By: Alvarado S.B. No. 2814
AN ACT
relating to a franchise or insurance premium tax credit for certain
housing developments.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 171, Tax Code, is amended by adding
Subchapter K to read as follows:
SUBCHAPTER K. TAX CREDIT FOR CERTAIN HOUSING DEVELOPMENTS
Sec. 171.551. DEFINITIONS. In this subchapter:
(1) "Allocation certificate" means a statement issued
by the department certifying that a qualified development qualifies
for credits under this subchapter and Chapter 233, Insurance Code,
specifying the total amount of the credits awarded in connection
with the qualified development for the credit period, and
specifying theannual amount of credit that may be claimed each year
during the credit period for each building that is part of the
qualified development.
(2) "Credit" means the low-income housing development
tax credit authorized by this subchapter.
(3) "Credit period" means, with respect to a building
that is part of a qualified development, the period of 10 tax years
beginning with the tax year in which the building is placed in
service.
(4) "Department" means the Texas Department of Housing
and Community Affairs.
(5) "Development" has the meaning assigned by Section
2306.6702, Government Code.
(6) "Federal tax credit" means the federal low-income
housing credit created by Section 42, Internal Revenue Code.
(7) "Qualified basis" means the qualified basis of a
qualified development, as determined under Section 42, Internal
Revenue Code.
(8) "Qualified development" means a development in
this state:
(A) for which the department awards or allocates
a federal tax credit through the issuance of a carryover allocation
agreement or determination notice;
(B) that has not had an allocation of federal tax
credits terminated by or at the direction of the department;
(C) that is the subject of a recorded restrictive
covenant requiring the development to be maintained and operated as
a qualified development that has not been terminated and is not
subject to termination through any process other than the natural
expiration of the covenant's extended use period;
(D) that meets all applicable requirements of the
qualified allocation plan, as defined by Section 2306.6702,
Government Code; and
(E) for the duration of the extended use period
established in the land use restriction agreement, as defined by
Section 2306.6702(a)(9), Government Code, is in compliance with:
(i) all accessibility and adaptability
requirements for a federal tax credit; and
(ii) Title VIII of the Civil Rights Act of
1968 (42 U.S.C. Section 3601 et seq.).
(9) "State housing credit ceiling" means $25 million
of annual credits each award year.
Sec. 171.552. ENTITLEMENT TO CREDIT. A taxable entity is
entitled to an annual credit against the taxes imposed under this
chapter in the amount and under the limitations provided by this
subchapter if the taxable entity owns a direct or indirect interest
in a qualified development.
Sec. 171.553. APPLICATION FOR AND ISSUANCE OF ALLOCATION
CERTIFICATE. (a) A taxable entity or an entity subject to state
premium tax liability as defined by Section 233.0001, Insurance
Code, must apply to the department for an allocation certificate in
connection with a development in which the taxable entity or other
entity owns an interest. The application must be submitted to the
department along with the application for an allocation of federal
tax credits in a manner prescribed by the department.
(b) The department shall issue an allocation certificate
if:
(1) the department approves the application submitted
under Subsection (a);
(2) the development meets the requirements to be a
qualified development; and
(3) the department awards an amount of credit to the
development under Section 171.554.
Sec. 171.554. AMOUNT OF CREDITS; METHOD OF AWARD. (a) The
department shall in the manner provided by this section determine
the total amount of annual credits under this subchapter and
Chapter 233, Insurance Code, awarded for each year of the credit
period in connection with a qualified development and indicate the
amount of the annual credits awarded on the allocation certificate.
(b) The amount of annual credit awarded in connection with a
qualified development overallowed each year of the credit period
must be the minimum amount necessary for the financial feasibility
of the qualified development, subject to the limitations of this
section.
(c) The amount of annual credits awarded in connection with
a qualified development allowed each year ofover the credit period
may not exceed the total amount of the annual federal tax credit
awarded to the owner or owners of the qualified development allowed
each year ofover the 10-year federal tax credit period.
(d) The manner in which the department awards the amount of
credits must be consistent with criteria established by the
department.
(e) The total amount of annual credits awarded for aeach
award year in connection with all qualified developments financed
through tax exempt bonds may not exceed the sum of:
(1) 50 percent of the state housing credit ceiling for
the year;
(2) any portion of the state housing credit ceiling
for the preceding year that could have been awarded for qualified
developments financed through tax exempt bonds but was not awarded;
and
(3) any credits recaptured or otherwise returned to
the department in the year that were originally awarded in
connection with a qualified development financed through tax exempt
bonds.
(f) The total amount of annual credits awarded for aeach
award year in connection with all qualified developments not
financed through tax exempt bonds may not exceed the sum of:
(1) 50 percent of the state housing credit ceiling for
the year;
(2) any portion of the state housing credit ceiling
for the preceding year that could have been awarded for qualified
developments not financed through tax exempt bonds but was not
awarded; and
(3) any credits recaptured or otherwise returned to
the department in the year that were originally awarded in
connection with a qualified development not financed through tax
exempt bonds.
(g) The department shall, in the qualified allocation plan,
determine the priorities and criteria for awarding annual credits
during award years in which the amount of credits applied for
exceeds the maximum amount that may be awarded under this section.
Sec. 171.555. APPORTIONMENT OF CREDIT. The direct or
indirect owners of a qualified development who intend to claim a
credit under this subchapter or Chapter 233, Insurance Code, may by
agreement determine the portion of the total amount of credits
awarded under Section 171.554 annual credit that each owner is
entitled to claim for any year during the credit period. If the
owners do not agree, the department shall determine the portion
each owner is entitled to claim based on each owner's ownership
interest in the qualified development.
Sec. 171.556. LENGTH OF CREDIT; LIMITATION. (a) Any
taxable entity entitled to a credit under this subchapter shall
claim its portion of the annual credit in equal installmentsfor
each yearduring each year of the credit period.
(b) The total credit claimed under this subchapter for a
report, including any carry forward or backward under Section
171.557, may not exceed the amount of tax due for the report after
any other applicable credit.
Sec. 171.557. CARRY FORWARD OR BACKWARD. (a) If a taxable
entity is eligible for a credit that exceeds the limitations under
Section 171.556, the taxable entity may carry the unused credit
back for not more than three tax years or forward for not more than
10 consecutive reports following the tax year in which the
allocation certificate was issued. A credit carryforward from a
previous report is considered to be used before the current year
installment. A credit carried back to a previous report is
considered to be used after any other franchise tax credit is
applied to that report.
(b) A credit that is not used may not be refunded.
(c) The allocation of a credit in accordance with Section
171.559 does not extend the period for which a credit may be carried
forward and does not increase the total amount of the credit that
may be claimed.
(d) An entity may not carry back a credit under this
subchapter to a tax year for which the report was originally due
before January 1, 2026.
Sec. 171.558. RECAPTURE. (a) If a qualified development is
subject to the recapture of a portion of the federal tax credit
awarded or allocated to the development, then each taxable entity
or entity subject to state premium tax liability as defined by
Section 233.0001, Insurance Code, that has claimed or is entitled
to claim a portion of the credit under this subchapter is also
subject to the recapture of a portion of the credit under this
subchapter.
(b) The amount of credit under this subchapter that is
subject to recapture under this section is the same percentage of
the amount originally awarded or allocated as the percentage of the
amount of the federal tax credit originally awarded or allocated
that is subject to recapture under federal law. The recapture of a
credit under this section is not subject to a statute of limitations
provided by Chapter 111.
(c) The owners of a qualified development that is awarded or
allocated a credit under this subchapter or a representative of
those owners shall identify each taxable entity and each entity
subject to state premium tax liability as defined by Section
233.0001, Insurance Code, that is subject to recapture of the
credit under this section.
(d) Not later than the 30th day after the date any owner of a
qualified development receives notice that a federal tax credit
awarded or allocated to the development is subject to recapture,
the owners of the development or a representative of those owners
shall report to the comptroller:
(1) the amount of federal tax credit originally
awarded or allocated to the development;
(2) the amount of federal tax credit that is subject to
recapture and the percentage of the amount originally awarded or
allocated which that amount represents; and
(3) each entity identified under Subsection (c).
Sec. 171.559. ALLOCATION OF CREDIT. (a) If a taxable
entity receiving a credit under this subchapter is a partnership,
limited liability company, S corporation, or similar pass-through
entity, the taxable entity may allocate the credit to its partners,
shareholders, members, or other constituent taxable entities in any
manner agreed to by those entities, regardless of the size of the
person's ownership interest. This section does not prohibit a
partner, member, or shareholder from holding an investment
consisting only of a credit awarded under this subchapter or a
federal tax credit.
(b) A taxable entity that makes an allocation under this
section shall certify to the comptroller the amount of credit
allocated to each constituent taxable entity or shall notify the
comptroller that it has delegated the duty of certification to one
constituent taxable entity that shall provide the notification to
the comptroller. Each constituent taxable entity is entitled to
claim the allocated amount subject to any restrictions prescribed
by this subchapter.
(c) An allocation under this section is not a transfer for
purposes of state law.
Sec. 171.560. FILING REQUIREMENTS AFTER ALLOCATION. A
taxable entity that allocates a portion of the credit under Section
171.559, and each taxable entity to which a portion was allocated,
shall file with the taxable entity's report a copy of the
certification or notice required by Section 171.559(b).
Sec. 171.561. APPLICATION FOR CREDIT. (a) A taxable entity
must apply for a credit under this subchapter on or with the tax
report for which the credit is claimed and submit with the
application a copy of the allocation certificate issued in
connection with the qualified development and any other information
required by the comptroller.
(b) The comptroller shall adopt a form for the application
for the credit. A taxable entity must use the form to apply for the
credit.
Sec. 171.562. RULES; PROCEDURES. The department and
comptroller, in consultation with each other, shall adopt rules and
procedures to implement, administer, and enforce this subchapter.
Sec. 171.563. COMPLIANCE MONITORING. (a) The department
shall monitor compliance with this subchapter in the same manner as
the department monitors compliance with the federal tax credit
program.
(b) The department shall report any instances of
noncompliance with this subchapter to the comptroller.
Sec. 171.564. INCLUSION OF INFORMATION IN LOW INCOME
HOUSING PLAN. The department shall include in the low income
housing plan under Section 2306.0721, Government Code, information
relating to the performance of the credit during the previous
calendar year. The information must:
(1) specify the number of qualified developments for
which allocation certificates were issued during the year and the
total number of units supported by the developments;
(2) describe each qualified development for which an
allocation certificate was issued during the year, including:
(A) location;
(B) household type;
(C) available demographic information for the
residents intended to be served by the development;
(D) the income levels intended to be served by
the development; and
(E) the rents or set-asides authorized for the
development;
(3) include housing market and demographic
information to demonstrate how the qualified developments,
supported by the tax credits under this subchapter and Chapter 233,
Insurance Code, are addressing the need for affordable housing in
their communities; and
(4) analyze any remaining disparities in the
affordability of housing within those communities.
Sec. 171.565. EXPIRATION OF AUTHORITY TO ALLOCATE CREDITS.
(a) After December 31, 2029, the department may not:
(1) reserve an amount of credit under this subchapter
for a qualified development for the purpose of issuing an
allocation certificate for the development at a later date; or
(2) issue an allocation certificate for a qualified
development unless, on or before December 31, 2029, the department
reserved an amount of credit under this subchapter for the
development for the purpose of issuing an allocation certificate at
a later date if the requirements for issuance of the certificate are
met.
(b) On or after January 1, 2030:
(1) the department may issue an allocation certificate
for which an amount of credit was reserved under Subsection (a)(2);
and
(2) an entity may claim a credit on a tax report as
provided by this subchapter or Chapter 233, Insurance Code, in
connection with a qualified development for which the department
issued an allocation certificate or reserved an amount of credit
before January 1, 2030.
Sec. 171.566. PRIORITY ALLOCATION FOR CERTAIN QUALIFIED
DEVELOPMENTS. (a) This section applies only to a qualified
development:
(1) that received an allocation of federal tax credits
under the qualified allocation plan issued by the department for
2021 or 2022;
(2) the owners or developers of which have owned the
land necessary for the development since at least December 31,
2022;
(3) that is not financed through tax exempt bonds; and
(4) that the department determines requires an
allocation of credit under this subchapter to secure the financial
feasibility of the qualified development after considering any
federal tax credit.
(b) Notwithstanding Sections 171.554(e) and (f) and subject
to Subsection (e) of this section, for the first year the department
issues allocation certificates or reserves credit amounts for the
purpose of issuing allocation certificates, the department shall
use $5 million of the state housing credit ceiling to award credits
to qualified developments to which this section applies.
(c) The owners of a qualified development to which this
section applies who intend to apply for an allocation of credit
under this section, or a representative of those owners, must
notify the department of that intent before the deadline for the
qualified development to be placed in service. If the owners or
their representative provide the notice required by this
subsection, the deadline for the qualified development to be placed
in service is extended until:
(1) the deadline set by the department for submitting
an application for an allocation under this section; or
(2) if an application for an allocation under this
section is submitted before the deadline set by the department, the
date the department issues a decision on the application.
(d) An applicant for an allocation of credit under this
section must submit to the department:
(1) documents proving that the owners or developers of
the qualified development meet the land ownership requirement under
Subsection (a)(2);
(2) a financial analysis demonstrating that the
allocation is necessary to secure the financial feasibility of the
development as required by Subsection (a)(4); and
(3) any other documentation required by the department
to demonstrate that the qualified development meets the
requirements provided by Subsection (a).
(e) If the amount of state credits reserved under this
section is not fully allocated to qualified developments to which
this section applies, the department shall allocate the remaining
portion to qualified developments to which this section does not
apply.
(f) The department shall, in the qualified allocation plan,
determine the priorities and criteria for awarding credits under
this section if the amount of credits applied for exceeds the
maximum amount that may be awarded under this section.
SECTION 2. Subtitle B, Title 3, Insurance Code, is amended
by adding Chapter 233 to read as follows:
CHAPTER 233. CREDIT AGAINST CERTAIN TAXES FOR CERTAIN HOUSING
DEVELOPMENTS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 233.0001. DEFINITIONS. In this chapter:
(1) "Allocation certificate," "credit," and
"qualified development" have the meanings assigned by Section
171.551, Tax Code.
(2) "State premium tax liability" means any tax
liability incurred by an entity under Chapter 221, 222, 223, or 224.
SUBCHAPTER B. CREDIT
Sec. 233.0051. CREDIT. (a) An entity is eligible for a
credit against the entity's state premium tax liability in the
amount and under the limitations provided by this chapter if the
entity owns a direct or indirect interest in a qualified
development.
(b) An entity that claims a credit under this chapter is not
required to pay any additional retaliatory tax under Chapter 281 as
a result of claiming the credit.
Sec. 233.0052. LENGTH OF CREDIT; LIMITATIONS. (a) The
entity shall claim the annual credit in the manner provided by
Section 171.556, Tax Code.
(b) The total credit claimed under this chapter for a
report, including any carry forward or backward described by
Subsection (c), may not exceed the amount of the entity's state
premium tax liability due for the report after any other applicable
credit.
(c) The entity may carry a surplus credit forward or
backward as provided by Section 171.557, Tax Code.
Sec. 233.0053. APPLICATION FOR CREDIT. (a) An entity must
apply for a credit under this chapter on or with the tax report for
the tax year for which the credit is claimed and submit with the
application a copy of the allocation certificate issued in
connection with the qualified development and any other information
required by Subchapter K, Chapter 171, Tax Code.
(b) The comptroller shall adopt a form for the application
for the credit. An entity must use this form in applying for the
credit.
Sec. 233.0054. RULES; PROCEDURES. The comptroller and the
Texas Department of Housing and Community Affairs, in consultation
with each other, shall adopt rules and procedures to implement,
administer, and enforce this chapter.
Sec. 233.0055. APPLICABLE PROVISIONS. The provisions of
Subchapter K, Chapter 171, Tax Code, relating to recapture,
allocation of credit, apportionment of credit, length of credit,
filing requirements after allocation, and compliance monitoring
apply to the credit authorized by this chapter.
SUBCHAPTER C. EXPIRATION OF AUTHORITY TO ALLOCATE CREDITS
Sec. 233.0101. EXPIRATION OF ALLOCATION AUTHORITY; USE OF
ALLOCATED CREDITS. (a) The authority of the Texas Department of
Housing and Community Affairs to reserve credit amounts and issue
allocation certificates for purposes of Subchapter K, Chapter 171,
Tax Code, and this chapter expires as provided by Section
171.565(a), Tax Code.
(b) An entity may claim a credit under this chapter on a tax
report as provided by Section 171.565(b), Tax Code.
SECTION 3. (a) The Texas Department of Housing and
Community Affairs may begin reserving credit amounts for the
purpose of issuing allocation certificates under Subchapter K,
Chapter 171, Tax Code, as added by this Act, in an open cycle
beginning on January 1, 2024.
(b) Except as provided by Subsection (c) of this section,
Subchapter K, Chapter 171, Tax Code, as added by this Act, and
Chapter 233, Insurance Code, as added by this Act, apply only to a
tax report originally due on or after January 1, 2026, and before
January 1, 2036.
(c) The expiration of the authority to allocate credits
under Subchapter K, Chapter 171, Tax Code, as added by this Act, in
accordance with Section 171.565, Tax Code, as added by this Act,
does not affect the carryforward of a credit under:
(1) Section 171.557, Tax Code, as added by this Act; or
(2) Section 233.0052(c), Insurance Code, as added by
this Act.
SECTION 4. This Act takes effect January 1, 2026.