Honorable Joan Huffman, Chair, Senate Committee on Finance
FROM:
Jerry McGinty, Director, Legislative Budget Board
IN RE:
HB1058 by Goldman (Relating to a franchise or insurance premium tax credit for certain housing developments.), As Engrossed
Estimated Two-year Net Impact to General Revenue Related Funds for HB1058, As Engrossed : an impact of $0 through the biennium ending August 31, 2025.
However, the bill will result in a loss of revenue available for certification beginning in the biennium ending August 31, 2027.
Annual reductions in net tax revenue would reach $25,000,000 upon full implementation of the bill.
General Revenue-Related Funds, Thirteen- Year Impact:
Fiscal Year
Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2024
$0
2025
$0
2026
$0
2027
($2,124,000)
2028
($4,247,000)
2029
($6,371,000)
2030
($8,493,000)
2031
($10,617,000)
2032
($12,740,000)
2033
($14,864,000)
2034
($16,987,000)
2035
($19,111,000)
2036
($19,111,000)
All Funds, Thirteen-Year Impact:
Fiscal Year
Probable Revenue (Loss) from General Revenue Fund 1
Probable Revenue (Loss) from Foundation School Fund 193
Probable Revenue (Loss) from Property Tax Relief Fund 304
2024
$0
$0
$0
2025
$0
$0
$0
2026
$0
$0
$0
2027
($1,593,000)
($531,000)
($377,000)
2028
($3,185,000)
($1,062,000)
($753,000)
2029
($4,778,000)
($1,593,000)
($1,130,000)
2030
($6,370,000)
($2,123,000)
($1,507,000)
2031
($7,963,000)
($2,654,000)
($1,883,000)
2032
($9,555,000)
($3,185,000)
($2,260,000)
2033
($11,148,000)
($3,716,000)
($2,637,000)
2034
($12,740,000)
($4,247,000)
($3,013,000)
2035
($14,333,000)
($4,778,000)
($3,390,000)
2036
($14,333,000)
($4,778,000)
($3,390,000)
Fiscal Analysis
The bill would amend the Insurance Code and the Tax Code to provide for tax credits for certain low-income housing developments.
Chapter 171, Tax Code (franchise tax) would be amended by adding Subchapter K to provide entitlement to a franchise tax credit for a taxable entity that owns a direct or indirect interest in a qualified development eligible for a federal low-income housing credit under Section 42, Internal Revenue Code (IRC).
The credits would be awarded by the Texas Department of Housing and Community Affairs (TDHCA) for qualified developments based on criteria to be established by the department. The amount of credits awarded for a qualified development could not exceed the total federal tax credit awarded to the owner(s) of the development over the ten-year federal tax credit period. The total amount of credits awarded in a year could not exceed $25 million, plus any unallocated credits for the preceding year and any credits recaptured or returned to the department.
A taxable entity receiving a credit would claim the credit in equal installments each year of the ten-year period beginning with the tax year in which a building that is part of a qualified development is placed in service. The credit claimed could not exceed the amount of franchise tax due for a report year, but unused credit could be carried forward or backward to reports for other tax years.
TDHCA would include in the low income housing plan regarding the number of qualified developments for which credits were issued and the number of units supported by the developments and describing specified characteristics of the developments.
Subchapter K would expire on December 31, 2035.
Subtitle B, Title 3, Insurance Code (relating to premium taxes) would be amended by adding Chapter 233 to provide for credit against state premium tax liability incurred under Chapters 221 through 226. Provisions for the credit would parallel those for the credit under Subchapter K, Chapter 171, Tax Code as added by the bill.
TDHCA could begin issuing the franchise tax and premium tax credits January 1, 2024. Credits could first be claimed in tax reports originally due on or after January 1, 2026, and could not be carried back to tax reports originally due before that date.
Chapter 233 would expire on December 31, 2035.
The bill would take effect January 1, 2024.
Methodology
The bill provides that the total amount of state tax credit awards in a year may not exceed $25 million, plus any unallocated credits for the preceding year and any credits recaptured or returned to the department. Furthermore, that the amount awarded in connection with any one qualified development does not exceed the total amount of federal tax credit awarded the owner(s) of the development over the ten-year federal tax credit period and that the state tax credits be claimed in equal installments distributed over a ten-year period.
This estimate assumes TDHCA would annually award the maximum credit amount allowed, $25 million for all qualified developments, as provided by the bill. Therefore, the annual $25 million cap amounts were divided into installments and distributed over ten-year intervals, with credit claims beginning in 2027, the third year following the initial year of award to allow time for project completions followed by project inspections and credit certifications by TDHCA. The total estimated credit claims were allocated between franchise tax and insurance premium taxes and the pertinent funds based on the same proportions that certified historic structure credits were claimed against those taxes for fiscal 2022.
Local Government Impact
No significant fiscal implication to units of local government is anticipated.