Developer Fees; General Contractor Overhead and Profit

PURPOSE: This rule explains the treatment of developer fees and general contractor requirements under the Historic Preservation Tax Credit program. (1) For a developer fee to be a QRE, the developer fee agreement must meet the requirements of this rule. (2) A developer fee shall be deemed a QRE only if— (A) The developer fee is reasonable, which shall mean that it does not exceed twelve percent (12%) of total project cost less non-qualified expenditures, related party fees, profit, and the total amount of the developer fee itself; (B) The developer fee is evidenced by a signed and notarized written agreement between the applicant and the developer; (C) The developer fee is incurred by the applicant no later than upon substantial completion of the project, and the basis for substantial completion, which must be one (1) of the alternatives in 4 CSR 85-5.010(2)(EE), is specified in the developer fee agreement; (D) The developer fee agreement is submitted to the department by the later of the project’s initial closing on construction financing, or initial closing on federal historic tax credit equity, if applicable. If no developer fee agreement has been submitted to the department for review by the later to occur of either event in the preceding sentence, no developer fees will be eligible as a QRE for the project; and (E) It is preferred that the developer fee agreement does not include activities that are in support of costs that are ineligible as QRE, such as syndication, organization, property acquisition, obtaining permanent financing, rent-up/lease-up of the property, and ongoing property management (non-QRE activities). If, however, the developer fee agreement includes both QRE and non-QRE activities, the applicant must submit a breakdown of the portions of the developer fee that are for QRE activities and non-QRE activities before being issued tax credits. (3) Up to ninety percent (90%) of a developer fee can be deferred (incurred but unpaid) and be a QRE, provided that the requirements in section (2) of this rule are met and the developer fee agreement requires full payment of the deferred amount of the developer fee by applicant within five (5) years of substantial completion. (4) The applicant that is issued tax credits for deferred developer fees as set forth in section (3) of this rule shall be personally liable for repayment of all tax credits attributable to any amount of the developer fee for which tax credits were issued but the developer fee is not paid within five (5) years of substantial completion of the project. (5) For a developer fee to be a QRE, any amendment to the developer fee agreement— (A) That changes the amount of the developer fee shall include the justification for such increase or decrease to such amount; (B) Must be in writing, signed, and notarized by all parties; and (C) Must be submitted to the department with the project’s final application. (6) Payment of a deferred developer fee within a reasonable period of time following it being incurred is material to the department’s determination that a deferred developer fee is a QRE. The appropriate real party in interest to represent the state shall have standing to bring suit for an applicant’s failure to pay a deferred developer fee for which tax credits have been issued within five (5) years of substantial completion of the project. (7) In order to be a QRE, general contractor soft costs of overhead and profit must be separately listed on the expense report form submitted with the final application. General contractor profit and overhead must be reasonable. (A) General contractor overhead and profit is presumed to be reasonable if together it is equal to or less than ten percent (10%) of total eligible contractor costs less related party fees, overhead, and profit. AUTHORITY: section 135.487, RSMo 2016, and sections 135.802 and 620.010, RSMo Supp. 2023.* Emergency rule filed March 20, 2019, effective March 30, 2019, expired Dec. 31, 2019. Original rule filed March 20, 2019, effective Nov. 30, 2019. Amended: Filed July 31, 2023, effective March 30, 2024. *Original authority: 135.487, RSMo 1999; 135.802, RSMo 2004, amended 2009, 2022; and 620.010, RSMo 1973, amended 1981, 1983, 1986, 1989, 1990, 1993, 1994, 1995, 1999, 2001, 2007, 2008, 2010, 2014, 2019.