Detroit Housing Commission

Replacement Housing Factor Program

10% Brownfield Single Business Tax Credit

Summary:
Under the state's brownfield redevelopment laws, a brownfield developer can obtain a 10% Single Business Tax Credit from the state. The eligible properties are defined in the Brownfield Tax Increment Financing section. Tax credits are available for up to $30 million for a single project. Details can be found in DBT Tax Credit law, PA 228 of 1975, as amended.

Steps
The first step to obtaining the tax credit is to obtain a preapproval from MEDC that they will favorably consider an application. All Brownfield SBT credits must be approved by the MEGA board. There is a four-step process to becoming eligible for a credit:
1. A Notice of Intent must be filed with MEGA that outlines the project and allows MEGA staff to make a determination whether the project has a reasonable chance of being approved by the chair of MEGA or MEGA board of directors.
2. An invitation to file a full application is given if the project meets both the statutory requirements and selection priorities outlined above. If the application is complete, it is forwarded to MEGA for approval or denial.
3. Approved projects receive a pre-approval letter from MEGA before eligible investments are initiated.
4. When the project is completed, the qualified taxpayer must submit a Certificate of Completion Request for the eligible investment and identify each taxpayer entitled to a credit for the project. If all requirements are met, the state will then issue a Certificate of Completion, after which the taxpayers may claim an SBT credit.

Second Steps
The second step is to prepare, submit and obtain local approval of a Brownfield Plan. To do so you can follow the steps in the Brownfield Tax Increment Financing section. In most cases the state will be looking for local participation through a tax increment financing plan.

Selection Priorities
Credits will be awarded to projects that best meet the following criteria:
+ The host community is a willing participant in the project and is making a reasonable local contribution to the project through programs such as tax increment financing (TIF), property tax abatements, Neighborhood Enterprise Zones, local revolving funds or other programs.
+ The project supports development of "Cool Cities," redevelopment in core communities and downtown areas and near-downtown areas.
+ Projects that, even after the Brownfield Redevelopment Authority TIF has mitigated the excess costs of the site related to Brownfield conditions, still need an incentive to reuse the site due to market conditions, risk or other factors.
+ Project plans that reasonably improve the condition that qualifies the project as a brownfield. + Projects that assist our state's manufacturers in meeting the pressures of international competition by reusing existing facilities and preserving or creating new jobs.

Technical Guidance:
The MEDC has established a set of guidelines they will use in reviewing brownfield plans to determine whether they will be able to obtain the SBT Tax Credit.

How To Convert Tax Credits into Cash
Most Developers do not pay substantial single business tax in the State of Michigan. Their interest in the tax is to use it as a mechanism to generate equity to invest in a particular project. Currently Michigan law does not permit the sale of the tax credit through syndication process similar to federal tax credit programs. In order to provide the tax credit to a business that can take advantage of it, the Developer needs to give the buyer a nominal interest in the Development Entity (such as 0.01%). The Developer can then assign the tax credit to the investor in exchange for an investment.

A state tax credit has a reduced value since the buyer loses a 35% tax deduction when they take advantage of the state tax credit. Therefore, the state SBT tax credit ends up having a value of approximately 60 cents on the dollar of tax credit. That value is at the time the tax credit is actually provided (after the occupancy permit has been issued. If the Developer needs the funds earlier in the Development process, they would then borrow funds against the future tax credit. Therefore, the Present Value of the tax credit is further reduced by the interest he needs to pay to borrow the funds. The net result is that the Developer receives an equity investment of approximately 5.5% into his/her project with no repayment required.

Program Accomplishments:
The program has been very aggressively used in the past several years to the extent the state had to establish the guidelines published above

Content updated March 10, 2006