By: Murphy, et al. (Senate Sponsor - Hancock) H.B. No. 2061
(In the Senate - Received from the House May 10, 2013;
May 15, 2013, read first time and referred to Committee on Economic
Development; May 17, 2013, reported favorably by the following
vote: Yeas 5, Nays 0; May 17, 2013, sent to printer.)
A BILL TO BE ENTITLED
AN ACT
relating to a tax credit for investment in certain communities;
imposing a monetary penalty; authorizing a fee.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle B, Title 3, Insurance Code, is amended
by adding Chapter 231 to read as follows:
CHAPTER 231. TAX CREDIT FOR INVESTMENT IN CERTAIN COMMUNITIES
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 231.001. GENERAL DEFINITIONS. In this chapter:
(1) "Applicable percentage" means zero percent for the
first two credit allowance dates, seven percent for the third
credit allowance date, and eight percent for the next four credit
allowance dates.
(2) "Comptroller" means the comptroller of public
accounts.
(3) "Credit allowance date" means, with respect to any
qualified equity investment:
(A) the date on which the investment is initially
made; and
(B) the anniversary of that date in each of the
six years immediately following that date.
(4) "Purchase price" means the amount paid to the
issuer of a qualified equity investment for the qualified equity
investment.
(5) "State premium tax liability" means any premium
tax liability incurred under Chapter 221, 222, 223, or 224.
Sec. 231.002. DEFINITION: LONG-TERM DEBT SECURITY. (a) In
this chapter, "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 not earlier than the
seventh year after the date on which the debt instrument is issued,
with no acceleration of repayment, amortization, or prepayment
features before its original maturity date.
(b) The qualified community development entity that issues
a long-term debt security may not make cash interest payments on the
security during the period beginning on the date on which the
security is issued and ending on the final credit allowance date in
an amount that exceeds the cumulative operating income, as defined
by regulations adopted under Section 45D, Internal Revenue Code of
1986, of the qualified community development entity for that period
before giving effect to the interest expense of the long-term debt
security.
(c) This section does not limit the holder's ability to
accelerate payments on a long-term debt security in situations
where the issuer has defaulted on covenants designed to ensure
compliance with this chapter or Section 45D, Internal Revenue Code
of 1986.
Sec. 231.003. DEFINITION: QUALIFIED ACTIVE LOW-INCOME
COMMUNITY BUSINESS. (a) In this chapter, "qualified active
low-income community business" has the meaning assigned by Section
45D, Internal Revenue Code of 1986, and 26 C.F.R. Section 1.45D-1,
except that the term is limited to those businesses that do not
exceed the Small Business Administration size eligibility
standards established by 13 C.F.R. Section 121.201 at the time the
qualified low-income community investment is made.
(b) A business is 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, other
than the Small Business Administration size standards, throughout
the entire period of the investment or loan.
(c) A business that derives or projects to derive 15 percent
or more of its annual revenue from the rental or sale of real estate
is not a qualified active low-income community business for
purposes of this chapter. This exclusion does not apply to a
business that is controlled by, or under common control with, an
affiliated entity if the affiliated entity:
(1) does not derive or project to derive 15 percent or
more of its annual revenue from the rental or sale of real estate;
and
(2) is the primary tenant of the real estate leased
from the business.
Sec. 231.004. DEFINITION: QUALIFIED COMMUNITY DEVELOPMENT
ENTITY. In this chapter, "qualified community development entity"
has the meaning assigned by Section 45D, Internal Revenue Code of
1986, provided that the entity has entered into, for the current
year or any prior year, 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, that includes this
state in the service area set forth in the allocation agreement.
The term includes a qualified community development entity that is
controlled by or under common control with another qualified
community development entity described by this section.
Sec. 231.005. DEFINITION: QUALIFIED EQUITY INVESTMENT. (a)
An investment or security is a "qualified equity investment" for
purposes of this chapter if:
(1) the investment or security is an equity investment
in, or long-term debt security issued by, a qualified community
development entity;
(2) the investment or security is acquired on or after
October 1, 2013, at its original issuance solely in exchange for
cash;
(3) not later than the first anniversary of the
initial credit allowance date at least 100 percent of the
investment's or security's cash purchase price is used by the issuer
to make qualified low-income community investments in qualified
active low-income community businesses located in this state; and
(4) the investment or security is designated by the
issuer as a qualified equity investment under this section and is
certified by the comptroller as not exceeding the limitation
provided by Section 231.104.
(b) Qualified equity investment includes an investment or
security that does not satisfy the requirements of Subsection (a)
if the investment or security was a qualified equity investment in
the hands of a prior holder.
Sec. 231.006. DEFINITION: QUALIFIED LOW-INCOME COMMUNITY
INVESTMENT. In this chapter, "qualified low-income community
investment" means a capital or equity investment in, or loan to, a
qualified active low-income community business with respect to
which a federal qualified low-income community investment of some
amount is made concurrently with the investment or loan.
Sec. 231.007. DEFINITION: QUALIFIED INVESTOR. In this
chapter, "qualified investor" means an entity that makes a
qualified equity investment as defined by Section 231.005, or an
entity that is allocated premium tax credits under Section
231.052(b).
Sec. 231.008. NEW MARKETS PERFORMANCE GUARANTEE ACCOUNT.
The new markets performance guarantee account is established as a
special account outside the state treasury. The comptroller shall
administer the account and shall deposit a refundable performance
deposit received from a qualified community development entity
under Subchapter E into the account.
Sec. 231.009. RULES AND STANDARDS. (a) The comptroller may
adopt rules as necessary to implement the duties of the comptroller
under this chapter.
(b) The comptroller, acting as the administrator, may:
(1) by rule set limits and restrictions on the use of
the proceeds raised by a qualified community development entity,
consistent with Section 45D, Internal Revenue Code of 1986;
(2) review or audit the investments of a qualified
community development entity on a periodic basis;
(3) establish limits on the formation and syndication
costs of a qualified community development entity and the entity's
debt instruments;
(4) consistent with practices under Section 45D,
Internal Revenue Code of 1986, establish limits of a qualified
community development entity's operating expenses, including legal
fees, loan sourcing or origination fees, loan servicing fees,
management fees paid to affiliated firms, including
non-Texas-based firms, organizational and formation expenses, and
performance bonds; and
(5) limit any original issue discount on a debt
instrument issued by a qualified community development entity.
SUBCHAPTER B. TAX CREDIT
Sec. 231.051. CREDIT ESTABLISHED. (a) Subject to Section
231.052(b), a qualified investor that makes a qualified equity
investment earns a vested right to credit against the qualified
investor's state premium tax liability.
(b) On each credit allowance date of a qualified equity
investment, the qualified investor, or a subsequent holder of the
qualified equity investment, may claim a portion of the credit
during the tax year of that credit allowance date.
(c) The credit amount is equal to the applicable percentage
for the credit allowance date multiplied by the purchase price paid
to the issuer of the qualified equity investment.
(d) The amount of the credit claimed by a qualified investor
may not exceed the amount of the qualified investor's state premium
tax liability for the tax year for which the credit is claimed. Any
amount of tax credit that the qualified investor is prohibited from
claiming in a tax year as a result of this subsection may be carried
forward for use in a subsequent tax year.
Sec. 231.052. TRANSFERABILITY. (a) A premium tax credit
claimed under this chapter is not refundable or salable.
(b) A premium tax credit earned by or allocated to a
partnership, limited liability company, S corporation, or other
pass-through entity may be allocated to the partners, members, or
shareholders of the entity for their direct use in accordance with
an agreement among the partners, members, or shareholders. An
allocation under this subsection does not constitute a sale for
purposes of this chapter.
Sec. 231.053. RETALIATORY TAX. (a) A qualified investor or
a subsequent holder of a qualified equity investment claiming a
premium tax credit under this chapter is not required to pay any
additional retaliatory tax levied under Chapter 281 as a result of
claiming that credit.
(b) In addition to the exclusion provided by Subsection (a),
a qualified investor or a subsequent holder of the qualified equity
investment claiming a credit under this chapter is not required to
pay any additional tax that may arise as a result of claiming that
credit.
SUBCHAPTER C. CERTIFICATION OF QUALIFIED EQUITY INVESTMENTS
Sec. 231.101. APPLICATION FOR CERTIFICATION OF QUALIFIED
EQUITY INVESTMENT. (a) A qualified community development entity
that seeks to have an equity investment or long-term debt security
certified as a qualified equity investment eligible for premium tax
credits under this chapter must apply to the comptroller, acting as
administrator under this chapter, as provided by this section.
(b) An application under this section must include the
following:
(1) evidence of the applicant's certification as a
qualified community development entity, including evidence of the
service area of the entity that includes this state;
(2) a copy of an allocation agreement executed by the
applicant, or its controlling entity, and the community development
financial institutions fund;
(3) a certificate executed by an executive officer of
the applicant attesting that the allocation agreement remains in
effect and has not been revoked or canceled by the community
development financial institutions fund;
(4) a description of the proposed amount and
structure, and of the purchaser, of the qualified equity
investment;
(5) identifying information for a qualified investor
that will earn premium tax credits as a result of the issuance of
the qualified equity investment;
(6) except as provided by Subsection (c), examples of
the types of qualified active low-income community businesses in
which the applicant, its controlling entity, or affiliates of its
controlling entity have invested under the federal New Markets Tax
Credit Program;
(7) a nonrefundable application fee of $5,000 to be
paid to the comptroller; and
(8) except as provided by Section 231.201(c), the
refundable performance deposit of $500,000 required by Subchapter
E.
(c) An applicant is not required to have invested under the
federal New Markets Tax Credit Program, and an application is not
required to include the examples described by Subsection (b)(6), if
the application includes information in the form required by the
comptroller demonstrating that the applicant, together with the
applicant's controlling entity and the affiliates of its
controlling entity:
(1) is a duly formed qualified community development
entity;
(2) has total assets under management in the amount of
$250 million or less; and
(3) has a demonstrable track record of successfully
investing in low-income communities, as defined by Section 45D,
Internal Revenue Code of 1986.
Sec. 231.102. ACTION ON APPLICATION. (a) Not later than
the 30th day after the date an application under Section 231.101 is
received, the comptroller shall grant or deny the application in
full or in part.
(b) If the comptroller denies part of the application, the
comptroller shall inform the applicant of the grounds for denial.
(c) If the applicant provides additional information
required by the comptroller or otherwise completes the application
not later than the 15th day after the date of the notice of denial,
the application is considered completed as of the date on which it
was originally submitted. If the qualified community development
entity fails to provide the information or complete its application
before that date, the application is denied and must be resubmitted
in full and has a new submission date.
Sec. 231.103. CERTIFICATION OF QUALIFIED EQUITY
INVESTMENT. (a) If an application under Section 231.101 is granted
under Section 231.102, the comptroller shall certify the proposed
equity investment or long-term debt security as a qualified equity
investment that is eligible for premium tax credits under this
chapter, subject to Section 231.104.
(b) The comptroller shall provide written notice of the
certification to the qualified community development entity.
(c) The notice must include the names of those entities that
will earn the credits 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 or an allocation
under Section 231.052, the qualified community development entity
shall notify the comptroller of the change.
(d) The comptroller shall certify qualified equity
investments in the order in which applications are received by the
comptroller. Applications received on the same day are considered
to have been received simultaneously. For applications that are
complete and received on the same day, the comptroller shall
certify, consistent with remaining qualified equity investment
capacity, the qualified equity investments in proportionate
percentages based on the proportion that the amount of qualified
equity investment requested in an application bears to the total
amount of qualified equity investments requested in all
applications received on the same day.
Sec. 231.104. LIMIT ON CERTIFIED INVESTMENTS. Not more
than $750 million in qualified equity investments may be certified
under Section 231.103. If a pending request cannot be fully
certified due to this limit, the comptroller shall certify the
portion that can be certified unless the qualified community
development entity elects to withdraw the request rather than
receive partial certification.
Sec. 231.105. TRANSFER OF INVESTMENT AUTHORITY. An
approved applicant may transfer all or a portion of its certified
qualified equity investment authority to its controlling entity or
to a qualified community development entity controlled by or under
common control with the applicant, if the applicant:
(1) provides the information required in the
application with respect to the recipient of the transfer; and
(2) notifies the comptroller of the transfer not later
than the 30th day after the date of the transfer.
Sec. 231.106. ISSUANCE OF QUALIFIED EQUITY INVESTMENT. (a)
Not later than the 60th day after the date the applicant receives
notice of certification, the qualified community development
entity or a recipient of a transfer under Section 231.105 shall
issue the qualified equity investment and receive cash in the
amount certified.
(b) The qualified community development entity or a
recipient of a transfer under Section 231.105 must provide the
comptroller with evidence of the receipt of the cash investment not
later than the 10th business day after the date the cash investment
is received.
Sec. 231.107. LAPSE OF CERTIFICATION. (a) If the qualified
community development entity or a recipient of a transfer under
Section 231.105 does not receive the cash investment and issue the
qualified equity investment before the 30th day after the date the
certification notice is received as required by Section 231.106,
the certification lapses and the qualified community development
entity may not issue the qualified equity investment without
reapplying to the comptroller for certification.
(b) If a certification lapses under this section, the
comptroller shall reissue the certified amount, giving preference
to an applicant whose allocation was reduced under Section 231.104.
If more than one applicant had its allocation reduced, the
comptroller shall reissue the certified amount on a pro rata basis.
After the allocation to applicants whose allocation was reduced
under Section 231.104, the comptroller shall reissue any certified
amount that remains in accordance with the application process.
SUBCHAPTER D. RECAPTURE OF PREMIUM TAX CREDIT
Sec. 231.151. RECAPTURE. (a) Subject to Section 231.152,
the comptroller shall recapture the amount of a tax credit claimed
on a premium tax report filed under this subtitle from the qualified
investor or a subsequent holder of the qualified equity investment
that claims the credit if:
(1) any amount of a federal tax credit available with
respect to a qualified equity investment that is eligible for a
credit under this chapter is recaptured under Section 45D, Internal
Revenue Code of 1986, in which case the comptroller's recapture
must be proportionate to the federal recapture with respect to the
qualified equity investment;
(2) the issuer redeems or makes principal repayment
with respect to a qualified equity investment before the seventh
anniversary of the date the qualified equity investment is issued,
in which case the comptroller's recapture must be proportionate to
the amount of the redemption or repayment with respect to the
qualified equity investment;
(3) the issuer fails to invest an amount equal to 100
percent of the purchase price of the qualified equity investment in
qualified low-income community investments in this state during the
12-month period immediately following the date the qualified equity
investment is issued or to maintain at least 100 percent of that
level of investment in qualified low-income community investments
in this state until the last credit allowance date for the qualified
equity investment; or
(4) at any time before the final credit allowance date
of a qualified equity investment, the issuer uses the cash proceeds
of the qualified equity investment to make qualified low-income
community investments in any one qualified active low-income
community business, including affiliated qualified active
low-income community businesses, exclusive of reinvestments of
capital returned or repaid with respect to earlier investments in
the qualified active low-income community business and its
affiliates, in excess of 25 percent of the cash proceeds of all
qualified equity investments issued by the issuer under this
chapter.
(b) For purposes of this chapter, an investment is
considered held by an issuer even if the investment has been sold or
repaid if the issuer reinvests an amount equal to the capital
returned to or recovered by the issuer from the original
investment, exclusive of any profits realized, in another qualified
low-income community investment not later than the 12th month after
the date the issuer receives the capital.
(c) An issuer is not required to reinvest capital returned
from a qualified low-income community investment after the sixth
anniversary of the date the qualified equity investment is issued,
the proceeds of which were used to make the qualified low-income
community investment, and the qualified low-income community
investment is considered held by the issuer through the seventh
anniversary of the date the qualified equity investment was issued.
(d) Periodic amounts received during a calendar year as
repayment of principal on a loan that is a qualified low-income
community investment shall be treated as continuously invested in a
qualified low-income community investment if the amounts are
reinvested in one or more qualified low-income community
investments not later than the last day of the following calendar
year.
Sec. 231.152. NOTICE OF NONCOMPLIANCE. (a) The comptroller
shall notify a qualified community development entity and a
qualified investor that has claimed a tax credit on a premium tax
report if the credit is subject to recapture under Section 231.151.
(b) The comptroller may not recapture a tax credit under
this subchapter if the qualified community development entity cures
the noncompliance described by Section 231.151 before the 180th day
after the date the qualified community development entity receives
notice under Subsection (a).
SUBCHAPTER E. PERFORMANCE DEPOSIT
Sec. 231.201. PERFORMANCE DEPOSIT OR SURETY BOND REQUIRED.
(a) Except as provided by Subsection (c), a qualified community
development entity that submits an application to have an equity
investment or long-term debt security certified as a qualified
equity investment eligible for premium tax credits under this
chapter must deposit $500,000 with the comptroller for deposit in
the new markets performance guarantee account, or maintain a surety
bond of an equal amount.
(b) If the comptroller denies an application described by
Subsection (a) in full, the comptroller shall refund the deposit to
the applicant not later than the 15th day after the date of the
denial.
(c) A qualified community development entity is not
required to make a deposit under this section if the qualified
community development entity is:
(1) formed or operated by a governmental entity; or
(2) a nonprofit organization.
Sec. 231.202. FORFEITURE OF DEPOSIT. (a) A qualified
community development entity that makes a performance deposit under
Section 231.201(a) shall forfeit the deposit in its entirety if:
(1) the qualified community development entity and any
qualified community development entity to which a transfer is made
by the qualified community development entity under Section 231.105
fail to issue the total amount of qualified equity investments
certified by the comptroller and receive cash in the total amount
certified under Section 231.103 not later than the date specified
by Section 231.106; or
(2) the qualified community development entity or a
qualified community development entity to which a transfer is made
by the qualified community development entity under Section 231.105
that issues a qualified equity investment certified under Section
231.103 fails to meet the investment requirement under Section
231.151(a)(3) by the second credit allowance date of the qualified
equity investment.
(b) The comptroller shall notify a qualified community
development entity that has made a deposit under Section 231.201(a)
if the deposit is subject to forfeiture under this section.
(c) A deposit is not subject to forfeiture under Subsection
(a)(2) if the qualified community development entity cures the
noncompliance before the 180th day after the date the qualified
community development entity receives notice under Subsection (b).
Sec. 231.203. NEW MARKETS PERFORMANCE GUARANTEE
ACCOUNT. (a) The deposit required by Section 231.201(a) shall be
made with the comptroller and held in the new markets performance
guarantee account until the comptroller finds that the qualified
community development entity has complied with the provisions of
this chapter.
(b) The qualified community development entity may request
a refund of the deposit from the comptroller not earlier than the
30th day after the date the requirements that must be satisfied to
avoid forfeiture of the deposit, as described by Section 231.202,
are satisfied.
(c) The comptroller shall refund the deposit or, if
applicable, give notice of noncompliance not later than the 30th
day after the date of receiving a request that complies with
Subsection (b).
SUBCHAPTER F. EVALUATION OF BUSINESS BY COMPTROLLER
Sec. 231.251. REQUEST FOR EVALUATION. (a) A qualified
community development entity may, before making an investment in a
business, request a written opinion from the comptroller as to
whether the business in which the qualified community development
entity proposes to invest would qualify as a qualified active
low-income community business according to Section 231.003.
(b) Not later than the 15th business day after the date of
the receipt of a request under Subsection (a), the comptroller
shall:
(1) determine whether the business meets the
definition of a qualified active low-income community business, as
applicable, and notify the qualified community development entity
of the determination and provide an explanation of the
determination; or
(2) notify the qualified community development entity
that the comptroller requires additional time, which may not exceed
15 days, to review the request and make the determination.
(c) If the comptroller fails to notify the qualified
community development entity with respect to the proposed
investment within the period as specified by Subsection (b), the
business in which the qualified community development entity
proposes to invest is considered to be a qualified active
low-income community business.
Sec. 231.252. CONSIDERATION OF INTERNAL REVENUE CODE. In
issuing a written opinion and making other determinations under
this chapter, the comptroller shall consider Section 45D, Internal
Revenue Code of 1986, and the rules and regulations issued under
that code, to the extent that those provisions are applicable.
SUBCHAPTER G. REPORTING
Sec. 231.301. REPORT TO COMPTROLLER. (a) Except as
provided by this subsection, a qualified community development
entity that issues a qualified equity investment under Section
231.106 shall submit an annual report to the comptroller not later
than the fifth business day after the anniversary of a credit
allowance date applicable to the investment. The qualified
community development entity is not required to submit any report
under this section after the annual report following the final
applicable credit allowance date.
(b) The report must:
(1) provide evidence that the qualified community
development entity has not failed to meet the investment
requirement under Section 231.151(a)(3);
(2) include one or more bank statements for the
qualified community development entity that reflect each qualified
low-income community investment made by the qualified community
development entity in connection with the qualified equity
investment;
(3) state the name, location, and industry code of
each qualified active low-income community business receiving a
qualified low-income community investment in connection with the
qualified equity investment and, if the qualified community
development entity did not receive a written opinion under Section
231.251 with respect to a qualified active low-income community
business, include evidence that the business was a qualified active
low-income community business at the time the qualified low-income
community investment was made;
(4) state the number of employment positions created
and retained as a result of each qualified low-income community
investment made in connection with the qualified equity investment;
(5) state whether the qualified community development
entity has been subject to a recapture of any amount of a federal
tax credit available under Section 45D, Internal Revenue Code of
1986, with respect to the qualified equity investment; and
(6) include a copy of the most recent annual report
submitted by the qualified community development entity to the
United States Department of the Treasury regarding Section 45D,
Internal Revenue Code of 1986.
(c) A qualified community development entity that fails to
submit a report to the comptroller within the time prescribed by
Subsection (a) shall pay to the comptroller a penalty equal to:
(1) $25,000; plus
(2) $5,000 for each day the report is not submitted
after the date the report is due under Subsection (a).
Sec. 231.302. COMPTROLLER'S REPORT TO THE LEGISLATURE. (a)
The comptroller shall contract with an independent researcher from
an education research center established under Section 1.005,
Education Code, to prepare a biennial report with respect to the
implementation of this chapter.
(b) The report must include:
(1) the number of qualified community development
entities holding certified qualified equity investments;
(2) the amount of qualified equity investments of each
qualified community development entity;
(3) the amount of qualified low-income community
investments each qualified community development entity has
invested in qualified active low-income community businesses as of
the most recent annual report submitted to the comptroller by the
qualified community development entity;
(4) the total amount of premium tax credits earned
under this chapter;
(5) the performance of each qualified community
development entity with respect to reporting requirements imposed
by this chapter;
(6) with respect to each qualified active low-income
community business in which a qualified community development
entity has invested:
(A) the classification of the qualified active
low-income community business according to the industrial sector
and the size of the business;
(B) the total number of jobs created by the
qualified low-income community investment and the average wages
paid for the jobs; and
(C) the total number of jobs retained as a result
of the qualified low-income community investment and the average
wages paid for the jobs; and
(7) an examination of the effect the implementation of
this chapter has had on economic activity in this state and on state
tax revenue during the biennium.
(c) The comptroller shall file the report with the governor,
the lieutenant governor, and the speaker of the house of
representatives not later than December 15 of each even-numbered
year.
SECTION 2. (a) As soon as practicable after the effective
date of this Act, the comptroller of public accounts shall adopt
rules necessary to implement the provisions of Chapter 231,
Insurance Code, as added by this Act, that apply to the comptroller
of public accounts.
(b) The comptroller of public accounts shall accept
applications for certification of qualified equity investments as
required by Chapter 231, Insurance Code, as added by this Act,
beginning not later than October 2, 2013.
SECTION 3. This Act takes effect September 1, 2013.
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