By: Hancock S.B. No. 931
A BILL TO BE ENTITLED
AN ACT
relating to tax credits for investments in economically distressed
communities.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 481, Government Code, is amended by
adding Subchapter C to read as follows:
SUBCHAPTER C. CREDIT FOR BUSINESS GROWTH IN ECONOMICALLY
DISTRESSED COMMUNITIES
Sec. 481.031. SHORT TITLE. This subchapter shall be known
and may be cited as the "Texas New Markets Jobs Act."
Sec. 481.032. DEFINITIONS. In this subchapter:
(1) "Administrator" means the Economic Development
and Tourism Division of 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) "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 first six anniversary dates after
that date.
(4) "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 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 before giving effect to the expense of such cash
interest payments. The provisions of this subdivision in no way
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 subchapter or
Section 45D, Internal Revenue Code of 1986, as amended.
(5) "Purchase price" means the amount paid to the
issuer of a qualified equity investment for the qualified equity
investment.
(6) "Qualified active low-income community business"
has the meaning assigned by Section 45D, Internal Revenue Code of
1986, as amended, and 26 C.F.R. Sec. 1.45D-1, but limited to the
businesses meeting the size eligibility standards of the Small
Business Administration established in 13 C.F.R. 121.101-201 at the
time the qualified low-income community investment is made. 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 size standards of the Small Business Administration, throughout
the entire period of the investment or loan. The term excludes any
business that derives or projects to derive 15 percent or more of
its annual revenue from the rental or sale of real estate. This
exclusion does not apply to a business that is controlled by, or
under common control with, another business if the second business:
(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 first business.
(7) "Qualified community development entity" has the
meaning assigned by Section 45D, Internal Revenue Code of 1986, as
amended, 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, as amended, which
includes the state of Texas within the service area designated in
the allocation agreement. The term includes subsidiary community
development entities of any qualified community development entity
described by this subdivision.
(8) "Qualified equity investment" means an equity
investment in, or long-term debt security issued by, a qualified
community development entity that:
(A) is acquired after October 1, 2013, at its
original issuance solely in exchange for cash;
(B) has used an amount equal to at least 100
percent of the cash purchase price of the investment to make
qualified low-income community investments in qualified active
low-income community businesses located in this state not later
than the first anniversary of the initial credit allowance date;
and
(C) is designated by the issuer as a qualified
equity investment under this subchapter and is certified by the
administrator as not exceeding the limitation under Section
481.035(e). The term includes 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.
(9) "Qualified low-income community investment" means
a capital or equity investment in, or loan to, any qualified active
low-income community business in which:
(A) a federal qualified active low-income
community investment of some amount is made at the same time; and
(B) the annual reporting information submitted
to the United States Department of the Treasury for that federal
qualified active low-income community investment is also submitted
to the administrator.
(10) "State premium tax liability" means any liability
incurred by an entity under Chapters 221 through 226, Insurance
Code, or, if the tax liability under any of those chapters is
eliminated or reduced, the term also includes any tax liability
imposed on an insurance company or other person that had premium tax
liability under the laws of this state.
Sec. 481.033. CREDIT ESTABLISHED. Any 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 Subtitle B, Title 3, Insurance Code, which may be used
as follows:
(1) on each credit allowance date of the qualified
equity investment, the entity, or the subsequent holder of the
qualified equity investment, is entitled to use a portion of the
credit, during the taxable year that includes the credit allowance
date, equal to the applicable percentage for that credit allowance
date multiplied by the purchase price paid to the issuer of the
qualified equity investment;
(2) 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; and
(3) any amount of tax credit that the entity is
prohibited from claiming in a taxable year under the provisions of
this subchapter may be carried forward for use in any subsequent
taxable year.
Sec. 481.034. TRANSFERABILITY. No tax credit claimed
under this subchapter is refundable or saleable on the open market.
Tax credits 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 for their direct
use in accordance with the provisions of any agreement among those
partners, members, or shareholders. An allocation under this
section is not considered a sale for the purposes of this
subchapter.
Sec. 481.035. CERTIFICATION OF QUALIFIED EQUITY
INVESTMENTS. (a) A qualified community development entity that
seeks to have an equity investment or long-term debt security
designated as a qualified equity investment and eligible for tax
credits under this subchapter shall apply to the administrator.
The administrator shall begin accepting applications on October 2,
2013. In its application, the qualified community development
entity shall 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 the 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, structure,
and purchaser of the qualified equity investment;
(5) identifying information for any 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;
applicants are not required to identify qualified active low-income
community businesses in which they will invest when submitting an
application;
(7) a nonrefundable application fee of $5,000, which
is to be paid to the administrator and is required for each
application submitted; and
(8) the refundable performance fee of $500,000
required by Section 481.038(a).
(b) Not later than 30 days after the date of receipt of a
completed application containing the information required under
Subsection (a), including the payment of the application fee and
the refundable performance fee, the administrator shall grant or
deny the application in full or in part. If the administrator
denies any part of the application, the administrator shall inform
the qualified community development entity of the grounds for the
denial. If the entity provides any additional information required
by the administrator or otherwise completes its application within
15 days after receiving 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.
(c) If the application is complete, 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 subchapter, subject to the limitations provided by
Subsection (e). The administrator shall provide written notice of
the certification to the qualified community development entity and
to the comptroller. The notice must include the names of the
entities that earned the credits and their respective credit
amounts. If the names of the entities that are eligible to use the
credits change because of a transfer of a qualified equity
investment or an allocation under Section 481.034, the qualified
community development entity shall notify the administrator of the
change and the administrator shall notify the comptroller.
(d) The administrator shall certify qualified equity
investments in the order it receives applications under this
section. 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 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.
(e) The administrator shall certify $750 million in
qualified equity investments. If a pending request cannot be fully
certified because of this limit, the administrator shall certify
the portion of the qualified equity investment requested that may
be certified, unless the qualified community development entity
elects to withdraw its request rather than receive a partial
certification.
(f) An approved applicant may transfer all or a portion of
its certified qualified equity investment authority to its
controlling entity, or any subsidiary qualified community
development entity of the controlling entity, provided that the
applicant provides the information required in the application with
respect to the transferee and notifies the administrator of the
transfer not later than the 30th day after the date of the transfer.
(g) Not later than the 30th day after the date the applicant
receives notice of certification, the qualified community
development entity or any transferee under Subsection (f) shall
issue the qualified equity investment and receive cash in the
amount of the certified amount. The qualified community
development entity or transferee under Subsection (f) must provide
the administrator with evidence of the receipt of the cash
investment not later than the 10th day after the date of receipt.
If the qualified community development entity or any transferee
under Subsection (f) does not receive the cash investment and issue
the qualified equity investment by the 30th day following the date
of receipt of the certification notice, the certification lapses
and the entity may not issue the qualified equity investment
without reapplying to the administrator for certification. Lapsed
certifications revert to the administrator and shall be reissued,
first, pro rata to other applicants whose qualified equity
investment allocations were reduced under Subsection (e) and,
thereafter, in accordance with the application process.
Sec. 481.036. RECAPTURE. (a) The comptroller shall
recapture, from the entity that claimed the credit on a return, the
tax credit allowed under this subchapter 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 subchapter is recaptured under Section 45D,
Internal Revenue Code of 1986, as amended, in which event, the
comptroller's recapture shall 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 of issuance of the qualified equity
investment, in which event the comptroller's recapture shall be
proportionate to the amount of the redemption or repayment with
respect to such 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 the state not later
than 12 months after the date of issuance of the qualified equity
investment and to maintain at least 100 percent of such level of
investment in qualified low-income community investments in the
state until the last credit allowance date for the qualified equity
investment; or
(4) at any time prior to 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 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 such qualified active low-income community business and its
affiliates, in excess of 25 percent of such cash proceeds.
(b) For the purposes of this subchapter, an investment shall
be 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 12 months after the
date of the receipt of such capital. An issuer is not required to
reinvest capital returned from qualified low-income community
investments after the sixth anniversary of the date of 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 seventh anniversary of the date of the
qualified equity investment's issuance.
Sec. 481.037. NOTICE OF NONCOMPLIANCE. Enforcement of each
recapture provision is subject to a six-month cure period. A
recapture may not occur until the qualified community development
entity has been given notice of noncompliance and given six months
from the date of the notice to correct the noncompliance.
Sec. 481.038. REFUNDABLE PERFORMANCE FEE. (a) A qualified
community development entity that has an equity investment or
long-term debt security designated as a qualified equity investment
and eligible for tax credits under this subchapter must pay a fee in
the amount of $500,000 to the comptroller for deposit in the new
markets performance guarantee account if:
(1) the qualified community development 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 481.035(c); or
(2) the qualified community development entity or any
subsidiary qualified community development entity that issues a
qualified equity investment certified under this section fails to
meet the investment requirement under Section 481.036(a)(3) by the
second credit allowance date of the qualified equity investment.
Forfeiture of the fee under this subdivision shall be subject to the
six-month period provided under Section 481.037.
(b) The fee required under Subsection (a) shall be paid to
the comptroller and held in the new markets performance guarantee
account until compliance with this subsection has been established.
The qualified community development entity may request a refund of
the fee from the comptroller not earlier than 30 days after the date
the entity meets all the requirements of Subsection (a). The
comptroller has 30 days to comply with the request or to give notice
of noncompliance.
Sec. 481.039. LETTER RULINGS. (a) The administrator or
the comptroller shall issue letter rulings regarding the tax credit
program authorized under this subchapter, subject to the terms and
conditions provided by this section. For the purposes of this
subchapter, the term "letter ruling" means a written interpretation
of law to a specific set of facts provided by the applicant
requesting a letter ruling.
(b) The administrator or comptroller shall respond to a
request for a letter ruling not later than the 60th day after the
date of receipt of the request. The applicant may provide a draft
letter ruling for the administrator's or comptroller's
consideration. The applicant may withdraw the request for a letter
ruling, in writing, before the issuance of the letter ruling. 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 includes cases in which:
(1) the applicant requests that the administrator or
comptroller determine whether a statute is constitutional or a
regulation is lawful;
(2) the applicant's request involves a hypothetical
situation or alternative plans;
(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; and
(4) the issue is currently being considered in a
rulemaking procedure, contested case, or other agency or judicial
proceeding that may definitively resolve the issue.
(c) Letter rulings shall bind the administrator and
comptroller and their agents and successors until the entity or its
shareholders, members, or partners, as applicable, claim all tax
credits on a Texas tax return or report, subject to the terms and
conditions provided in properly published regulations. The letter
ruling shall apply only to the applicant. In making determinations
under this subchapter, the administrator or comptroller shall, to
the extent applicable, look for guidance to Section 45D, Internal
Revenue Code of 1986, as amended, and the rules and regulations
issued under that section.
Sec. 481.040. RETALIATORY TAX. (a) An entity claiming a
tax credit under this subchapter is not required to pay any
additional retaliatory tax levied under Chapter 281, Insurance
Code, as a result of claiming that credit.
(b) In addition to the exemption under Subsection (a), an
entity claiming a tax credit under this subchapter is not required
to pay any additional tax that may arise from claiming the credit.
SECTION 2. This Act applies only to a tax report originally
due on or after the effective date of this Act.
SECTION 3. This Act takes effect September 1, 2013.