Bill Text: HI SB2829 | 2010 | Regular Session | Amended
Bill Title: New Markets Tax Credit; Section 704(b)(2)
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2010-02-11 - (S) Report adopted; Passed Second Reading, as amended (SD 1) and referred to WAM. [SB2829 Detail]
Download: Hawaii-2010-SB2829-Amended.html
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THE SENATE |
S.B. NO. |
2829 |
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TWENTY-FIFTH LEGISLATURE, 2010 |
S.D. 1 |
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STATE OF HAWAII |
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A BILL FOR AN ACT
RELATING TO TAXATION.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§235‑ New markets tax credit. (a) Section 45D (with respect to new markets tax credit) of the Internal Revenue Code shall be operative for the purposes of this chapter, except as otherwise provided in this section.
(b) Each taxpayer subject to the tax imposed by this chapter who holds a qualified equity investment on a credit allowance date of that investment, which occurs during the taxable year, may claim a credit against the taxpayer's net income tax liability for the taxable year. The amount of the credit shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed on a timely basis.
(c) For the purposes of this section:
"Credit allowance date" means:
(1) The date on which a qualified equity investment is initially made; and
(2) Thereafter, each of the six anniversary dates of the date in paragraph (1).
"Low-income community" means any population census tract if:
(1) The poverty rate for a tract is at least twenty per cent; or
(2) In the case of a tract:
(A) Not located within a metropolitan area, the median family income for the tract does not exceed eighty per cent of statewide median family income; or
(B) Located within a metropolitan area, the median family income for the tract does not exceed eighty per cent of the greater of the statewide median family income or the metropolitan area median family income.
"Qualified active low-income community business" means, with respect to any taxable year, any corporation (including a nonprofit corporation) or partnership if for the taxable year:
(1) At least fifty per cent of the total gross income of the entity is derived from the active conduct of a qualified business within any low-income community;
(2) A substantial portion of the use of the tangible property of the entity (whether owned or leased) is within any low-income community;
(3) A substantial portion of the services performed for the entity by its employees are performed in any low‑income community;
(4) Less than five per cent of the average of the aggregate unadjusted bases of the property of the entity is attributable to collectibles, as defined in section 408 (m)(2) (with respect to individual retirement accounts) of the Internal Revenue Code, other than collectibles that are held primarily for sale to customers in the ordinary course of business; and
(5) Less than five per cent of the average of the aggregate unadjusted bases of the property of the entity is attributable to nonqualified financial property, as defined in section 1397C (e) (with respect to enterprise zone business defined) of the Internal Revenue Code.
"Qualified business" shall have the same meaning as provided in section 1397C(d) (with respect to enterprise zone business defined) of the Internal Revenue Code, except that:
(1) In lieu of applying paragraph (2)(B) thereof, the rental to others of real property located in any low‑income community shall be treated as a qualified business if there are substantial improvements located on the property; and
(2) Paragraph (3) thereof shall not apply.
"Qualified community development entity" means any domestic corporation or partnership if:
(1) The primary mission of the entity is serving, or providing investment capital for, low-income communities or low-income persons;
(2) The entity maintains accountability to residents of low-income communities through their representation on any governing board of the entity or on any advisory board to the entity; and
(3) The entity is certified by the Secretary of the Department of the Treasury for purposes of this section as being a qualified community development entity.
"Qualified equity investment" means any equity investment in a qualified community development entity if:
(1) The investment is acquired by the taxpayer at its original issue (directly or through an underwriter) solely in exchange for cash;
(2) Substantially all of the cash is used by the qualified community development entity to make qualified low‑income community investments; and
(3) The investment is designated for purposes of this section by the qualified community development entity.
"Qualified low-income community investment" means:
(1) Any capital or equity investment in, or loan to, any qualified active low-income community business;
(2) The purchase from another qualified community development entity of any loan made by such entity which is a qualified low-income community investment;
(3) Financial counseling and other services specified in regulations prescribed by the Secretary of the Department of the Treasury to businesses located in, and residents of, low-income communities; and
(4) Any equity investment in, or loan to, any qualified community development entity.
(d) The amount of the credit shall be equal to the applicable percentage of the amount paid to the qualified community development entity for the investment at its original issue. As used in this section, "applicable percentage" means:
(1) Five per cent with respect to the first three credit allowance dates; and
(2) Six per cent with respect to the remainder of the credit allowance dates.
(e) An application for a new markets tax credit shall be submitted to the director on forms established by the department prior to the use of the credit.
(f) The credit allowed under this section shall be claimed against net income tax liability for the taxable year. For the purpose of deducting this tax credit, "net income tax liability" means net income tax liability reduced by all other credits allowed to the taxpayer under this chapter.
A tax credit under this section that exceeds the taxpayer's net income tax liability may be used as a credit against the taxpayer's income tax liability in subsequent years, until exhausted. All claims for a tax credit under this section shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed. Failure to properly and timely claim the credit shall constitute a waiver of the right to claim the credit.
Section 469 (with respect to passive activity losses and credits limited) of the Internal Revenue Code shall be applied in claiming the credit under this section.
(g) The department may recapture any portion of a tax credit allowed under this section if:
(1) Any amount of federal tax credit that might be available with respect to the qualified equity investment that generated the tax credit under this section is recaptured under section 45D of the Internal Revenue Code; provided that the department's recapture shall be proportionate to the federal recapture with respect to the qualified equity investment;
(2) The qualified community development entity redeems or makes a principal repayment with respect to the qualified equity investment that generated the tax credit prior to the final credit allowance date of the qualified equity investment; provided that the department's recapture shall be proportionate to the amount of the redemption or repayment with respect to the qualified equity investment; or
(3) The qualified community development entity fails to invest at least eighty-five per cent of the purchase price of the qualified equity investment in qualified low-income community investments within twelve months of the issuance of the qualified equity investment and maintain the same level of investment in qualified low-income community investments until the last credit allowance date for the qualified equity investment. For purposes of calculating the amount of qualified low-income community investments held by a qualified community development entity, an investment shall be considered held by the entity even if the investment has been sold or repaid provided that the entity reinvests an amount equal to the capital returned to or recovered from the original investment, exclusive of any profits realized, in another qualified active low-income community business in this state within twelve months of the receipt of the capital. A qualified community development entity may not be required to reinvest capital returned from qualified low-income community investments after the sixth anniversary of the issuance of the qualified equity investment, the proceeds of which were used to make the qualified low-income community investment, and the qualified low-income community investment shall be considered held by the issuer through the qualified equity investment's final credit allowance date.
The department shall provide notice to the qualified community development entity of any proposed recapture of tax credits pursuant to this subsection. The entity shall have ninety days to cure any deficiency indicated in the department's original recapture notice and avoid the recapture. If the entity fails or is unable to cure the deficiency within the ninety-day period, the department shall provide the entity and the taxpayer from whom the credit is to be recaptured with a final order of recapture. Any tax credit for which a final recapture order has been issued shall be recaptured by the department from the taxpayer who claimed the tax credit on a tax return.
(h) All references to Internal Revenue Code subsections within section 45D shall, to the extent not inconsistent with this section, be operative for purposes of this section.
(i) The director may adopt rules under chapter 91 and prepare any forms necessary to carry out the purposes of this section."
SECTION 2. Section 235-2.3, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:
"(b) The following Internal Revenue Code subchapters, parts of subchapters, sections, subsections, and parts of subsections shall not be operative for the purposes of this chapter, unless otherwise provided:
(1) Subchapter A (sections 1 to 59A) (with respect to
determination of tax liability), except section 1(h)(2) (relating to net
capital gain reduced by the amount taken into account as investment income),
except sections 2(a), 2(b), and 2(c) (with respect to the definition of
"surviving spouse" and "head of household"), except section
41 (with respect to the credit for increasing research activities), except
section 42 (with respect to low-income housing credit), except section 45D
(with respect to new markets tax credit), and except sections 47 and 48, as
amended, as of December 31, 1984 (with respect to certain depreciable tangible
personal property). For treatment, see sections 235-110.91, 235-110.7, [and]
235-110.8[;], and section 235- ;
(2) Section 78 (with respect to dividends received from certain foreign corporations by domestic corporations choosing foreign tax credit);
(3) Section 86 (with respect to social security and tier 1 railroad retirement benefits);
(4) Section 103 (with respect to interest on state and local bonds). For treatment, see section 235-7(b);
(5) Section 114 (with respect to extraterritorial income). For treatment, any transaction as specified in the transitional rule for 2005 and 2006 as specified in the American Jobs Creation Act of 2004 section 101(d) and any transaction that has occurred pursuant to a binding contract as specified in the American Jobs Creation Act of 2004 section 101(f) are inoperative;
(6) Section 120 (with respect to amounts received under qualified group legal services plans). For treatment, see section 235-7(a)(9) to (11);
(7) Section 122 (with respect to certain reduced uniformed services retirement pay). For treatment, see section 235-7(a)(3);
(8) Section 135 (with respect to income from United States savings bonds used to pay higher education tuition and fees). For treatment, see section 235-7(a)(1);
(9) Subchapter B (sections 141 to 150) (with respect to tax exemption requirements for state and local bonds);
(10) Section 151 (with respect to allowance of deductions for personal exemptions). For treatment, see section 235-54;
(11) Section 179B (with respect to expensing of capital costs incurred in complying with Environmental Protection Agency sulphur regulations);
(12) Section 181 (with respect to special rules for certain film and television productions);
(13) Section 196 (with respect to deduction for certain unused investment credits);
(14) Section 199 (with respect to the U.S. production activities deduction);
(15) Section 222 (with respect to qualified tuition and related expenses);
(16) Sections 241 to 247 (with respect to special deductions for corporations). For treatment, see section 235-7(c);
(17) Section 280C (with respect to certain expenses for which credits are allowable). For treatment, see section 235-110.91;
(18) Section 291 (with respect to special rules relating to corporate preference items);
(19) Section 367 (with respect to foreign corporations);
(20) Section 501(c)(12), (15), (16) (with respect to exempt organizations);
(21) Section 515 (with respect to taxes of foreign countries and possessions of the United States);
(22) Subchapter G (sections 531 to 565) (with respect to corporations used to avoid income tax on shareholders);
(23) Subchapter H (sections 581 to 597) (with respect to banking institutions), except section 584 (with respect to common trust funds). For treatment, see chapter 241;
(24) Section 642(a) and (b) (with respect to special rules for credits and deductions applicable to trusts). For treatment, see sections 235-54(b) and 235-55;
(25) Section 646 (with respect to tax treatment of electing Alaska Native settlement trusts);
(26) Section 668 (with respect to interest charge on accumulation distributions from foreign trusts);
(27) Subchapter L (sections 801 to 848) (with respect to insurance companies). For treatment, see sections 431:7-202 and 431:7-204;
(28) Section 853 (with respect to foreign tax credit allowed to shareholders). For treatment, see section 235-55;
(29) Subchapter N (sections 861 to 999) (with respect to tax based on income from sources within or without the United States), except sections 985 to 989 (with respect to foreign currency transactions). For treatment, see sections 235-4, 235-5, and 235-7(b), and 235-55;
(30) Section 1042(g) (with respect to sales of stock in agricultural refiners and processors to eligible farm cooperatives);
(31) Section 1055 (with respect to redeemable ground rents);
(32) Section 1057 (with respect to election to treat transfer to foreign trust, etc., as taxable exchange);
(33) Sections 1291 to 1298 (with respect to treatment of passive foreign investment companies);
(34) Subchapter Q (sections 1311 to 1351) (with respect to readjustment of tax between years and special limitations);
(35) Subchapter R (sections 1352 to 1359) (with respect to election to determine corporate tax on certain international shipping activities using per ton rate);
(36) Subchapter U (sections 1391 to 1397F) (with respect to designation and treatment of empowerment zones, enterprise communities, and rural development investment areas). For treatment, see chapter 209E;
(37) Subchapter W (sections 1400 to 1400C) (with respect to District of Columbia enterprise zone);
(38) Section 1400O (with respect to education tax benefits);
(39) Section 1400P (with respect to housing tax benefits);
(40) Section 1400R (with respect to employment relief); and
(41) Section 1400T (with respect to special rules for mortgage revenue bonds)."
SECTION 3. Section 235-2.45, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:
"(d) Section 704 of the Internal Revenue Code (with respect to a partner's distributive share) shall be operative for purposes of this chapter; except that section 704(b)(2) shall not apply to:
(1) Allocations of the high technology business investment tax credit allowed by section 235-110.9 for investments made before May 1, 2009;
(2) Allocations of net operating loss pursuant to section 235-111.5;
(3) Allocations of the attractions and educational
facilities tax credit allowed by section 235-110.46; [or]
(4) Allocations of low-income housing tax credits
among partners under section 235-110.8[.]; or
(5) Allocations of the new markets tax credit allowed by section 235- ."
SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 5. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2009.
Report Title:
New Markets Tax Credit; Section 704(b)(2)
Description:
Establishes a new markets tax credit for a taxpayer that holds a qualified equity investment on a credit allowance date. Provides an exemption for the new markets tax credit from the requirements of section 704(b)(2) of the Internal Revenue Code. Authorizes the department of taxation to recapture any portion of a tax credit. (SD1)
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.
