Dwayne Jones, executive director of the Galveston Historical Foundation, gazed across property the foundation owns in The Strand Historic District on Thursday. The space at 2014 Strand St. currently sits empty, but it exemplifies the boon a new state law imparts to nonprofits, Jones said.
The law, in effect with the commencement of the new year, financially incentivizes nonprofits to rehabilitate historic properties owned by the organizations. Historic properties include buildings at least 50 years old or on the national register for historic places.
After rehabilitating a site, the property owner will receive a tax credit. The credit accounts for qualifying rehabilitation expenses and equals about 25 percent against the state franchise tax — a business tax against corporate revenues. Because nonprofits are exempt from the franchise tax, the law allows them to sell the credit.
“This law is going to transform the way communities look at properties,” Jones said.
In the case of the Galveston Historical Foundation’s property on Strand Street, the organization anticipates leasing the location by mid-January. Brewer Eric Walker and three others who will handle financial matters — Chris David, David Torres and Landers Weakley — plan to open microbrewery Devil and the Deep Brewery at the site.
But the foundation must first rehabilitate several aspects of the property. Two restrooms need installing and the floors, walls and ceiling require improvements. The microbrewery will then move in its equipment, such as tanks and fermentation units.
Construction could start in February, according to Kane Toler, the foundation’s director of architectural projects and historic properties.
“We’re going to make it really beautiful in here,” he said.
For resurrecting the building, the foundation would then receive the tax credit. Along with its property on Strand Street, the foundation also plans to rehabilitate several other locations. Jones estimated the tax credits could sell for as much as 80 percent of their value.
“It’s a big deal,” he said.
Markets exist at the state and national level for the tax credits, San Antonio-based lawyer Patrick Kennedy said. Kennedy helped implement the new law during the 84th legislative session. His firm, Kennedy Sutherland LLP, specializes in directing banks, cities and economic development corporations, in creative financing.
Opportunities to sell the credits could arise from corporations who have franchise tax liability but want to help nonprofits, Kennedy said.
He expects the law to bolster the economic impact of historic preservation in Texas, a sector that already financially infuses the state enormously. In addition to rehabilitation of historic buildings, preservation activities include heritage tourism and history museum operations.
Historic preservation contributes more than $4.6 billion annually to the state, according to nonprofit Preservation Texas. The city of Galveston in particular stands to benefit, Kennedy said.
“There’s way more than a couple of historic buildings on the island,” he said.
To encourage owners of historic buildings even more, another tax credit already exists at the federal level. Qualifying rehabilitation expenses will earn the property owners about 20 percent tax credit toward their federal income tax.
Nonprofits can use the federal and state credits in conjunction with one another. It adds up to a favorable circumstance, Jones said.
“It’s a great time for nonprofits to consider utilizing historic buildings,” he said.