plumbing, and electrical systems, as well as expenses related to updating kitchens and bathrooms, compliance with Americans with Disabilities Act of 1990 (42 U.S.C. Section 12101), and fire suppression systems and fire escapes; and

      3. The cost of architectural and engineering fees, site survey fees, legal expenses development fees, and other construction-related costs, if such costs are added to the basis of the property.

      (d) In addition to the exclusions listed in KRS 171.396(9), qualified rehabilitation expenses do not include the construction costs for new buildings, parking lots, or sidewalks.

      (4) Review of Part 2 Applications. A complete and adequately documented Certification Application Part 2- Description of Rehabilitation shall be reviewed by the council for a determination that the rehabilitation plan is a substantial rehabilitation and meets the standards for rehabilitation. After consideration of the information contained in the application and other available information, the council shall issue a preliminary certification of rehabilitation if the rehabilitation plan is a substantial rehabilitation as defined by KRS 171.396(10), and meets the standards for rehabilitation set forth in Section 4(2) of this administrative regulation.

      (5) If the application is not adequate to complete the review or if revisions to the rehabilitation project are necessary to meet the standards of rehabilitation set forth in Section 4(2) of this administrative regulation, the council shall attempt to notify the applicant by telephone or email using the contact information provided on the application. An applicant's failure to respond may result in denial of the application. The council’s notification or failure to notify shall not constitute a waiver of deficiencies or alteration of time limitations set forth under the Act.

      (6) Changes to rehabilitation plans. Once a rehabilitation plan has been approved by the council, an applicant can only make substantive changes in the work described in the application by:

      (a) Filing a Certification Application-Continuation/Amendment form with the council; and

      (b) Receiving notification from the council that the revised plan continues to meet the standards of rehabilitation set forth in Section 4(2) of this administrative regulation and is a substantial rehabilitation as defined by KRS 171.396(10) set forth in 300 KAR 6.010, Section 4(3).

 

      Section 5: Certifications of Rehabilitation-Part 3 Completed Work. (1) Application. Upon completion of a rehabilitation project an applicant shall timely file a Certification Application Part 3-Request for Certification of Completed Work form with the council for final certification of rehabilitation. An application shall include the following information:

      (a) Names and mailing addresses of owners;

      (b) Name and address of property;

      (c) Designation of whether the application is for owner-occupied residential property or other property;

      (d) Actual starting date and completion date;

      (e) Actual qualified rehabilitation expenses;

      (f) Photographs adequate to document the appearance of the structure, both on the interior and exterior, and its site and environment during and after rehabilitation;

      (g) The taxpayer identification number or Social Security number; and

      (h) Signatures of owners requesting certification.

      (2) Summary of Investment. In addition to filing a Certification Application Part 3-Request for Certification of Completed Work form, the applicant shall file a Summary of Investment form with the council. The Summary of Investment shall include the following:

      (a) Names and mailing addresses of the owners;

      (b) Name and address of the property;

      (c) Actual costs attributed to the rehabilitation work;

      (d) Signatures of the owners; and

      (e) Notarization of the signatures if the property is an owner-occupied residence or, for all other property, certification by a certified public accountant or equivalent of the actual costs attributed to the rehabilitation of the historic structure.

      (3) Scope of review.

      (a) Rehabilitation encompasses all work on the interior and exterior of the certified historic structure or structures and the site and environment, as determined by the council, as well as related demolition, new construction or rehabilitation work which may affect the historic qualities, integrity or site, landscape features, and environment of the certified historic structure. Conformance to the standards of rehabilitation set forth in Section 4(2) of this administrative regulation shall be determined on the basis of application documentation and other available information by evaluating the property as it existed prior to the commencement of rehabilitation.

      (b) Phased rehabilitations projects are not permitted. Each rehabilitation project shall be selfcontained, and completion of the rehabilitation project shall not be contingent upon a phased rehabilitation to commence after receiving final certification of rehabilitation.

      (c) Portions of a completed rehabilitation project that are not in conformance with the standards for rehabilitation shall not be exempted, and may result in denial of the Certification Application Part 3-Request for Certification of Completed Work.

      (4) Review of Part 3 Applications. A complete and adequately-documented Certification Application Part 3 - Request for Certification of Completed Work shall be reviewed by the council for a determination that the completed rehabilitation project is a certified rehabilitation. The council shall issue a final certification of rehabilitation if all the following requirements have been met:

      (a) All elements of the completed rehabilitation project meet the standards for rehabilitation as defined in Section 4(2) of this administrative regulation; and

      (b) The completed rehabilitation project was a substantial rehabilitation as defined by KRS 171.396(10); and

      (c) Part 3 was filed with the council after the completion date as defined in, Section 1(5) of this administrative regulation, and within thirty (30) days following the close of the calendar year in which the completion of the rehabilitation occurred.

      (5) If the application is not adequate to complete the review or if revisions to the rehabilitation project are necessary to meet the standards of rehabilitation set forth in Section 4(2) of this administrative regulation, the council shall attempt to notify the applicant by telephone or email using the contact information provided on the application. Applicant’s failure to respond may result in denial of the application. The council’s notification or failure to notify shall not constitute a waiver or alteration of time limitations set forth under the Act.

 

      Section 6: Inspection. The director or an authorized representative of the council shall be permitted to conduct an inspection of the property at any time up to three (3) years after the council has issued a Certification of Completed Work to determine if the work meets the standards for rehabilitation set forth in Section 4(2) of this administrative regulation.

 

      Section 7: Revocation of Owners’ Certifications. If, after obtaining final certification of rehabilitation, the council determines that the rehabilitation was not undertaken as represented by the owner in the applications, amendments, or supporting documentation, or the owner upon obtaining final certification undertook disqualifying work, the council may revoke a certification by giving written notice to the owner. The owner has thirty (30) days to comment on the matter by filing written objections with the director. The council shall notify the department of its final determination, and any tax consequences of a revocation of certification shall be determined by the department.

 

      Section 8. Fees for Processing Rehabilitation Certification Requests. (1) Payment of fees for review of Parts 2 and 3 shall be filed with the council when applications are filed and are nonrefundable. Certification shall not be issued until the appropriate remittance is received. Payment shall be made by check or money order payable to the Kentucky State Treasurer. Fees for reviewing rehabilitation certification requests of owner-occupied residential property are charged in accordance with the following schedule. If a Part 2 application is denied, there will be no charge for a Part 3 review fee.

Rehabilitation Costs for Owner-Occupied Residences

Part 2 Review Fee

Part 3 Review Fee

Less than $100,000

$60

$40

$100,000 or greater

$150

$100

      (3) Fees for reviewing rehabilitation certification requests for all property other than owner-occupied residential property are charged in accordance with the following schedule. If a Part 2 application is denied, there will be no charge for a Part 3 review fee.

Rehabilitation Costs for Commercial and Other Buildings

Part 2 Review Fee

Part 3 Review Fee

Less than $50,000

$60

$40

$50,000-$100,000

$150

$100

$100,000-$499,999

$300

$200

$500,000-$999,999

$450

$300

$1 million or greater

$900

$600

 

      Section 9. Incorporation by Reference. (1) The following material is incorporated by reference:

      (a) "Certification Application Part 1-Evaluation of National Register Status", (KHC Form TC-1, Rev. 2007);

      (b) "Certification Application Part 2-Description of Rehabilitation", (KHC Form TC-2, Rev. 2007);

      (c) "Certification Application Part 3-Request for Certification of Completed Work", (KHC Form TC-3, Rev. 2007);

      (d) "Certification Application-Continuation/Amendment", (KHC Form TC-2, Rev. 2007); and

      (e) "Summary of Investment", (KHC Form TC-4, Rev. 2007).

                (2) The material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Heritage Council, 300 Washington Street, Frankfort, Kentucky 40601, Monday through Friday, 9 a.m. to 4 p.m. (33 Ky.R. 2229; Am. 2937; eff. 4-6-07.)