Texas 2019 - 86th Regular

Texas House Bill HB4225 Compare Versions

Only one version of the bill is available at this time.

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1	1	86R13174 BEF-F
2	2	By: Reynolds H.B. No. 4225
3	3
4	4
5	5	A BILL TO BE ENTITLED
6	6	AN ACT
7	7	relating to a franchise tax credit for investment in certain
8	8	communities; authorizing a fee.
9	9	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
10	10	SECTION 1. Chapter 171, Tax Code, is amended by adding
11	11	Subchapter O to read as follows:
12	12	SUBCHAPTER O. TEXAS NEW MARKETS DEVELOPMENT PILOT PROGRAM
13	13	Sec. 171.751. PILOT PROGRAM. The comptroller shall
14	14	implement the Texas New Markets Development Pilot Program to
15	15	encourage capital investment and job creation and retention in
16	16	redevelopment communities by allowing taxable entities to earn
17	17	franchise tax credits in connection with those investments.
18	18	Sec. 171.752. DEFINITIONS. In this subchapter:
19	19	(1) "Credit allowance date" means, with respect to a
20	20	qualified investment, the first, second, third, fourth, fifth,
21	21	sixth, or seventh anniversary of the date the qualified investment
22	22	was issued.
23	23	(2) "Long-term debt security" means a debt instrument
24	24	issued by a qualified community development entity at par value or a
25	25	premium with a maturity date at least seven years after the date of
26	26	issuance and no acceleration of repayment, amortization, or
27	27	prepayment features before the original maturity date except in
28	28	instances of default.
29	29	(3) "Purchase price" means the amount of cash paid to a
30	30	qualified community development entity in exchange for a qualified
31	31	investment.
32	32	(4) "Qualified community development entity" means an
33	33	entity that:
34	34	(A) is certified by the United States secretary
35	35	of the treasury under 26 U.S.C. Section 45D; and
36	36	(B) has entered into, or is controlled by an
37	37	entity that has entered into, an allocation agreement with the
38	38	Community Development Financial Institutions Fund with respect to
39	39	tax credits under 26 U.S.C. Section 45D and is authorized to conduct
40	40	business in this state under the agreement.
41	41	(5) "Qualified investment" means an equity investment
42	42	in, or a long-term debt security issued by, a qualified community
43	43	development entity that is:
44	44	(A) issued solely in exchange for cash;
45	45	(B) designated by the qualified community
46	46	development entity as a qualified investment; and
47	47	(C) approved by the comptroller as a qualified
48	48	investment.
49	49	(6) "Redevelopment community" means a municipality
50	50	that:
51	51	(A) was incorporated on or before September 1,
52	52	1960;
53	53	(B) has a population of more than 67,000; and
54	54	(C) is located in two counties, with at least 90
55	55	percent of the municipality's territory located in a county with a
56	56	population of at least 580,000 and the remaining territory located
57	57	in a county with a population of at least four million.
58	58	(7) "Redevelopment investment" means an investment
59	59	made by a qualified community development entity in a business
60	60	located in a redevelopment community using the proceeds from the
61	61	purchase price on one or more qualified investments.
62	62	Sec. 171.753. ELIGIBLE INDUSTRIES. (a) The comptroller
63	63	shall designate, using the North American Industry Classification
64	64	System, industries that are eligible to receive redevelopment
65	65	investments. The comptroller shall designate those industries that
66	66	have the greatest potential to create strong positive impacts on or
67	67	benefits to the economies of redevelopment communities.
68	68	(b) A qualified community development entity may not make a
69	69	redevelopment investment in a business unless the principal
70	70	activities of the business are in an eligible industry. The
71	71	comptroller may waive this limitation if the comptroller determines
72	72	that the redevelopment investment will have a positive impact on a
73	73	redevelopment community.
74	74	(c) In an area of a redevelopment community where the median
75	75	family income is not more than 50 percent of the median family
76	76	income for the redevelopment community, the comptroller may allow a
77	77	redevelopment investment in:
78	78	(1) an office building project that guarantees a
79	79	minimum average occupancy rate of at least 90 percent; or
80	80	(2) a retail project that guarantees a minimum average
81	81	occupancy rate of at least 90 percent.
82	82	(d) A tax credit in connection with a redevelopment
83	83	investment described by Subsection (c) is subject to recapture if
84	84	the office building project or retail project fails to achieve the
85	85	minimum occupancy rate required by that subsection.
86	86	Sec. 171.754. APPLICATION. A qualified community
87	87	development entity must apply to the comptroller for approval of a
88	88	proposed investment as a qualified investment. The application must
89	89	include:
90	90	(1) the name, address, and tax identification number
91	91	of the qualified community development entity;
92	92	(2) proof of certification as a qualified community
93	93	development entity under 26 U.S.C. Section 45D;
94	94	(3) a copy of an authorization document executed by
95	95	the qualified community development entity, or its controlling
96	96	entity, authorizing the entity to conduct business in this state;
97	97	(4) a description of the proposed amount, structure,
98	98	and purchasers of the proposed investment;
99	99	(5) the name and tax identification number of each
100	100	taxable entity that will claim a credit under this subchapter in
101	101	connection with the qualified investment;
102	102	(6) a detailed explanation of the expected impact of a
103	103	proposed qualified investment and the related redevelopment
104	104	investments;
105	105	(7) a resolution of support from the governing bodies
106	106	of the redevelopment communities where redevelopment investments
107	107	will be made;
108	108	(8) a resolution of support from the economic
109	109	development council, if any, of each redevelopment community
110	110	described by Subdivision (7);
111	111	(9) a nonrefundable application fee of $1,000, payable
112	112	to the comptroller;
113	113	(10) a statement that the qualified community
114	114	development entity will make redevelopment investments only in the
115	115	industries designated by the comptroller or as otherwise allowed by
116	116	the comptroller;
117	117	(11) the qualified community development entity's
118	118	plans for fostering relationships with local economic development
119	119	organizations in the redevelopment communities where the entity
120	120	will make redevelopment investments and an explanation of the steps
121	121	the entity has taken to implement those plans; and
122	122	(12) a statement that the qualified community
123	123	development entity will not make a redevelopment investment in a
124	124	business unless the business will create or retain jobs that pay an
125	125	average wage equal to at least 115 percent of the federal poverty
126	126	income guidelines for a family of four.
127	127	Sec. 171.755. REVIEW. (a) The comptroller shall review
128	128	applications to approve an investment as a qualified investment in
129	129	the order received. The office shall approve or deny each
130	130	application not later than the 30th day after receipt of the
131	131	application.
132	132	(b) If the comptroller intends to deny an application, the
133	133	comptroller shall provide notice to the applicant of the basis of
134	134	the proposed denial. The applicant may, not later than the 15th day
135	135	after receiving the notice, submit a revised application to the
136	136	comptroller. The comptroller shall issue a final order approving or
137	137	denying the revised application not later than the 30th day after
138	138	receipt of the revised application.
139	139	(c) The comptroller shall limit the amount of qualified
140	140	investments approved to an amount that will result in not more than:
141	141	(1) $200 million in total tax credits being claimed
142	142	under this subchapter; or
143	143	(2) $40 million in tax credits being claimed under
144	144	this subchapter in any state fiscal year, other than credits
145	145	carried forward from a previous year.
146	146	Sec. 171.756. APPROVAL. (a) The comptroller shall provide
147	147	a copy of the final order approving an investment as a qualified
148	148	investment to the qualified community development entity. The
149	149	notice shall include the identity of the taxable entities that are
150	150	eligible to claim tax credits in connection with the investment and
151	151	the amount that may be claimed by each taxable entity.
152	152	(b) The comptroller shall approve a portion of the amount of
153	153	a proposed qualified investment if the full amount may not be
154	154	approved because of the limit under Section 171.755(c).
155	155	(c) If more than one application for approval of a qualified
156	156	investment submitted on the same day is found to qualify for
157	157	approval and the full amount of all qualified investments under
158	158	those applications may not be approved because of the limit under
159	159	Section 171.755(c), the comptroller shall approve a pro rata
160	160	portion of each of those qualified investments based on the
161	161	purchase price.
162	162	Sec. 171.757. DURATION OF APPROVAL. The qualified
163	163	community development entity must issue the qualified investment in
164	164	exchange for cash not later than the 60th day after receiving the
165	165	order approving an investment as a qualified investment or the
166	166	approval order becomes void.
167	167	Sec. 171.758. REPORT OF ISSUANCE OF QUALIFIED INVESTMENT.
168	168	The qualified community development entity must provide the
169	169	comptroller with evidence of receiving the purchase price of the
170	170	qualified investment in cash not later than the 30th business day
171	171	after issuance.
172	172	Sec. 171.759. USE OF PROCEEDS FROM QUALIFIED INVESTMENTS;
173	173	RECORDKEEPING. (a) A qualified community development entity may not
174	174	make cash interest payments on a long-term debt security that is a
175	175	qualified investment in excess of the entity's operating income for
176	176	six years following the issuance of the security.
177	177	(b) A qualified community development entity shall keep
178	178	detailed records showing the use of proceeds from qualified
179	179	investments to fund redevelopment investments.
180	180	(c) A business, including its affiliates, may not receive
181	181	more than $10 million in redevelopment investments under this
182	182	subchapter.
183	183	Sec. 171.760. FRANCHISE TAX CREDIT. (a) A taxable entity is
184	184	eligible for a credit against the tax imposed under this chapter in
185	185	the amount provided by this section and under the conditions and
186	186	limitations provided by this subchapter.
187	187	(b) A taxable entity is eligible for a credit if the taxable
188	188	entity holds a qualified investment on a credit allowance date. The
189	189	amount of the credit on the first, second, and third credit
190	190	allowance dates is equal to five percent of the purchase price of
191	191	the qualified investment. The amount of the credit on the fourth,
192	192	fifth, sixth, and seventh credit allowance dates is equal to six
193	193	percent of the purchase price of the qualified investment.
194	194	(c) The total credit claimed for a report, including the
195	195	amount of any carryforward under Subsection (e), may not exceed the
196	196	amount of franchise tax due for the report after applying all other
197	197	applicable tax credits.
198	198	(d) Credits may be applied to the taxable entity's estimated
199	199	or final tax payments for the applicable period.
200	200	(e) If a taxable entity is eligible for a credit that
201	201	exceeds the limitation under Subsection (c), the taxable entity may
202	202	carry the unused credit forward for not more than five consecutive
203	203	reports. Credits, including credit carryforwards, are considered
204	204	to be used in the following order:
205	205	(1) a credit carryforward under this section; and
206	206	(2) a current year credit.
207	207	(f) A taxable entity may sell or transfer the credit allowed
208	208	under this section, including the unused amount of a credit
209	209	carryforward, to another taxable entity. The taxable entity making
210	210	the sale or transfer must report to the comptroller:
211	211	(1) the amount of credit sold or transferred;
212	212	(2) the identity of the entity making the purchase or
213	213	receiving the transfer; and
214	214	(3) the reporting period to which the credit applies
215	215	and whether the credit is a carryforward credit.
216	216	Sec. 171.761. ANNUAL REPORT. A qualified community
217	217	development entity that has issued a qualified investment shall,
218	218	not later than the 30th day after each credit allowance date, submit
219	219	to the comptroller:
220	220	(1) a report, verified by the chief executive officer
221	221	of the community development entity, describing each redevelopment
222	222	investment made by the entity since the last credit allowance date,
223	223	including:
224	224	(A) a description of the type and amount of each
225	225	redevelopment investment; and
226	226	(B) the address of the principal location of each
227	227	business receiving a redevelopment investment;
228	228	(2) bank records, wire transfer records, or similar
229	229	documents that provide evidence of the redevelopment investments
230	230	made since the last credit allowance date;
231	231	(3) a verified statement by the chief financial or
232	232	accounting officer of the qualified community development entity
233	233	that no redemption or principal repayment was made with respect to
234	234	the qualified investment since the previous credit allowance date;
235	235	(4) information relating to any recapture of a federal
236	236	new markets tax credit involving the qualified community
237	237	development entity since the last credit allowance date;
238	238	(5) the qualified community development entity's
239	239	annual financial statements for the preceding tax year, audited by
240	240	an independent certified public accountant;
241	241	(6) the number of jobs created and retained by
242	242	businesses receiving redevelopment investments made by the
243	243	qualified community development entity;
244	244	(7) a description of the relationships the qualified
245	245	community development entity has established with local economic
246	246	development organizations and a summary of the outcomes resulting
247	247	from those relationships; and
248	248	(8) other information and documentation required by
249	249	the comptroller to verify the entity's continued certification as a
250	250	qualified community development entity under 26 U.S.C. Section 45D.
251	251	Sec. 171.762. AUDITS AND EXAMINATIONS. The comptroller may
252	252	conduct audits and examinations to verify compliance with this
253	253	subchapter.
254	254	Sec. 171.763. RECAPTURE AND PENALTIES. (a) The comptroller
255	255	shall direct at any time before December 31, 2026, the recapture of
256	256	all or a portion of a tax credit authorized under this subchapter
257	257	if:
258	258	(1) the federal government recaptures any portion of a
259	259	federal new markets tax credit in connection with a qualified
260	260	investment or redevelopment investment that was also the basis for
261	261	a credit under this subchapter, in which case the recapture under
262	262	this section shall be proportional to the recapture by the federal
263	263	government;
264	264	(2) the qualified community development entity
265	265	redeems or makes a principal repayment on a qualified investment
266	266	before the seventh credit allowance date, in which case the
267	267	recapture under this section for each taxable entity shall be equal
268	268	to the taxable entity's total tax credits multiplied by a fraction,
269	269	the numerator of which is the redemption or principal repayment
270	270	received by the taxable entity and the denominator of which is the
271	271	purchase price paid by the taxable entity;
272	272	(3) subject to Subsection (b), the qualified community
273	273	development entity fails to invest at least 85 percent of the
274	274	purchase price in redevelopment investments before the second
275	275	credit allowance date;
276	276	(4) subject to Subsection (b), the qualified community
277	277	development entity fails to maintain at least 85 percent of the
278	278	purchase price invested in redevelopment investments until the
279	279	seventh credit allowance date;
280	280	(5) the qualified community development entity fails
281	281	to provide the comptroller's office with information, reports, or
282	282	documentation required under this subchapter; or
283	283	(6) the comptroller determines that a taxable entity
284	284	received tax credits to which the taxable entity was not entitled.
285	285	(b) For the purpose of Subsections (a)(3) and (4):
286	286	(1) capital or principal recovered from a
287	287	redevelopment investment is considered to be invested in the
288	288	redevelopment investment for one year following the recovery; and
289	289	(2) capital or principal recovered from a
290	290	redevelopment investment after the sixth credit allowance date is
291	291	considered to remain invested in the redevelopment investment until
292	292	the seventh credit allowance date.
293	293	(c) The comptroller's office shall provide notice to the
294	294	qualified community development entity of a proposed recapture of a
295	295	tax credit. The entity may, not later than the 90th day after
296	296	receiving the notice, cure a deficiency identified in the notice
297	297	and avoid recapture. The comptroller shall issue a final order of
298	298	recapture if the entity fails to cure a deficiency on or before the
299	299	90th day after receiving the notice. The final order of recapture
300	300	shall be provided to the entity and a taxable entity otherwise
301	301	authorized to claim the tax credit. The amount recovered shall be
302	302	deposited in the general revenue fund.
303	303	(d) A person who submits fraudulent information to the
304	304	comptroller is liable to the state for the costs associated with the
305	305	investigation and prosecution of the fraudulent claim and a penalty
306	306	in an amount equal to twice the amount of tax credits claimed by
307	307	investors in the entity's qualified investments. This penalty is in
308	308	addition to any other penalty that may be imposed by law.
309	309	Sec. 171.764. RULES. The comptroller shall adopt rules to
310	310	implement this subchapter.
311	311	Sec. 171.765. EXPIRATION. (a) This subchapter expires
312	312	December 31, 2026.
313	313	(b) The expiration of this subchapter does not affect the
314	314	carryforward of a credit under Section 171.760(e) or those credits
315	315	for which a taxable entity is eligible after the date this
316	316	subchapter expires based on a qualified investment made before the
317	317	date this subchapter expires.
318	318	SECTION 2. This Act applies only to a report originally due
319	319	on or after the effective date of this Act.
320	320	SECTION 3. This Act takes effect January 1, 2020.