Sec. 34.04.07.08. Determining Disqualifying Work; Recapture of Tax Credits

A. Definitions.

(1) In this regulation, the following words have the meanings indicated.

(2) Defined Terms.

(a) Disposition.

(i) “Disposition” means the transfer of legal title in real property or, in the case of a leasehold, the transfer of a leasehold interest in the property, or any portions thereof, and includes, without limitation, a sale–and–leaseback transaction, a transfer on the foreclosure of a security interest, or a transfer by gift.

(ii) “Disposition” does not include a transfer of title or of a leasehold interest to a creditor on creation of a security interest lien, mortgage, or deed of trust.

(b) “Disqualifying work” means work performed at any time prior to the expiration of the recapture period for a certified rehabilitation that, if performed during the rehabilitation would have made the rehabilitation ineligible for certification as a certified rehabilitation.

(c) “Recapture period” means the taxable year in which a rehabilitation is certified by the Director as a certified rehabilitation under Regulation .06 of this chapter (Part 3) and the next 4 taxable years that succeed that taxable year.

B. Upon the request of the Comptroller or on the Director’s own initiative, the Director shall determine whether any disqualifying work has occurred during a certified rehabilitation or during the recapture period that would make the rehabilitation ineligible for a tax credit under the Program, and shall promptly notify the Comptroller of the Director’s determination.

C. A tax credit awarded and claimed through the Program shall be recaptured if during either the rehabilitation or the recapture period:

(1) Any disqualifying work is performed on the structure that was the object of the certified rehabilitation; or

(2) For a certified rehabilitation awarded a Competitive Commercial Tax Credit, there is a disposition of the structure that was the object of the certified rehabilitation.

D. A tax credit shall be recaptured as follows:

(1) If disqualifying work or disposition occurs during the taxable year in which the certified rehabilitation was completed, 100 percent of the tax credit shall be recaptured;

(2) If disqualifying work or disposition occurs during the first full year after the taxable year in which the certified rehabilitation was completed, 80 percent of the credit shall be recaptured;

(3) If disqualifying work or disposition occurs during the second full year after the taxable year in which the certified rehabilitation was completed, 60 percent of the credit shall be recaptured;

(4) If disqualifying work or disposition occurs during the third full year after the taxable year in which the certified rehabilitation was completed, 40 percent of the credit shall be recaptured; or

(5) If disqualifying work or disposition occurs during the fourth full year after the taxable year in which the certified rehabilitation was completed, 20 percent of the credit shall be recaptured.

E. The business entity that claimed the tax credit shall pay the recaptured amount of the tax credit as taxes payable to the State for the taxable year in which the disqualifying work or disposition occurred.