Texas 2017 - 85th Regular

Texas House Bill HB2238 Compare Versions

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1	1	85R5018 BEF-F
2	2	By: Lucio III H.B. No. 2238
3	3
4	4
5	5	A BILL TO BE ENTITLED
6	6	AN ACT
7	7	relating to franchise tax and insurance premium tax credits for
8	8	investment in certain communities; imposing a monetary penalty;
9	9	authorizing fees.
10	10	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
11	11	SECTION 1. Title 2, Tax Code, is amended by adding Subtitle
12	12	K to read as follows:
13	13	SUBTITLE K. CREDITS APPLICABLE TO MULTIPLE TAXES
14	14	CHAPTER 221. FRANCHISE TAX AND INSURANCE PREMIUM TAX CREDITS FOR
15	15	INVESTMENT IN CERTAIN COMMUNITIES
16	16	SUBCHAPTER A. GENERAL PROVISIONS
17	17	Sec. 221.001. GENERAL DEFINITIONS. In this chapter:
18	18	(1) "Applicable percentage" means zero percent for the
19	19	first two credit allowance dates, seven percent for the third
20	20	credit allowance date, and eight percent for the next four credit
21	21	allowance dates.
22	22	(2) "Credit allowance date" means, with respect to any
23	23	qualified equity investment:
24	24	(A) the date on which the qualified equity
25	25	investment is initially made; and
26	26	(B) the anniversary of that date in each of the
27	27	six years immediately following that date.
28	28	(3) "Federal tax regulations" means regulations
29	29	adopted under the Internal Revenue Code of 1986 that are applicable
30	30	to the tax year to which the provisions of the code in effect on
31	31	September 1, 2017, applied.
32	32	(4) "Franchise tax" means the tax imposed under
33	33	Chapter 171.
34	34	(5) "Internal Revenue Code" means the Internal Revenue
35	35	Code of 1986 in effect on September 1, 2017, excluding any changes
36	36	made by federal law after that date, but including any regulations
37	37	adopted under that code that are applicable to the tax year to which
38	38	the provisions of the code in effect on that date applied.
39	39	(6) "Investing entity" means an entity, including a
40	40	taxable entity as defined by Section 171.0002 and an entity that
41	41	incurs state premium tax liability, that makes or holds a qualified
42	42	equity investment.
43	43	(7) "Issuer" means a qualified community development
44	44	entity, or a subsidiary or affiliate of a qualified community
45	45	development entity, that issues a qualified equity investment.
46	46	(8) "Low-income community" has the meaning assigned by
47	47	Section 45D, Internal Revenue Code.
48	48	(9) "Metropolitan statistical area" means a core base
49	49	statistical area associated with at least one urbanized area that
50	50	has a population of at least 90,000. A metropolitan statistical
51	51	area comprises the central county or counties containing the core,
52	52	plus adjacent outlying counties having a high degree of social and
53	53	economic integration with the central county or counties as
54	54	measured through commuting.
55	55	(10) "Purchase price" means the amount paid to the
56	56	issuer for a qualified equity investment.
57	57	(11) "Report" means a franchise tax report, an
58	58	insurance premium tax report, or a report under Subchapter H, as
59	59	applicable.
60	60	(12) "Rural allocation" means the allocation
61	61	described by Section 221.154(c)(1).
62	62	(13) "Rural area" means a county in this state with a
63	63	population less than 90,000.
64	64	(14) "State premium tax liability" means any premium
65	65	tax liability incurred under Chapter 221, 222, 223, 223A, or 224,
66	66	Insurance Code.
67	67	(15) "Statewide low-income community allocation"
68	68	means the allocation described by Section 221.154(c)(4).
69	69	(16) "Texas education allocation" means the
70	70	allocation described by Section 221.154(c)(2).
71	71	(17) "Texas seaport allocation" means the allocation
72	72	described by Section 221.154(c)(3).
73	73	Sec. 221.002. DEFINITION: LONG-TERM DEBT SECURITY. (a) In
74	74	this chapter, "long-term debt security" means a debt instrument
75	75	issued by a qualified community development entity, at par value or
76	76	a premium, with an original maturity date not earlier than the
77	77	seventh year after the date on which the debt instrument is issued,
78	78	with no acceleration of repayment, amortization, or prepayment
79	79	features before its original maturity date.
80	80	(b) The qualified community development entity that issues
81	81	a long-term debt security may not make cash interest payments on the
82	82	security during the period beginning on the date on which the
83	83	security is issued and ending on the final credit allowance date in
84	84	an amount that exceeds the cumulative operating income, as defined
85	85	by federal tax regulations adopted under Section 45D, Internal
86	86	Revenue Code, of the qualified community development entity for
87	87	that period before giving effect to the interest expense of the
88	88	long-term debt security.
89	89	(c) This section does not limit the holder's ability to
90	90	accelerate payments on a long-term debt security in situations in
91	91	which the issuer has defaulted on covenants designed to ensure
92	92	compliance with this chapter or Section 45D, Internal Revenue Code.
93	93	Sec. 221.003. DEFINITION: QUALIFIED ACTIVE LOW-INCOME
94	94	COMMUNITY BUSINESS. (a) In this chapter, "qualified active
95	95	low-income community business" has the meaning assigned by Section
96	96	45D, Internal Revenue Code, and Section 1.45D-1 of the federal tax
97	97	regulations.
98	98	(b) A business is considered a qualified active low-income
99	99	community business for the duration of the qualified community
100	100	development entity's investment in, or loan to, the business if the
101	101	entity reasonably expects, at the time it makes the investment or
102	102	loan, that the business will continue to satisfy the requirements
103	103	for being a qualified active low-income community business
104	104	throughout the entire period of the investment or loan.
105	105	Sec. 221.004. DEFINITION: QUALIFIED COMMUNITY DEVELOPMENT
106	106	ENTITY. In this chapter, "qualified community development entity"
107	107	has the meaning assigned by Section 45D, Internal Revenue Code,
108	108	provided that the entity has entered into, for the current year or a
109	109	prior year with an allocation effective date on or after July 1,
110	110	2016, an allocation agreement with the Community Development
111	111	Financial Institutions Fund of the United States Department of the
112	112	Treasury with respect to credits authorized by Section 45D,
113	113	Internal Revenue Code, that includes this state in the service area
114	114	specified in the allocation agreement. The term includes a
115	115	subsidiary or affiliate of a qualified community development entity
116	116	and any other qualified community development entity that is
117	117	controlled by or under common control with a qualified community
118	118	development entity.
119	119	Sec. 221.005. DEFINITION: QUALIFIED EQUITY INVESTMENT. (a)
120	120	An investment is a "qualified equity investment" for purposes of
121	121	this chapter if:
122	122	(1) the investment is an equity investment in, or
123	123	long-term debt security issued by, a qualified community
124	124	development entity;
125	125	(2) the investment is acquired on or after October 1,
126	126	2017, at its original issuance solely in exchange for cash, except
127	127	as provided by Subsection (b);
128	128	(3) not later than the 20th month after the date of
129	129	issuance at least 85 percent of the investment's purchase price is
130	130	used by the issuer to make qualified low-income community
131	131	investments in this state; and
132	132	(4) the investment is designated by the issuer as a
133	133	qualified equity investment under this section and is certified by
134	134	the comptroller as not exceeding the limitations provided by
135	135	Section 221.154.
136	136	(b) A qualified equity investment includes an investment
137	137	that does not satisfy the requirements of Subsection (a)(2) if the
138	138	investment was a qualified equity investment in the hands of a prior
139	139	holder.
140	140	Sec. 221.006. DEFINITION: QUALIFIED LOW-INCOME COMMUNITY
141	141	INVESTMENT. In this chapter, "qualified low-income community
142	142	investment" means an equity investment in, or loan to, a qualified
143	143	active low-income community business made by a qualified community
144	144	development entity.
145	145	Sec. 221.007. DEFINITION: RURAL COMMUNITY DEVELOPMENT
146	146	ENTITY. In this chapter, "rural community development entity" means
147	147	a qualified community development entity:
148	148	(1) whose allocation agreement with the Community
149	149	Development Financial Institutions Fund of the United States
150	150	Department of the Treasury requires the entity to invest at least 25
151	151	percent of that allocation in rural areas; or
152	152	(2) that demonstrates to the comptroller in writing
153	153	that the entity or its affiliates invested at least 25 percent of
154	154	the entity's most recent federal allocation outside the boundaries
155	155	of a metropolitan statistical area.
156	156	Sec. 221.008. RULES. The comptroller shall adopt rules
157	157	necessary to implement this chapter.
158	158	Sec. 221.009. REVIEW BY COMPTROLLER. The comptroller shall
159	159	review the qualified low-income community investments of a
160	160	qualified community development entity not later than the sixth
161	161	month after each anniversary of the investment. In conducting the
162	162	review, the comptroller shall ensure that the qualified community
163	163	development entity has made and maintained the qualified low-income
164	164	community investments required under Sections 221.201(a)(3) and
165	165	(4) to avoid recapture of a credit claimed in connection with a
166	166	qualified equity investment.
167	167	SUBCHAPTER B. FRANCHISE TAX CREDIT
168	168	Sec. 221.051. ELIGIBILITY FOR CREDIT. An investing entity
169	169	is eligible for a credit against the tax imposed under Chapter 171
170	170	in the amount provided by this subchapter and under the conditions
171	171	and limitations provided by this chapter.
172	172	Sec. 221.052. QUALIFICATION. An investing entity is
173	173	eligible for a credit if the investing entity holds a qualified
174	174	equity investment on a credit allowance date.
175	175	Sec. 221.053. AMOUNT OF CREDIT; LIMITATION. (a) The amount
176	176	of credit for a report is equal to the credit accrued, as determined
177	177	under Subsection (b), on each credit allowance date:
178	178	(1) that occurs during the period on which the report
179	179	is based; and
180	180	(2) on which the investing entity holds the qualified
181	181	equity investment.
182	182	(b) The amount of credit accrued on a credit allowance date
183	183	equals the applicable percentage for the credit allowance date
184	184	multiplied by the purchase price paid to the issuer of the qualified
185	185	equity investment.
186	186	(c) The total credit claimed for a report, including the
187	187	amount of any carryforward under Section 221.054, may not exceed
188	188	the amount of franchise tax due for the report after applying all
189	189	other applicable tax credits.
190	190	(d) Credits may be applied to the investing entity's
191	191	estimated or final tax payments for the applicable period.
192	192	Sec. 221.054. CARRYFORWARD. If an investing entity is
193	193	eligible for a credit that exceeds the limitation under Section
194	194	221.053(c), the investing entity may carry the unused credit
195	195	forward for not more than 20 consecutive reports. Credits,
196	196	including credit carryforwards, are considered to be used in the
197	197	following order:
198	198	(1) a credit carryforward under this subchapter; and
199	199	(2) a current year credit.
200	200	Sec. 221.055. ASSIGNMENT PROHIBITED. (a) Except as
201	201	provided by Subsection (b), an investing entity may not convey,
202	202	assign, or transfer the credit allowed under this subchapter to
203	203	another entity.
204	204	(b) A partnership, limited liability company, S
205	205	corporation, or other pass-through entity for federal income tax
206	206	purposes may allocate the credit to the entity's partners, members,
207	207	or shareholders for their direct use in accordance with an
208	208	agreement between the partners, members, or shareholders.
209	209	SUBCHAPTER C. INSURANCE PREMIUM TAX CREDIT
210	210	Sec. 221.101. ELIGIBILITY FOR CREDIT. An investing entity
211	211	is eligible for a credit against the entity's state premium tax
212	212	liability in the amount provided by this subchapter and under the
213	213	conditions and limitations provided by this chapter.
214	214	Sec. 221.102. QUALIFICATION. An investing entity is
215	215	eligible for a credit if the investing entity holds a qualified
216	216	equity investment on a credit allowance date.
217	217	Sec. 221.103. AMOUNT OF CREDIT; LIMITATION. (a) The amount
218	218	of credit for a tax year is equal to the credit accrued, as
219	219	determined under Subsection (b), on each credit allowance date:
220	220	(1) that occurs during the tax year; and
221	221	(2) on which the investing entity holds the qualified
222	222	equity investment.
223	223	(b) The amount of credit accrued on a credit allowance date
224	224	equals the applicable percentage for the credit allowance date
225	225	multiplied by the purchase price paid to the issuer of the qualified
226	226	equity investment.
227	227	(c) The total credit claimed for a tax year, including the
228	228	amount of any carryforward under Section 221.104, may not exceed
229	229	the amount of state premium tax liability due for the tax year after
230	230	applying all other applicable tax credits.
231	231	(d) Credits may be applied to the investing entity's
232	232	estimated or final tax payments for the tax year.
233	233	Sec. 221.104. CARRYFORWARD. If an investing entity is
234	234	eligible for a credit that exceeds the limitation under Section
235	235	221.103(c), the investing entity may carry the unused credit
236	236	forward for not more than 20 consecutive tax reports. Credits,
237	237	including credit carryforwards, are considered to be used in the
238	238	following order:
239	239	(1) a credit carryforward under this subchapter; and
240	240	(2) a current year credit.
241	241	Sec. 221.105. ASSIGNMENT PROHIBITED. (a) Except as
242	242	provided by Subsection (b), an investing entity may not convey,
243	243	assign, or transfer the credit allowed under this subchapter to
244	244	another entity.
245	245	(b) A partnership, limited liability company, S
246	246	corporation, or other pass-through entity for federal income tax
247	247	purposes may allocate the credit to the entity's partners, members,
248	248	or shareholders for their direct use in accordance with an
249	249	agreement between the partners, members, or shareholders.
250	250	Sec. 221.106. RETALIATORY TAX. (a) An entity claiming a
251	251	credit under this subchapter is not required to pay any additional
252	252	retaliatory tax levied under Chapter 281, Insurance Code, as a
253	253	result of claiming that credit.
254	254	(b) In addition to the exclusion provided by Subsection (a),
255	255	an entity claiming a credit under this subchapter is not required to
256	256	pay any additional tax that may arise as a result of claiming that
257	257	credit.
258	258	SUBCHAPTER D. CERTIFICATION AS QUALIFIED EQUITY INVESTMENT
259	259	Sec. 221.151. APPLICATION FOR CERTIFICATION AS QUALIFIED
260	260	EQUITY INVESTMENT. (a) A qualified community development entity
261	261	that seeks to have an equity investment or long-term debt security
262	262	certified as a qualified equity investment eligible for credits
263	263	under this chapter must apply to the comptroller as provided by this
264	264	section.
265	265	(b) The comptroller shall provide an application date each
266	266	year for applications under Subsection (a). The date may not be
267	267	later than October 2. The comptroller shall consider all
268	268	applications received on or before the application date to be
269	269	received simultaneously on the application date.
270	270	(c) An application under this section must include the
271	271	following:
272	272	(1) evidence of the applicant's certification as a
273	273	qualified community development entity, including evidence of the
274	274	service area of the entity that includes this state;
275	275	(2) a copy of an allocation agreement executed by the
276	276	applicant, or its controlling entity, and the Community Development
277	277	Financial Institutions Fund of the United States Department of the
278	278	Treasury;
279	279	(3) a certificate executed by an executive officer of
280	280	the applicant attesting that the allocation agreement remains in
281	281	effect and has not been revoked or canceled by the Community
282	282	Development Financial Institutions Fund;
283	283	(4) a description of the amount and structure of the
284	284	equity investment or long-term debt security proposed to be
285	285	certified;
286	286	(5) examples of the types of qualified active
287	287	low-income community businesses in which the applicant, its
288	288	controlling entity, or affiliates of its controlling entity have
289	289	invested under the federal New Markets Tax Credit Program or a state
290	290	new markets tax credit program, including written proof that the
291	291	applicant or an affiliate has made at least one qualified
292	292	low-income community investment or a similar loan to a business in a
293	293	low-income census tract in this state;
294	294	(6) evidence that:
295	295	(A) the entity qualifies as a rural community
296	296	development entity, if the entity is applying for a rural
297	297	allocation;
298	298	(B) the entity or the entity's affiliate has
299	299	previously made at least one qualified low-income community
300	300	investment that would meet the investment requirements for a Texas
301	301	education allocation, if the entity is applying for a Texas
302	302	education allocation; or
303	303	(C) the entity or the entity's affiliate has
304	304	previously made at least one qualified low-income community
305	305	investment that would meet the investment requirements for a Texas
306	306	seaport allocation, if the entity is applying for a Texas seaport
307	307	allocation;
308	308	(7) a nonrefundable application fee of $5,000 to be
309	309	paid to the comptroller; and
310	310	(8) the refundable performance deposit required by
311	311	Subchapter F.
312	312	Sec. 221.152. ACTION ON APPLICATION. (a) Not later than
313	313	the 30th day after the date an application under Section 221.151 is
314	314	received, the comptroller shall grant or deny the application in
315	315	full or part.
316	316	(b) If the comptroller denies the application, the
317	317	comptroller shall inform the applicant of the denial.
318	318	(c) If the comptroller denies an application because the
319	319	application is incomplete, the applicant may, not later than the
320	320	15th day after the date the applicant receives notice under
321	321	Subsection (b), provide additional information required by the
322	322	comptroller to complete the application. The comptroller shall
323	323	consider an application completed under this subsection to be
324	324	completed on the date the application was initially submitted.
325	325	(d) If an applicant does not complete an application in the
326	326	time required under Subsection (c), the application is finally
327	327	denied and the applicant must submit a new application if the
328	328	applicant wishes to reapply. The comptroller shall determine the
329	329	application date for the new application without regard to the
330	330	previously denied application.
331	331	Sec. 221.153. CERTIFICATION OF QUALIFIED EQUITY
332	332	INVESTMENT. (a) If an application under Section 221.151 is
333	333	granted, the comptroller shall certify the proposed equity
334	334	investment or long-term debt security as a qualified equity
335	335	investment that is eligible for credits under this chapter, subject
336	336	to Section 221.154.
337	337	(b) The comptroller shall provide written notice of the
338	338	certification to the qualified community development entity.
339	339	(c) The certification of a qualified equity investment is
340	340	effective on the date the comptroller provides notice under
341	341	Subsection (b).
342	342	Sec. 221.154. LIMIT ON CERTIFIED INVESTMENTS. (a) Subject
343	343	to Subsections (b) and (c), the comptroller shall limit the amount
344	344	of qualified equity investments that may be certified under Section
345	345	221.153 to an amount the comptroller estimates will result in not
346	346	more than:
347	347	(1) $60 million in credits being claimed under this
348	348	chapter in any state fiscal year; and
349	349	(2) $300 million in total credits being claimed under
350	350	this chapter.
351	351	(b) The comptroller shall estimate the amounts under
352	352	Subsection (a) without regard to the carryforward provisions under
353	353	Sections 221.054 and 221.104.
354	354	(c) The comptroller shall allocate 25 percent, or as nearly
355	355	as possible to 25 percent, of the amount available under Subsection
356	356	(a) for each of the following:
357	357	(1) a rural allocation, which may be used only by
358	358	rural community development entities to make qualified low-income
359	359	community investments in rural areas;
360	360	(2) a Texas education allocation, which may be used
361	361	only to make qualified low-income community investments in
362	362	nonprofit or for-profit entities offering primary, secondary, or
363	363	higher education in low-income communities in this state;
364	364	(3) a Texas seaport allocation, which may be used only
365	365	to make qualified low-income community investments in businesses
366	366	operating at a port, harbor, or municipality:
367	367	(A) accessible to seagoing ships that are limited
368	368	to 35 miles from the coastline; and
369	369	(B) located in a low-income community in this
370	370	state; and
371	371	(4) a statewide low-income community allocation,
372	372	which may be used to make qualified low-income community
373	373	investments in any low-income community in this state.
374	374	(d) A qualified community development entity may apply in a
375	375	single application for and receive certification of qualified
376	376	equity investments in more than one allocation category under
377	377	Subsection (c).
378	378	(e) Subject to Subsection (f), if a pending application
379	379	cannot be fully certified due to the limit specified by Subsection
380	380	(a) or (c), the comptroller shall certify the portion that can be
381	381	certified.
382	382	(f) The comptroller shall certify qualified equity
383	383	investments in the order in which applications are received by the
384	384	comptroller. Applications received on or before the application
385	385	date provided under Section 221.151(b) are considered to have been
386	386	received simultaneously on the application date. For applications
387	387	that are complete and received on or before the application date
388	388	provided under Section 221.151(b) and for which the total amounts
389	389	requested cannot be certified because of the limit specified by
390	390	Subsection (a) or (c), the comptroller shall certify qualified
391	391	equity investments in each allocation category under Subsection (c)
392	392	on a pro rata basis based on the ratio of the amount of qualified
393	393	equity investments available in an allocation category to the total
394	394	amount of qualified equity investments requested in that allocation
395	395	category.
396	396	Sec. 221.155. TRANSFER OF INVESTMENT AUTHORITY. A
397	397	qualified community development entity whose application for
398	398	certification of a qualified equity investment is approved under
399	399	this subchapter may transfer all or a portion of its certified
400	400	qualified equity investment authority to its controlling entity or
401	401	to a qualified community development entity controlled by or under
402	402	common control with the transferring entity, if the transferring
403	403	entity:
404	404	(1) provides the information required in the
405	405	application under Section 221.151(c) with respect to the recipient
406	406	of the transfer; and
407	407	(2) notifies the comptroller of the transfer not later
408	408	than the 30th day after the date of the transfer.
409	409	Sec. 221.156. ISSUANCE OF QUALIFIED EQUITY INVESTMENT; FEE.
410	410	(a) Not later than the 20th month after the date the qualified
411	411	community development entity receives notice of certification, the
412	412	entity or a recipient of a transfer under Section 221.155 shall
413	413	issue the qualified equity investment and receive cash in the
414	414	amount certified.
415	415	(b) The qualified community development entity or a
416	416	recipient of a transfer under Section 221.155 must provide the
417	417	comptroller with evidence of the receipt of the cash investment not
418	418	later than the 10th business day after the date the cash investment
419	419	is received.
420	420	(c) At the time the qualified community development entity
421	421	or a recipient of a transfer under Section 221.155 issues the
422	422	qualified equity investment, the qualified community development
423	423	entity or transfer recipient shall pay to the comptroller a fee
424	424	equal to 20 basis points, or 0.2 percent, of the amount issued.
425	425	Fees collected under this subsection may be appropriated only to
426	426	pay the cost of preparing a report under Section 221.352.
427	427	Sec. 221.157. LAPSE OF CERTIFICATION. (a) If the qualified
428	428	community development entity or a recipient of a transfer under
429	429	Section 221.155 does not issue the qualified equity investment and
430	430	receive the cash investment before the 20th month after the date the
431	431	certification notice is received as required by Section 221.156,
432	432	the certification lapses and the qualified community development
433	433	entity or recipient of the transfer may not accept an equity
434	434	investment or issue a long-term debt security as a qualified equity
435	435	investment without reapplying to the comptroller for
436	436	certification.
437	437	(b) If a certification lapses under this section, the
438	438	comptroller shall reissue the previously certified amount, giving
439	439	preference to an applicant for reissuance of certification whose
440	440	proposed amount for certification was previously certified in a
441	441	reduced amount under Section 221.154. If more than one applicant
442	442	for reissuance of certification had its proposed amount reduced,
443	443	the comptroller shall reissue the certified amount to those
444	444	applicants on a pro rata basis, subject to the limits specified by
445	445	Section 221.154.
446	446	(c) After reissuing certifications under Subsection (b),
447	447	the comptroller shall reissue any certified amounts remaining to
448	448	applicants in amounts determined by the comptroller, subject to the
449	449	limits specified by Section 221.154.
450	450	SUBCHAPTER E. RECAPTURE OF CREDIT
451	451	Sec. 221.201. RECAPTURE. (a) Subject to Section 221.202,
452	452	the comptroller shall recapture the amount of a credit claimed on a
453	453	franchise tax report filed under Chapter 171 or a premium tax report
454	454	filed under Chapter 221, 222, 223, 223A, or 224, Insurance Code,
455	455	from the investing entity if:
456	456	(1) any amount of a federal tax credit available with
457	457	respect to a qualified equity investment that is eligible for a
458	458	credit under this chapter is recaptured under Section 45D, Internal
459	459	Revenue Code, in which case the comptroller's recapture must be
460	460	proportionate to the federal recapture with respect to the
461	461	qualified equity investment;
462	462	(2) the issuer redeems or makes principal repayment
463	463	with respect to a qualified equity investment before the seventh
464	464	anniversary of the date the qualified equity investment is issued,
465	465	in which case the comptroller's recapture must be proportionate to
466	466	the amount of the redemption or repayment with respect to the
467	467	qualified equity investment;
468	468	(3) the issuer fails to invest an amount equal to 85
469	469	percent of the purchase price of the qualified equity investment in
470	470	qualified low-income community investments in this state not later
471	471	than the 20th month after the date the qualified equity investment
472	472	is issued, in which case the comptroller's recapture may not exceed
473	473	the amount of tax credits associated with the portion of the
474	474	purchase price received but not invested on the date of the
475	475	recapture; or
476	476	(4) the issuer fails to maintain an amount of
477	477	investment equal to 85 percent of the purchase price of the
478	478	qualified equity investment in qualified low-income community
479	479	investments in this state until the last credit allowance date for
480	480	the qualified equity investment, in which case the comptroller's
481	481	recapture may not exceed the amount of tax credits associated with
482	482	the portion of the purchase price received but not maintained in
483	483	qualified low-income community investments on the date of
484	484	recapture.
485	485	(b) For purposes of this chapter, a qualified low-income
486	486	community investment is considered held by an issuer even if the
487	487	investment has been sold or repaid if the issuer reinvests an amount
488	488	equal to the capital returned to or recovered by the issuer from the
489	489	original investment, exclusive of any profits realized, in another
490	490	qualified low-income community investment not later than the 12th
491	491	month after the date the issuer receives the capital.
492	492	(c) An issuer is not required to reinvest capital returned
493	493	from a qualified low-income community investment after the sixth
494	494	anniversary of the date the qualified equity investment whose
495	495	proceeds were used to make the qualified low-income community
496	496	investment was issued. The qualified low-income community
497	497	investment is considered held by the issuer through the seventh
498	498	anniversary of the date the qualified equity investment was issued.
499	499	(d) Periodic amounts received during a calendar year as
500	500	repayment of principal on a loan that is a qualified low-income
501	501	community investment shall be treated as continuously invested in a
502	502	qualified low-income community investment if the amounts are
503	503	reinvested in one or more qualified low-income community
504	504	investments not later than the last day of the following calendar
505	505	year.
506	506	(e) After the seventh anniversary of the date a qualified
507	507	equity investment is issued, the qualified community development
508	508	entity may request that the comptroller certify that tax credits
509	509	associated with the qualified equity investment are not subject to
510	510	recapture under this section.
511	511	(f) Not later than the 60th day after the date the
512	512	comptroller receives a request under Subsection (e), the
513	513	comptroller shall:
514	514	(1) certify in writing to the qualified community
515	515	development entity that tax credits associated with the qualified
516	516	equity investment are not subject to recapture and that the
517	517	qualified community development entity has satisfied all the
518	518	requirements of this chapter; or
519	519	(2) notify the qualified community development entity
520	520	that tax credits associated with the qualified equity investment
521	521	are subject to recapture and that the qualified community
522	522	development entity has not satisfied the requirements of this
523	523	chapter and shall provide a written explanation of the reason for
524	524	that determination.
525	525	(g) After the comptroller certifies under Subsection (f)(1)
526	526	that tax credits associated with a qualified equity investment are
527	527	not subject to recapture:
528	528	(1) the comptroller may not recapture any tax credits
529	529	associated with that qualified equity investment; and
530	530	(2) the qualified community development entity is not
531	531	subject to regulation by the comptroller or to the reporting
532	532	requirements under Section 221.351 in connection with that
533	533	qualified equity investment.
534	534	Sec. 221.202. NOTICE OF NONCOMPLIANCE. (a) The
535	535	comptroller shall notify a qualified community development entity
536	536	and an investing entity that has claimed a credit on a report if the
537	537	credit is subject to recapture under Section 221.201.
538	538	(b) The comptroller may not recapture a credit under this
539	539	subchapter if the qualified community development entity cures the
540	540	noncompliance described by Section 221.201 before the 90th day
541	541	after the date the qualified community development entity receives
542	542	notice under Subsection (a).
543	543	SUBCHAPTER F. SECURITY FOR PERFORMANCE
544	544	Sec. 221.251. SECURITY REQUIRED. (a) Not later than the
545	545	14th day after the date a qualified equity investment is certified
546	546	under Subchapter D, the qualified community development entity that
547	547	received investment authority for the qualified equity investment
548	548	must deposit $500,000 with the comptroller as a refundable
549	549	performance deposit to be deposited as required by Section 221.254.
550	550	(b) This section applies regardless of whether the
551	551	investment authority is for a rural allocation, a Texas education
552	552	allocation, a Texas seaport allocation, or a statewide low-income
553	553	community allocation.
554	554	Sec. 221.252. FAILURE TO PROVIDE SECURITY: LOSS OF
555	555	CERTIFICATION. The comptroller shall revoke the certification of
556	556	the qualified equity investment of a qualified community
557	557	development entity that fails to make a deposit under Section
558	558	221.251.
559	559	Sec. 221.253. FORFEITURE OF SECURITY. (a) A qualified
560	560	community development entity that makes a performance deposit under
561	561	Section 221.251 forfeits the deposit in its entirety if:
562	562	(1) the qualified community development entity or any
563	563	qualified community development entity to which a transfer is made
564	564	under Section 221.155 fails to issue the total amount of qualified
565	565	equity investments certified by the comptroller and receive cash in
566	566	the amount certified under Section 221.153 not later than the date
567	567	specified by Section 221.156; or
568	568	(2) subject to Subsection (b), the qualified community
569	569	development entity or a qualified community development entity to
570	570	which a transfer is made under Section 221.155 that issues a
571	571	qualified equity investment certified under Section 221.153 fails
572	572	to make or maintain the investment required under Sections
573	573	221.201(a)(3) and (4) to avoid recapture of a tax credit claimed in
574	574	connection with the qualified equity investment.
575	575	(b) A deposit is not subject to forfeiture under Subsection
576	576	(a)(2) if the qualified community development entity cures the
577	577	noncompliance before the 90th day after the date the qualified
578	578	community development entity receives notice under Subsection (c).
579	579	(c) The comptroller shall notify a qualified community
580	580	development entity that made a deposit under Section 221.251 in
581	581	writing if the deposit is subject to forfeiture under this section.
582	582	Sec. 221.254. NEW MARKETS PERFORMANCE GUARANTEE FUND. (a)
583	583	The new markets performance guarantee fund is an interest-bearing
584	584	fund outside the state treasury with the comptroller. The fund
585	585	consists of money the comptroller deposits under Subsection (b).
586	586	The comptroller shall administer the fund.
587	587	(b) The comptroller shall deposit a performance deposit
588	588	made under Section 221.251 to the credit of the new markets
589	589	performance guarantee fund. The deposit must remain on deposit with
590	590	the fund until the comptroller determines that:
591	591	(1) the qualified community development entity has
592	592	complied with the provisions of this chapter; or
593	593	(2) the deposit has been forfeited and will be
594	594	deposited in accordance with Section 221.256.
595	595	Sec. 221.255. RELEASE OF SECURITY. (a) Not earlier than
596	596	the 30th day after the date the requirements that must be satisfied
597	597	to avoid forfeiture of a deposit as described by Section 221.253 are
598	598	satisfied, a qualified community development entity that made the
599	599	deposit may request a refund of the deposit from the comptroller.
600	600	(b) The comptroller shall refund the deposit or, if
601	601	applicable, give notice of noncompliance as described by Section
602	602	221.253 not later than the 30th day after the date of receiving a
603	603	request under Subsection (a).
604	604	Sec. 221.256. DEPOSIT OF FORFEITED SECURITY. The
605	605	comptroller shall deposit in the general revenue fund a deposit
606	606	forfeited under Section 221.253.
607	607	SUBCHAPTER G. EVALUATION OF BUSINESS BY COMPTROLLER
608	608	Sec. 221.301. EVALUATION REQUIRED. (a) Except as provided
609	609	by Subsection (c), a qualified community development entity or a
610	610	recipient of a transfer under Section 221.155 must, before making
611	611	an investment in a business, request a written opinion from the
612	612	comptroller as to whether:
613	613	(1) the business in which the qualified community
614	614	development entity proposes to invest would qualify as a qualified
615	615	active low-income community business under Section 221.003; and
616	616	(2) the location where the qualified community
617	617	development entity proposes to invest would meet the location
618	618	requirements for a rural allocation, a Texas education allocation,
619	619	or a Texas seaport allocation, as applicable.
620	620	(b) Not later than the 10th business day after the date of
621	621	the receipt of a request under Subsection (a), the comptroller
622	622	shall make the requested determinations and issue the written
623	623	opinion, including explanations for the determinations.
624	624	(c) A qualified community development entity or a recipient
625	625	of a transfer under Section 221.155 may, but is not required to,
626	626	request a written opinion under Subsection (a) before making an
627	627	investment in a business if the qualified community development
628	628	entity or transfer recipient concurrently makes a federal qualified
629	629	low-income community investment in the business.
630	630	Sec. 221.302. CONSIDERATION OF FEDERAL TAX LAWS. In
631	631	issuing a written opinion and making other determinations under
632	632	this chapter, the comptroller shall consider Section 45D, Internal
633	633	Revenue Code, and the federal tax regulations issued under that
634	634	code, to the extent that those provisions are applicable.
635	635	SUBCHAPTER H. REPORTING
636	636	Sec. 221.351. REPORT TO COMPTROLLER. (a) Except as
637	637	provided by this subsection, a qualified community development
638	638	entity that issues a qualified equity investment under Section
639	639	221.156 shall submit an annual report to the comptroller not later
640	640	than the fifth business day after the anniversary of a credit
641	641	allowance date applicable to the investment. The qualified
642	642	community development entity is not required to submit any report
643	643	under this subsection after the annual report following the final
644	644	credit allowance date.
645	645	(b) The report must:
646	646	(1) provide evidence that the qualified community
647	647	development entity has made and maintained the investment required
648	648	under Sections 221.201(a)(3) and (4) to avoid recapture of a credit
649	649	claimed in connection with the qualified equity investment;
650	650	(2) include one or more bank statements for the
651	651	qualified community development entity that reflect each qualified
652	652	low-income community investment made by the qualified community
653	653	development entity in connection with the qualified equity
654	654	investment;
655	655	(3) state the name, location, and industry code of
656	656	each qualified active low-income community business receiving a
657	657	qualified low-income community investment in connection with the
658	658	qualified equity investment;
659	659	(4) state the number of employment positions created
660	660	and retained as a result of each qualified low-income community
661	661	investment made in connection with the qualified equity investment;
662	662	(5) state whether the qualified community development
663	663	entity has been subject to a recapture of any amount of a federal
664	664	tax credit available under Section 45D, Internal Revenue Code, with
665	665	respect to the qualified equity investment; and
666	666	(6) include a copy of the most recent annual report
667	667	submitted by the qualified community development entity to the
668	668	United States Department of the Treasury regarding Section 45D,
669	669	Internal Revenue Code.
670	670	(c) A qualified community development entity that fails to
671	671	submit a report to the comptroller within the time prescribed by
672	672	Subsection (a) shall pay to the comptroller a penalty equal to the
673	673	sum of:
674	674	(1) $25,000; and
675	675	(2) $5,000 for each day the report is not submitted
676	676	after the date the report is due under Subsection (a).
677	677	Sec. 221.352. COMPTROLLER'S REPORT TO LEGISLATURE. (a)
678	678	The comptroller shall contract with an independent researcher at a
679	679	center for research established under Section 1.005, Education
680	680	Code, to prepare a biennial report with respect to the
681	681	implementation of this chapter.
682	682	(b) The report must include:
683	683	(1) the number of qualified community development
684	684	entities holding certified qualified equity investments;
685	685	(2) the amount of qualified equity investments of each
686	686	qualified community development entity;
687	687	(3) the investments each qualified community
688	688	development entity has made in qualified active low-income
689	689	community businesses as of the most recent annual report submitted
690	690	to the comptroller by the qualified community development entity;
691	691	(4) the total amount of credits earned under this
692	692	chapter;
693	693	(5) the performance of each qualified community
694	694	development entity with respect to reporting requirements imposed
695	695	by this chapter;
696	696	(6) with respect to each qualified active low-income
697	697	community business in which a qualified community development
698	698	entity has invested:
699	699	(A) the classification of the qualified active
700	700	low-income community business according to the industrial sector
701	701	and the size of the business;
702	702	(B) the total number of jobs created by the
703	703	qualified low-income community investment and the average wages
704	704	paid for the jobs; and
705	705	(C) the total number of jobs retained as a result
706	706	of the qualified low-income community investment and the average
707	707	wages paid for the jobs; and
708	708	(7) an analysis of the effect implementation of this
709	709	chapter has had during the period covered by the report on:
710	710	(A) economic activity in this state; and
711	711	(B) state tax revenue.
712	712	(c) The comptroller shall file the report with the governor,
713	713	the lieutenant governor, and the speaker of the house of
714	714	representatives not later than December 15 of each even-numbered
715	715	year.
716	716	SECTION 2. (a) As soon as practicable after the effective
717	717	date of this Act, the comptroller of public accounts shall adopt
718	718	rules necessary to implement the provisions of Chapter 221, Tax
719	719	Code, as added by this Act.
720	720	(b) The comptroller of public accounts shall provide an
721	721	initial application date under Section 221.151(b), Tax Code, as
722	722	added by this Act, of October 2, 2017.
723	723	SECTION 3. Subchapter B, Chapter 221, Tax Code, as added by
724	724	this Act, applies only to a report under Chapter 171, Tax Code,
725	725	originally due on or after January 1, 2018.
726	726	SECTION 4. Subchapter C, Chapter 221, Tax Code, as added by
727	727	this Act, applies only to a tax report originally due on or after
728	728	January 1, 2018.
729	729	SECTION 5. This Act takes effect September 1, 2017.