By: Williams, Watson S.B. No. 1429
A BILL TO BE ENTITLED
AN ACT
relating to tax credits for business development in low-income
communities.
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 BUSINESS DEVELOPMENT IN LOW-INCOME
COMMUNITIES
Sec. 171.521. DEFINITIONS. In this subchapter:
(1) "Credit allowance date" means with respect to any
qualified equity investment:
(A) the date on which the investment is initially
made; and
(B) each of the six anniversary dates of that
date.
(2) "Long-term debt security" means any 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. The qualified community development entity
that issues the debt instrument may not make cash interest payments
on the debt instrument during the period beginning on the date of
issuance and ending on the final credit allowance date in an amount
that exceeds the sum of the cash interest payments and the
cumulative operating income, as defined by regulations adopted
under Section 45D, Internal Revenue Code of 1986, as amended, of the
qualified community development entity for that period. This
subdivision does not limit the holder's ability to accelerate
payments on the debt instrument in situations in which the
qualified community development entity has defaulted on covenants
designed to ensure compliance with this subchapter or Section 45D,
Internal Revenue Code of 1986, as amended.
(3) "Purchase price" means the amount of cash paid to a
qualified community development entity that issues a qualified
equity investment for the qualified equity investment.
(4) "Qualified active low-income community business"
has the meaning assigned by Section 45D(d)(2), Internal Revenue
Code of 1986, as amended. A business shall be considered a
qualified active low-income community business for the duration of
the qualified community development entity's investment in, or loan
to, the business if the entity reasonably expects, at the time it
makes the investment or loan, that the business will continue to
satisfy the requirements for being a qualified active low-income
community business throughout the entire period of the investment
or loan.
(5) "Qualified community development entity" has the
meaning assigned by Section 45D(c), Internal Revenue Code of 1986,
as amended, provided that the entity has entered into, or is
controlled by an entity that 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,
as amended, that includes this state within the service area
provided in the allocation agreement.
(6) "Qualified equity investment" means:
(A) any equity investment in, or long-term debt
security issued by, a qualified community development entity that:
(i) is acquired after September 1, 2009, at
its original issuance solely in exchange for cash;
(ii) has at least 85 percent of its cash
purchase price used by the issuer to make qualified low-income
community investments in qualified active low-income community
businesses located in this state by the first anniversary of the
initial credit allowance date; and
(iii) is designated by the issuer as a
qualified equity investment under this subdivision and is certified
by the comptroller as not exceeding the limitation contained in
Section 171.522(a); and
(B) any qualified equity investment that does not
meet the requirements of Paragraph (A) if the investment was a
qualified equity investment in the hands of a prior holder.
(7) "Qualified low-income community investment" means
any capital or equity investment in, or loan to, any qualified
active low-income community business made after September 1, 2009.
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 all entities
under both this subchapter and Chapter 231, Insurance Code, in a
state fiscal year may not exceed $40 million, not including any
carryforward amounts authorized by Section 171.526 or by Section
231.006, Insurance Code.
(b) The comptroller by rule shall prescribe procedures by
which the comptroller may allocate credits under this subchapter
and Chapter 231, Insurance Code.
Sec. 171.523. QUALIFICATION FOR CREDIT. (a) A taxable
entity qualifies for and is entitled to a credit under this
subchapter on a report if the taxable entity purchases a qualified
equity investment from a qualified community development entity and
holds the qualified equity investment on a credit allowance date
that occurs during the period on which the report is based.
(b) A taxable entity described by Subsection (a) 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. MAXIMUM INVESTMENT PER QUALIFIED ACTIVE
LOW-INCOME COMMUNITY BUSINESS. With respect to any one qualified
active low-income community business, the maximum amount of
qualified low-income community investments that may be made in the
business, on a collective basis with all of its affiliates, with the
proceeds of qualified equity investments that have been certified
under this subchapter, is $20 million whether made by one or several
qualified community development entities.
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 each of the first two years for which the
taxable entity may claim the credit, zero percent of the purchase
price on the applicable credit allowance date;
(2) for the third year for which the taxable entity may
claim the credit, seven percent of the purchase price on the
applicable credit allowance date; and
(3) for the remaining four years for which the taxable
entity may claim the credit, eight 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) Notwithstanding the
limitation provided by Section 171.522(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
for not more than five 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.
(c) A carryforward may not be added to any subsequent year's
credit for the purpose of determining the limitation in Section
171.522(a).
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, including the taxable entity's qualified equity investment
to which the credit relates, 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. APPLICATION AND CERTIFICATION PROCEDURE.
(a) A qualified community development entity that seeks to have an
equity investment or long-term debt security certified as a
qualified equity investment and eligible for tax credits shall
apply to the comptroller. The qualified community development
entity must submit an application on a form provided by the
comptroller that includes:
(1) the entity's name, address, tax identification
number, and evidence of its certification as a qualified community
development entity;
(2) a copy of an allocation agreement executed by the
entity, or its controlling entity, and the Community Development
Financial Institutions Fund of the United States Treasury that
includes this state in its service area;
(3) a certificate executed by an executive officer of
the entity attesting that the allocation agreement remains in
effect and has not been revoked or canceled by the Community
Development Financial Institutions Fund of the United States
Department of the Treasury;
(4) a description of the proposed amount, structure,
and purchaser of the equity investment or long-term debt security;
(5) the name and tax identification number of any
entity eligible to claim tax credits as a result of the purchase of
the qualified equity investment, if known;
(6) information regarding the proposed use of proceeds
from the issuance of the qualified equity investment, if known; and
(7) an economic impact analysis from an economic
expert of the potential qualified equity investment and the
proposed use of the proceeds, which must include:
(A) an estimate of the amount of revenue to be
generated to the state as a result of the qualified equity
investment and the proposed use of the proceeds;
(B) an estimate of any secondary economic
benefits to be generated as a result of the qualified equity
investment and the proposed use of the proceeds; and
(C) any other information required by the
comptroller to make the certification required by Subsection (c).
(b) The application must be accompanied by a nonrefundable
application fee of $5,000. The fee shall be paid to the comptroller
and shall be required for each application submitted.
(c) Within 15 days after receipt of a completed application
containing the information necessary for the comptroller to certify
a potential qualified equity investment, including the payment of
the application fee, the comptroller shall grant or deny the
application in full or in part. The comptroller may not grant an
application in full or in part until the comptroller, based on an
evaluation of the economic impact analysis under Subsection (a)(7),
certifies that the potential qualified equity investment and the
proposed use of the proceeds will have a positive impact on state
revenue. If the comptroller denies any part of the application, the
comptroller shall inform the qualified community development
entity of the grounds for the denial. If the qualified community
development entity provides any additional information required by
the comptroller or otherwise completes its application within 15
days of the notice of denial, the application shall be considered
completed as of the original date of submission. If the qualified
community development entity fails to provide the information or
complete its application within the 15-day period, the application
remains denied and must be resubmitted in full with a new submission
date.
(d) If the application is considered complete, the
comptroller shall certify the proposed equity investment or
long-term debt security as a qualified equity investment and
eligible for tax credits under this section, subject to the
limitations provided by this subchapter. The comptroller shall
provide written notice of the certification to the qualified
community development entity. The notice shall include the names
of those taxable entities who are eligible to claim the credits, if
known, and their respective credit amounts. If the names of the
taxable entities identified as eligible to claim the credits change
due to a transfer of a qualified equity investment under Section
171.528(a) or a change in an allocation under Section 171.528(b),
the qualified community development entity shall notify the
comptroller of the change.
(e) Within 30 days after receiving notice of certification,
the qualified community development entity shall issue the
qualified equity investment and receive cash in the amount of the
certified purchase price. The qualified community development
entity must provide the comptroller with evidence of the receipt of
the cash investment within 10 business days after receipt. If the
qualified community development entity does not receive the cash
investment and issue the qualified equity investment within 30 days
following receipt of the certification notice, the certification
shall lapse and the entity may not issue the qualified equity
investment without reapplying to the comptroller for
certification. A certification that lapses reverts back to the
comptroller and may be reissued only in accordance with the
application process prescribed by this section.
(f) The comptroller shall certify qualified equity
investments in the order applications are received by the
comptroller. Applications received on the same day shall be
considered to have been received simultaneously. For applications
received on the same day and considered complete, the comptroller
shall certify, consistent with remaining tax credit capacity,
qualified equity investments in proportionate percentages based on
the ratio of the amount of qualified equity investment requested in
an application to the total amount of qualified equity investments
requested in all applications received on the same day. If a
pending request cannot be fully certified because of the
limitations prescribed by Section 171.522(a), the comptroller
shall certify the portion that may be certified unless the
qualified community development entity elects to withdraw its
request rather than receive partial credit.
(g) A qualified community development entity, on a
collective basis with all of its affiliated entities listed in its
allocation agreement with the Community Development Financial
Institutions Fund of the United States Department of the Treasury
or subsidiaries of those entities, may not request certification
for a qualified equity investment that would entitle the purchaser
of the qualified equity investment to have allocated to the
purchaser at any time more than 30 percent of the total value of the
tax credits that may be claimed under this subchapter.
(h) Notwithstanding Subsection (g), a qualified community
development entity, alone or on a collective basis with all of its
affiliated entities listed in its allocation agreement with the
Community Development Financial Institutions Fund of the United
States Department of the Treasury or subsidiaries of those
entities, may request certification for a qualified equity
investment that would entitle the purchaser of the qualified equity
investment to have allocated to the purchaser at any time more than
30 percent of the total value of the tax credits that may be claimed
under this subchapter if:
(1) it has been at least 180 days since the date the
comptroller certified the qualified community development entity's
most recent request under this subchapter; or
(2) it has been less than 180 days since the date the
comptroller certified the qualified community development entity's
most recent request under this subchapter, and the entity
demonstrates that the entity has invested substantially all of the
purchase price of the qualified equity investments that have been
previously certified under this subchapter.
Sec. 171.530. RECAPTURE OF CREDIT. (a) The comptroller
may recapture a portion of a tax credit allowed under this
subchapter if:
(1) any amount of federal tax credit that might be
available with respect to the qualified equity investment that
generated the tax credit under this subchapter is recaptured under
Section 45D, Internal Revenue Code of 1986, as amended;
(2) the qualified community development entity
redeems or makes a principal repayment with respect to the
qualified equity investment that generated the tax credit before
the final credit allowance date of the qualified equity investment;
or
(3) the qualified community development entity fails
to invest at least 85 percent of the purchase price of the qualified
equity investment in qualified low-income community investments in
qualified active low-income community businesses located in this
state within 12 months of the issuance of the qualified equity
investment and maintain that level of investment in qualified
low-income community investments in qualified active low-income
community businesses located in this state until the last credit
allowance date for the qualified equity investment.
(b) The qualified community development entity shall keep
sufficiently detailed books and records with respect to the
investments made with the proceeds of the qualified equity
investments to allow the direct tracing of the proceeds into
qualified low-income community investments in qualified active
low-income community businesses in this state. For purposes of
calculating the amount of qualified low-income community
investments held by a qualified community development entity, an
investment shall be considered held by the qualified community
development entity even if the investment has been sold or repaid,
provided that the qualified community development entity reinvests
an amount equal to the capital returned to or recovered from the
original investment, exclusive of any profits realized, in another
qualified active low-income community business in this state within
12 months of the receipt of the capital. A qualified community
development entity may not be required to reinvest capital returned
from qualified low-income community investments after the sixth
anniversary of the issuance of the qualified equity investment, the
proceeds of which were used to make the qualified low-income
community investment, and the qualified low-income community
investment shall be considered held by the issuer through the
qualified equity investment's final credit allowance date.
(c) In a situation described by Subsection (a)(1), the
comptroller's recapture shall be proportionate to the federal
recapture with respect to the qualified equity investment. In a
situation described by Subsection (a)(2), the comptroller's
recapture shall be proportionate to the amount of the redemption or
repayment with respect to the qualified equity investment.
(d) The comptroller shall provide notice to the qualified
community development entity of any proposed recapture of tax
credits under this section. The entity shall have 90 days to cure
any deficiency indicated in the comptroller's original recapture
notice and avoid the recapture. If the entity fails or is unable to
cure the deficiency within the 90-day period, the comptroller shall
provide the entity and the taxpayer from whom the credit is to be
recaptured with a final order of recapture. Any tax credit for
which a final recapture order has been issued shall be recaptured by
the comptroller from the taxpayer who claimed the tax credit on a
tax return.
Sec. 171.531. EXPIRATION. (a) This subchapter expires
December 31, 2013.
(b) The expiration of this subchapter does not affect a
credit that was established under this subchapter due to the
purchase of a qualified equity investment that was made before the
date this subchapter expires. A taxable entity that has any unused
credits established under this subchapter, including any
carryforward credits, may continue to apply those credits on or
with each consecutive report until the date the credit would have
expired under this subchapter had this subchapter not expired, and
this subchapter is continued in effect for the purposes of
determining the amount of the credit the taxable entity may claim
and the manner in which the taxable entity may claim the credit.
SECTION 2. Subtitle B, Title 3, Insurance Code, is amended
by adding Chapter 231 to read as follows:
CHAPTER 231. CREDIT FOR BUSINESS DEVELOPMENT IN LOW-INCOME
COMMUNITIES
Sec. 231.001. DEFINITIONS. In this chapter:
(1) "Credit allowance date" means, with respect to any
qualified equity investment:
(A) the date on which the investment is initially
made; and
(B) each of the six anniversary dates of that
date.
(2) "Long-term debt security" means any 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. The qualified community development entity
that issues the debt instrument may not make cash interest payments
on the debt instrument during the period beginning on the date of
issuance and ending on the final credit allowance date in an amount
that exceeds the sum of the cash interest payments and the
cumulative operating income, as defined by regulations adopted
under Section 45D, Internal Revenue Code of 1986, as amended, of the
qualified community development entity for that period. This
subdivision does not limit the holder's ability to accelerate
payments on the debt instrument in situations in which the
qualified community development entity has defaulted on covenants
designed to ensure compliance with this chapter or Section 45D,
Internal Revenue Code of 1986, as amended.
(3) "Purchase price" means the amount of cash paid to a
qualified community development entity that issues a qualified
equity investment for the qualified equity investment.
(4) "Qualified active low-income community business"
has the meaning assigned by Section 45D(d)(2), Internal Revenue
Code of 1986, as amended. A business shall be considered a
qualified active low-income community business for the duration of
the qualified community development entity's investment in, or loan
to, the business if the entity reasonably expects, at the time it
makes the investment or loan, that the business will continue to
satisfy the requirements for being a qualified active low-income
community business throughout the entire period of the investment
or loan.
(5) "Qualified community development entity" has the
meaning assigned by Section 45D(c), Internal Revenue Code of 1986,
as amended, provided that the entity has entered into, or is
controlled by an entity that 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,
as amended, that includes this state within the service area
provided in the allocation agreement.
(6) "Qualified equity investment" means:
(A) any equity investment in, or long-term debt
security issued by, a qualified community development entity that:
(i) is acquired after September 1, 2009, at
its original issuance solely in exchange for cash;
(ii) has at least 85 percent of its cash
purchase price used by the issuer to make qualified low-income
community investments in qualified active low-income community
businesses located in this state by the first anniversary of the
initial credit allowance date; and
(iii) is designated by the issuer as a
qualified equity investment under this subdivision and is certified
by the comptroller as not exceeding the limitation contained in
Section 231.002(a); and
(B) any qualified equity investment that does not
meet the requirements of Paragraph (A) if the investment was a
qualified equity investment in the hands of a prior holder.
(7) "Qualified low-income community investment" means
any capital or equity investment in, or loan to, any qualified
active low-income community business made after September 1, 2009.
(8) "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 all entities under both
this chapter and Chapter 171, Tax Code, in a state fiscal year may
not exceed $40 million, not including any carryforward amounts
authorized by Section 171.526, Tax Code, or by Section 231.006 of
this code.
(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.
Sec. 231.003. QUALIFICATION FOR CREDIT. (a) An entity
qualifies for and is entitled to a credit against the entity's state
premium tax liability on a premium tax report filed under this
subtitle if the entity purchases a qualified equity investment from
a qualified community development entity and holds the qualified
equity investment on a credit allowance date that occurs during the
period on which the report is based.
(b) An entity described by Subsection (a) may claim a credit
under this chapter 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. MAXIMUM INVESTMENT PER QUALIFIED ACTIVE
LOW-INCOME COMMUNITY BUSINESS. With respect to any one qualified
active low-income community business, the maximum amount of
qualified low-income community investments that may be made in the
business, on a collective basis with all of its affiliates, with the
proceeds of qualified equity investments that have been certified
under this chapter, is $20 million whether made by one or several
qualified community development entities.
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 report is equal to:
(1) for each of the first two years for which the
entity may claim the credit, zero percent of the purchase price on
the applicable credit allowance date;
(2) for the third year for which the entity may claim
the credit, seven percent of the purchase price on the applicable
credit allowance date; and
(3) for the remaining four years for which the entity
may claim the credit, eight percent of the purchase price on the
applicable credit allowance date.
(b) The total credit claimed under this chapter for a
report, including the amount of any carryforward credit under
Section 231.006, may not exceed the amount of tax due after any
other applicable credits.
Sec. 231.006. CARRYFORWARD. (a) Notwithstanding the
limitation provided by Section 231.002(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 for not more than
five 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 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.
(c) A carryforward may not be added to any subsequent year's
credit for the purpose of determining the limitation in Section
231.002(a).
Sec. 231.007. CERTIFICATION OF ELIGIBILITY. (a) For the
initial and each succeeding report 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,
including the entity's qualified equity investment to which the
credit relates, 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. APPLICATION AND CERTIFICATION PROCEDURE.
(a) A qualified community development entity that seeks to have an
equity investment or long-term debt security certified as a
qualified equity investment and eligible for tax credits shall
apply to the comptroller. The qualified community development
entity must submit an application on a form provided by the
comptroller that includes:
(1) the entity's name, address, tax identification
number, and evidence of its certification as a qualified community
development entity;
(2) a copy of an allocation agreement executed by the
entity, or its controlling entity, and the Community Development
Financial Institutions Fund of the United States Department of the
Treasury that includes this state in its service area;
(3) a certificate executed by an executive officer of
the entity attesting that the allocation agreement remains in
effect and has not been revoked or canceled by the Community
Development Financial Institutions Fund of the United States
Treasury;
(4) a description of the proposed amount, structure,
and purchaser of the equity investment or long-term debt security;
(5) the name and tax identification number of any
entity eligible to claim tax credits earned as a result of the
purchase of the qualified equity investment, if known;
(6) information regarding the proposed use of proceeds
from the issuance of the qualified equity investment, if known; and
(7) an economic impact analysis from an economic
expert of the potential qualified equity investment and the
proposed use of the proceeds, which must include:
(A) an estimate of the amount of revenue to be
generated to the state as a result of the qualified equity
investment and the proposed use of the proceeds;
(B) an estimate of any secondary economic
benefits to be generated as a result of the qualified equity
investment and the proposed use of the proceeds; and
(C) any other information required by the
comptroller to make the certification required by Subsection (c).
(b) The application must be accompanied by a nonrefundable
application fee of $5,000. The fee shall be paid to the comptroller
and shall be required for each application submitted.
(c) Within 15 days after receipt of a completed application
containing the information necessary for the comptroller to certify
a potential qualified equity investment, including the payment of
the application fee, the comptroller shall grant or deny the
application in full or in part. The comptroller may not grant an
application in full or in part until the comptroller, based on an
evaluation of the economic impact analysis under Subsection (a)(7),
certifies that the potential qualified equity investment and the
proposed use of the proceeds will have a positive impact on state
revenue. If the comptroller denies any part of the application, the
comptroller shall inform the qualified community development
entity of the grounds for the denial. If the qualified community
development entity provides any additional information required by
the comptroller or otherwise completes its application within 15
days of the notice of denial, the application shall be considered
completed as of the original date of submission. If the qualified
community development entity fails to provide the information or
complete its application within the 15-day period, the application
remains denied and must be resubmitted in full with a new submission
date.
(d) If the application is considered complete, the
comptroller shall certify the proposed equity investment or
long-term debt security as a qualified equity investment and
eligible for tax credits under this chapter, subject to the
limitations provided by this chapter. The comptroller shall
provide written notice of the certification to the qualified
community development entity. The notice shall include the names
of those entities who are eligible to claim the credits, if known,
and their respective credit amounts. If the names of the entities
that are eligible to claim the credits change due to a transfer of a
qualified equity investment under Section 231.008(a) or a change in
an allocation under Section 231.008(b), the qualified community
development entity shall notify the comptroller of the change.
(e) Within 30 days after receiving notice of certification,
the qualified community development entity shall issue the
qualified equity investment and receive cash in the amount of the
certified purchase price. The qualified community development
entity must provide the comptroller with evidence of the receipt of
the cash investment within 10 business days after receipt. If the
qualified community development entity does not receive the cash
investment and issue the qualified equity investment within 30 days
following receipt of the certification notice, the certification
shall lapse and the entity may not issue the qualified equity
investment without reapplying to the comptroller for
certification. A certification that lapses reverts back to the
comptroller and may be reissued only in accordance with the
application process provided by this section.
(f) The comptroller shall certify qualified equity
investments in the order applications are received by the
comptroller. Applications received on the same day shall be
considered to have been received simultaneously. For applications
received on the same day and considered complete, the comptroller
shall certify, consistent with remaining tax credit capacity,
qualified equity investments in proportionate percentages based on
the ratio of the amount of qualified equity investment requested in
an application to the total amount of qualified equity investments
requested in all applications received on the same day. If a
pending request cannot be fully certified because of the
limitations provided by Section 231.002(a), the comptroller shall
certify the portion that may be certified unless the qualified
community development entity elects to withdraw its request rather
than receive partial credit.
(g) A qualified community development entity, on a
collective basis with all of its affiliated entities listed in its
allocation agreement with the Community Development Financial
Institutions Fund of the United States Department of the Treasury
or subsidiaries of those entities, may not request certification
for a qualified equity investment that would entitle the purchaser
of the qualified equity investment to have allocated to the
purchaser at any time more than 30 percent of the total value of the
tax credits that may be claimed under this chapter.
(h) Notwithstanding Subsection (g), a qualified community
development entity, alone or on a collective basis with all of its
affiliated entities listed in its allocation agreement with the
Community Development Financial Institutions Fund of the United
States Department of the Treasury or subsidiaries of those
entities, may request certification for a qualified equity
investment that would entitle the purchaser of the qualified equity
investment to have allocated to the purchaser at any time more than
30 percent of the total value of the tax credits that may be claimed
under this chapter if:
(1) it has been at least 180 days since the date the
comptroller certified the qualified community development entity's
most recent request under this chapter; or
(2) it has been less than 180 days since the date the
comptroller certified the qualified community development entity's
most recent request under this chapter, and the entity demonstrates
that the entity has invested substantially all of the purchase
price of the qualified equity investments that have been previously
certified under this chapter.
Sec. 231.010. RECAPTURE OF CREDIT. (a) The comptroller
may recapture a portion of a tax credit allowed under this chapter
if:
(1) any amount of federal tax credit that might be
available with respect to the qualified equity investment that
generated the tax credit under this chapter is recaptured under
Section 45D, Internal Revenue Code of 1986, as amended;
(2) the qualified community development entity
redeems or makes a principal repayment with respect to the
qualified equity investment that generated the tax credit before
the final credit allowance date of such qualified equity
investment; or
(3) the qualified community development entity fails
to invest at least 85 percent of the purchase price of the qualified
equity investment in qualified low-income community investments in
qualified active low-income community businesses located in this
state within 12 months of the issuance of the qualified equity
investment and maintain that level of investment in qualified
low-income community investments in qualified active low-income
community businesses located in this state until the last credit
allowance date for the qualified equity investment.
(b) The qualified community development entity shall keep
sufficiently detailed books and records with respect to the
investments made with the proceeds of the qualified equity
investments to allow the direct tracing of the proceeds into
qualified low-income community investments in qualified active
low-income community businesses in this state. For purposes of
calculating the amount of qualified low-income community
investments held by a qualified community development entity, an
investment shall be considered held by the qualified community
development entity even if the investment has been sold or repaid,
provided that the qualified community development entity reinvests
an amount equal to the capital returned to or recovered from the
original investment, exclusive of any profits realized, in another
qualified active low-income community business in this state within
12 months of the receipt of the capital. A qualified community
development entity may not be required to reinvest capital returned
from qualified low-income community investments after the sixth
anniversary of the issuance of the qualified equity investment, the
proceeds of which were used to make the qualified low-income
community investment, and the qualified low-income community
investment shall be considered held by the issuer through the
qualified equity investment's final credit allowance date.
(c) In a situation described by Subsection (a)(1), the
comptroller's recapture shall be proportionate to the federal
recapture with respect to the qualified equity investment. In a
situation described by Subsection (a)(2), the comptroller's
recapture shall be proportionate to the amount of the redemption or
repayment with respect to the qualified equity investment.
(d) The comptroller shall provide notice to the qualified
community development entity of any proposed recapture of tax
credits under this section. The entity shall have 90 days to cure
any deficiency indicated in the comptroller's original recapture
notice and avoid the recapture. If the entity fails or is unable to
cure the deficiency within the 90-day period, the comptroller shall
provide the entity and the taxpayer from whom the credit is to be
recaptured with a final order of recapture. Any tax credit for
which a final recapture order has been issued shall be recaptured by
the comptroller from the taxpayer who claimed the tax credit on a
tax return.
Sec. 231.011. RETALIATORY TAX. An entity claiming a credit
under this chapter is not required to pay any additional
retaliatory tax levied under Chapter 281 as a result of claiming
that credit.
Sec. 231.012. EXPIRATION. (a) This chapter expires
December 31, 2013.
(b) The expiration of this chapter does not affect a credit
that was established under this chapter due to the purchase of a
qualified equity investment that was made before the date this
chapter expires. An entity that has any unused credits established
under this chapter, including any carryforward credits, may
continue to apply those credits on or with each consecutive report
until the date the credit would have expired under this chapter had
this chapter not expired, and this chapter is continued in effect
for the purposes of determining the amount of the credit the entity
may claim and the manner in which the entity may claim the credit.
SECTION 3. (a) This Act applies only to a report
originally due on or after the effective date of this Act.
(b) A taxable entity or other entity may claim the credit
under Subchapter J-1, Chapter 171, Tax Code, or Chapter 231,
Insurance Code, as added by this Act, only in relation to a
qualified equity investment issued on or after the effective date
of this Act.
SECTION 4. This Act takes effect January 1, 2010.