Historic rehabilitation projects can be complicated and the federal and state submissions requirements challenging. A key team member in this process is the contractor. Finding the right contractor who understands the program and appreciates the historic requirements can make the process much easier. Here are five things to consider when hiring a contractor for your next historic tax credit (HTC) project.
- Work is subject to rehabilitation standards
HTC projects must meet certain National Park Service (NPS) standards to qualify for the 20% rehabilitation tax credit. There are ten standards that each project must follow that apply to the interior and exterior of the building and encompass the building’s site work. If the contractor performs work, and in the worst case irreversible work, that has not been approved by the NPS the project may not be approved for tax credits.
- Rehabilitation work may require different pricing
As noted above, the project is held to the NPS standards and must follow the work as outlined on the NPS Part 2 and approved by way of the NPS Part 3. Often, this work may not be the least expensive option but the best option for the project. It is important that the contractor know their subcontractors well enough to trust they will be providing the appropriate materials as approved by the NPS.
- The project may require exhaustive record keeping
Contractors may need to provide extensive detail describing the work performed. Pay application categories are often expanded as generic descriptions of drywall, electric, and plumbing are not sufficient. State agencies may require detailed descriptions such as “drywall in the first-floor commercial space”, “electric in the second-floor bathroom,” and “plumbing to city sewer hookup in the basement.” These descriptions are easier to provide monthly as the project billings are completed instead of at project end. Contractors will also be asked to provide the costs for items that do not qualify for rehabilitation expenditures such as site work, furniture, utility hookups outside of the building, and expansions.
- State-specific requirements
While states tend to follow the federal guidelines, each can have their own additional standards that must be met. A contractor that has previously worked in the state of the project can help ease some of these administrative burdens. For example, a state may require proof that your contractor is registered to do business in the state of your project. Without proper registration, the costs paid to your contractor are disallowed. States may also have their own definition of costs that do not qualify for the HTC that differ from federal guidelines. Contractors will have to be prepared to provide the costs for these items and contractors familiar with the state differences may be able to offer alternate products that meet the NPS standards while still qualifying for state credits.
- Related party contractors may have additional requirements
If your contractor is related to the project owner, many states require additional items to be provided with the cost certification submission. The contractor costs may be subject to audit and all subcontractor pay applications, materials invoices, payroll ledgers, equipment rental support, and general requirement details will be subject to review. Contractors may be required to provide proof of payment, timecards, payroll reports, and job cost reports to the state agency. Exhaustive recordkeeping and time are often required to satisfy these requirements.
Making sure your contractor is experienced in historic rehabilitation and understands both the federal and state requirements of the program can save time, eliminate potentially expensive rework, and assist in getting your project successfully filed and approved.
For more information on Historic Rehabilitation Tax Credit Projects contact your MarksNelson professional at 816-743-7700.