83R5100 TJS-F
By: Murphy H.B. No. 2061
A BILL TO BE ENTITLED
AN ACT
relating to a tax credit for investment in certain communities;
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) "Administrator" means the Texas Economic
Development and Tourism Office in the office of the governor.
(2) "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.
(3) "Comptroller" means the comptroller of public
accounts.
(4) "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.
(5) "Purchase price" means the amount paid to the
issuer of a qualified equity investment for the qualified equity
investment.
(6) "State premium tax liability" means any tax
liability incurred by an entity under this subtitle.
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
the debt instrument may not make cash interest payments on the debt
instrument during the period beginning on the date on which the debt
instrument 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 expense of the cash interest
payments.
(c) This section does not limit the holder's ability to
accelerate payments on the debt instrument 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 meeting the
Small Business Administration size eligibility standards
established by 13 C.F.R. Sections 121.101-121.201 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:
(A) does not derive or project to derive 15
percent or more of its annual revenue from the rental or sale of
real estate; and
(B) 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 U.S. Treasury
Department with respect to credits authorized by Section 45D,
Internal Revenue Code of 1986, which includes this state in the
service area set forth in the allocation agreement. The term
includes a subsidiary qualified community development entity of a
qualified community development entity.
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 one hundred 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 administrator 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. 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
fee received from a qualified community development entity under
Subchapter E into the account.
SUBCHAPTER B. TAX CREDIT
Sec. 231.051. CREDIT ESTABLISHED. (a) An entity that makes
a qualified equity investment earns a vested right to credit
against the entity's state premium tax liability on a premium tax
report filed under this subtitle that may be claimed as provided by
this section.
(b) On each credit allowance date of a qualified equity
investment, the entity, 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 an entity may not
exceed the amount of the entity's state premium tax liability for
the tax year for which the credit is claimed. Any amount of tax
credit that the entity 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 tax credit claimed
under this chapter is not refundable or saleable.
(b) 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 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) 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.
(b) In addition to the exclusion provided by Subsection (a),
an entity 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. CERTIFICATION OF QUALIFIED EQUITY
INVESTMENTS. (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 tax credits
under this chapter must apply to the administrator 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 an entity that will
earn tax credits as a result of the issuance of the qualified equity
investment;
(6) 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, except
that an applicant is not required to disclose the identity of a
specific qualified active low-income community business in which
the applicant intends to invest;
(7) a nonrefundable application fee of $5,000 to be
paid to the administrator; and
(8) the refundable performance fee of $500,000
required by Subchapter E.
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 administrator shall grant or deny the application in
full or in part.
(b) If the administrator denies part of the application, the
administrator shall inform the applicant of the grounds for denial.
(c) If the applicant provides additional information
required by the administrator 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 231.102 is
approved, the administrator shall certify the proposed equity
investment or long-term debt security as a qualified equity
investment that is eligible for tax credits under this chapter,
subject to Section 231.104.
(b) The administrator shall provide written notice of the
certification to the qualified community development entity and to
the comptroller.
(c) The notice must include the names of those entities who
earned 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 administrator of the change, and on receipt of the
notice, the administrator shall notify the comptroller.
(d) The administrator shall certify qualified equity
investments in the order in which applications are received by the
administrator. 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 administrator 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 at any time. If a pending request cannot be
fully certified due to this limit, the administrator 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
a subsidiary qualified community development entity of the
controlling entity, if the applicant:
(1) provides the information required in the
application with respect to the recipient of the transfer; and
(2) notifies the administrator 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 30th 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
administrator 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 entity may not issue the qualified
equity investment without reapplying to the administrator for
certification.
(b) If a certification lapses under this section, the
administrator 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 administrator shall reissue the certified amount on a
pro rata basis. After the allocation to applicants whose allocation
was reduced under Section 231.104, the administrator 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 entity
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.
(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.
Sec. 231.152. NOTICE OF NONCOMPLIANCE. (a) The comptroller
shall notify an entity 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 entity receives notice under Subsection (a).
SUBCHAPTER E. PERFORMANCE FEE
Sec. 231.201. PERFORMANCE FEE REQUIRED. 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 tax credits under this chapter must
pay a fee in the amount of $500,000 to the comptroller for deposit
in the new markets performance guarantee account.
Sec. 231.202. FORFEITURE OF FEE. (a) A qualified community
development entity that pays a performance fee under Section
231.201 shall forfeit the fee in its entirety if:
(1) the entity and its subsidiary qualified community
development entities fail to issue the total amount of qualified
equity investments certified by the administrator and receive cash
in the total amount certified under Section 231.103; or
(2) the entity or a subsidiary qualified community
development entity 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 an entity that has paid a
fee under Section 231.201 if the fee is subject to forfeiture under
this section.
(c) A fee is not subject to forfeiture under Subsection
(a)(2) if the entity cures the noncompliance before the 180th day
after the date the entity receives notice under Subsection (b).
Sec. 231.203. NEW MARKETS PERFORMANCE GUARANTEE
ACCOUNT. (a) The fee required by Section 231.201 shall be paid to
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 fee from the comptroller before the 30th day after
the date the entity pays the fee.
(c) The comptroller shall refund the fee 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. LETTER RULING
Sec. 231.251. REQUEST FOR LETTER RULING. At the request of
an applicant or entity, the administrator or the comptroller shall,
with respect to the tax credit program authorized under this
chapter, issue a written letter ruling interpreting the law as it
applies to a specific set of facts provided by the applicant or
entity requesting the interpretation.
Sec. 231.252. RESPONSE TO REQUEST. (a) The administrator
or comptroller shall respond to a request under Section 231.251 not
later than the 60th day after the date the request is received.
(b) The applicant or entity may provide a draft letter
ruling for the administrator's or comptroller's consideration.
(c) The applicant or entity may withdraw the request for a
letter ruling, in writing, before the issuance of the letter
ruling.
(d) The administrator or comptroller may refuse to issue a
letter ruling for good cause, but must list the specific reasons for
refusing to issue the letter ruling. Good cause for refusing to
issue a letter ruling under this subsection includes any of the
following:
(1) the applicant or entity requests the administrator
or comptroller to determine whether a statute is constitutional or
a rule complies with law;
(2) the request involves a hypothetical situation or
alternative scenarios;
(3) the facts or issues presented in the request are
unclear, overbroad, insufficient, or otherwise inappropriate as a
basis on which to issue a letter ruling; or
(4) the issue is currently being considered in a
rulemaking procedure, contested case, or other agency or judicial
proceeding that may definitely resolve the issue.
Sec. 231.253. EFFECT OF LETTER RULING. (a) A letter ruling
binds the administrator or comptroller, as applicable, to the
determination reached in the letter ruling with respect to the
applicant or entity that requested the letter ruling, until the
applicant or entity or the applicant's or entity's shareholders,
members, or partners, as applicable, claim all credits issued to
the applicant or entity, if any, on a premium tax report filed under
this subtitle, subject to the terms and conditions set forth in
properly published regulations.
(b) A letter ruling applies only to the applicant or entity
that requests the letter ruling.
Sec. 231.254. CONSIDERATION OF INTERNAL REVENUE CODE. In
issuing a letter ruling and making other determinations under this
chapter, the administrator or 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.
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 Texas Economic Development and Tourism Office in the
office of the governor 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.