81R6877 CBH-F
By: Anchia H.B. No. 1593
A BILL TO BE ENTITLED
AN ACT
relating to tax credits for qualified low-income community
investments.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 171, Tax Code, is amended by adding
Subchapter J-1 to read as follows:
SUBCHAPTER J-1. CREDIT FOR QUALIFIED LOW-INCOME COMMUNITY
INVESTMENTS
Sec. 171.521. DEFINITIONS. In this subchapter:
(1) "Credit allowance date" means, with respect to a
qualified equity investment:
(A) the date on which the investment is initially
made; and
(B) each of the next six anniversaries of that
date.
(2) "Long-term debt security" means a debt instrument
issued by a qualified community development entity, at par value or
a premium, with an original maturity date of at least seven years
from the date of its issuance, with no acceleration of repayment,
amortization, or prepayment features before its original maturity
date, and with no distribution, payment, or interest features
related to the profitability of the qualified community development
entity or the performance of the qualified community development
entity's investment portfolio. This subdivision does not limit the
ability of the holder of the debt instrument to accelerate payments
on the debt instrument in a situation in which the issuer has
defaulted on a covenant designed to ensure compliance with this
subchapter or Section 45D, Internal Revenue Code of 1986.
(3) "Qualified active low-income community business"
has the meaning assigned by Section 45D(d)(2), Internal Revenue
Code of 1986.
(4) "Qualified community development entity" has the
meaning assigned by Section 45D(c), Internal Revenue Code of 1986,
but only if the entity has entered into an allocation agreement with
the Community Development Financial Institutions Fund of the United
States Department of the Treasury with respect to credits
authorized by Section 45D, Internal Revenue Code of 1986. The term
does not include a qualified community development entity that
entered into an allocation agreement solely as part of a Gulf
Opportunity (GO) Zone allocation.
(5) "Qualified equity investment" means an equity
investment in, or long-term debt security issued by, a qualified
community development entity that:
(A) is acquired after January 1, 2009, at the
investment's original issuance solely in exchange for cash or that
was a qualified equity investment in the hands of a prior holder;
(B) has at least 85 percent of its cash purchase
price used by the issuer to make qualified low-income community
investments; and
(C) is designated by the issuer as a qualified
equity investment under this subchapter, regardless of whether it
also has been designated as a qualified equity investment under
Section 45D, Internal Revenue Code of 1986.
(6) "Qualified low-income community investment" means
a capital or equity investment in, or loan to, a qualified active
low-income community business.
Sec. 171.522. TOTAL AMOUNT OF CREDITS THAT MAY BE CLAIMED.
(a) Notwithstanding any other provision of this subchapter, the
total amount of tax credits that may be claimed by taxable entities
under both this subchapter and Chapter 231, Insurance Code, in a
state fiscal year may not exceed $14 million.
(b) The comptroller by rule shall prescribe procedures by
which the comptroller may allocate credits under this subchapter
and Chapter 231, Insurance Code. The procedures:
(1) must provide for allocating the credits on a pro
rata basis based on the investment history of the issuer;
(2) must provide that the maximum credit allocation a
taxable entity may receive is $4 million if, before the date of the
allocation, the issuer of the qualified equity investment or any
affiliate of the issuer made a qualified equity investment in this
state under the federal new market tax credit program; and
(3) may include requiring an entity to apply for a
credit before the due date of the tax report on which the entity
will first claim the credit under this subchapter or Chapter 231,
Insurance Code.
(c) To assist the comptroller in determining the amount of
credits that may be claimed each year, the issuer of a qualified
equity investment shall certify to the comptroller the anticipated
dollar amount of that investment to be made in this state during the
first 12-month period following the initial credit allowance date.
If on the second credit allowance date the actual dollar amount of
that investment is different than the amount previously estimated,
the comptroller shall adjust the amount of the credits that may be
claimed on or after the second allowance date to account for the
difference.
Sec. 171.523. QUALIFICATION FOR CREDIT. (a) A taxable
entity qualifies for a credit under this subchapter on a report if
the taxable entity holds a qualified equity investment on a credit
allowance date of that investment that occurs during the period on
which the report is based.
(b) A taxable entity that holds a qualified equity
investment may claim a credit under this subchapter for not more
than seven consecutive reports beginning with the report based on
the period during which the taxable entity first holds the
investment on a credit allowance date.
Sec. 171.524. COMPUTATION OF CREDIT. (a) The amount of the
credit is computed using the purchase price paid to the issuer of
the qualified equity investment.
(b) The maximum amount of investment that a qualified
community development entity, on an aggregate basis with all of its
affiliates, may allocate to a single qualified active low-income
community business on a collective basis with all of its affiliates
is $15 million.
Sec. 171.525. AMOUNT OF ANNUAL CREDIT. (a) Except as
otherwise provided by this subchapter, the amount of the tax credit
a taxable entity may claim on a report is equal to:
(1) for the first year for which the taxable entity may
claim the credit, zero percent of the purchase price on the
applicable credit allowance date;
(2) for each of the next three years for which the
taxable entity may claim the credit, six percent of the purchase
price on the applicable credit allowance date; and
(3) for the remaining three years for which the
taxable entity may claim the credit, seven percent of the purchase
price on the applicable credit allowance date.
(b) The total credit claimed under this subchapter for a
report, including the amount of any carryforward credit under
Section 171.526, may not exceed the amount of franchise tax due
after any other applicable credits.
Sec. 171.526. CARRYFORWARD. (a) If a taxable entity is
eligible for a credit that exceeds the limitation under Section
171.525(b), the taxable entity may carry the unused credit forward
to subsequent consecutive reports.
(b) A carryforward is considered the remaining portion of a
credit that cannot be claimed in the current year because of the tax
limitation under Section 171.525(b). A carryforward is added to
the next year's credit in determining whether the limitation is met
for that year. A credit carryforward from a previous report is
considered to be used before the current year credit.
Sec. 171.527. CERTIFICATION OF ELIGIBILITY. (a) For the
initial and each succeeding report in which a credit is claimed
under this subchapter, the taxable entity shall file with its
report, on a form provided by the comptroller, information that
sufficiently demonstrates that the taxable entity is eligible for
the credit.
(b) The burden of establishing entitlement to and the value
of the credit is on the taxable entity.
Sec. 171.528. ASSIGNMENT PROHIBITED. (a) A taxable entity
may not convey, assign, or transfer the credit allowed under this
subchapter to another entity unless all of the assets of the taxable
entity are conveyed, assigned, or transferred in the same
transaction.
(b) Notwithstanding Subsection (a), a tax credit earned by a
partnership, limited liability company, S corporation, or other
"pass-through" entity may be allocated to the partners, members, or
shareholders of that entity and claimed under this subchapter in
accordance with the provisions of any agreement among the partners,
members, or shareholders.
Sec. 171.529. RECAPTURE OF CREDIT. (a) The comptroller
shall recapture a tax credit allowed under this subchapter with
respect to a qualified equity investment if:
(1) any amount of the federal tax credit available
with respect to the qualified equity investment is recaptured under
Section 45D, Internal Revenue Code of 1986; or
(2) the issuer redeems the investment or makes any
principal repayment with respect to the investment before the
seventh anniversary of the date the investment was issued.
(b) The comptroller shall recapture the tax credit from the
taxable entity that claimed the credit. The recapture must be done
on a scaled proportional basis.
SECTION 2. Subtitle B, Title 3, Insurance Code, is amended
by adding Chapter 231 to read as follows:
CHAPTER 231. CREDIT FOR QUALIFIED LOW-INCOME COMMUNITY INVESTMENTS
Sec. 231.001. DEFINITIONS. In this chapter:
(1) "Credit allowance date" means, with respect to a
qualified equity investment:
(A) the date on which the investment is initially
made; and
(B) each of the next six anniversaries of that
date.
(2) "Long-term debt security" means a debt instrument
issued by a qualified community development entity, at par value or
a premium, with an original maturity date of at least seven years
from the date of its issuance, with no acceleration of repayment,
amortization, or prepayment features before its original maturity
date, and with no distribution, payment, or interest features
related to the profitability of the qualified community development
entity or the performance of the qualified community development
entity's investment portfolio. This subdivision does not limit the
ability of the holder of the debt instrument to accelerate payments
on the debt instrument in a situation in which the issuer has
defaulted on a covenant designed to ensure compliance with this
chapter or Section 45D, Internal Revenue Code of 1986.
(3) "Qualified active low-income community business"
has the meaning assigned by Section 45D(d)(2), Internal Revenue
Code of 1986.
(4) "Qualified community development entity" has the
meaning assigned by Section 45D(c), Internal Revenue Code of 1986,
but only if the entity has entered into an allocation agreement with
the Community Development Financial Institutions Fund of the United
States Department of the Treasury with respect to credits
authorized by Section 45D, Internal Revenue Code of 1986. The term
does not include a qualified community development entity that
entered into an allocation agreement solely as part of a Gulf
Opportunity (GO) Zone allocation.
(5) "Qualified equity investment" means an equity
investment in, or long-term debt security issued by, a qualified
community development entity that:
(A) is acquired after January 1, 2009, at the
investment's original issuance solely in exchange for cash or that
was a qualified equity investment in the hands of a prior holder;
(B) has at least 85 percent of its cash purchase
price used by the issuer to make qualified low-income community
investments; and
(C) is designated by the issuer as a qualified
equity investment under this chapter, regardless of whether it also
has been designated as a qualified equity investment under Section
45D, Internal Revenue Code of 1986.
(6) "Qualified low-income community investment" means
a capital or equity investment in, or loan to, a qualified active
low-income community business.
(7) "State premium tax liability" means any liability
incurred by an entity under Chapters 221 through 226.
Sec. 231.002. TOTAL AMOUNT OF CREDITS THAT MAY BE CLAIMED.
(a) Notwithstanding any other provision of this chapter, the total
amount of tax credits that may be claimed by entities under both
this chapter and Subchapter J-1, Chapter 171, Tax Code, in a state
fiscal year may not exceed $14 million.
(b) The comptroller by rule shall prescribe procedures by
which the comptroller may allocate credits under this chapter and
Subchapter J-1, Chapter 171, Tax Code. The procedures:
(1) must provide for allocating the credits on a pro
rata basis based on the investment history of the issuer;
(2) must provide that the maximum credit allocation an
entity may receive is $4 million if, before the date of the
allocation, the issuer of the qualified equity investment or any
affiliate of the issuer made a qualified equity investment in this
state under the federal new market tax credit program; and
(3) may include requiring an entity to apply for a
credit before the due date of the tax report on which the entity
will first claim the credit under this chapter or Subchapter J-1,
Chapter 171, Tax Code.
(c) To assist the comptroller in determining the amount of
credits that may be claimed each year, the issuer of a qualified
equity investment shall certify to the comptroller the anticipated
dollar amount of that investment to be made in this state during the
first 12-month period following the initial credit allowance date.
If on the second credit allowance date the actual dollar amount of
that investment is different than the amount previously estimated,
the comptroller shall adjust the amount of the credits that may be
claimed on or after the second allowance date to account for the
difference.
Sec. 231.003. QUALIFICATION FOR CREDIT. (a) An entity
qualifies for a credit against the entity's state premium tax
liability on a premium tax report filed under this subtitle if the
entity holds a qualified equity investment on a credit allowance
date of that investment that occurs during the period on which the
report is based.
(b) An entity that holds a qualified equity investment may
claim a credit against the entity's state premium tax liability for
not more than seven consecutive reports beginning with the report
based on the period during which the entity first holds the
investment on a credit allowance date.
Sec. 231.004. COMPUTATION OF CREDIT. (a) The amount of the
credit is computed using the purchase price paid to the issuer of
the qualified equity investment.
(b) The maximum amount of investment that a qualified
community development entity, on an aggregate basis with all of its
affiliates, may allocate to a single qualified active low-income
community business on a collective basis with all of its affiliates
is $15 million.
Sec. 231.005. AMOUNT OF ANNUAL CREDIT. (a) Except as
otherwise provided by this chapter, the amount of the tax credit an
entity may claim on a premium tax report filed under this subtitle
is equal to:
(1) for the first year for which the entity may claim
the credit, zero percent of the purchase price on the applicable
credit allowance date;
(2) for each of the next three years for which the
entity may claim the credit, six percent of the purchase price on
the applicable credit allowance date; and
(3) for the remaining three years for which the entity
may claim the credit, seven percent of the purchase price on the
applicable credit allowance date.
(b) The total credit claimed under this chapter for a
premium tax report filed under this subtitle, including the amount
of any carryforward credit under Section 231.006, may not exceed
the amount of the entity's state premium tax liability in any
taxable year after any other applicable credits.
Sec. 231.006. CARRYFORWARD. (a) If an entity is eligible
for a credit that exceeds the limitation under Section 231.005(b),
the entity may carry the unused credit forward to subsequent
consecutive premium tax reports filed under this subtitle.
(b) A carryforward is considered the remaining portion of a
credit that cannot be claimed in the current year because of the tax
limitation under Section 231.005(b). A carryforward is added to
the next year's credit in determining whether the limitation is met
for that year. A credit carryforward from a previous report is
considered to be used before the current year credit.
Sec. 231.007. CERTIFICATION OF ELIGIBILITY. (a) For the
initial and each succeeding premium tax report filed under this
subtitle in which a credit is claimed under this chapter, the entity
shall file with its report, on a form provided by the comptroller,
information that sufficiently demonstrates that the entity is
eligible for the credit.
(b) The burden of establishing entitlement to and the value
of the credit is on the entity.
Sec. 231.008. ASSIGNMENT PROHIBITED. (a) An entity may not
convey, assign, or transfer the credit allowed under this chapter
to another entity unless all of the assets of the entity are
conveyed, assigned, or transferred in the same transaction.
(b) Notwithstanding Subsection (a), a tax credit earned by a
partnership, limited liability company, S corporation, or other
"pass-through" entity may be allocated to the partners, members, or
shareholders of that entity and claimed under this chapter in
accordance with the provisions of any agreement among the partners,
members, or shareholders.
Sec. 231.009. RECAPTURE OF CREDIT. (a) The comptroller
shall recapture a tax credit allowed under this chapter with
respect to a qualified equity investment if:
(1) any amount of the federal tax credit available
with respect to the qualified equity investment is recaptured under
Section 45D, Internal Revenue Code of 1986; or
(2) the issuer redeems the investment or makes any
principal repayment with respect to the investment before the
seventh anniversary of the date the investment was issued.
(b) The comptroller shall recapture the tax credit from the
entity that claimed the credit. The recapture must be done on a
scaled proportional basis.
SECTION 3. This Act applies only to a report originally due
on or after the effective date of this Act.
SECTION 4. This Act takes effect January 1, 2010.