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
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  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.
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