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A BILL TO BE ENTITLED
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AN ACT
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relating to tax credits for qualified low-income community |
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investments. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Chapter 171, Tax Code, is amended by adding |
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Subchapter J-1 to read as follows: |
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SUBCHAPTER J-1. CREDIT FOR QUALIFIED LOW-INCOME COMMUNITY |
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INVESTMENTS |
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Sec. 171.521. DEFINITIONS. In this subchapter: |
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(1) "Credit allowance date" means, with respect to a |
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qualified equity investment: |
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(A) the date on which the investment is initially |
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made; and |
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(B) each of the next six anniversaries of that |
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date. |
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(2) "Long-term debt security" means a debt instrument |
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issued by a qualified community development entity, at par value or |
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a premium, with an original maturity date of at least seven years |
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from the date of its issuance, with no acceleration of repayment, |
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amortization, or prepayment features before its original maturity |
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date, and with no distribution, payment, or interest features |
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related to the profitability of the qualified community development |
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entity or the performance of the qualified community development |
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entity's investment portfolio. This subdivision does not limit the |
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ability of the holder of the debt instrument to accelerate payments |
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on the debt instrument in a situation in which the issuer has |
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defaulted on a covenant designed to ensure compliance with this |
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subchapter or Section 45D, Internal Revenue Code of 1986. |
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(3) "Qualified active low-income community business" |
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has the meaning assigned by Section 45D(d)(2), Internal Revenue |
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Code of 1986. |
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(4) "Qualified community development entity" has the |
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meaning assigned by Section 45D(c), Internal Revenue Code of 1986, |
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but only if the entity has entered into an allocation agreement with |
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the Community Development Financial Institutions Fund of the United |
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States Department of the Treasury with respect to credits |
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authorized by Section 45D, Internal Revenue Code of 1986. The term |
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does not include a qualified community development entity that |
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entered into an allocation agreement solely as part of a Gulf |
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Opportunity (GO) Zone allocation. |
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(5) "Qualified equity investment" means an equity |
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investment in, or long-term debt security issued by, a qualified |
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community development entity that: |
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(A) is acquired after January 1, 2009, at the |
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investment's original issuance solely in exchange for cash or that |
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was a qualified equity investment in the hands of a prior holder; |
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(B) has at least 85 percent of its cash purchase |
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price used by the issuer to make qualified low-income community |
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investments; and |
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(C) is designated by the issuer as a qualified |
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equity investment under this subchapter, regardless of whether it |
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also has been designated as a qualified equity investment under |
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Section 45D, Internal Revenue Code of 1986. |
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(6) "Qualified low-income community investment" means |
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a capital or equity investment in, or loan to, a qualified active |
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low-income community business. |
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Sec. 171.522. TOTAL AMOUNT OF CREDITS THAT MAY BE CLAIMED. |
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(a) Notwithstanding any other provision of this subchapter, the |
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total amount of tax credits that may be claimed by taxable entities |
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under both this subchapter and Chapter 231, Insurance Code, in a |
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state fiscal year may not exceed $14 million. |
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(b) The comptroller by rule shall prescribe procedures by |
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which the comptroller may allocate credits under this subchapter |
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and Chapter 231, Insurance Code. The procedures: |
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(1) must provide for allocating the credits on a pro |
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rata basis based on the investment history of the issuer; |
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(2) must provide that the maximum credit allocation a |
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taxable entity may receive is $4 million if, before the date of the |
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allocation, the issuer of the qualified equity investment or any |
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affiliate of the issuer made a qualified equity investment in this |
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state under the federal new market tax credit program; and |
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(3) may include requiring an entity to apply for a |
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credit before the due date of the tax report on which the entity |
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will first claim the credit under this subchapter or Chapter 231, |
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Insurance Code. |
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(c) To assist the comptroller in determining the amount of |
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credits that may be claimed each year, the issuer of a qualified |
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equity investment shall certify to the comptroller the anticipated |
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dollar amount of that investment to be made in this state during the |
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first 12-month period following the initial credit allowance date. |
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If on the second credit allowance date the actual dollar amount of |
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that investment is different than the amount previously estimated, |
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the comptroller shall adjust the amount of the credits that may be |
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claimed on or after the second allowance date to account for the |
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difference. |
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Sec. 171.523. QUALIFICATION FOR CREDIT. (a) A taxable |
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entity qualifies for a credit under this subchapter on a report if |
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the taxable entity holds a qualified equity investment on a credit |
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allowance date of that investment that occurs during the period on |
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which the report is based. |
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(b) A taxable entity that holds a qualified equity |
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investment may claim a credit under this subchapter for not more |
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than seven consecutive reports beginning with the report based on |
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the period during which the taxable entity first holds the |
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investment on a credit allowance date. |
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Sec. 171.524. COMPUTATION OF CREDIT. (a) The amount of the |
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credit is computed using the purchase price paid to the issuer of |
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the qualified equity investment. |
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(b) The maximum amount of investment that a qualified |
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community development entity, on an aggregate basis with all of its |
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affiliates, may allocate to a single qualified active low-income |
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community business on a collective basis with all of its affiliates |
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is $15 million. |
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Sec. 171.525. AMOUNT OF ANNUAL CREDIT. (a) Except as |
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otherwise provided by this subchapter, the amount of the tax credit |
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a taxable entity may claim on a report is equal to: |
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(1) for the first year for which the taxable entity may |
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claim the credit, zero percent of the purchase price on the |
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applicable credit allowance date; |
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(2) for each of the next three years for which the |
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taxable entity may claim the credit, six percent of the purchase |
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price on the applicable credit allowance date; and |
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(3) for the remaining three years for which the |
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taxable entity may claim the credit, seven percent of the purchase |
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price on the applicable credit allowance date. |
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(b) The total credit claimed under this subchapter for a |
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report, including the amount of any carryforward credit under |
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Section 171.526, may not exceed the amount of franchise tax due |
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after any other applicable credits. |
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Sec. 171.526. CARRYFORWARD. (a) If a taxable entity is |
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eligible for a credit that exceeds the limitation under Section |
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171.525(b), the taxable entity may carry the unused credit forward |
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to subsequent consecutive reports. |
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(b) A carryforward is considered the remaining portion of a |
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credit that cannot be claimed in the current year because of the tax |
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limitation under Section 171.525(b). A carryforward is added to |
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the next year's credit in determining whether the limitation is met |
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for that year. A credit carryforward from a previous report is |
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considered to be used before the current year credit. |
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Sec. 171.527. CERTIFICATION OF ELIGIBILITY. (a) For the |
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initial and each succeeding report in which a credit is claimed |
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under this subchapter, the taxable entity shall file with its |
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report, on a form provided by the comptroller, information that |
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sufficiently demonstrates that the taxable entity is eligible for |
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the credit. |
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(b) The burden of establishing entitlement to and the value |
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of the credit is on the taxable entity. |
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Sec. 171.528. ASSIGNMENT PROHIBITED. (a) A taxable entity |
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may not convey, assign, or transfer the credit allowed under this |
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subchapter to another entity unless all of the assets of the taxable |
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entity are conveyed, assigned, or transferred in the same |
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transaction. |
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(b) Notwithstanding Subsection (a), a tax credit earned by a |
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partnership, limited liability company, S corporation, or other |
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"pass-through" entity may be allocated to the partners, members, or |
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shareholders of that entity and claimed under this subchapter in |
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accordance with the provisions of any agreement among the partners, |
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members, or shareholders. |
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Sec. 171.529. RECAPTURE OF CREDIT. (a) The comptroller |
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shall recapture a tax credit allowed under this subchapter with |
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respect to a qualified equity investment if: |
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(1) any amount of the federal tax credit available |
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with respect to the qualified equity investment is recaptured under |
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Section 45D, Internal Revenue Code of 1986; or |
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(2) the issuer redeems the investment or makes any |
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principal repayment with respect to the investment before the |
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seventh anniversary of the date the investment was issued. |
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(b) The comptroller shall recapture the tax credit from the |
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taxable entity that claimed the credit. The recapture must be done |
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on a scaled proportional basis. |
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SECTION 2. Subtitle B, Title 3, Insurance Code, is amended |
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by adding Chapter 231 to read as follows: |
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CHAPTER 231. CREDIT FOR QUALIFIED LOW-INCOME COMMUNITY INVESTMENTS |
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Sec. 231.001. DEFINITIONS. In this chapter: |
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(1) "Credit allowance date" means, with respect to a |
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qualified equity investment: |
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(A) the date on which the investment is initially |
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made; and |
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(B) each of the next six anniversaries of that |
|
date. |
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(2) "Long-term debt security" means a debt instrument |
|
issued by a qualified community development entity, at par value or |
|
a premium, with an original maturity date 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, and with no distribution, payment, or interest features |
|
related to the profitability of the qualified community development |
|
entity or the performance of the qualified community development |
|
entity's investment portfolio. This subdivision does not limit the |
|
ability of the holder of the debt instrument to accelerate payments |
|
on the debt instrument in a situation in which the issuer has |
|
defaulted on a covenant designed to ensure compliance with this |
|
chapter or Section 45D, Internal Revenue Code of 1986. |
|
(3) "Qualified active low-income community business" |
|
has the meaning assigned by Section 45D(d)(2), Internal Revenue |
|
Code of 1986. |
|
(4) "Qualified community development entity" has the |
|
meaning assigned by Section 45D(c), Internal Revenue Code of 1986, |
|
but only if the entity has entered into 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. The term |
|
does not include a qualified community development entity that |
|
entered into an allocation agreement solely as part of a Gulf |
|
Opportunity (GO) Zone allocation. |
|
(5) "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 January 1, 2009, at the |
|
investment's original issuance solely in exchange for cash or that |
|
was a qualified equity investment in the hands of a prior holder; |
|
(B) has at least 85 percent of its cash purchase |
|
price used by the issuer to make qualified low-income community |
|
investments; and |
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(C) is designated by the issuer as a qualified |
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equity investment under this chapter, regardless of whether it also |
|
has been designated as a qualified equity investment under Section |
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45D, Internal Revenue Code of 1986. |
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(6) "Qualified low-income community investment" means |
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a capital or equity investment in, or loan to, a qualified active |
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low-income community business. |
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(7) "State premium tax liability" means any liability |
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incurred by an entity under Chapters 221 through 226. |
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Sec. 231.002. TOTAL AMOUNT OF CREDITS THAT MAY BE CLAIMED. |
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(a) Notwithstanding any other provision of this chapter, the total |
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amount of tax credits that may be claimed by entities under both |
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this chapter and Subchapter J-1, Chapter 171, Tax Code, in a state |
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fiscal year may not exceed $14 million. |
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(b) The comptroller by rule shall prescribe procedures by |
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which the comptroller may allocate credits under this chapter and |
|
Subchapter J-1, Chapter 171, Tax Code. The procedures: |
|
(1) must provide for allocating the credits on a pro |
|
rata basis based on the investment history of the issuer; |
|
(2) must provide that the maximum credit allocation an |
|
entity may receive is $4 million if, before the date of the |
|
allocation, the issuer of the qualified equity investment or any |
|
affiliate of the issuer made a qualified equity investment in this |
|
state under the federal new market tax credit program; and |
|
(3) may include requiring an entity to apply for a |
|
credit before the due date of the tax report on which the entity |
|
will first claim the credit under this chapter or Subchapter J-1, |
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Chapter 171, Tax Code. |
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(c) To assist the comptroller in determining the amount of |
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credits that may be claimed each year, the issuer of a qualified |
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equity investment shall certify to the comptroller the anticipated |
|
dollar amount of that investment to be made in this state during the |
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first 12-month period following the initial credit allowance date. |
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If on the second credit allowance date the actual dollar amount of |
|
that investment is different than the amount previously estimated, |
|
the comptroller shall adjust the amount of the credits that may be |
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claimed on or after the second allowance date to account for the |
|
difference. |
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Sec. 231.003. QUALIFICATION FOR CREDIT. (a) An entity |
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qualifies for a credit against the entity's state premium tax |
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liability on a premium tax report filed under this subtitle if the |
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entity holds a qualified equity investment on a credit allowance |
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date of that investment that occurs during the period on which the |
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report is based. |
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(b) An entity that holds a qualified equity investment may |
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claim a credit against the entity's state premium tax liability for |
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not more than seven consecutive reports beginning with the report |
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based on the period during which the entity first holds the |
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investment on a credit allowance date. |
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Sec. 231.004. COMPUTATION OF CREDIT. (a) The amount of the |
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credit is computed using the purchase price paid to the issuer of |
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the qualified equity investment. |
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(b) The maximum amount of investment that a qualified |
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community development entity, on an aggregate basis with all of its |
|
affiliates, may allocate to a single qualified active low-income |
|
community business on a collective basis with all of its affiliates |
|
is $15 million. |
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Sec. 231.005. AMOUNT OF ANNUAL CREDIT. (a) Except as |
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otherwise provided by this chapter, the amount of the tax credit an |
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entity may claim on a premium tax report filed under this subtitle |
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is equal to: |
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(1) for the first year for which the entity may claim |
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the credit, zero percent of the purchase price on the applicable |
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credit allowance date; |
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(2) for each of the next three years for which the |
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entity may claim the credit, six percent of the purchase price on |
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the applicable credit allowance date; and |
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(3) for the remaining three years for which the entity |
|
may claim the credit, seven percent of the purchase price on the |
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applicable credit allowance date. |
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(b) The total credit claimed under this chapter for a |
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premium tax report filed under this subtitle, including the amount |
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of any carryforward credit under Section 231.006, may not exceed |
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the amount of the entity's state premium tax liability in any |
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taxable year after any other applicable credits. |
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Sec. 231.006. CARRYFORWARD. (a) If an entity is eligible |
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for a credit that exceeds the limitation under Section 231.005(b), |
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the entity may carry the unused credit forward to subsequent |
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consecutive premium tax reports filed under this subtitle. |
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(b) A carryforward is considered the remaining portion of a |
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credit that cannot be claimed in the current year because of the tax |
|
limitation under Section 231.005(b). A carryforward is added to |
|
the next year's credit in determining whether the limitation is met |
|
for that year. A credit carryforward from a previous report is |
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considered to be used before the current year credit. |
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Sec. 231.007. CERTIFICATION OF ELIGIBILITY. (a) For the |
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initial and each succeeding premium tax report filed under this |
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subtitle in which a credit is claimed under this chapter, the entity |
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shall file with its report, on a form provided by the comptroller, |
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information that sufficiently demonstrates that the entity is |
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eligible for the credit. |
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(b) The burden of establishing entitlement to and the value |
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of the credit is on the entity. |
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Sec. 231.008. ASSIGNMENT PROHIBITED. (a) An entity may not |
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convey, assign, or transfer the credit allowed under this chapter |
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to another entity unless all of the assets of the entity are |
|
conveyed, assigned, or transferred in the same transaction. |
|
(b) Notwithstanding Subsection (a), a tax credit earned by a |
|
partnership, limited liability company, S corporation, or other |
|
"pass-through" entity may be allocated to the partners, members, or |
|
shareholders of that entity and claimed under this chapter in |
|
accordance with the provisions of any agreement among the partners, |
|
members, or shareholders. |
|
Sec. 231.009. RECAPTURE OF CREDIT. (a) The comptroller |
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shall recapture a tax credit allowed under this chapter with |
|
respect to a qualified equity investment if: |
|
(1) any amount of the federal tax credit available |
|
with respect to the qualified equity investment is recaptured under |
|
Section 45D, Internal Revenue Code of 1986; or |
|
(2) the issuer redeems the investment or makes any |
|
principal repayment with respect to the investment before the |
|
seventh anniversary of the date the investment was issued. |
|
(b) The comptroller shall recapture the tax credit from the |
|
entity that claimed the credit. The recapture must be done on a |
|
scaled proportional basis. |
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SECTION 3. This Act applies only to a report originally due |
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on or after the effective date of this Act. |
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SECTION 4. This Act takes effect January 1, 2010. |