83R5100 TJS-F

By: Murphy H.B. No. 2061

A BILL TO BE ENTITLED

AN ACT

relating to a tax credit for investment in certain communities; authorizing a fee.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subtitle B, Title 3, Insurance Code, is amended by adding Chapter 231 to read as follows:

CHAPTER 231. TAX CREDIT FOR INVESTMENT IN CERTAIN COMMUNITIES

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 231.001. GENERAL DEFINITIONS. In this chapter:

(1) "Administrator" means the Texas Economic Development and Tourism Office in the office of the governor.

(2) "Applicable percentage" means zero percent for the first two credit allowance dates, seven percent for the third credit allowance date, and eight percent for the next four credit allowance dates.

(3) "Comptroller" means the comptroller of public accounts.

(4) "Credit allowance date" means, with respect to any qualified equity investment:

(A) the date on which the investment is initially made; and

(B) the anniversary of that date in each of the six years immediately following that date.

(5) "Purchase price" means the amount paid to the issuer of a qualified equity investment for the qualified equity investment.

(6) "State premium tax liability" means any tax liability incurred by an entity under this subtitle.

Sec. 231.002. DEFINITION: LONG-TERM DEBT SECURITY. (a) In this chapter, "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 not earlier than the seventh year after the date on which the debt instrument is issued, with no acceleration of repayment, amortization, or prepayment features before its original maturity date.

(b) The qualified community development entity that issues the debt instrument may not make cash interest payments on the debt instrument during the period beginning on the date on which the debt instrument is issued and ending on the final credit allowance date in an amount that exceeds the cumulative operating income, as defined by regulations adopted under Section 45D, Internal Revenue Code of 1986, of the qualified community development entity for that period before giving effect to the expense of the cash interest payments.

(c) This section does not limit the holder's ability to accelerate payments on the debt instrument in situations where the issuer has defaulted on covenants designed to ensure compliance with this chapter or Section 45D, Internal Revenue Code of 1986.

Sec. 231.003. DEFINITION: QUALIFIED ACTIVE LOW-INCOME COMMUNITY BUSINESS. (a) In this chapter, "qualified active low-income community business" has the meaning assigned by Section 45D, Internal Revenue Code of 1986, and 26 C.F.R. Section 1.45D-1, except that the term is limited to those businesses meeting the Small Business Administration size eligibility standards established by 13 C.F.R. Sections 121.101-121.201 at the time the qualified low-income community investment is made.

(b) A business is considered a qualified active low-income community business for the duration of the qualified community development entity's investment in, or loan to, the business if the entity reasonably expects, at the time it makes the investment or loan, that the business will continue to satisfy the requirements for being a qualified active low-income community business, other than the Small Business Administration size standards, throughout the entire period of the investment or loan.

(c) A business that derives or projects to derive 15 percent or more of its annual revenue from the rental or sale of real estate is not a qualified active low-income community business for purposes of this chapter. This exclusion does not apply to a business that is controlled by, or under common control with, an affiliated entity if the affiliated entity:

(A) does not derive or project to derive 15 percent or more of its annual revenue from the rental or sale of real estate; and

(B) is the primary tenant of the real estate leased from the business.

Sec. 231.004. DEFINITION: QUALIFIED COMMUNITY DEVELOPMENT ENTITY. In this chapter, "qualified community development entity" has the meaning assigned by Section 45D, Internal Revenue Code of 1986, provided that the entity has entered into, for the current year or any prior year, an allocation agreement with the community development financial institutions fund of the U.S. Treasury Department with respect to credits authorized by Section 45D, Internal Revenue Code of 1986, which includes this state in the service area set forth in the allocation agreement. The term includes a subsidiary qualified community development entity of a qualified community development entity.

Sec. 231.005. DEFINITION: QUALIFIED EQUITY INVESTMENT. (a) An investment or security is a "qualified equity investment" for purposes of this chapter if:

(1) the investment or security is an equity investment in, or long-term debt security issued by, a qualified community development entity;

(2) the investment or security is acquired on or after October 1, 2013, at its original issuance solely in exchange for cash;

(3) not later than the first anniversary of the initial credit allowance date at least one hundred percent of the investment's or security's cash purchase price is used by the issuer to make qualified low-income community investments in qualified active low-income community businesses located in this state; and

(4) the investment or security is designated by the issuer as a qualified equity investment under this section and is certified by the administrator as not exceeding the limitation provided by Section 231.104.

(b) Qualified equity investment includes an investment or security that does not satisfy the requirements of Subsection (a) if the investment or security was a qualified equity investment in the hands of a prior holder.

Sec. 231.006. DEFINITION: QUALIFIED LOW-INCOME COMMUNITY INVESTMENT. In this chapter, "qualified low-income community investment" means a capital or equity investment in, or loan to, a qualified active low-income community business with respect to which a federal qualified low-income community investment of some amount is made concurrently with the investment or loan.

Sec. 231.007. NEW MARKETS PERFORMANCE GUARANTEE ACCOUNT. The new markets performance guarantee account is established as a special account outside the state treasury. The comptroller shall administer the account, and shall deposit a refundable performance fee received from a qualified community development entity under Subchapter E into the account.

SUBCHAPTER B. TAX CREDIT

Sec. 231.051. CREDIT ESTABLISHED. (a) An entity that makes a qualified equity investment earns a vested right to credit against the entity's state premium tax liability on a premium tax report filed under this subtitle that may be claimed as provided by this section.

(b) On each credit allowance date of a qualified equity investment, the entity, or a subsequent holder of the qualified equity investment, may claim a portion of the credit during the tax year of that credit allowance date.

(c) The credit amount is equal to the applicable percentage for the credit allowance date multiplied by the purchase price paid to the issuer of the qualified equity investment.

(d) The amount of the credit claimed by an entity may not exceed the amount of the entity's state premium tax liability for the tax year for which the credit is claimed. Any amount of tax credit that the entity is prohibited from claiming in a tax year as a result of this subsection may be carried forward for use in a subsequent tax year.

Sec. 231.052. TRANSFERABILITY. (a) A tax credit claimed under this chapter is not refundable or saleable.

(b) 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 the entity for their direct use in accordance with an agreement among the partners, members, or shareholders. An allocation under this subsection does not constitute a sale for purposes of this chapter.

Sec. 231.053. RETALIATORY TAX. (a) An entity claiming a credit under this chapter is not required to pay any additional retaliatory tax levied under Chapter 281 as a result of claiming that credit.

(b) In addition to the exclusion provided by Subsection (a), an entity claiming a credit under this chapter is not required to pay any additional tax that may arise as a result of claiming that credit.

SUBCHAPTER C. CERTIFICATION OF QUALIFIED EQUITY INVESTMENTS

Sec. 231.101. CERTIFICATION OF QUALIFIED EQUITY INVESTMENTS. (a) A qualified community development entity that seeks to have an equity investment or long-term debt security certified as a qualified equity investment eligible for tax credits under this chapter must apply to the administrator as provided by this section.

(b) An application under this section must include the following:

(1) evidence of the applicant's certification as a qualified community development entity, including evidence of the service area of the entity that includes this state;

(2) a copy of an allocation agreement executed by the applicant, or its controlling entity, and the community development financial institutions fund;

(3) a certificate executed by an executive officer of the applicant attesting that the allocation agreement remains in effect and has not been revoked or canceled by the community development financial institutions fund;

(4) a description of the proposed amount and structure, and of the purchaser, of the qualified equity investment;

(5) identifying information for an entity that will earn tax credits as a result of the issuance of the qualified equity investment;

(6) examples of the types of qualified active low-income community businesses in which the applicant, its controlling entity, or affiliates of its controlling entity have invested under the federal New Markets Tax Credit Program, except that an applicant is not required to disclose the identity of a specific qualified active low-income community business in which the applicant intends to invest;

(7) a nonrefundable application fee of $5,000 to be paid to the administrator; and

(8) the refundable performance fee of $500,000 required by Subchapter E.

Sec. 231.102. ACTION ON APPLICATION. (a) Not later than the 30th day after the date an application under Section 231.101 is received, the administrator shall grant or deny the application in full or in part.

(b) If the administrator denies part of the application, the administrator shall inform the applicant of the grounds for denial.

(c) If the applicant provides additional information required by the administrator or otherwise completes the application not later than the 15th day after the date of the notice of denial, the application is considered completed as of the date on which it was originally submitted. If the qualified community development entity fails to provide the information or complete its application before that date, the application is denied and must be resubmitted in full and has a new submission date.

Sec. 231.103. CERTIFICATION OF QUALIFIED EQUITY INVESTMENT. (a) If an application under Section 231.102 is approved, the administrator shall certify the proposed equity investment or long-term debt security as a qualified equity investment that is eligible for tax credits under this chapter, subject to Section 231.104.

(b) The administrator shall provide written notice of the certification to the qualified community development entity and to the comptroller.

(c) The notice must include the names of those entities who earned the credits and their respective credit amounts. If the names of the entities that are eligible to claim the credits change due to a transfer of a qualified equity investment or an allocation under Section 231.052, the qualified community development entity shall notify the administrator of the change, and on receipt of the notice, the administrator shall notify the comptroller.

(d) The administrator shall certify qualified equity investments in the order in which applications are received by the administrator. Applications received on the same day are considered to have been received simultaneously. For applications that are complete and received on the same day, the administrator shall certify, consistent with remaining qualified equity investment capacity, the qualified equity investments in proportionate percentages based on the proportion that the amount of qualified equity investment requested in an application bears to the total amount of qualified equity investments requested in all applications received on the same day.

Sec. 231.104. LIMIT ON CERTIFIED INVESTMENTS. Not more than $750 million in qualified equity investments may be certified under Section 231.103 at any time. If a pending request cannot be fully certified due to this limit, the administrator shall certify the portion that can be certified unless the qualified community development entity elects to withdraw the request rather than receive partial certification.

Sec. 231.105. TRANSFER OF INVESTMENT AUTHORITY. An approved applicant may transfer all or a portion of its certified qualified equity investment authority to its controlling entity or a subsidiary qualified community development entity of the controlling entity, if the applicant:

(1) provides the information required in the application with respect to the recipient of the transfer; and

(2) notifies the administrator of the transfer not later than the 30th day after the date of the transfer.

Sec. 231.106. ISSUANCE OF QUALIFIED EQUITY INVESTMENT. (a) Not later than the 30th day after the date the applicant receives notice of certification, the qualified community development entity or a recipient of a transfer under Section 231.105 shall issue the qualified equity investment and receive cash in the amount certified.

(b) The qualified community development entity or a recipient of a transfer under Section 231.105 must provide the administrator with evidence of the receipt of the cash investment not later than the 10th business day after the date the cash investment is received.

Sec. 231.107. LAPSE OF CERTIFICATION. (a) If the qualified community development entity or a recipient of a transfer under Section 231.105 does not receive the cash investment and issue the qualified equity investment before the 30th day after the date the certification notice is received as required by Section 231.106, the certification lapses and the entity may not issue the qualified equity investment without reapplying to the administrator for certification.

(b) If a certification lapses under this section, the administrator shall reissue the certified amount, giving preference to an applicant whose allocation was reduced under Section 231.104. If more than one applicant had its allocation reduced, the administrator shall reissue the certified amount on a pro rata basis. After the allocation to applicants whose allocation was reduced under Section 231.104, the administrator shall reissue any certified amount that remains in accordance with the application process.

SUBCHAPTER D. RECAPTURE OF PREMIUM TAX CREDIT

Sec. 231.151. RECAPTURE. (a) Subject to Section 231.152, the comptroller shall recapture the amount of a tax credit claimed on a premium tax report filed under this subtitle from the entity that claims the credit if:

(1) any amount of a federal tax credit available with respect to a qualified equity investment that is eligible for a credit under this chapter is recaptured under Section 45D, Internal Revenue Code of 1986, in which case the comptroller's recapture must be proportionate to the federal recapture with respect to the qualified equity investment;

(2) the issuer redeems or makes principal repayment with respect to a qualified equity investment before the seventh anniversary of the date the qualified equity investment is issued, in which case the comptroller's recapture must be proportionate to the amount of the redemption or repayment with respect to the qualified equity investment;

(3) the issuer fails to invest an amount equal to 100 percent of the purchase price of the qualified equity investment in qualified low-income community investments in this state during the 12-month period immediately following the date the qualified equity investment is issued or to maintain at least 100 percent of that level of investment in qualified low-income community investments in this state until the last credit allowance date for the qualified equity investment; or

(4) at any time before the final credit allowance date of a qualified equity investment, the issuer uses the cash proceeds of the qualified equity investment to make qualified low-income community investments in any one qualified active low-income community business, including affiliated qualified active low-income community businesses, exclusive of reinvestments of capital returned or repaid with respect to earlier investments in the qualified active low-income community business and its affiliates, in excess of 25 percent of the cash proceeds.

(b) For purposes of this chapter, an investment is considered held by an issuer even if the investment has been sold or repaid if the issuer reinvests an amount equal to the capital returned to or recovered by the issuer from the original investment, exclusive of any profits realized, in another qualified low-income community investment not later than the 12th month after the date the issuer receives the capital.

(c) An issuer is not required to reinvest capital returned from a qualified low-income community investment after the sixth anniversary of the date the qualified equity investment is issued, the proceeds of which were used to make the qualified low-income community investment, and the qualified low-income community investment is considered held by the issuer through the seventh anniversary of the date the qualified equity investment was issued.

Sec. 231.152. NOTICE OF NONCOMPLIANCE. (a) The comptroller shall notify an entity that has claimed a tax credit on a premium tax report if the credit is subject to recapture under Section 231.151.

(b) The comptroller may not recapture a tax credit under this subchapter if the qualified community development entity cures the noncompliance described by Section 231.151 before the 180th day after the date the entity receives notice under Subsection (a).

SUBCHAPTER E. PERFORMANCE FEE

Sec. 231.201. PERFORMANCE FEE REQUIRED. A qualified community development entity that seeks to have an equity investment or long-term debt security certified as a qualified equity investment eligible for tax credits under this chapter must pay a fee in the amount of $500,000 to the comptroller for deposit in the new markets performance guarantee account.

Sec. 231.202. FORFEITURE OF FEE. (a) A qualified community development entity that pays a performance fee under Section 231.201 shall forfeit the fee in its entirety if:

(1) the entity and its subsidiary qualified community development entities fail to issue the total amount of qualified equity investments certified by the administrator and receive cash in the total amount certified under Section 231.103; or

(2) the entity or a subsidiary qualified community development entity that issues a qualified equity investment certified under Section 231.103 fails to meet the investment requirement under Section 231.151(a)(3) by the second credit allowance date of the qualified equity investment.

(b) The comptroller shall notify an entity that has paid a fee under Section 231.201 if the fee is subject to forfeiture under this section.

(c) A fee is not subject to forfeiture under Subsection (a)(2) if the entity cures the noncompliance before the 180th day after the date the entity receives notice under Subsection (b).

Sec. 231.203. NEW MARKETS PERFORMANCE GUARANTEE ACCOUNT. (a) The fee required by Section 231.201 shall be paid to the comptroller and held in the new markets performance guarantee account until the comptroller finds that the qualified community development entity has complied with the provisions of this chapter.

(b) The qualified community development entity may request a refund of the fee from the comptroller before the 30th day after the date the entity pays the fee.

(c) The comptroller shall refund the fee or, if applicable, give notice of noncompliance, not later than the 30th day after the date of receiving a request that complies with Subsection (b).

SUBCHAPTER F. LETTER RULING

Sec. 231.251. REQUEST FOR LETTER RULING. At the request of an applicant or entity, the administrator or the comptroller shall, with respect to the tax credit program authorized under this chapter, issue a written letter ruling interpreting the law as it applies to a specific set of facts provided by the applicant or entity requesting the interpretation.

Sec. 231.252. RESPONSE TO REQUEST. (a) The administrator or comptroller shall respond to a request under Section 231.251 not later than the 60th day after the date the request is received.

(b) The applicant or entity may provide a draft letter ruling for the administrator's or comptroller's consideration.

(c) The applicant or entity may withdraw the request for a letter ruling, in writing, before the issuance of the letter ruling.

(d) The administrator or comptroller may refuse to issue a letter ruling for good cause, but must list the specific reasons for refusing to issue the letter ruling. Good cause for refusing to issue a letter ruling under this subsection includes any of the following:

(1) the applicant or entity requests the administrator or comptroller to determine whether a statute is constitutional or a rule complies with law;

(2) the request involves a hypothetical situation or alternative scenarios;

(3) the facts or issues presented in the request are unclear, overbroad, insufficient, or otherwise inappropriate as a basis on which to issue a letter ruling; or

(4) the issue is currently being considered in a rulemaking procedure, contested case, or other agency or judicial proceeding that may definitely resolve the issue.

Sec. 231.253. EFFECT OF LETTER RULING. (a) A letter ruling binds the administrator or comptroller, as applicable, to the determination reached in the letter ruling with respect to the applicant or entity that requested the letter ruling, until the applicant or entity or the applicant's or entity's shareholders, members, or partners, as applicable, claim all credits issued to the applicant or entity, if any, on a premium tax report filed under this subtitle, subject to the terms and conditions set forth in properly published regulations.

(b) A letter ruling applies only to the applicant or entity that requests the letter ruling.

Sec. 231.254. CONSIDERATION OF INTERNAL REVENUE CODE. In issuing a letter ruling and making other determinations under this chapter, the administrator or comptroller shall consider Section 45D, Internal Revenue Code of 1986, and the rules and regulations issued under that code, to the extent that those provisions are applicable.

SECTION 2. (a) As soon as practicable after the effective date of this Act, the comptroller of public accounts shall adopt rules necessary to implement the provisions of Chapter 231, Insurance Code, as added by this Act, that apply to the comptroller of public accounts.

(b) The Texas Economic Development and Tourism Office in the office of the governor shall accept applications for certification of qualified equity investments as required by Chapter 231, Insurance Code, as added by this Act, beginning not later than October 2, 2013.

SECTION 3. This Act takes effect September 1, 2013.