                             ATTORNEY GENERAL OF TEXAS
                                        GREG       ABBOTT



                                              March 3, ~014



Mr. Mark Wolfe                                     Opinion No. GA-1045
Executive Director
Texas Historical Commission                        Re: The Texas Historical Commission's
Post Office Box 12276                              implementation of House Bill 500, relating
Austin, Texas 78711-2276                           to a tax credit for the rehabilitation of
                                                   certified historic structures (RQ-1149-GA)

Dear Mr. Wolfe:

        You ask about the Texas Historical Commission's (the "Commission") implementation of
House Bill 500, enacted by the Eighty-third Legislature. 1 You tell us that the bill, "which
establishes a tax credit for certified rehabilitation of certified historic structures, includes two
dates for implementation," and you ask the following questions regarding the tax credit program:

                1. Does the Texas Historical Commission have the authority to
                begin reviewing applications for the tax credit prior to January 1,
                2015, the effective date of this section ofthe bill?

                2. May the Commission issue certificates of eligibility prior to
                January 1, 2015?

                3. Is denial of a certificate of eligibility subject to appeal, and if so,                    .·
                is this appeal a contested case under Tex. Gov't Code ch. 2001?

                4. May property owners whose qualifying historic structures are
                placed in service between September 1, 2013 and January 1, 2015,
                claim the credit?


                                                                                                              .·
        1
         See Letter from Mr. Mark Wolfe, Exec. Dir., Tex. Historical Comm'n, to Honorable Greg Abbott, Tex.
Att'y Gen. at 1 (Aug. 30, 2013), http://www.texasattomeygeneral.gov/opin ("Request Letter").
Mr. Mark Wolfe - Page 2                       (GA-1045)



               5. Would costs and expenses incurred by an owner prior to either
               September 1, 2013 or January 1, 2015 be eligible for the credit?

               6. To what tax year may credits for periods prior to January 1, 2015
               be applied, if any?

               7. Is it necessary that the owner of the property be subject to the
               franchise tax, or may a homeowner, nonprofit corporation, or other
               non-taxable entity make use of the credit through its sale or
               assignment to a taxable entity?

Request Letter at 1.
                                                                                                           /,
                                                                                                       I
        The franchise tax is imposed on taxable entities doing business in the state or chartered or
organized in the state. TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 437 (Tex. .
2011). House Bill500 concerns many different aspects ofthe franchise tax. See Act of May 26, ·
2013, 83d Leg., R.S., ch. 1232, 2013 Tex. Gen. Laws 3104, 3104-12 ("H.B. 500"). Relevant
here, section 14 ofH.B. 500, codified as subchapter S of Chapter 171 ofthe Tax Code, creates a
new tax credit for "certified rehabilitation of certified historic structures." H.B. 500 § 14(a), at
3109-11; TEX. TAX CODE ANN.§§ 171.901-.909 (West Supp. 2013) (subchapter S). An entity
that is qualified to receive the credit must first request a certificate of eligibility from the
Commission. TEX. TAX CoDE ANN. §§ 171.902-.904 (West Supp. 2013). The entity must
forward the certificate of eligibility, along with other documentation, to the Comptroller's Office.
to claim the tax credit. !d. § 171.904(c).

        Several important dates are relevant. H.B. 500 is generally effective on January 1, 2014,
"except as otherwise provided." H.B. 500 § 20 at 3111. Subchapter Sis effective on January 1,
2015. H.B. 500 § 14(b), at 3111. Within subchapter S, the qualifications for the tax credit
require that the "rehabilitated certified historic structure" be placed in service on or after
September 1, 2013. TEX. TAX CODE ANN.§ 171.903(1) (West Supp. 2013). These various dates
give rise to your questions, which we address together where possible.

        We address your sixth question first because the answer to it informs the answer to
several of your other questions. The general rule is that a law does not speak until itS effective
date. Norton v. Kleberg Cnty., 231 S.W.2d 716, 718 (Tex. 1950); see also Calvert v. Gen. Asphalt
Co., 409 S.W.2d 935, 938 (Tex. Civ. App.-Austin 1966, no writ) (recognizing that an act ofthe
Legislature "performs no function whatsoever until its effective date"). By H.B. 500's terms,
subchapter Sis not effective until January 1, 2015. H.B. ·500 § 14(b), at 3111. Thus, the new tax
Mr. Mark Wolfe - Page 3                                (GA-1045)



credit for rehabilitated certified historic structures created by subchapter S is not operative until -
January 1, 2015. Accordingly, the tax credit may not be applied prior to the 20 15 tax year. 2
                                                                                                                                  I
        An entity may qualify for the tax credit if the "rehabilitated certified historic structure is
placed in service on or after September 1, 2013." TEX. TAX CoDE ANN. § 171.903(1) (West
Supp. 2013). The September 1, 2013 date is merely a date, prior to the tax credit's effective date,
used to determine whether an entity qualifies for the tax credit; it does not impact subchapter S 's
effective date. Thus, in answer to your fourth question, property owners whose qualifying
historic structures are placed in service between September 1, 2013 and January 1, 2015 are
eligible for the tax credit, but not until the 2015 tax year.

        Your fifth question involves costs and expenses incurred prior to either September 1,
2013 or January 1, 2015. The tax credit incorporates "eligible costs and expenses incurred in the
certified rehabilitation of a certified historic structure as provided by" the subchapter. Id.
§ 171.903; see also id. § 171.901(4) (defining "eligible costs and expenses"). Subchapter S does
not limit the eligible costs and expenses based on when they were incurred; its date limitation to
qualify for the tax credit requires only that the structure be placed in service on or after ·
September 1, 2013. !d. § 171.903(1 ). Thus, any costs and expenses, whenever incurred, that are
"eligible costs and expenses" under the statute would be eligible for the tax credit, but not until
the 2015 tax year.

      Your first and second questions involve the Commission's authority prior to January 1,                                  /
2015. Section 2001.006 of the Government Code provides that

                  [i]n preparation for the implementation of legislation that . has                                      .·
                  become law but has not taken effect, a state agency may adopt a
                  rule or take other administrative action that the agency determines
                  is necessary or appropriate and that the agency would have been
                  authorized to take had the legislation been in effect at the time of
                  the action. 3

TEX. Gov'T CoDE ANN. § 2001.006(b) (West 2008). Section 2001.006 limits that power,
however, so that a rule adopted under 2001.006(b) "may not take effect earlier than the ·
legislation being implemented takes effect." !d. § 2001.006(d). An administrative action taken

         2
          In briefing submitted to this office, the Comptroller of Public Accounts agrees that the tax "credits cannot
be created for periods prior to January 1, 2015." Brief from William S. Hamner, Director, Tax Admin., Tex.
Comptroller of Pub. Accounts at 2 (Sept. 24, 2013) (on file with the Op. Comm.).

         3
        section 2001.006(a)(2) enumerates factors by which to determine whether legislation has "become law." .
TEX. GOV'T CODE ANN.§ 2001.006(a)(2) (West 2008).
                                                                                                                              l
Mr. Mark Wolfe - Page 4                        (GA-1045)



under that section "may not result in implementation or enforcement of the applicable legislation
or rule before the legislation or rule takes effect." !d. The Commission is authorized to adopt
rules to implement the new tax credit. TEX. TAX CODE ANN. § 171.909 (West Supp. 2013).
Under section 2001.006, it may adopt rules or take administrative action relating to the new tax
credit prior to the January 1, 2015 effective date of subchapter S. See TEX. Gov'T CODE ANN.
§ 200 1.006(b) (West 2008). However, under section 200 1.006(d), any rule may not take effect
earlier than January 1, 2015, and any administrative action may not result in implementation or
enforcement of the statute. See id. § 2001.006(d). Accordingly, in response to your first
question, the Commission has authority to review applications prior to January 1, 2015, provided
that doing so does not involve the implementation of an administrative rule. In response to your
second question, the Commission may not issue certificates of eligibility prior to January 1,
2015, because, unlike reviewing applications, issuing certificates would constitute
implementation or enforcement ofthe statute prior to its effecti'\'e date.

        With regard to your third question, no provision in subchapter S provides for an appeal of
the Commission's denial of an application for a certificate of eligibility. See generally TEX. TAX
CoDE ANN. §§ 171.901-.909 (West Supp. 2013). A court would likely conclude that the
Administrative Procedure Act also does not provide a means of appealing the Commission's ..
actions in this context. See Bacon v. Tex. Historical Comm 'n, 411 S. W.3d 161, 180 (Tex. App.-
Austin 2013, no pet.) (considering Commission's denial of application regarding historical
marker and recognizing that no judicial review of the denial was created indirectly through the
Administrative Procedure Act "because the right of judicial review provided therein applies only
to final decisions in contested cases" and that the Cortunission proceeding was not a cont~sted
case).

         Although no statute authorizes an appeal of the Commission's denial of a certificate of:
eligibility, property owners whose applications are wrongfully denied are not without judicial
recourse. Subchapter S imposes a mandatory duty on the Commission to issue certificates of
eligibility to qualifyin.g applicants. See TEx. TAX CODE ANN. § 171.904(b) (West Supp. 2013)
("The Commission shall issue . . . ."); TEX. Gov'T CoDE ANN. § 311.016(2) (West 2013)
(providing that the term "shall" usually imposes a duty). Thus, if a property owner who met the
statutory criteria for a certificate of eligibility was nevertheless denied the ce1tificate, the
property owner may be entitled to mandamus relief ordering the Commission to issue a
certificate. See In re Smith, 333 S.W.3d 582, 585 (Tex. 2011) (orig. proceeding) (discussing ·
required elements for mandamus relief). In the alternative, Texas courts may recognize a so-
called ultra vires claim for declaratory relief if the Commission acts outside its legal authority on
a matter in which it has no discretion. See City of El Paso v. Heinrich, 284 S.W.3d 366, 370-77.
(Tex. 2009) (discussing ultra vires exception to sovereign immunity in a declaratory judgment
action). We caution, however, that whether any particular legal claim is available in a given case
is not a question we can answer here.

        Relevant to your last question, section 14 expressly authorizes an "entity that incurs ·
eligible costs and expenses" to "sell or assign all or part of the credit ... to one or more entities.'
H.B. 500 § 14(a), at 3110-11 (codified at TEX. TAX CODE ANN. § 171.908(a)); see also id.
(authorizing resale of sold credit). Section 14 utilizes the term "entity' in all provisions
providing for the new tax credit. See H.B. 500 § 14(a), at 3109-11 (codified at TEX. TAX CoDE
Mr. Mark Wolfe - Page 5                       (GA-1045)



ANN. §§ 171.902, .903, .904, .906, .907, .908). Unlike chapter 171 as a whole, which utilizes the
terms "taxable entity" and "passive entity" to determine the applicability of the franchise tax,
section 14 does not utilize language limiting those entities that can qualify for the tax credit to
taxable entities. See TEX. TAX CODE ANN. §§ 171.001 (West 2008) (imposing franchise tax on
taxable entities), 171.0002 (West Supp. 2012) (defining "taxable entity"), 171.0003 (West 2008)
(defining "passive entity"); see also FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868,
885 (Tex. 2000) (relying on principle of statutory construction that the Legislature knows how to
enact laws effectuating its intent). The distinction in the language suggests that entities able to
apply for the credit may not be the same as those claiming the credit. Further, there is no
provision in section 14 that expressly limits the tax credit to only taxable entities. See generally
H.B. 500 § 14(a), at 3109-11 (codified at TEX. TAX CODE ANN. §§ 171.901-.909). For these
reasons, we conclude that the tax credit created by section 14 is available to entities that are not
subject to the franchise tax. This conclusion does not render the tax credit useless because an
entity that is not a taxable entity, though unable to claim the credit against the franchise tax,
could still benefit by selling or assigning the credit to a taxable entity that could. See id. H.B.
500 § 14(a), at 3110-11 (codified at TEX. TAX CODE ANN. § 171.908 (providing for the sale or
assignment of the credit).                                 ·




                                                                                                       .·




                                                                                                       ,'
Mr. Mark Wolfe - Page 6                       (GA-1045)



                                       SUMMARY

                 The new tax credit for rehabilitated certified historic structures
            created in House Bill 500, to be codified in the Tax Code at chapter 171,
            subchapter S, is not operative until the 2015 tax year. Thus, the new tax
            credit may not be applied in years prior to 2015.

                  An entity whose qualifying rehabilitated certified historic structure
            is placed in service between September 1, 2013 and January 1 2015 may
            be eligible for the new tax credit but not tmtil the 2015 tax year.
            Similarly, eligible costs and expenses ' associated with the rehabilitated
            certified historic structure whenever incurred, would be eligible for the
            new tax credit, but not until the 2015 ta.X year.

                  The Commission has authority to review applications prior to
            January 1, 2015, provided that doing so does not involve the
            implementation of an_ administrative rule. The Commission may not
            issue certificates of eligibility prior to January 1 2015, because issuing
            certificates, unlike reviewing applic~tions,           would constitute
            implementation or enforcement of the statute prior to its effective date.

                 The new tax credit is not limited to taxable entities. It may be
            claimed and transferred by an entity that owns a rehabilitated certified
            historic structure even if the entity is not subject to the franchise tax.




                                             Attorney General of Texas


DANIEL T. HODGE
First Assistant Attorney General
                                                                                          .·
JAMES D. BLACKLOCK
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

Charlotte M. Harper
Assistant Attorney General, Opinion Committee
