Designated Downtown and Village Centers Tax Credits Guidelines

I. OVERVIEW
Annually, $1.7 million in state income tax credits are allocated to projects that enhance the historic character and improve building safety of older and historic commercial buildings located in Designated Downtown or Village Center districts. The credits support general rehabilitation work, code compliance work, and exterior improvements and may be combined with the federal tax credit program. Past projects range from small retail, office, and rental apartment rehabilitations to multi-million dollar redevelopments.

II. DESCRIPTION OF THE CREDITS

  • 10% Historic Tax Credit is only available to approved Federal Rehabilitation Tax Credit projects. This credit is not capped like the others; however, the first $500,000 and half the costs exceeding $500,000 are eligible for the credit. Design standards apply; refer to section VI for details.
  • 25% Façade Improvement Tax Credit for up to $100,000 in eligible costs for a maximum of $25,000 in credits. Projects eligible for the 10% Historic Credit above are ineligible for façade credits. Design standards apply; refer to section VI for details.
  • 50% Code Improvement Tax Credit for elevators, platform lifts, and sprinklers. The credit allocations are up to $50,000 for elevators and up to $50,000 for sprinkler systems and up to $12,000 for lifts. Other code work to meet ADA requirements, electrical or plumbing codes, and the abatement of hazardous substances like lead paint and asbestos is eligible for a credit allocation of up to $25,000 for the combined costs of these improvements. Code credit projects must be inspected by code officials; refer to section V for details.

III. STANDARD PROVISIONS

  • Eligible Building: Tax credits are available to owners or lessees of a building built prior to 1983, located within a Designated Downtown or Village Center, and not used solely as a single-family residence. Federal, state, and local governments and religious entities operating with a primarily religious purpose are not eligible for tax credits.
  • Minimum Expenditure: Total project costs must exceed $5,000 for any of the three credits.
  • Application Time Frames: Applicants are encouraged to apply before work begins; however, applicants may apply for credits within one year of project completion. Please note that completed projects found to harm or detract from the historic features of the building are ineligible (see Section VI for guidance in planning a project that meets the design standards).
  • Combining Credits: The 10% rehabilitation and 25% façade improvement credits may not be used on the same project. The 50% code improvement credit may be used with either the 10% rehabilitation or 25% façade improvement credit on the same project as long as the applicant does not claim credits more than once on any eligible expenditure (no double dipping). Applicants intending to use more than one category of credits must do so on a single application.
  • Amount of State Credits Available: The Downtown Board allocates $1.7M per state fiscal year to the three tax credits for Designated Downtowns and Village Centers and the sales tax reallocation program for building materials in Designated Downtowns only. Requests for credits are allocated on a first-come, first-served basis except when demand exceeds availability (which is typically the case). When this occurs, the credits are competitively allocated every July.
  • Maximum Amount: No municipality may receive more than $510,000 in tax credits per fiscal year.
  • Limitations: Buildings receiving tax credits are ineligible for additional tax credits for two years from the date of the initial allocation. The sales tax reallocation program for Designated Downtowns may not be used with any of the tax credits on the same project.
  • Design Standards: Projects must meet the design standards in Section VI. Applicants will be notified if their project does not meet minimum design standards and may choose to modify their project to meet them and re-apply at another time.

IV. USING THE CREDITS

  • Bank or Insurance Credit Certificate: Applicants may request the credit allocation in the form of a bank or insurance credit certificate. Banks may accept the certificate in return for cash, or for adjustments to the rate or term of the applicant’s mortgage or loan related to an ownership or leasehold interest in the qualified building. Insurance companies may purchase the credits for cash only. Tax credit allocations may be converted into credit certificate at anytime; however, the request must be in writing, show proof of project completion, and indicate the unused credit balance. The dollar amount of the converted tax credit is subject to the Tax Department’s review and certification.
  • Claiming the credits: Tax credits may be used in the first tax year in which the project is complete. A copy of an approved application is submitted with the first tax return and subsequent returns until the credits are exhausted. Unused credits may be carried forward nine years.
    Expiration of the Credits: Applicants forfeit their credits if they do not complete the project and claim the tax credit within 5 years from the date of the allocation.
  • Recapture: A recapture penalty may be assessed within a five-year period after completion of construction for inappropriate work or fraud, or if in the case of the 10% historic credit, the property loses its federal “certified rehabilitation” status. The applicant remains responsible for this penalty even if the credit is sold to a bank or insurance company or if the property is sold. If the property is sold, applicants should ensure that subsequent owners understand this provision and may want to seek legal advice. In the event of recapture, the total amount of the allocated tax credit shall be recaptured or disallowed.

V. APPLICATION INFORMATION

  • Deadlines: Since 2006, the demand for credits typically exceeds their availability. Consequently credits that were once allocated monthly on a first-come, first-served are now allocated in July on a competitive basis. Applications are due by the first Monday of July and the Vermont Downtown Board generally meets the on 4th Monday to make the tax credit allocations.
  • Selection Criteria: When there is competition for tax credit allocations, the Board will rank projects using the Competitive Criteria. In competitive rounds, the applicant must includea written response to the criteria and photos of the building with their application.
  • Attachments for the 50% Code Credits: Applicants must provide evidence that they have met on site with a building inspector from the Division of Fire Safety at the Department of Public Safety or, where authorized, a municipal fire marshal or building inspector to discuss the specific code requirements of the project. Typically the state or municipal code official documents site visits in a letter that identifies the work required to bring the building into compliance. This letter is required with the application as it assures a final code inspection and code compliance. Attachments Required for 25% Façade Credits: Projects must meet the design standards described in section VI. Applicants must include good, clear photographs that show all elevations of the building and its setting on the street before construction. Photographs should be labeled with the property address and the view (e.g., 122 Main, SW). Digital photographs may be e-mailed to Chris Cochran (Chris.Cochran@state.vt.us) with the property address and view as the name of the file, (e.g., 122 Main Street, SW.jpg). Applicants must also include plans sufficiently detailed to show existing wall configurations and anticipated changes, e.g., elevations or floor plans.
  • Post-Construction Applications: The tax credits are intended to enhance the historic character of Designated Downtowns and Village Centers and therefore all projects must meet the design standards to be eligible for the credits. Projects that use inappropriate man-made materials, that make incompatible window replacements, or that damage, destroy or obscure historic features are ineligible for tax credits. See Design Standards (Section IV) for additional information. Mail applications to:
  • Downtown Development Board, Chris Cochran
    Department of Economic, Housing and Community Development
    One National Life Drive, 6th Floor
    Montpelier, VT 05620.

Faxed applications are not accepted; however, applications may be e-mailed to Chris Cochran so long as an original signature page is submitted by the deadline. The Board will not consider incomplete applications, e.g., any missing required attachments or projects that do not meet the design standards.

VI. DESIGN STANDARDS AND APPLICANT ASSISTANCE

  • Changes to Historic Buildings: The Downtown Board assumes that some alteration of older or historic buildings will occur to provide for an efficient contemporary use. However, the project must not damage, destroy, or cover materials or features that help define the building’s historic character. Changes found to harm or detract from the historic character of the district or building may disqualify the entire project; therefore applicants are encouraged to contact the Downtown Program staff so the plans may be discussed or reviewed prior to construction.
  • The Secretary of the Interior’s Standards for Rehabilitation and Special Considerations for the 25%
    Façade Credit (pages 4-5) not only provides guidance to applicants, but also serves as the tool to evaluate applications for overall design compatibility for the building and its surroundings. The underlying concern expressed in the Standards is the preservation of historic materials and features of the building during the rehabilitation. The Standards apply with equal force to both interior and exterior work, and the staff will review the entire rehabilitation not just the tax credit eligible portion of work.
  • Getting Help: The guidance found in the Standards is general in nature because no one building or rehabilitation is alike. For specific advice on proposed changes, staff from the Downtown Program are available to meet on site and discuss how the Standards apply to individual projects. To schedule a meeting, email Chris Cochran (Chris.Cochran@state(.vt.us) or call (802) 828-3047.

In most instances, code work can be done without removing or damaging historic interior or exterior features or materials. Depending on your community, the Department of Public Safety, local Fire Marshal and/or Building Inspector, and the Downtown Program staff can assist owners with appropriate solutions to common life safety and accessibility issues in historic buildings. Scheduling a joint meeting with state or local code officials and Downtown Program staff is the best way for applicants to identify appropriate design options that protect both life and safety and a building’s historic features.
SECRETARY OF THE INTERIOR’S STANDARDS FOR REHABILITATION
The Standards are to be applied to specific rehabilitation projects in a reasonable manner, taking into consideration economic and technical feasibility. The Standards apply to historic buildings of all materials, types, and sizes. They apply to both the exterior and the interior of historic buildings as well as attached, adjacent or related new construction.

  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 property shall be preserved.
  6. Deteriorated historic features shall be repaired rather than replaced. Where 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, where possible, materials. Replacement of missing 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 such resources must 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.
  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.

SPECIAL CONSIDERATIONS FOR 25% FAÇADE CREDIT

  • Storefront Alterations: Historic storefronts should be repaired when possible. Where historic storefronts were prior altered beyond recognition or missing entirely, new storefronts should be contemporary, but compatible. Justify changes to storefronts and provide photographs of the areas to be altered. Information should be provided on when the existing storefront was constructed; on what the existing physical conditions are, and if a historical treatment is planned, on what evidence the proposed new storefront designs are based. Storefront changes on the ground floor that alter the character of the structure and its relationship with the street or that destroys historic materials may result in a project ineligible for tax credits.
  • New Windows: When historic windows exist, they should be repaired when possible. When they are too deteriorated to repair, the replacement windows must match the design, visual qualities, and materials of the historic window. The quality of the match on street-facing sides of the building is more important than the match on an obscured rear or side elevation. The installation of vinyl of replacement or inappropriate windows disqualifies applicants from tax credits.
  • Interior Partitions and Finishes: When storefront alterations affect interior partitions, indicate existing condition of the interior area to be affected and document with photographs. Show which walls are to be removed or altered and note whether trim elements will be affected. Projects should not change floor plans unnecessarily or expose masonry or structural members unless this condition is supported by historical evidence.
  • Exterior Masonry Cleaning: Masonry should only be cleaned to halt deterioration or to remove graffiti and stains. If cleaning is necessary, is must be done using the gentlest means possible without damaging the surface of the masonry and in accordance with the guidance found in Preservation Brief 1, The Cleaning and Waterproof Coating of Masonry Buildings. Specifications and test cleaning samples should be reviewed before proceeding with this work.
  • Exterior Masonry Repair: Owners are encouraged to repoint only those portions of the masonry that require repair. If determined necessary, indicate deteriorated areas that require repair and provide evidence that repointing mortar will match the original in composition (i.e., ratio of lime, cement, sand and any additives, color, texture, and tooling. Mortars with high percentage of Portland cement are not acceptable as they are too hard for many old bricks and cause the bricks to crumble or spall). Specifications and repointing samples should be reviewed and approved by before proceeding with this work.
  • New Additions and New Construction: New exterior additions may alter the appearance and form of historic buildings and may make projects ineligible. Similarly, new construction, including site work, may affect the relationship of a building to its site or otherwise damage the historic character of the property. Applicants should consultant with Downtown Program staff before undertaking projects involving new construction.

VII. OTHER HELPFUL PROGRAMS

  • Federal Rehabilitation Tax Credits: In addition to the state tax credits, there is an unlimited 20% federal tax credit that can be combined with the state credit to maximize the return on the investment. In the past ten years, over 200 Vermont projects qualified for over $30 million in federal tax credits. To qualify for the federal credit, the building must be income producing (not a private residence), must be historic (listed or eligible for listing in the National Register of Historic Places), and the new investment must exceed the building’s adjusted basis. In addition, changes must comply with the Secretary of the Interior’s Standards as determined by the National Park Service. For additional information about this program and to learn if your project qualifies, email Chris Cochran (Chris.Cochran@state.vt.us) or call (802) 828-3047.
  • Federal Incentives for Improving Accessibility: There are two tax incentives available to businesses to help cover the cost of making access improvements. The first is a tax credit that may be use for building adaptations, equipment acquisitions, and services such as sign language interpreters. The second is a tax deduction that can be used for building or transportation adaptations.
  • Fee Rebate from Department of Public Safety
    Designated Downtown applicants awarded sprinkler credits are eligible for a rebate of up to $2,000 on construction permit fees. The fees for the entire construction project are eligible. To qualify for the rebate: The sprinkler system must be a complete automatic fire sprinkler system installed according to Department of Public Safety rules; the system must receive Department of Public Safety final acceptance testing and approval; The system must be installed in a building located within a Designated Downtown district (Village Centers are ineligible); and the applicant must provide a letter to the Department of Public Safety stating that the building is located within a Designated Downtown.

If in any year, applications exceed $40,000, the Department of Public Safety shall grant rebates according to the date the building was awarded a downtown tax credit, with the earlier date receiving priority. To apply for a rebate, or for more information, contact either the manager of your regional Department of Public Safety, Fire Safety Division office or the Chief Fire Prevention Officer in Montpelier.