Shelley Smith

Shelley Smith

First, I would like to thank the countless residents who have written or called to offer words of encouragement this week regarding the downtown revitalization effort. The city of Tullahoma successfully completed the TN Downtowns program last month.

The two-year program involved a series of public meetings and community surveys under the guidance of the TN Main Street Department to establish brand identity and produce marketing materials, including the new downtown banners, which is the required preliminary step towards launching a Main Street initiative. Small businesses are reeling from the pandemic, and their owners are wondering whether there will be anything to return to. While they are just banners, they cost the city zero local tax dollars and hanging them now sends a positive message that the community still believes in its downtown businesses. As City Administrator Jennifer Moody recently pointed out, “a healthy dose of perseverance and taking the long-view is going to be important when we think about our downtown as it’s going to take a series of intentional small steps, likely taken over the next few years, to snowball into making downtown into the attractive, vibrant destination that we know it has the potential to be.”

This week, I would like to discuss the potential for tax incentives to play a vital role in the recovery of the local economy and the downtown revitalization effort. Unfortunately, the Main Street Historic Tourism and Revitalization Act (SB 1053 / HB 1063), sponsored by Senator Bo Watson and Rep. Kevin Vaughn in 2019, was not included in the budget this year; however, I see this program as an opportunity to unlock the potential in so many historic places through both rehabilitation and adaptive reuse across our entire region. Please join me in supporting the Main Street Historic Tourism and Revitalization Act by contacting our state legislators and asking them to support the creation of this tax credit.

Throughout the course of my career working in the fields of real estate development, historic preservation, and preservation design, I have worked on many successful projects and witnessed countless beneficial contributions to the built environment that would never have gotten off the ground were it not for tax incentives at the local, state, and federal levels. Most often in my experience, the real benefit of incentives such as a state historic tax credit is that they are transferable, allowing developers to sell the tax credits to raise the initial capital used to leverage the projects.

Each state tailors their tax incentives to address their unique objectives, and of all the states in which I have lived and worked, South Carolina had by far the most comprehensive strategy for encouraging revitalization through a number of property rehabilitation credits, including the Textile Revitalization Credit, the Retail Facility Revitalization Credit, the Abandoned Buildings Revitalization Credit, and the state Credit for Rehabilitation of a Certified Historic Structure. I’ve spent the majority of the past 20-odd years in other states honing my craft, but now I have returned to my home state to find my toolkit half empty due to the lack of tax incentives for development projects in Tennessee.

Perhaps the main obstacle to overcome for advocates of a state historic tax credit in Tennessee is the fact that we are one of nine states that do not impose a state income tax, which is what most state tax credit incentives are used to offset. Rather than wasting time trying to re-invent the wheel, it seems best to study what others are doing so that we do not repeat their mistakes and improve on whatever they happen to be doing well. I have studied the other states that do not impose a state income tax. The Texas Historic Preservation Tax Credit Program, for example, has been extremely successful, and offers a 25 percent tax credit for the rehabilitation of historic buildings. In the absence of a state income tax, the credit is applied against a business’s franchise tax liability. The Texas Historic Preservation Tax Credit Program went into effect on Jan. 1, 2015 for properties placed in service on or after September 1, 2013.

One of the greatest measures of the success of the Texas program is that many of the applications for the new THPTC program are from smaller communities across the state. According to the Novogradac Journal of Tax Credits, before the creation of the state program, about 75 percent of federal HTC applications in Texas came from the four major urban centers, with another 12 percent from next-tier cities such as El Paso or Galveston. Within one year of the enactment of the THPTC, almost 40 percent of the applications were for projects in smaller towns and cities around the state, much like the communities within Tennessee District 47.

I had the pleasure of touring the Jack Daniels Distillery not long before the pandemic began, and our tour guide “guess-timated” that Jack Daniels alone, irrespective of parent company Brown-Forman’s overall sales, generates approximately 400 to 500 million dollars in net income. Let us assume hypothetically this is an accurate figure and that Jack Daniels is liable for 6.5 percent in excise tax on these net earnings alone, therefore, it is reasonable to assume that Jack Daniels may pay upwards of 30 million dollars in excise tax annually. If a state historic tax credit is syndicated, let us hypothetically place a value of 70 cents per every historic tax credit dollar. This could potentially inject 21 million dollars into qualified historic rehabilitation projects and downtown revitalization efforts within the Tullahoma-Manchester micropolitan area and beyond.

Finally, while researching Texas tax incentives, I also discovered that historic properties and local landmarks in Texas may qualify for a property tax abatement as authorized by Title 1, Section 11.24 of the Texas Tax Code, which is similar to South Carolina’s “Bailey Bill” that I am very familiar with having witnessed its positive impact on the South Carolina economy. Enacted in 1992, the Bailey Bill allows local governments to offer a property tax abatement to encourage the rehabilitation of historic properties. For a period of no more than 20 years, the local government can lock in a special property tax assessment based on the property’s fair market value prior to rehabilitation. In accordance with T.C.A. 67-5-218, Rutherford County, Tennessee, has initiated a project to encourage the renovation and preservation of historic residential and commercial structures by providing economic incentive through partial abatement of the applicable property tax. Unfortunately, the provisions of the referenced code only apply to Tennessee counties with a population of 200 thousand or more, “according to the 1970 federal census, or any subsequent federal census, it being the finding of the general assembly that redevelopment pressures are greater on historic structures in heavily urbanized areas.” These provisions are seemingly at odds with Governor Lee’s commitment to facilitating the economic growth of Tennessee’s rural areas.

Find more information on the benefits of state historic tax credits in a National Trust for Historic Preservation publication titled State Historic Tax Credits: Maximizing Preservation, Community, Revitalization, and Economic Impact, which can be accessed on the Tennessee Chapter of the American Institute of Architect’s webpage at I want to thank you all once more for your support of the downtown revitalization effort. May we all be well and continue to help each other!

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