Sen. Tom Killon (R-9) introduced new legislation, SB 1185, to create a Pennsylvania state housing tax credit.
The state housing tax credit will be modeled after the highly successful federal Low Income Housing Tax Credit (LIHTC.) LIHTC is the major vehicle for the creation and preservation of affordable housing in this country, yet is oversubscribed. A state housing tax credit will create a new resource that can be used in conjunction with LIHTC. Investors receive a state credit for their contribution.
Senator Tom Killion (R-9) will introduce legislation to create a state housing tax credit in September 2018. As of Sept 7, 2018, 12 Senators including Senator Killion are original co-sponsors: Killion (R-9), Argall (R-29), Blake (D-22), Browne (R-16), Fontana (D-42), Gordner (R-27), Hughes (D-7), Leach (D-17), McGarrigle (R-26), Vogel (R-47), Vulakovich (R-38), Yudichak (D-14.)
Summary of of SB 1185:
Legislation to Create a Pennsylvania State Housing Tax Credit
Sen. Tom Killon (R-9) introduced legislation, SB 1185, to create a Pennsylvania state housing tax credit. A state housing tax credit will incentivize private investment in new and existing affordable housing in the Commonwealth. Affordable housing is an economic driver. It builds state and local tax bases, creates jobs, provides homes in proximity to workplaces, and revitalizes communities.
The Pennsylvania State Housing Tax Credit (PA tax credit) is designed to mirror, extend, and integrate with the federal Low-Income Housing Tax Credit (LIHTC) as much as possible, with several exceptions, including: bifurcation from the federal credit (different investors are possible for the two credits) and the ability to sell the state credit to non-investors.
Allocation: The Pennsylvania Housing Finance Agency (PHFA) will create guidelines for the PA tax credit and award credits to any eligible applicant for eligible uses. PA tax credits will be allocated to a Qualified Project – a Qualified Low-Income Building as defined by Section 42 of the Internal Revenue Code. Investors in the project will receive a dollar for dollar credit to State tax liability.
Guidelines: PHFA will create guidelines for the PA tax credit. The guidelines and related procedures are to mirror those of the LIHTC. PHFA will consult with the PA Department of Revenue, as needed.
Area Median Income (AMI): AMI standards will mirror the LIHTC AMI requirements with an overall program targeting of 10% of funds to be used to serve households at or below 30% AMI.
Credit Period: There will be a credit period of five years. If the amount of credit under any year exceeds the tax liability of the taxpayer, there will be a 5-year carry forward.
Eligible Applicants: The eligible applicants will mirror those allowed by LIHTC.
Eligible Uses: The eligible uses will mirror those allowed by the federal LIHTC.
Recapture: If any part of the LIHTC is subject to recapture during the 15-year period, the PA tax credit would also be subject to recapture pursuant to guidelines adopted by PHFA. Qualified taxpayers have an affirmative duty to notify the agency of any federal recapture. Recapture may also be a consequence of engaging in fraud or misrepresentation in connection with the PA tax credit.
Bifurcation: PA tax credit will be bifurcated from LIHTC and allow for special allocation of the PA tax credit. This allows for the highest flexibility to admit two separate investors separately claiming LIHTC and the PA tax credits. The special allocation allows for the PA tax credit investor to be admitted to the LIHTC entity in a small percentage (1%) and having 100% of the credits allocated.
Sale: The PA tax credit can be sold to an investor without admission to the LIHTC entity. This process allows for a wider investment pool to raise the necessary equity for the project.