Bill Text: TX HB4225 | 2019-2020 | 86th Legislature | Introduced
Bill Title: Relating to a franchise tax credit for investment in certain communities; authorizing a fee.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2019-03-25 - Referred to Ways & Means [HB4225 Detail]
Download: Texas-2019-HB4225-Introduced.html
86R13174 BEF-F | ||
By: Reynolds | H.B. No. 4225 |
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relating to a franchise tax credit for investment in certain | ||
communities; authorizing a fee. | ||
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: | ||
SECTION 1. Chapter 171, Tax Code, is amended by adding | ||
Subchapter O to read as follows: | ||
SUBCHAPTER O. TEXAS NEW MARKETS DEVELOPMENT PILOT PROGRAM | ||
Sec. 171.751. PILOT PROGRAM. The comptroller shall | ||
implement the Texas New Markets Development Pilot Program to | ||
encourage capital investment and job creation and retention in | ||
redevelopment communities by allowing taxable entities to earn | ||
franchise tax credits in connection with those investments. | ||
Sec. 171.752. DEFINITIONS. In this subchapter: | ||
(1) "Credit allowance date" means, with respect to a | ||
qualified investment, the first, second, third, fourth, fifth, | ||
sixth, or seventh anniversary of the date the qualified investment | ||
was issued. | ||
(2) "Long-term debt security" means a debt instrument | ||
issued by a qualified community development entity at par value or a | ||
premium with a maturity date at least seven years after the date of | ||
issuance and no acceleration of repayment, amortization, or | ||
prepayment features before the original maturity date except in | ||
instances of default. | ||
(3) "Purchase price" means the amount of cash paid to a | ||
qualified community development entity in exchange for a qualified | ||
investment. | ||
(4) "Qualified community development entity" means an | ||
entity that: | ||
(A) is certified by the United States secretary | ||
of the treasury under 26 U.S.C. Section 45D; and | ||
(B) has entered into, or is controlled by an | ||
entity that has entered into, an allocation agreement with the | ||
Community Development Financial Institutions Fund with respect to | ||
tax credits under 26 U.S.C. Section 45D and is authorized to conduct | ||
business in this state under the agreement. | ||
(5) "Qualified investment" means an equity investment | ||
in, or a long-term debt security issued by, a qualified community | ||
development entity that is: | ||
(A) issued solely in exchange for cash; | ||
(B) designated by the qualified community | ||
development entity as a qualified investment; and | ||
(C) approved by the comptroller as a qualified | ||
investment. | ||
(6) "Redevelopment community" means a municipality | ||
that: | ||
(A) was incorporated on or before September 1, | ||
1960; | ||
(B) has a population of more than 67,000; and | ||
(C) is located in two counties, with at least 90 | ||
percent of the municipality's territory located in a county with a | ||
population of at least 580,000 and the remaining territory located | ||
in a county with a population of at least four million. | ||
(7) "Redevelopment investment" means an investment | ||
made by a qualified community development entity in a business | ||
located in a redevelopment community using the proceeds from the | ||
purchase price on one or more qualified investments. | ||
Sec. 171.753. ELIGIBLE INDUSTRIES. (a) The comptroller | ||
shall designate, using the North American Industry Classification | ||
System, industries that are eligible to receive redevelopment | ||
investments. The comptroller shall designate those industries that | ||
have the greatest potential to create strong positive impacts on or | ||
benefits to the economies of redevelopment communities. | ||
(b) A qualified community development entity may not make a | ||
redevelopment investment in a business unless the principal | ||
activities of the business are in an eligible industry. The | ||
comptroller may waive this limitation if the comptroller determines | ||
that the redevelopment investment will have a positive impact on a | ||
redevelopment community. | ||
(c) In an area of a redevelopment community where the median | ||
family income is not more than 50 percent of the median family | ||
income for the redevelopment community, the comptroller may allow a | ||
redevelopment investment in: | ||
(1) an office building project that guarantees a | ||
minimum average occupancy rate of at least 90 percent; or | ||
(2) a retail project that guarantees a minimum average | ||
occupancy rate of at least 90 percent. | ||
(d) A tax credit in connection with a redevelopment | ||
investment described by Subsection (c) is subject to recapture if | ||
the office building project or retail project fails to achieve the | ||
minimum occupancy rate required by that subsection. | ||
Sec. 171.754. APPLICATION. A qualified community | ||
development entity must apply to the comptroller for approval of a | ||
proposed investment as a qualified investment. The application must | ||
include: | ||
(1) the name, address, and tax identification number | ||
of the qualified community development entity; | ||
(2) proof of certification as a qualified community | ||
development entity under 26 U.S.C. Section 45D; | ||
(3) a copy of an authorization document executed by | ||
the qualified community development entity, or its controlling | ||
entity, authorizing the entity to conduct business in this state; | ||
(4) a description of the proposed amount, structure, | ||
and purchasers of the proposed investment; | ||
(5) the name and tax identification number of each | ||
taxable entity that will claim a credit under this subchapter in | ||
connection with the qualified investment; | ||
(6) a detailed explanation of the expected impact of a | ||
proposed qualified investment and the related redevelopment | ||
investments; | ||
(7) a resolution of support from the governing bodies | ||
of the redevelopment communities where redevelopment investments | ||
will be made; | ||
(8) a resolution of support from the economic | ||
development council, if any, of each redevelopment community | ||
described by Subdivision (7); | ||
(9) a nonrefundable application fee of $1,000, payable | ||
to the comptroller; | ||
(10) a statement that the qualified community | ||
development entity will make redevelopment investments only in the | ||
industries designated by the comptroller or as otherwise allowed by | ||
the comptroller; | ||
(11) the qualified community development entity's | ||
plans for fostering relationships with local economic development | ||
organizations in the redevelopment communities where the entity | ||
will make redevelopment investments and an explanation of the steps | ||
the entity has taken to implement those plans; and | ||
(12) a statement that the qualified community | ||
development entity will not make a redevelopment investment in a | ||
business unless the business will create or retain jobs that pay an | ||
average wage equal to at least 115 percent of the federal poverty | ||
income guidelines for a family of four. | ||
Sec. 171.755. REVIEW. (a) The comptroller shall review | ||
applications to approve an investment as a qualified investment in | ||
the order received. The office shall approve or deny each | ||
application not later than the 30th day after receipt of the | ||
application. | ||
(b) If the comptroller intends to deny an application, the | ||
comptroller shall provide notice to the applicant of the basis of | ||
the proposed denial. The applicant may, not later than the 15th day | ||
after receiving the notice, submit a revised application to the | ||
comptroller. The comptroller shall issue a final order approving or | ||
denying the revised application not later than the 30th day after | ||
receipt of the revised application. | ||
(c) The comptroller shall limit the amount of qualified | ||
investments approved to an amount that will result in not more than: | ||
(1) $200 million in total tax credits being claimed | ||
under this subchapter; or | ||
(2) $40 million in tax credits being claimed under | ||
this subchapter in any state fiscal year, other than credits | ||
carried forward from a previous year. | ||
Sec. 171.756. APPROVAL. (a) The comptroller shall provide | ||
a copy of the final order approving an investment as a qualified | ||
investment to the qualified community development entity. The | ||
notice shall include the identity of the taxable entities that are | ||
eligible to claim tax credits in connection with the investment and | ||
the amount that may be claimed by each taxable entity. | ||
(b) The comptroller shall approve a portion of the amount of | ||
a proposed qualified investment if the full amount may not be | ||
approved because of the limit under Section 171.755(c). | ||
(c) If more than one application for approval of a qualified | ||
investment submitted on the same day is found to qualify for | ||
approval and the full amount of all qualified investments under | ||
those applications may not be approved because of the limit under | ||
Section 171.755(c), the comptroller shall approve a pro rata | ||
portion of each of those qualified investments based on the | ||
purchase price. | ||
Sec. 171.757. DURATION OF APPROVAL. The qualified | ||
community development entity must issue the qualified investment in | ||
exchange for cash not later than the 60th day after receiving the | ||
order approving an investment as a qualified investment or the | ||
approval order becomes void. | ||
Sec. 171.758. REPORT OF ISSUANCE OF QUALIFIED INVESTMENT. | ||
The qualified community development entity must provide the | ||
comptroller with evidence of receiving the purchase price of the | ||
qualified investment in cash not later than the 30th business day | ||
after issuance. | ||
Sec. 171.759. USE OF PROCEEDS FROM QUALIFIED INVESTMENTS; | ||
RECORDKEEPING. (a) A qualified community development entity may not | ||
make cash interest payments on a long-term debt security that is a | ||
qualified investment in excess of the entity's operating income for | ||
six years following the issuance of the security. | ||
(b) A qualified community development entity shall keep | ||
detailed records showing the use of proceeds from qualified | ||
investments to fund redevelopment investments. | ||
(c) A business, including its affiliates, may not receive | ||
more than $10 million in redevelopment investments under this | ||
subchapter. | ||
Sec. 171.760. FRANCHISE TAX CREDIT. (a) A taxable entity is | ||
eligible for a credit against the tax imposed under this chapter in | ||
the amount provided by this section and under the conditions and | ||
limitations provided by this subchapter. | ||
(b) A taxable entity is eligible for a credit if the taxable | ||
entity holds a qualified investment on a credit allowance date. The | ||
amount of the credit on the first, second, and third credit | ||
allowance dates is equal to five percent of the purchase price of | ||
the qualified investment. The amount of the credit on the fourth, | ||
fifth, sixth, and seventh credit allowance dates is equal to six | ||
percent of the purchase price of the qualified investment. | ||
(c) The total credit claimed for a report, including the | ||
amount of any carryforward under Subsection (e), may not exceed the | ||
amount of franchise tax due for the report after applying all other | ||
applicable tax credits. | ||
(d) Credits may be applied to the taxable entity's estimated | ||
or final tax payments for the applicable period. | ||
(e) If a taxable entity is eligible for a credit that | ||
exceeds the limitation under Subsection (c), the taxable entity may | ||
carry the unused credit forward for not more than five consecutive | ||
reports. Credits, including credit carryforwards, are considered | ||
to be used in the following order: | ||
(1) a credit carryforward under this section; and | ||
(2) a current year credit. | ||
(f) A taxable entity may sell or transfer the credit allowed | ||
under this section, including the unused amount of a credit | ||
carryforward, to another taxable entity. The taxable entity making | ||
the sale or transfer must report to the comptroller: | ||
(1) the amount of credit sold or transferred; | ||
(2) the identity of the entity making the purchase or | ||
receiving the transfer; and | ||
(3) the reporting period to which the credit applies | ||
and whether the credit is a carryforward credit. | ||
Sec. 171.761. ANNUAL REPORT. A qualified community | ||
development entity that has issued a qualified investment shall, | ||
not later than the 30th day after each credit allowance date, submit | ||
to the comptroller: | ||
(1) a report, verified by the chief executive officer | ||
of the community development entity, describing each redevelopment | ||
investment made by the entity since the last credit allowance date, | ||
including: | ||
(A) a description of the type and amount of each | ||
redevelopment investment; and | ||
(B) the address of the principal location of each | ||
business receiving a redevelopment investment; | ||
(2) bank records, wire transfer records, or similar | ||
documents that provide evidence of the redevelopment investments | ||
made since the last credit allowance date; | ||
(3) a verified statement by the chief financial or | ||
accounting officer of the qualified community development entity | ||
that no redemption or principal repayment was made with respect to | ||
the qualified investment since the previous credit allowance date; | ||
(4) information relating to any recapture of a federal | ||
new markets tax credit involving the qualified community | ||
development entity since the last credit allowance date; | ||
(5) the qualified community development entity's | ||
annual financial statements for the preceding tax year, audited by | ||
an independent certified public accountant; | ||
(6) the number of jobs created and retained by | ||
businesses receiving redevelopment investments made by the | ||
qualified community development entity; | ||
(7) a description of the relationships the qualified | ||
community development entity has established with local economic | ||
development organizations and a summary of the outcomes resulting | ||
from those relationships; and | ||
(8) other information and documentation required by | ||
the comptroller to verify the entity's continued certification as a | ||
qualified community development entity under 26 U.S.C. Section 45D. | ||
Sec. 171.762. AUDITS AND EXAMINATIONS. The comptroller may | ||
conduct audits and examinations to verify compliance with this | ||
subchapter. | ||
Sec. 171.763. RECAPTURE AND PENALTIES. (a) The comptroller | ||
shall direct at any time before December 31, 2026, the recapture of | ||
all or a portion of a tax credit authorized under this subchapter | ||
if: | ||
(1) the federal government recaptures any portion of a | ||
federal new markets tax credit in connection with a qualified | ||
investment or redevelopment investment that was also the basis for | ||
a credit under this subchapter, in which case the recapture under | ||
this section shall be proportional to the recapture by the federal | ||
government; | ||
(2) the qualified community development entity | ||
redeems or makes a principal repayment on a qualified investment | ||
before the seventh credit allowance date, in which case the | ||
recapture under this section for each taxable entity shall be equal | ||
to the taxable entity's total tax credits multiplied by a fraction, | ||
the numerator of which is the redemption or principal repayment | ||
received by the taxable entity and the denominator of which is the | ||
purchase price paid by the taxable entity; | ||
(3) subject to Subsection (b), the qualified community | ||
development entity fails to invest at least 85 percent of the | ||
purchase price in redevelopment investments before the second | ||
credit allowance date; | ||
(4) subject to Subsection (b), the qualified community | ||
development entity fails to maintain at least 85 percent of the | ||
purchase price invested in redevelopment investments until the | ||
seventh credit allowance date; | ||
(5) the qualified community development entity fails | ||
to provide the comptroller's office with information, reports, or | ||
documentation required under this subchapter; or | ||
(6) the comptroller determines that a taxable entity | ||
received tax credits to which the taxable entity was not entitled. | ||
(b) For the purpose of Subsections (a)(3) and (4): | ||
(1) capital or principal recovered from a | ||
redevelopment investment is considered to be invested in the | ||
redevelopment investment for one year following the recovery; and | ||
(2) capital or principal recovered from a | ||
redevelopment investment after the sixth credit allowance date is | ||
considered to remain invested in the redevelopment investment until | ||
the seventh credit allowance date. | ||
(c) The comptroller's office shall provide notice to the | ||
qualified community development entity of a proposed recapture of a | ||
tax credit. The entity may, not later than the 90th day after | ||
receiving the notice, cure a deficiency identified in the notice | ||
and avoid recapture. The comptroller shall issue a final order of | ||
recapture if the entity fails to cure a deficiency on or before the | ||
90th day after receiving the notice. The final order of recapture | ||
shall be provided to the entity and a taxable entity otherwise | ||
authorized to claim the tax credit. The amount recovered shall be | ||
deposited in the general revenue fund. | ||
(d) A person who submits fraudulent information to the | ||
comptroller is liable to the state for the costs associated with the | ||
investigation and prosecution of the fraudulent claim and a penalty | ||
in an amount equal to twice the amount of tax credits claimed by | ||
investors in the entity's qualified investments. This penalty is in | ||
addition to any other penalty that may be imposed by law. | ||
Sec. 171.764. RULES. The comptroller shall adopt rules to | ||
implement this subchapter. | ||
Sec. 171.765. EXPIRATION. (a) This subchapter expires | ||
December 31, 2026. | ||
(b) The expiration of this subchapter does not affect the | ||
carryforward of a credit under Section 171.760(e) or those credits | ||
for which a taxable entity is eligible after the date this | ||
subchapter expires based on a qualified investment made before the | ||
date this subchapter expires. | ||
SECTION 2. This Act applies only to a report originally due | ||
on or after the effective date of this Act. | ||
SECTION 3. This Act takes effect January 1, 2020. |