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LEGISLATIVE UPDATE: Could these changes bring opportunity to your business?

As is the case this time of year, a number of new bills are being enacted as a result of the most recent legislative session which could create opportunities for change regarding the way business is conducted. Summarized below is legislation that relates to real estate. These bills lower the tax liability based on certain investments, decrease certain administrative impediments, and offer your “local Indiana business” the opportunity to take advantage of a new bid preference for certain contracts.

Industrial Recovery Tax Credit

This credit provides an incentive for companies to invest in facilities in need of significant rehabilitation or remodeling. The amount of the credit is based on the qualified investment amount and the applicable percentage (which varies depending on the length of time the facility has been located on the industrial recovery site). The requirements for this credit have been modified in the following ways:

  • A vacant industrial facility must have been in service for 15 years (previously it was 20 years);
  • The facility must be vacant for one year to qualify (previously it was two years);
  • The minimum floor space that a vacant industrial facility must have to qualify has been reduced from 250,000 square feet to 50,000 square feet (for tax years between Dec. 31, 2010 and Jan. 1, 2015) and 100,000 square feet (for tax years after Dec. 31, 2014).

Alternative Abatement and Enhanced Abatement

These new provisions allow a “designating body” (generally a county or city council) more discretion when determining the tax abatement deduction schedule applicable to certain real and personal property. This could result in more tax abatement and, consequently, lower property tax liability for businesses that add jobs or make substantial investments (see our recent blog post, New Legislation Allows Increased Property Tax Deductions, for more information).

Residential Builders and Unsold Residences

A residential builder who owns a “residence in inventory” (i.e., a family residence, townhouse or condominium that has never been occupied) is entitled to a 50 percent deduction from the assessed value of the property (which does not include the value of the land) for tax purposes. However, there are a few limitations for this deduction:

  • A property owner is entitled to a deduction for up to three residences in inventory.
  • The property must be assessed as a partially completed or a fully completed structure. For a partially completed structure, a residential builder may only receive the deduction benefit for one assessment date; for a completed structure, the residential builder may receive the benefit for three assessment dates.
  • The property cannot be a “model residence” (i.e., one that is used for display for prospective buyers) and cannot be used as the owner’s regular office space.
  • The deduction does not apply if the residence is leased for any purpose and may be terminated if title to the residence is transferred.
  • The deduction is not applicable in certain designated areas, and if the property is already receiving a deduction under a different section, this deduction cannot be utilized.

Local Indiana Business Preference

Under this new law, a “local Indiana business” may be awarded a contract by a political subdivision (generally a municipal corporation or a special taxing district) for a public work project even if it did not submit the lowest responsive and responsible quote or bid. The new law requires that the contract be awarded to the lowest responsive and responsible “local Indiana business” claiming the preference, unless a “local Indiana business” that has not claimed the preference is the lowest responsive and responsible quoter or bidder for the project. If no quoters or bidders satisfy the preference criteria, the political subdivision may award the contract to the lowest responsive and responsible quoter or bidder as was the case prior to the new legislation.

A “local Indiana business” is similar to an “Indiana business” except that the focus of the criteria (as indicated below) is on an “affected county” rather than more generally “Indiana.” An “affected county” is the county awarding the contract or an adjacent county. A “local Indiana business” refers to a business:

  • whose principal place of business is located in an affected county;
  • that pays a majority of its payroll (in dollar volume) to residents of affected counties;
  • that employs residents of affected counties as a majority of its employees;
  • that makes significant capital investments in the affected counties; or
  • that has a substantial positive economic impact in the affected counties.

It is also important to note that certain procedural steps must be taken to claim the preference.

Disposal of State-Owned Real Estate

The department of administration will no longer have to deal with a few administrative burdens when disposing of certain property. New legislation now allows for state-owned real property to be exchanged to “improve the state’s ability to manage the property or improve access to state property” (previously the property could only be exchanged to settle a dispute relating to either or both of the properties). The $10,000 cap on property that may be exchanged for like-value property has also been eliminated. Moreover, the department may now sell state-owned property by request for proposals (in addition to the bids and auctions) and may negotiate with the highest offer (provided those negotiations are properly documented).

This information is only a summary of the legislative changes, and a more detailed analysis is required before determining eligibility. Please contact us if you have any questions.

  • Partner

    Mary is experienced in all aspects of real estate development, zoning and planning law, as well as government services and is the former chair of the firm's Real Estate practice group. She is a 1982 graduate of Indiana University ...

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