Friday, February 11, 2011

The Case for HB 1118

Last week, the Main Street Revitalization Committee of the Little Rock Downtown Partnership voted to endorse HB 1118, which, if passed, would establish an investment tax credit for the rehabilitation and development of central business districts.

I’ve discussed the key elements of HB 1118 in previous posts. In short, HB 1118 would create an investment tax credit equal to 20% of the first $1,000,000 of qualified rehabilitation or development expenditures incurred for a qualified project. Any unused tax credits could be carried over for seven consecutive taxable years, and the credit can be transferred, sold, or assigned one time.

A “white paper” distributed to the Main Street Revitalization Committee highlighted the benefits of HB 1118:

  • The return ratio on the HB 1118 tax credit is 1 to 5. In other words, $1,000,000 in tax credits generates $5,000,000 of development or rehabilitation expenditures.
  • Every $1.00 of income tax credits returns between $2.19 and $2.22 in income to Arkansans.
  • The tax credit should spur economic development not only in central business improvement districts, but in the areas adjacent to the districts.
  • Downtown revitalization is a key part of the push for higher paying jobs and a higher quality of life in Arkansas.
  • By stimulating the rehabilitation of existing structures, the tax credit will help return non-productive downtown areas to income producing and tax generating areas. This, in turn, will stimulate the tax base through new sales and payroll taxes, as well as by increasing the tax base.
  • The tax credit will help attract new businesses to their downtown business areas by creating a significant marketing and economic incentive for municipalities to include in their development packages.

As I’ve previously observed, HB 1118 could also be improved. For example, the provision that the tax credit can only be sold, transferred, or assigned limits the utility of the credit as an investment tool and effectively prevents the establishment of a secondary market.

HB 1118 is on the deferred agenda for the February 15, 2011, House Revenue and Taxation Committee meeting. I will be tracking the bill. Stay tuned.


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