California Bill Contemplates Tax Credit for Seismic Retrofit Construction on a Qualified Building


California Assembly Bill 428 (Nazarian) proposes to allow, for taxable years beginning on and after January 1, 2016, and before January 1, 2021, a tax credit in an amount equal to 30% of the qualified costs paid or incurred by a qualified taxpayer for seismic retrofit construction on a qualified building. The tax credit could be claimed at the rate of 1/5th of the credit amount for the taxable year in which the credit is allowed and 1/5th of the credit amount for each of the subsequent 4 taxable years (reduced by any grant provided by a public entity for the seismic retrofit construction); as applicable, an excess credit may be carried over to the reduce the net tax in the following taxable year. Prior to seismic retrofit construction, the taxpayer would be required to obtain certification from the appropriate jurisdiction with local building code enforcement authority that the building has been certified as an at-risk property. The taxpayer would also be required to obtain a certification that the seismic retrofit construction had been completed, and to provide both certifications to the Franchise Tax Board upon request. The bill would take effect immediately as a tax levy.

A “qualified taxpayer” taxpayer would be an owner (including shared owners) of a qualified building located in California, and a “qualified building” would be a building that has been certified as an at-risk property, as otherwise provided in A.B. 428. “At-risk property” is currently defined as a building that is deemed hazardous and in danger of collapse in the event of a catastrophic earthquake, including, but not limited to, soft story buildings, nonductile concrete residential buildings, and pre-1994 concrete residential buildings.

Seismic retrofit construction” would mean alteration of a qualified building or its components to substantially mitigate seismic damage performed voluntarily, and for which qualified costs were paid or incurred, on or after January 1, 2016. It would include, but not be limited to: (A) anchoring the structure to the foundation; (B) bracing cripple walls; (C) bracing hot water heaters; (D) installing automatic gas shutoff valves; (E) repairing or reinforcing the foundation to improve the integrity of the foundation against seismic damage; (F) anchoring fuel storage; and (G) installing earthquake resistant bracing system for mobilehomes that are registered with the California Department of Housing and Community Development. It would not include work performed to bring a building into compliance with local building codes.

Qualified costs” is currently defined to include the costs paid or incurred by the qualified taxpayer for any completed seismic retrofit construction on a qualified building, including any engineering or architectural design work necessary to permit or complete the seismic retrofit construction. It would not include any of the following: (A) maintenance, including abatement of deferred or inadequate maintenance, and correction of violations unrelated to the seismic retrofit construction; (B) repair, including repair of earthquake damage; (C) seismic retrofit construction required by local building codes as a result of addition, repair, building relocation, change of use, or occupancy; (D) other work or improvement required by local building or planning codes as a result of the intended seismic retrofit construction; (E) rent reductions or other associated compensation, compliance actions, or other related coordination involving the qualified taxpayer and any other party, including a tenant, insurer, or lender; (F) replacement of existing building components, including equipment, except as needed to complete the seismic retrofit construction; (G) bracing or securing nonpermanent building contents; (H) the offset of costs, reimbursements, or other costs transferred from the qualified taxpayers to others; (I) any amount paid by the qualified taxpayer to the jurisdiction with authority for building code enforcement for issuing the required certifications.