California Senate Bill SB16 Amended / Bill

 BILL NUMBER: SB 16AMENDED BILL TEXT AMENDED IN SENATE INTRODUCED BY Senator Lowenthal DECEMBER 1, 2008 An act to amend Section 19611 of, and to add Sections  17058.6 and 23610.6   12206.5, 17058.5, 17058.6, 23610.6, and 23610.8  to, the Revenue and Taxation Code, relating to taxation, making an appropriation therefor, and declaring the urgency thereof, to take effect immediately. LEGISLATIVE COUNSEL'S DIGEST SB 16, as amended, Lowenthal. Low-income housing tax credits. Existing law establishes a low-income housing tax credit program, administered by the California Tax Credit Allocation Committee, which provides procedures and requirements for the allocation of state tax credit amounts among low-income housing projects based on federal law. This bill would, in the case of a project that has received or receives preliminary reservation of state low-income housing tax credit on or after July 1, 2008, and before January 1,  2010   2011  , allow the credit to be refundable  pursuant to specified laws  , and make an appropriation therefor, as provided.  Existing law, in the case of a partnership, requires the allocation of the state low-income housing tax credits, on or after January 1, 2009, and before January 1, 2016, to partners based upon the partnership agreement, regardless of how the federal low-income housing tax credit, as provided, is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, as specified.   This bill would extend those requirements to a project that receives a preliminary reservation of the state low-income housing tax credit during calendar year 2008, as specified.  This bill would declare that it is to take effect immediately as an urgency statute. Vote: 2/3. Appropriation: yes. Fiscal committee: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:  SECTION 1.   Section 12206.5 is added to the   Revenue and Taxation Code   , to read:   12206.5. (a) (1) Notwithstanding the dates specified in subdivision (b) of Section 12206, for a project that receives a preliminary reservation of the state low-income housing tax credit, allowed pursuant to subdivision (a) of Section 12206, during calendar year 2008, the credit shall be allocated to the partners of a partnership owning the project in accordance with the partnership agreement, regardless of how the federal low-income housing tax credit with respect to the project is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704 (b) of the Internal Revenue Code. (2) To the extent the allocation of the credit to a partner under this section lacks substantial economic effect, any loss or deduction otherwise allowable under this part that is attributable to the sale or other disposition of that partner's partnership interest made prior to the expiration of the federal credit shall not be allowed in the taxable year in which the sale or other disposition occurs, but shall instead be deferred until and treated as if it occurred in the first taxable year immediately following the taxable year in which the federal credit period expires for the project described in paragraph (1). (b) This section shall not apply to any state low-income housing credit reservation for which financial closing has occurred prior to the effective date of the act adding this section. For purposes of this section, "financial closing" shall mean the date on which deeds of trust for all construction financing have been recorded or, if no construction lender is involved, the equity partner has been admitted to the ownership entity.   SEC. 2.   Section 17058.5 is added to the   Revenue and Taxation Code   , to read:   17058.5. (a) (1) Notwithstanding the dates specified in subdivision (b) of Section 17058, for a project that receives a preliminary reservation of the state low-income housing tax credit, allowed pursuant to subdivision (a) of Section 17058, during calendar year 2008, the credit shall be allocated to the partners of a partnership owning the project in accordance with the partnership agreement, regardless of how the federal low-income housing tax credit with respect to the project is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704 (b) of the Internal Revenue Code. (2) To the extent the allocation of the credit to a partner under this section lacks substantial economic effect, any loss or deduction otherwise allowable under this part that is attributable to the sale or other disposition of that partner's partnership interest made prior to the expiration of the federal credit shall not be allowed in the taxable year in which the sale or other disposition occurs, but shall instead be deferred until and treated as if it occurred in the first taxable year immediately following the taxable year in which the federal credit period expires for the project described in paragraph (1). (b) This section shall not apply to any state low-income housing credit reservation for which financial closing has occurred prior to the effective date of the act adding this section. For purposes of this section, "financial closing" shall mean the date on which deeds of trust for all construction financing have been recorded or, if no construction lender is involved, the equity partner has been admitted to the ownership entity.   SECTION 1.   SEC. 3.  Section 17058.6 is added to the Revenue and Taxation Code, to read: 17058.6. (a) (1) For purposes of Section 17058, in the case of a project that has received or receives a preliminary reservation of state low-income housing tax credit on or after July 1, 2008, and before January 1,  2010   2011  , and the amount allowable as a credit under Section 17058 exceeds the tax liability computed under this part, the excess shall be credited against other amounts due, if any, and the balance, if any, shall be refunded to the taxpayer. (2) For purposes of applying paragraph (1), Section 17039 shall be applied by first reducing the "net tax" to the extent allowed under that section by any other credits, and then any remaining "net tax" shall first be offset by the amount described in paragraph (1) and any remaining amount described in paragraph (1) shall then be refunded to the taxpayer. (b) This section shall not apply to any state low-income housing credit reservation for which financial closing  occurs on or after July 1, 2008, and before December 31, 2008   has occurred prior to the effective date of the act adding this section. For purposes of this section, "financial closing" shall mean the date on which deeds of trust for all construction financing have been recorded or, if no construction lender is involved, the equity partner has been admitted to the ownership entity  .  SEC. 2.   SEC. 4.  Section 19611 of the Revenue and Taxation Code is amended to read: 19611. (a) The Tax Relief and Refund Account is hereby created in the General Fund. Notwithstanding Section 13340 of the Government Code, all moneys in the Tax Relief and Refund Account are hereby continuously appropriated, without regard to fiscal year, to the Franchise Tax Board for purposes of making all payments as provided in this section. (b) Notwithstanding any other law, all payments required to be made to taxpayers or other persons from the Personal Income Tax Fund shall be paid from the Tax Relief and Refund Account. (c) The Controller shall transfer, as needed, to the Tax Relief and Refund Account: (1) From the unexpended balance of the annual Budget Act appropriation for Item 9100-101-001, Schedule 80-Renter's Tax Relief, an amount determined by the Franchise Tax Board to be equivalent to the total amount of renters' assistance credits and refunds allowed under Section 17053.5. (A) If there is no unexpended balance of the appropriation, as provided for in paragraph (1), the Controller shall transfer sufficient moneys from the Personal Income Tax Fund to make the renters' assistance credits and refunds until there is an unexpended balance. (B) Subsequent to there being no unexpended balance of the appropriation, as provided for in paragraph (1), and there being a transfer of moneys from the Personal Income Tax Fund to make the renters' assistance credits and refunds, reimbursement shall be made from the unexpended balance of the appropriation as provided for in paragraph (1) to the Personal Income Tax Fund. However, if no such appropriation is subsequently made, reimbursement shall be made from the General Fund. (2) From the disability fund, the amount transferable to the General Fund pursuant to subdivision (a) of Section 1176.5 of the Unemployment Insurance Code. (3) From the Personal Income Tax Fund, those additional amounts as determined by the Franchise Tax Board to be necessary to make the payments required under this section. (4) From the Personal Income Tax Fund, those amounts as determined by the Franchise Tax Board to be necessary to make the refunds required under Section 17058.6. (5) From the Corporation Income Tax Fund, those amounts as determined by the Franchise Tax Board to be necessary to make the refunds required under Section 23610.6.  SEC. 3.   SEC. 5.  Section 23610.6 is added to the Revenue and Taxation Code, to read: 23610.6. (a) (1) For purposes of Section 23610.5, in the case of a project that has received or receives a preliminary reservation of state low-income housing tax credit on or after July 1, 2008, and before January 1,  2010   2011  , and the amount allowable as a credit under Section 23610.5 exceeds the tax liability computed under this part, the excess shall be credited against other amounts due, if any, and the balance, if any, shall be refunded to the taxpayer. (2) For purposes of applying paragraph (1), Section 23036 shall be applied by first reducing the "tax" to the extent allowed under that section by any other credits, and then any remaining "tax" shall first be offset by the amount described in paragraph (1) and any remaining amount described in paragraph (1) shall then be refunded to the taxpayer. (b) This section shall not apply to any state low-income housing credit reservation for which financial closing  occurs on or after July 1, 2008, and before December 31, 2008   has occurred prior to the effective date of the act adding this section. For purposes of this section, "financial closing" shall mean the date on which deeds of trust for all construction financing have been recorded or, if no construction lender is involved, the equity partner has been admitted to the ownership   entity  .  SEC. 6.   Section 23610.8 is added to the   Revenue and Taxation Code   , to read:   23610.8. (a) (1) Notwithstanding the dates specified in subdivision (b) of Section 23610.5, for a project that receives a preliminary reservation of the state low-income housing tax credit, allowed pursuant to subdivision (a) of Section 23610.5, during calendar year 2008, the credit shall be allocated to the partners of a partnership owning the project in accordance with the partnership agreement, regardless of how the federal low-income housing tax credit with respect to the project is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704 (b) of the Internal Revenue Code. (2) To the extent the allocation of the credit to a partner under this section lacks substantial economic effect, any loss or deduction otherwise allowable under this part that is attributable to the sale or other disposition of that partner's partnership interest made prior to the expiration of the federal credit shall not be allowed in the taxable year in which the sale or other disposition occurs, but shall instead be deferred until and treated as if it occurred in the first taxable year immediately following the taxable year in which the federal credit period expires for the project described in paragraph (1). (b) This section shall not apply to any state low-income housing credit reservation for which financial closing has occurred prior to the effective date of the act adding this section. For purposes of this section, "financial closing" shall mean the date on which deeds of trust for all construction financing have been recorded or, if no construction lender is involved, the equity partner has been admitted to the ownership entity.   SEC. 4.   SEC. 7.  This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and shall go into immediate effect. The facts constituting the necessity are: The state low-income housing tax credit is a critical source of funding for the development of affordable rental housing. Because of the financial downturn and the disruption to global capital markets, the ability of affordable housing developers, who have been awarded credits to obtain private equity investment in return for the credits, has decreased precipitously and, in some cases, disappeared altogether. Some developers have been forced to return tax credit awards unused, others are struggling to arrange investors, and those projects that have found investors have had to seek additional public funding to offset the decline in pricing and to maintain the financial feasibility of projects, severely jeopardizing the state's goal of providing decent, safe, and sanitary housing for all Californians. An immediate and short-term change to make state low-income housing tax credits refundable will entice investors back into affordable housing until global financial markets stabilize.