BILL NUMBER: AB 1399 AMENDED
BILL TEXT
AMENDED IN SENATE JUNE 18, 2014
AMENDED IN SENATE JUNE 9, 2014
AMENDED IN SENATE SEPTEMBER 6, 2013
AMENDED IN SENATE AUGUST 22, 2013
INTRODUCED BY Assembly Members Medina and V. Manuel Pérez
MARCH 11, 2013
An act to add Section 26011.9 to the Public Resources Code,
and to amend Section 18410.2 of, and to add and repeal Sections
12283, 17053.9 and 23622.9 of of, the
Revenue and Taxation Code, relating to taxation, and making an
appropriation therefor, to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 1399, as amended, Medina. Income taxation: insurance taxation:
credits: California New Market Markets
Tax Credit.
The Personal Income Tax Law and the Corporation Tax Law allow
various credits against the taxes imposed by those laws. Existing law
also creates the California Competes Tax Credit Committee, which has
specified duties in regard to tax credits for economic development.
The California Constitution imposes on insurers doing business in
California, an annual tax in lieu of all other taxes and licenses,
state, county, and municipal, upon those insurers and their property
except, among others, a retaliatory tax, as specified.
Existing law imposes an annual tax on the gross premiums of an
insurer, as defined, doing business in this state at specified rates.
This bill would allow a credit under the Personal Income Tax Law
and the Corporation Tax Law, and a credit against the
retaliatory tax imposed on an insurer, in modified
conformity with a federal New Market Markets
Tax Credit, for taxable years beginning on or after January 1,
2015, and before January 1, 2027, in a specified amount for
investments in low-income communities. The bill would limit the total
annual amount of credit allowed pursuant to these provisions to an
amount equal to any portion not granted under a specified sales and
use tax exclusion, not to exceed $40,000,000 per calendar year, and
would limit the allocation of the credit to a cumulative total of no
more than $200,000,000, as provided. This bill would impose specified
duties on the California Competes Tax Credit Committee with regard
to the application for, and allocation of, the credit. The bill would
require the committee to establish and impose reasonable fees upon
entities that apply for the allocation of the credit and use the
revenue to defray the cost of administering the program, as
specified, thereby making an appropriation.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: yes. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares the following:
(a) While many areas of California have recovered from the
economic and community development impacts of the 2006 Financial
Crisis and the 2010 global recession, Californians in a number of
communities and neighborhoods are still experiencing their lingering
affects effects . In some cases this
has resulted in small and medium businesses in low-income areas
lacking sufficient access to capital and technical assistance. Given
that the state has many needs and limited resources, moneys from the
private sector are necessary to fill this capital and investment gap.
(b) Initially enacted in 2000, the federal government established
the New Markets Tax Credit (NMTC) Program, which uses a market-based
approach for expanding capital and technical assistance to businesses
in lower income communities. The federal program is jointly
administered by the Community Development Financial Institutions Fund
(CDFI Fund) and the Internal Revenue Service. The NMTC Program
allocates federal tax incentives to community development entities
(CDE), which they then use to attract private investors who
contribute funds that can be used to finance and invest in businesses
and develop real estate in low-income communities. Through May 2013,
the CDFI Fund had awarded approximately $36,500,000,000 in NMTC in
749 awards including $3,000,000,000 in American Recovery and
Investment Act of 2009 awards and $1,000,000,000 of special
allocation authority to be used for the recovery and redevelopment of
the Gulf Opportunity Zone.
(c) The federal NMTC totals 39 percent of the original investment
amount in the CDE and is claimed over a period of seven years (5
percent for each of the first three years, and 6 percent for each of
the remaining four years). The investment by the taxpayer in the CDE
redeemed before the end of the seven-year period will be recaptured.
(d) Fourteen states in the United States have adopted state
programs using the NMTC model including Alabama, Florida, Illinois,
Nevada, and Oregon. While some of the programs substantially mirror
the federal program, others vary in both the percentage of the credit
and some of the policies that form the foundation of the credit. One
of the reasons cited for establishing state-level programs is to
make their state more attractive to CDEs, which results in increasing
the amount of federal NMTCs being utilized in their state. Further,
several studies, including a January 1, 2011, case study by Pacific
Community Ventures, showed that for every dollar of forgone tax
revenue, the federal NMTC leverages $12 to $14 of private investment.
SEC. 2. Section 26011.9 is added to the Public Resources Code, to
read:
26011.9. The authority shall make a determination of the amount
of the one hundred million dollars ($100,000,000) in exclusions not
granted in the assigned calendar year pursuant to Section 26011.8. An
amount equal to that amount shall be granted in the subsequent
calendar year through the California New Markets Tax Credit Program
pursuant to Sections 12283, 17053.9, and 23622.9 of the Revenue and
Taxation Code. This section shall not prevent a taxpayer granted an
exclusion pursuant to Section 6010.8 of the Revenue and Taxation Code
from applying for, and receiving a refund for, taxes paid under Part
1 (commencing with Section 6001) of Division 2 of the Revenue and
Taxation Code.
SEC. 3. Section 12283 is added to the Revenue and Taxation Code,
to read:
12283. (a) There is hereby created the California New Markets Tax
Credit Program as provided in this section, Section 17053.9, and
Section 23622.9. The purpose of this program is to stimulate private
sector investment in lower income communities by providing a tax
incentive to qualified community and economic development entities
that can be leveraged by the entity to attract private sector
investment that in turn will be deployed by providing financing and
technical assistance to small and medium size businesses and the
development of commercial, industrial, and community development
projects, including, but not limited to, facilities for nonprofit
service organizations, light manufacturing, and mixed-use and
transit-oriented development. The California Competes Tax Credit
Committee shall administer this program as provided in this section,
Section 17053.9, and Section 23622.9.
(b) (1) For taxable years beginning on or after January 1, 2015,
and before January 1, 2027, there shall be allowed as a credit
against the tax described in paragraph (1) of subdivision
(a) of Section 12204, Sections 12201, 12204, 12206,
and 12209, an amount determined in accordance with Section 45D
of the Internal Revenue Code, as amended by Public Law 111-5, Public
Law 111-312, and Public Law 112-240, as modified as set forth in this
section.
(2) This credit shall be allowed only if the taxpayer holds the
qualified equity investment , or has been allocated a
credit pursuant to paragraph (3), on the credit allowance date
and each of the six following anniversary dates of that date.
(3) A tax credit allowed under this section shall not be sold and
is not a refundable credit. Tax credits allowed or allocated
to a partnership, limited liability company, or "S" corporation
may be allocated to the partners, members, managers, or shareholders
of such entity for their use in accordance with the
provisions of any agreement among such partners, members, managers,
or shareholders. Such allocations shall not be considered a sale for
the purposes of this section.
(c) Section 45D of the Internal Revenue Code is modified as
follows:
(1) (A) The references to "the Secretary" in Section 45D of the
Internal Revenue Code are modified to read "the committee."
(B) For purposes of this section, "committee" means the California
Competes Tax Credit Committee established under Section 18410.2.
(2) Section 45D(a)(2) of the Internal Revenue Code, relating to
applicable percentage, is modified by substituting for "(A) 5 percent
with respect to the first three 3
credit allowance dates, and (B) 6 percent with respect to the
remainder of the credit allowance dates" with the following:
(A) Zero percent with respect to the first two credit allowance
dates.
(B) Seven percent with respect to the third credit allowance date.
(C) Eight percent with respect to the remainder of the credit
allowance dates.
(3) Section 45D(b) of the Internal Revenue Code, relating to
qualified equity investment, is modified as follows:
(A) Section 45D(b)(6) of the Internal Revenue Code, relating to
equity investments, is modified to also include long-term debt
securities issued by any qualified active low-income community
business that substantially supports projects within a low-income
community.
(B)
(3) Section 45D(b)(3) of the Internal Revenue Code,
relating to safe harbor for determining use of cash, is modified by
substituting "qualified low-income community investments in
California" for "qualified low-income community investments."
(4) Section 45D(c)(1) of the Internal Revenue Code, relating to
qualified community development entities, is modified to additionally
include:
(A) A subsidiary community development entity of any such
qualified community development entity.
(B) A nonprofit organization organization,
pursuant to Section 23701, certified by the committee as
having a primary mission of serving or providing investment capital
in low-income communities and the entity maintains accountability to
residents of low-income communities through their representation on
any governing board of the entity or on an advisory board of the
entity. The committee shall establish guidelines for certifying
nonprofit organizations pursuant to this subparagraph. The
committee may include reasonable conditions on the certification to
effectuate the intent of this section and may suspend or revoke a
certification, after affording the nonprofit organization notice and
the opportunity to be heard, if the committee finds that the
nonprofit organization no longer meets the requirements for
certification.
(5) Section 45D(d)(1)(A) of the Internal Revenue Code, relating
to qualified low-income community investments, is modified to
only include any capital or equity investment in, or loan to,
any real estate project located in a low-income community or
any operating business that, at the time the initial investment is
made, has 250 or fewer employees and is located in a low-income
community. The real estate project or operating business shall meet
all other requirements of a qualified active low-income community
business, except as modified by paragraphs (6) and (7)
a qualified active low-income community business .
(6) The term "qualified active low-income community business," as
defined in Section 45D(d)(2) of the Internal Revenue Code, is
modified as follows:
(A) Section 45D(d)(2)(A)(i) of the Internal Revenue Code, relating
to qualified active low-income community businesses, is modified by
substituting "any low-income community in California" for "any
low-income community."
(B) Section 45D(d)(2)(A)(ii) of the Internal Revenue Code,
relating to qualified active low-income community businesses, is
modified as follows:
(i) Substituting "any low-income community in California" for "any
low-income community."
(ii) In determining whether the qualified active low-income
community business uses a substantial portion of its tangible
personal property within any low-income community, the term
"substantial portion" shall mean "at least 40 percent" as calculated
by the average value of the tangible property owned or leased and
used within a California low-income community by the entity divided
by the average value of the total tangible property owned or leased
and used by the entity in California during the taxable
year. The value assigned to the leased property by the entity must be
reasonable.
(iii) Adding the provision that if the business meets the
requirements of a qualified low-income community business at the time
the investment is made, the business shall continue to satisfy the
requirements of Section 45D(d)(2)(A)(ii) for the duration of the
investment.
(C) Section 45D(d)(2)(A)(iii) of the Internal Revenue Code,
relating to qualified active low-income community businesses which
limits the services of employees to substantially those performed
within the low-income community, shall not apply to a qualified
community development entity that does not hold a federal new markets
tax credit .
(D) An entity complies with Section 45D(d)(2)(A)(i) of the
Internal Revenue Code, relating to qualified active low-income
community business, if, as calculated in subparagraph (B), it uses 50
percent of its tangible property, whether owned or leased, within
any low-income community for any taxable year.
(E) (i) A qualified active low-income community business shall
exclude any business that derives, or projects to derive, 15 percent
or more of its annual revenue from the rental or sale of real estate.
This exclusion does not apply to a business that is controlled by,
or under common control with, another business if the second
business: (I) does not derive or project to derive 15 percent or more
of its annual revenue from the rental or sale of real estate; and
(II) is the primary tenant of the real estate leased from the first
business.
(D) The following shall apply in lieu of the provisions of Section
45D(d)(2)(C) of the Internal Revenue Code, relating to qualified
active low-income community business: "A 'qualified active low-income
community business' shall include an operating business
(ii) A qualified active low-income
community business shall only include a business that, at the
time the initial investment is made, has 250 or fewer employees and
is located in a California low-income community. The operating
business shall meet all other conditions of a qualified active
low-income business, except as modified by this paragraph and
paragraph (7)." (7).
(7) Section 45D(e)(1) of the Internal Revenue Code, relating to
determining the eligible low-income community, is modified to add the
following: "When the United States Census Bureau discontinues using
the decennial census to report median family income on a census tract
basis, census block group data shall be used based on the American
Community Survey."
(8) The following shall apply in lieu of the provisions of Section
45D(f)(1) of the Internal Revenue Code, relating to national
limitation on amount of investments designated: "The aggregate amount
of credit that may be allocated in any calendar year pursuant to
this section, Section 17053.9, and Section 23622.9 shall be an amount
equal to any unused portion of the one hundred million dollars
($100,000,000) in exclusions, authorized pursuant to Section 6010.8,
as determined by the California Alternative Energy and Advanced
Transportation Financing Authority and reported to the committee, not
to exceed forty million dollars ($40,000,000). The committee shall
limit the allocation of credits permitted under this section, Section
170533.9 17053.9 , and Section 23622.9
to a cumulative total of no more than two hundred million dollars
($200,000,000). Any unused or recaptured credits
shall be returned to the committee on March 1 of the year following
allocation and the value of the unused or recaptured
credit shall be available for reallocation
allocation in the following calendar
years. years in accordance with the application
process. Any recaptured credits shall be returned to the committee by
March 1 of the year following recapture and the value of the
recaptured credit shall be available for allocation in the following
calendar years in accordance with subparagraph (B) of paragraph (9).
Reallocation credits shall not count against the forty million
dollars ($40,000,000) annual limit or the two hundred million dollars
($200,000,000) cumulative limit."
(9) Section 45D(g)(3) of the Internal Revenue Code, relating to
recapture event, does not apply and is replaced with the following:
(A) (i) The committee shall
recapture, from the entity that claimed the credit on a return, the
tax credit allowed under this section if any of the following:
(I)
(i) Any amount of a federal tax credit available with
respect to a qualified equity investment that is eligible for a
credit under this section is recaptured under Section 45D of the
Internal Revenue Code. In such case the committee's recapture shall
be proportionate to the federal recapture with respect to such
qualified equity investment.
(II)
(ii) The qualified community development
entity redeems or makes principal repayment with respect to a
qualified equity investment prior to the seventh anniversary of the
issuance of such qualified equity investment. In such case the
committee's recapture shall be proportionate to the amount of the
redemption or repayment with respect to such qualified equity
investment.
(III)
(iii) The qualified community development entity fails
to invest an amount equal to at least 85 percent of the
purchase price of the qualified equity investment in qualified
low-income community investments in California within 12 months of
the issuance of the qualified equity investment and maintain at least
85 percent of such level of investment in qualified low-income
community investments in California until the last credit allowance
date for the qualified equity investment. For purposes of this
section, an investment shall be considered held by a qualified
community development entity even if the investment has been sold or
repaid if the qualified community development entity reinvests an
amount equal to the capital returned to, or recovered by, the
qualified community development entity from the original investment,
exclusive of any profits realized, in another qualified low-income
community investment within 12 months of the receipt of such capital.
Periodic amounts received as repayment of principal pursuant to
regularly scheduled amortization payments on a loan that is a
qualified low-income community investment shall be treated as
continuously invested in a qualified low-income community investment
if the amounts are reinvested in one or more qualified low-income
community investments by the end of the following calendar year. A
qualified community development entity shall 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, and the qualified low-income community
investment shall be considered held by the qualified community
development entity through the seventh anniversary of the qualified
equity investment's issuance.
(ii)
(B) Recaptured tax credits and the related qualified
equity investment authority revert back to the committee and shall be
reissued in the following order:
(I)
(i) First, pro rata to applicants whose qualified
equity investment allocations were reduced pursuant to
subparagraph (B) of paragraph (5) of subdivision (d) by the
allocation limitation of forty million dollars ($40,000,000) in
paragraph (8) of subdivision (c).
(II)
(ii) Thereafter, in accordance with the application
process.
(iii)
(C) Enforcement of each of the recapture provisions
shall be subject to a six-month cure period. No recapture shall occur
until the qualified community development entity shall have been
given notice of noncompliance and afforded six months from the date
of such notice to cure the noncompliance.
(10) Section 45D(i) of the Internal Revenue Code, relating to
regulations, shall not apply.
(11) Section 45D(h) of the Internal Revenue Code, relating to
basis, shall not apply.
(11)
(12) If a qualified community development entity makes
a capital or equity investment or a loan with respect to a qualified
low-income building under the state Low Income
Low-Income Tax Credit Program, the investment or loan is
not a qualified low income low-income
community investment under this section.
(d) (1) The committee shall adopt guidelines necessary or
appropriate to carry out the purposes of this section. The guidelines
shall not disqualify a low-income community investment for the
single reason that public or private incentives, loans, equity
investments, technical assistance, or other forms of support have
been or continue to be provided. The adoption of the guidelines shall
not be subject to the rulemaking provisions of the Administrative
Procedure Act of Chapter 3.5 (commencing with Section 11340) of Part
1 of Division 3 of Title 2 of the Government Code.
(2) The committee shall establish and impose reasonable fees upon
entities that apply for the allocation pursuant to this subdivision
and use the revenue to defray the cost of administering the program.
The committee shall establish the fees in a manner that ensures that
(A) the total amount collected equals the amount reasonably necessary
to defray the committee's costs in performing its administrative
duties under this section, and (B) the amount paid by each entity
reasonably corresponds with the value of the services provided to the
entity.
(3) In developing guidelines the committee shall adopt an
allocation process that does all of the following:
(A) Creates an equitable distribution process that ensures that
low-income communities across the state have an opportunity to
benefit from the program.
(B) Sets minimum organizational capacity standards that applicants
must meet in order to receive an allocation of credits
including, but not limited to, its business strategy, community
outcomes, capitalization strategy, and management capacity .
(C) Provides for the annual return of unused credits on
by March 1 of year following the year the credits
are awarded so that they may be reallocated to other community
development entities.
(4) (A) The committee shall begin accepting applications on March
15, 2015, and shall award credits at least two times a year at dates
set annually by the committee through 2019, to the extent that
allocations are available pursuant to Section 26011.9 of the Public
Resources Code.
(B) Within 20 calendar days after receipt of an application the
committee shall determine whether the application is complete or
whether additional information is necessary in order to fully
evaluate the application. If additional information is requested and
the qualified community development entity provides that information
within five working business days, the
application shall be considered completed as of the original date of
submission receipt . If the qualified
community development entity fails to provide the information within
the five-working-day five-business-day
period, the application shall be denied and must be resubmitted in
full with a new submission receipt
date.
(C) Within 20 calendar days after receipt of an
application determined to be complete by the committee, the committee
shall grant or deny the application in full or in part. If the
committee denies any part of the application, it shall inform the
qualified community development entity of the grounds for the denial.
(5) (A) The committee shall award tax credits to applicants
with federal new markets tax credits in the order applications
are received by the committee. Applications received on the same day
shall be deemed to have been received simultaneously.
(i) In 2015, the committee shall only award tax credits to a
qualified community development entity that also has federal new
markets tax credits, that will be used for projects and activities in
California. In the 2016 to 2019 award cycles, inclusive, at least 60
percent of the credit allocation shall be awarded to a qualified
community development entity with an allocation of federal new
markets tax credits. At the committee's discretion, a higher
percentage of credits may be targeted to applicants with federal new
markets tax credits.
(ii) The committee shall award credits to a qualified community
development entity without federal new markets tax credits on a
competitive basis with priority given to rural, urban, and suburban
applications that can demonstrate that the credits will allow the
entity to undertake qualified low-income community investments in an
area that has been historically underserved, newly established
businesses, and real estate development that results in the greatest
benefit to the largest number of lower income individuals.
(B) For applications that are complete and received on
the same day, and in In the event tax credit
requests exceed the allocation limitation of forty million dollars
($40,000,000) in paragraph (8) of subdivision (c), the committee
shall certify, consistent with remaining qualified equity investment
capacity, qualified equity investments of applicants in proportionate
percentages based upon the ratio of the amount of qualified equity
investments requested in such applications to the total amount of
qualified equity investments requested in all such applications
received on the same day.
(C) If a pending request cannot be fully certified due to this
limit, the committee shall certify the portion that may be certified
unless the qualified community development entity elects to withdraw
its request rather than receive partial certification.
(D) An approved applicant may transfer all or a portion of its
certified qualified equity investment authority to its controlling
entity or any subsidiary qualified community development entity of
the controlling entity, provided that the applicant and the
transferee notify the committee of such transfer and include the
information required in the application with respect to such
transferee with such notice.
(E) Within 60 calendar days of the applicant
receiving committee sending notice of
certification, the qualified community development entity or any
transferee, under paragraph (3) of subdivision (b)
subparagraph (D) , shall issue the qualified equity
investment, receive cash in the amount of the certified amount, and,
if applicable, designate the required amount of qualified equity
investment authority as federal qualified equity investments. The
qualified community development entity or transferee, under
paragraph (3) of subdivision (b) subparagraph (D)
, must provide the committee with evidence of the receipt of
the cash investment and designation of the qualified equity
investment as a federal qualified equity investment within 65 days of
the applicant receiving notice of certification. If the qualified
community development entity or any transferee, under
paragraph (3) of subdivision (b) subparagraph (D)
, does not receive the cash investment, and issue
the qualified equity investment and, if applicable, designate the
required amount of qualified equity investment authority as federal
qualified equity investments within 60 calendar days
following receipt of the committee sending
the certification notice, the certification shall lapse and the
entity may not issue the qualified equity investment without
reapplying to the committee for certification. Only applicants
that state in their applications that the entity has been awarded a
federal new markets tax credit shall be required to show evidence, as
determined by the committee, that the qualified equity investment
authority qualifies as a federal qualified equity investment.
Lapsed certifications revert back to the committee and shall be
reissued in the following order:
(i) First, pro rata to applicants whose qualified equity
investment allocations were reduced pursuant to subparagraph (B)
of paragraph (5) under the allocation limitation of forty
million dollars ($40,000,000) in paragraph
(8) of subdivision (c).
(ii) Thereafter, in accordance with the application process.
(F) A qualified community development entity that issues qualified
equity investments must notify the committee of the names of the
entities that are eligible to utilize tax credits under paragraph (3)
of subdivision (b) pursuant to an allocation of tax credits or
change in allocation of tax credits or due to a transfer of a
qualified equity investment.
(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to the committee
within the first five business days after the first anniversary of
the initial credit allowance date that provides documentation as to
the investment of at least 85 percent of the purchase
price in qualified low-income community investments in qualified
active low-income community businesses located in California. Such
report shall include all of the following:
(i) A bank statement of such qualified community development
entity evidencing each qualified low-income community investment.
(ii) Evidence that such business was a qualified active low-income
community business at the time of such qualified low-income
community investment.
(iii) Any other information required by the committee.
(B) Thereafter, the qualified community development entity shall
submit an annual report to the committee within 60 days of the
beginning of the calendar year during the compliance period
seven years following submit tal of the
report, pursuant to subparagraph (A) . No annual
report shall be due prior to the first anniversary of the initial
credit allowance date. The report shall include, but is not limited
to, the following:
(i) The impact the credit had on the low-income community.
(ii) The amount of moneys used for qualified low-income
investments in qualified low-income community businesses.
(iii) The number of employment positions created and retained as a
result of qualified low-income community investments and the
average annual salary of such positions .
(iv) Average annual salary of positions in the projects described
in subdivision (a).
(iv) The number of operating businesses assisted as a result of
qualified low-income community investments, by industry and number of
employees.
(v) Number of real estate projects and type of community
development facilities that resulted.
(e) In the case where the credit allowed by this section exceeds
the tax described in paragraph (1) of subdivision (a) of
Section 12204, Sections 12201, 12204, 12206, and
12209, the excess may be carried over to reduce that tax in the
following year, and the six succeeding years if necessary, until the
credit is exhausted.
(f) The committee shall annually report on its Internet Web site
the information provided by low-income community development entities
and on the geographic distribution of the credits.
(g) (1) The Franchise Tax Board may prescribe any rules or
regulations that may be necessary or appropriate to implement this
section. The Franchise Tax Board shall have access to any
documentation held by the committee relative to the application and
reporting of a qualified community development entity.
(2) A qualifying community development entity shall provide the
committee with the name, address, and tax identification number of
each investor and entity for which a credit was allocated by the
qualifying community development entity, pursuant to paragraph (3) of
subdivision (b). The committee shall provide this information to the
Franchise Tax Board in a manner determined by the Franchise Tax
Board.
(g)
(h) This section shall remain in effect only until
December 1, 2028, and as of that date is repealed.
SEC. 4. Section 17053.9 is added to the Revenue and Taxation Code,
to read:
17053.9. (a) There is hereby created the California New Markets
Tax Credit Program as provided in this section, Section 12283, and
Section 23622.9. The purpose of this program is to stimulate private
sector investment in lower income communities by providing a tax
incentive to qualified community and economic development entities
that can be leveraged by the entity to attract private sector
investment that in turn will be deployed by providing financing and
technical assistance to small and medium size businesses and the
development of commercial, industrial and community development
projects, including, but not limited to, facilities for nonprofit
service organizations, light manufacturing, and mixed-use and
transit-oriented development. The California Competes Tax Credit
Committee shall administer this program as provided in this section,
Section 12283, and Section 23622.9.
(b) (1) For taxable years beginning on or after January 1, 2015,
and before January 1, 2027, there shall be allowed as a credit
against the "net tax," as defined in Section 17039, an amount
determined in accordance with Section 45D of the Internal Revenue
Code, as amended by Public Law 111-5, Public Law 111-312, and Public
Law 112-240, as modified as set forth in this section.
(2) This credit shall be allowed only if the taxpayer holds the
qualified equity investment , or has been allocated a credit
pursuant to paragraph (3), on the credit allowance date and
each of the six following anniversary dates of that date.
(3) A tax credit allowed under this section shall not be sold and
is not a refundable credit. Tax credits allowed or allocated
to a partnership, limited liability company, or "S" corporation
may be allocated to the partners, members, managers, or shareholders
of such entity for their use in accordance with the
provisions of any agreement among such partners, members, managers,
or shareholders. Such allocations shall not be considered a sale for
the purposes of this section.
(c) Section 45D of the Internal Revenue Code is modified as
follows:
(1) (A) The references to "the Secretary" in Section 45D of the
Internal Revenue Code are modified to read "the committee."
(B) For purposes of this section, "committee" means the California
Competes Tax Credit Committee established under Section 18410.2.
(2) Section 45D(a)(2) of the Internal Revenue Code, relating to
applicable percentage, is modified by substituting for "(A) 5 percent
with respect to the first 3 credit allowance dates, and (B) 6
percent with respect to the remainder of the credit allowance dates"
with the following:
(A) Zero percent with respect to the first two credit allowance
dates.
(B) Seven percent with respect to the third credit allowance date.
(C) Eight percent with respect to the remainder of the credit
allowance dates.
(3) Section 45D(b) of the Internal Revenue Code, relating to
qualified equity investment, is modified as follows:
(A) Section 45D(b)(6) of the Internal Revenue Code, relating to
equity investments, is modified to also include long-term debt
securities issued by any qualified low-income community business that
substantially supports projects within a low-income community.
(B)
(3) Section 45D(b)(3) of the Internal Revenue Code,
relating to safe harbor for determining use of cash, is modified by
substituting "qualified low-income community investments in
California" for "qualified low-income community investments."
(4) Section 45D(c)(1) of the Internal Revenue Code, relating to
qualified community development entities, is modified to additionally
include:
(A) A subsidiary community development entity of any such
qualified community development entity.
(B) A nonprofit organization organization,
pursuant to Section 23701, certified by the committee as
having a primary mission of serving or providing investment capital
in low-income communities and the entity maintains accountability to
residents of low-income communities through their representation on
any governing board of the entity or on an advisory board of the
entity. The committee shall establish guidelines for certifying
nonprofit organizations pursuant to this subparagraph. The
committee may include reasonable conditions on the certification to
effectuate the intent of this section and may suspend or revoke a
certification, after affording the nonprofit organization notice and
the opportunity to be heard, if the committee finds that the
nonprofit organization no longer meets the requirements for
certification.
(5) Section 45D(d)(1)(A) of the Internal Revenue Code, relating to
qualified low-income community investments, is modified to only
include any capital or equity investment in, or loan to,
any real estate project located in a low-income community or
any operating business that, at the time the initial investment is
made, has 250 or fewer employees and is located in a low-income
community. The real estate project or operating business shall meet
all other requirements of a qualified active low-income community
business, except as modified by paragraphs (6) and (7)
a qualified active low-income community business .
(6) The term "qualified active low-income community business," as
defined in Section 45D(d)(2) of the Internal Revenue Code is modified
as follows:
(A) Section 45D(d)(2)(A)(i) of the Internal Revenue Code, relating
to qualified active low-income community businesses, is modified by
substituting "any low-income community in California" for "any
low-income community."
(B) Section 45D(d)(2)(A)(ii) of the Internal Revenue Code,
relating to qualified active low-income community businesses, is
modified as follows:
(i) Substituting "any low-income community in California" for "any
low-income community."
(ii) In determining whether the qualified active low-income
community business uses a substantial portion of its tangible
personal property within any low-income community, the term
"substantial portion" shall mean "at least 40 percent" as calculated
by the average value of the tangible property owned or leased and
used within a California low-income community by the entity divided
by the average value of the total tangible property owned or leased
and used by the entity in California during the taxable
year. The value assigned to the leased property by the entity must be
reasonable.
(iii) Adding the provision that if the business meets the
requirements of a qualified low-income community business at the time
the investment is made, the business shall continue to satisfy the
requirements of Section 45D(d)(2)(A)(ii) for the duration of the
investment.
(C) Section 45D(d)(2)(A)(iii) of the Internal Revenue Code,
relating to qualified active low-income community businesses which
limits the services of employees to substantially those performed
within the low-income community, shall not apply to a qualified
community development entity that does not hold a federal new markets
tax credit .
(D) An entity complies with Section 45D(d)(2)(A)(i) of the
Internal Revenue Code, relating to qualified active low-income
community business, if, as calculated in subparagraph (B), it uses 50
percent of its tangible property, whether owned or leased, within
any low-income community for any taxable year.
(E) (i) A qualified active low-income community business shall
exclude any business that derives, or projects to derive, 15 percent
or more of its annual revenue from the rental or sale of real estate.
This exclusion does not apply to a business that is controlled by,
or under common control with, another business if the second
business: (I) does not derive or project to derive 15 percent or more
of its annual revenue from the rental or sale of real estate; and
(II) is the primary tenant of the real estate leased from the first
business.
(D) The following shall apply in lieu of the provisions of Section
45D(d)(2)(C) of the Internal Revenue Code, relating to qualified
active low-income community business: "A 'qualified active low-income
community business' shall include an operating business
(ii) A qualified active low-income
community business shall only include a business that, at the
time the initial investment is made, has 250 or fewer employees and
is located in a California low-income community. The operating
business shall meet all other conditions of a qualified active
low-income business, except as modified by this paragraph and
paragraph (7)." (7).
(7) Section 45D(e)(1) of the Internal Revenue Code, relating to
determining the eligible low-income community, is modified to add the
following: "When the United States Census Bureau discontinues using
the decennial census to report median family income on a census tract
basis, census block group data shall be used based on the American
Community Survey."
(8) The following shall apply in lieu of the provisions of Section
45D(f)(1) of the Internal Revenue Code, relating to national
limitation on amount of investments designated: "The aggregate amount
of credit that may be allocated in any calendar year pursuant to
this section, Section 12283, and Section 23622.9 shall be an amount
equal to any unused portion of the one hundred million dollars
($100,000,000) in exclusions, authorized pursuant to Section 6010.8,
as determined by the California Alternative Energy and Advanced
Transportation Financing Authority and reported to the committee, not
to exceed forty million dollars ($40,000,000). The committee shall
limit the allocation of credits permitted under this section, Section
12283, and Section 23622.9 to a cumulative total of no more than two
hundred million dollars ($200,000,000). Any unused or
recaptured credits shall be returned to the committee on
March 1 of the year following allocation and the value of the unused
or recaptured credit shall be available for
reallocation allocation in the
following calendar years in accordance with the application
process. Any recaptured credits shall be returned to the committee by
March 1 of the year following recapture and the value of the
recaptured credit shall be available for allocation in the following
calendar years in accordance with clause (ii) of
subparagraph (B) of paragraph (9) . Reallocation credits shall
not count against the forty million dollars ($40,000,000) annual
limit or the two hundred million dollars ($200,000,000) cumulative
limit."
(9) (A) Section 45D(g)(2)(B) of the Internal Revenue Code,
relating to credit recapture amount, is modified to substitute
"Section 19101 of this code" for "section 6621".
(9)
(B) Section 45D(g)(3) of the Internal Revenue Code,
relating to recapture event, does not apply and is replaced with the
following:
(A) (i) The committee shall
recapture, from the entity that claimed the credit on a return, the
tax credit allowed under this section if any of the following:
(I) Any amount of a federal tax credit available with respect to
a qualified equity investment that is eligible for a credit under
this section is recaptured under Section 45D of the Internal Revenue
Code. In such case the committee's recapture shall be proportionate
to the federal recapture with respect to such qualified equity
investment.
(II) The qualified community development entity redeems or makes
principal repayment with respect to a qualified equity investment
prior to the seventh anniversary of the issuance of such qualified
equity investment. In such case the committee's recapture shall be
proportionate to the amount of the redemption or repayment with
respect to such qualified equity investment.
(III) The qualified community development entity fails to invest
an amount equal to at least 85 percent of the purchase
price of the qualified equity investment in qualified low-income
community investments in California within 12 months of the issuance
of the qualified equity investment and maintain at least 85 percent
of such level of investment in qualified low-income community
investments in California until the last credit allowance date for
the qualified equity investment. For purposes of this section, an
investment shall be considered held by a qualified community
development entity even if the investment has been sold or repaid if
the qualified community development entity reinvests an amount equal
to the capital returned to, or recovered by, the qualified community
development entity from the original investment, exclusive of any
profits realized, in another qualified low-income community
investment within 12 months of the receipt of such capital. Periodic
amounts received as repayment of principal pursuant to regularly
scheduled amortization payments on a loan that is a qualified
low-income community investment shall be treated as continuously
invested in a qualified low-income community investment if the
amounts are reinvested in one or more qualified low-income community
investments by the end of the following calendar year. A qualified
community development entity shall 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, and the qualified low-income community investment shall
be considered held by the qualified community development entity
through the seventh anniversary of the qualified equity investment's
issuance.
(ii) Recaptured tax credits and the related qualified equity
investment authority revert back to the committee and shall be
reissued in the following order:
(I) First, pro rata to applicants whose qualified equity
investment allocations were reduced pursuant to subparagraph (B)
of paragraph (5) of subdivision (d) by the allocation
limitation of forty million dollars ($40,000,000) in paragraph (8) of
subdivision (c).
(II) Thereafter, in accordance with the application process.
(iii) Enforcement of each of the recapture provisions shall be
subject to a six-month cure period. No recapture shall occur until
the qualified community development entity shall have been given
notice of noncompliance and afforded six months from the date of such
notice to cure the noncompliance.
(10) Section 45D(i) of the Internal Revenue Code, relating to
regulations, shall not apply.
(11) Section 45D(h) of the Internal Revenue Code, relating to
basis, shall not apply.
(11)
(12) If a qualified community development entity makes
a capital or equity investment or a loan with respect to a qualified
low-income building under the state Low Income
Low-Income Tax Credit Program, the investment or loan is
not a qualified low-income community investment under this section.
(d) (1) The committee shall adopt guidelines necessary or
appropriate to carry out the purposes of this section. The guidelines
shall not disqualify a low-income community investment for the
single reason that public or private incentives, loans, equity
investments, technical assistance, or other forms of support have
been or continue to be provided. The adoption of the guidelines shall
not be subject to the rulemaking provisions of the Administrative
Procedure Act of Chapter 3.5 (commencing with Section 11340) of Part
1 of Division 3 of Title 2 of the Government Code.
(2) The committee shall establish and impose reasonable fees upon
entities that apply for the allocation pursuant to this subdivision
and use the revenue to defray the cost of administering the program.
The committee shall establish the fees in a manner that ensures that
(A) the total amount collected equals the amount reasonably necessary
to defray the committee's costs in performing its administrative
duties under this section, and (B) the amount paid by each entity
reasonably corresponds with the value of the services provided to the
entity.
(3) In developing guidelines the committee shall adopt an
allocation process that does all of the following:
(A) Creates an equitable distribution process that ensures that
low-income communities across the state have an opportunity to
benefit from the program.
(B) Sets minimum organizational capacity standards that applicants
must meet in order to receive an allocation of credits
including, but not limited to, its business strategy, community
outcomes, capitalization strategy, and management capacity .
(C) Provides for the annual return of unused credits on
by March 1 of the year following the year the
credits are awarded so that they may be reallocated to other
community development entities.
(4) (A) The committee shall begin accepting applications on March
15, 2015, and shall award credits at least two times a year at dates
set annually by the committee through 2015
2019 , to the extent that allocations are available pursuant to
Section 26011.9 of the Public Resources Code.
(B) Within 20 calendar days after receipt of an application the
committee shall determine whether the application is complete or
whether additional information is necessary in order to fully
evaluate the application. If additional information is requested and
the qualified community development entity provides that information
within five working business
days, the application shall be considered completed as of the
original date of submission receipt .
If the qualified community development entity fails to provide the
information within the five-working-day
five-business-day period, the application shall be denied and
must be resubmitted in full with a new submission
receipt date.
(C) Within 20 calendar days after receipt of an
application determined to be complete by the committee, the committee
shall grant or deny the application in full or in part. If the
committee denies any part of the application, it shall inform the
qualified community development entity of the grounds for the denial.
(5) (A) The committee shall award tax credits to applicants
with federal new markets tax credits in the order applications
are received by the committee. Applications received on the same day
shall be deemed to have been received simultaneously.
(i) In 2015, the committee shall only award tax credits to a
qualified community development entity that also has federal new
markets tax credits, that will be used for projects and activities in
California. In the 2016 to 2019 award cycles, inclusive, at least 60
percent of the credit allocation shall be awarded to a qualified
community development entity with an allocation of federal new
markets tax credits. At the committee's discretion, a higher
percentage of credits may be targeted to applicants with federal new
markets tax credits.
(ii) The committee shall award credits to a qualified community
development entity without federal new markets tax credits on a
competitive basis with priority given to rural, urban, and suburban
applications that can demonstrate that the credits will allow the
entity to undertake qualified low-income community investments in an
area that has been historically underserved, newly established
businesses, and real estate development that results in the greatest
benefit to the largest number of lower income individuals.
(B) For applications that are complete and received on
the same day, and in In the event tax credit
requests exceed the allocation limitation of forty million dollars
($40,000,000) in paragraph (8) of subdivision (c), the committee
shall certify, consistent with remaining qualified equity investment
capacity, qualified equity investments of applicants in proportionate
percentages based upon the ratio of the amount of qualified equity
investments requested in such applications to the total amount of
qualified equity investments requested in all such applications
received on the same day.
(C) If a pending request cannot be fully certified due to this
limit, the committee shall certify the portion that may be certified
unless the qualified community development entity elects to withdraw
its request rather than receive partial certification.
(D) An approved applicant may transfer all or a portion of its
certified qualified equity investment authority to its controlling
entity or any subsidiary qualified community development entity of
the controlling entity, provided that the applicant and the
transferee notify the committee of such transfer and include the
information required in the application with respect to such
transferee with such notice.
(E) Within 60 calendar days of the applicant
receiving committee sending notice of
certification, the qualified community development entity or any
transferee, under paragraph (3) of subdivision (b)
subparagraph (D) , shall issue the qualified equity
investment, receive cash in the amount of the certified amount, and,
if applicable, designate the required amount of qualified equity
investment authority as federal qualified equity investments. The
qualified community development entity or transferee, under
paragraph (3) of subdivision (b) subparagraph (D)
, must provide the committee with evidence of the receipt of
the cash investment and designation of the qualified equity
investment as a federal qualified equity investment within 65 days of
the applicant receiving notice of certification. If the qualified
community development entity or any transferee, under
paragraph (3) of subdivision (b) subparagraph (D)
, does not receive the cash investment, and issue
the qualified equity investment and, if applicable, designate the
required amount of qualified equity investment authority as federal
qualified equity investments within 60 calendar days
following receipt of of the committee sending
the certification notice, the certification shall lapse and
the entity may not issue the qualified equity investment without
reapplying to the committee for certification. Only applicants
that state in their applications that the entity has been awarded a
federal new markets tax
credit shall be required to show evidence, as determined by the
committee, that the qualified equity investment authority qualifies
as a federal qualified equity investment. Lapsed certifications
revert back to the committee and shall be reissued in the following
order:
(i) First, pro rata to applicants whose qualified equity
investment allocations were reduced pursuant to subparagraph (B)
of paragraph (5) under the allocation limitation of forty
million dollars ($40,000,000) in paragraph (8) of subdivision (c).
(ii) Thereafter, in accordance with the application process.
(F) A qualified community development entity that issues qualified
equity investments must notify the committee of the names of the
entities that are eligible to utilize tax credits under paragraph (3)
of subdivision (b) pursuant to an allocation of tax credits or
change in allocation of tax credits or due to a transfer of a
qualified equity investment.
(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to the committee
within the first five business days after the first anniversary of
the initial credit allowance date that provides documentation as to
the investment of at least 85 percent of the purchase
price in qualified low-income community investments in qualified
active low-income community businesses located in California. Such
report shall include all of the following:
(i) A bank statement of such qualified community development
entity evidencing each qualified low-income community investment.
(ii) Evidence that such business was a qualified active low-income
community business at the time of such qualified low-income
community investment.
(iii) Any other information required by the committee.
(B) Thereafter, the qualified community development entity shall
submit an annual report to the committee within 60 days of the
beginning of the calendar year during the compliance period
seven years following submittal of the report,
pursuant to subparagraph (A) . No annual report shall be due
prior to the first anniversary of the initial credit allowance date.
The report shall include, but is not limited to, the following:
(i) The impact the credit had on the low-income community.
(ii) The amount of moneys used for qualified low-income
investments in qualified low-income community businesses.
(iii) The number of employment positions created and retained as a
result of qualified low-income community investments and the
average annual salary of such positions .
(iv) The number of operating businesses assisted as a result of
qualified low-income community investments, by industry and number of
employees.
(v) Number of real estate projects and type of community
development facilities that resulted.
(iv) Average annual salary of positions in the projects described
in subdivision (a).
(e) In the case where the credit allowed by this section exceeds
the "net tax," the excess may be carried over to reduce the "net tax"
in the following year, and the six succeeding years if necessary,
until the credit is exhausted.
(f) The committee shall annually report on its Internet Web site
the information provided by low-income community development entities
and on the geographic distribution of the credits.
(g) (1) The Franchise Tax Board may prescribe any rules or
regulations that may be necessary or appropriate to implement this
section. The Franchise Tax Board shall have access to any
documentation held by the committee relative to the application and
reporting of a qualified community development entity.
(2) A qualifying community development entity shall provide the
committee with the name, address, and tax identification number of
each investor and entity for which a credit was allocated by the
qualifying community development entity, pursuant to paragraph (3) of
subdivision (b). The committee shall provide this information to the
Franchise Tax Board in a manner determined by the Franchise Tax
Board.
(g)
(h) This section shall remain in effect only until
December 1, 2028, and as of that date is repealed.
SEC. 5. Section 18410.2 of the Revenue
and Taxation Code is amended to read:
18410.2. (a) The California Competes Tax Credit Committee is
hereby established. The committee shall consist of the Treasurer, the
Director of Finance, and the Director of the Governor's Office of
Business and Economic Development, who shall serve as chair of the
committee, or their designated representatives, and one appointee
each by the Speaker of the Assembly and the Senate Committee on
Rules. A Member of the Legislature shall not be appointed.
(b) For purposes of Sections 17059.2 and 23689,
12283, 17053.9, 17059.2, 23622.9, and 23689 the
California Competes Tax Credit Committee shall do all of the
following:
(1) Approve or reject any written agreement for a tax credit
allocation by resolution at a duly noticed public meeting held in
accordance with the Bagley-Keene Open Meeting Act (Article 9
(commencing with Section 11120) of Chapter 1 of Part 1 of Division 3
of Title 2 of the Government Code), but only after receipt of the
fully executed written agreement between the taxpayer and the
Governor's Office of Business and Economic Development.
(2) Approve or reject any recommendation to recapture, in whole or
in part, a tax credit allocation by resolution at a duly noticed
public meeting held in accordance with the Bagley-Keene Open Meeting
Act (Article 9 (commencing with Section 11120) of Chapter 1 of Part 1
of Division 3 of Title 2 of the Government Code), but only after
receipt of the recommendation from the Governor's Office of Business
and Economic Development pursuant to the terms of the fully executed
written agreement.
SEC. 5. SEC. 6. Section 23622.9 is
added to the Revenue and Taxation Code, to read:
23622.9. (a) There is hereby created the California New Markets
Tax Credit Program as provided in this section, Section 12283, and
Section 17053.9. The purpose of this program is to stimulate
economic development, and hasten California's economic recovery, by
authorizing tax credits for investment in California, including, but
not limited to, retail businesses, real property, financial
institutions, and schools private sector investment in
lower income communities by providing a tax incentive to qualified
community and economic development entities that can be leveraged by
the entity to attract private sector investment that in turn will be
deployed by providing financing and technical assistance to small-
and medium-size businesses and the development of commercial,
industrial and community development projects, including, but not
limited to, facilities for nonprofit service organizations, light
manufacturing, and mixed-use and transit-oriented development. The
California Competes Tax Credit Committee shall administer this
program as provided in this section, Section 12283, and Section
17053.9.
(b) (1) For taxable years beginning on or after January 1, 2015,
and before January 1, 2027, there shall be allowed as a credit
against the "tax," as defined in Section 23036, an amount determined
in accordance with Section 45D of the Internal Revenue Code, as
amended by Public Law 111-5, Public Law 111-312, and Public Law
112-240, as modified as set forth in this section.
(2) This credit shall be allowed only if the taxpayer holds the
qualified equity investment , or has been allocated a
credit pursuant to paragraph (3), on the credit allowance date
and each of the six following anniversary dates of that date.
(3) A tax credit allowed under this section shall not be sold and
is not a refundable credit. Tax credits allowed or allocated
to a partnership, limited liability company, or "S" corporation
may be allocated to the partners, members, managers, or shareholders
of such entity for their use in accordance with the
provisions of any agreement among such partners, members, managers,
or shareholders. Such allocations shall not be considered a sale for
the purposes of this section.
(c) Section 45D of the Internal Revenue Code is modified as
follows:
(1) (A) The references to "the Secretary" in Section 45D of the
Internal Revenue Code are modified to read "the committee."
(B) For purposes of this section, "committee" means the California
Competes Tax Credit Committee established under Section 18410.2.
(2) Section 45D(a)(2) of the Internal Revenue Code, relating to
applicable percentage, is modified by substituting for "(A) 5 percent
with respect to the first 3 credit allowance dates, and (B) 6
percent with respect to the remainder of the credit allowance dates"
with the following:
(A) Zero percent with respect to the first two credit allowance
dates.
(B) Seven percent with respect to the third credit allowance date.
(C) Eight percent with respect to the remainder of the credit
allowance dates.
(3) Section 45D(b) of the Internal Revenue Code, relating to
qualified equity investment, is modified as follows:
(A) Section 45D(b)(6) of the Internal Revenue Code, relating to
equity investments, is modified to also include long-term debt
securities issued by any qualified low-income community business that
substantially supports projects within a low-income community.
(B)
(3) Section 45D(b)(3) of the Internal Revenue Code,
relating to safe harbor for determining use of cash, is modified by
substituting "qualified low-income community investments in
California" for "qualified low-income community investments."
(4) Section 45D(c)(1) of the Internal Revenue Code, relating to
qualified community development entities, is modified to additionally
include:
(A) A subsidiary community development entity of any such
qualified community development entity.
(B) A nonprofit organization organization,
pursuant to Section 23701, certified by the committee as
having a primary mission of serving or providing investment capital
in low-income communities and the entity maintains accountability to
residents of low-income communities through their representation on
any governing board of the entity or on an advisory board of the
entity. The committee shall establish guidelines for certifying
nonprofit organizations pursuant to this subparagraph. Th
e committee may include reasonable conditions on the
certification to effectuate the intent of this section and may
suspend or revoke a certification, after affording the nonprofit
organization notice and the opportunity to be heard, if the committee
finds that the nonprofit organization no longer meets the
requirements for certification.
(5) Section 45D(d)(1)(A) of the Internal Revenue Code, relating to
qualified low-income community investments, is modified to only
include any capital or equity investment in, or loan to,
any real estate project located in a low-income community or
any operating business that, at the time the initial investment is
made, has 250 or fewer employees and is located in a low-income
community. The real estate project or operating business shall meet
all other requirements of a qualified active low-income community
business, except as modified by paragraphs (6) and (7)
a qualified active low-income community business .
(6) The term "qualified active low-income community business," as
defined in Section 45D(d)(2) of the Internal Revenue Code is modified
as follows:
(A) Section 45D(d)(2)(A)(i) of the Internal Revenue Code, relating
to qualified active low-income community businesses, is modified by
substituting "any low-income community in California" for "any
low-income community."
(B) Section 45D(d)(2)(A)(ii) of the Internal Revenue Code,
relating to qualified active low-income community businesses, is
modified as follows:
(i) Substituting "any low-income community in California" for "any
low-income community."
(ii) In determining whether the qualified active low-income
community business uses a substantial portion of its tangible
personal property within any low-income community, the term
"substantial portion" shall mean "at least 40 percent" as calculated
by the average value of the tangible property owned or leased and
used within a California low-income community by the entity divided
by the average value of the total tangible property owned or leased
and used by the entity in California during the taxable
year. The value assigned to the leased property by the entity must be
reasonable.
(iii) Adding the provision that if the business meets the
requirements of a qualified low-income community business at the time
the investment is made, the business shall continue to satisfy the
requirements of Section 45D(d)(2)(A)(ii) for the duration of the
investment.
(C) Section 45D(d)(2)(A)(iii) of the Internal Revenue Code,
relating to qualified active low-income community businesses
that which limits the services of employees to
substantially those performed within the low-income community, shall
not apply to a qualified community development entity that does
not hold a federal new markets tax credit .
(D) An entity complies with Section 45D(d)(2)(A)(i) of the
Internal Revenue Code, relating to qualified active low-income
community business, if, as calculated in subparagraph (B), it uses 50
percent of its tangible property, whether owned or leased, within
any low-income community for any taxable year.
(E) (i) A qualified active low-income community business shall
exclude any business that derives, or projects to derive, 15 percent
or more of its annual revenue from the rental or sale of real estate.
This exclusion does not apply to a business that is controlled by,
or under common control with, another business if the second
business: (I) does not derive or project to derive 15 percent or more
of its annual revenue from the rental or sale of real estate; and
(II) is the primary tenant of the real estate leased from the first
business.
(D) The following shall apply in lieu of the provisions of Section
45D(d)(2)(C) of the Internal Revenue Code, relating to qualified
active low-income community business: "A 'qualified active low-income
community business' shall include an operating business
(ii) A qualified active low-income
community business shall only include a business that, at the
time the initial investment is made, has 250 or fewer employees and
is located in a California low-income community. The operating
business shall meet all other conditions of a qualified active
low-income business, except as modified by this paragraph and
paragraph (7)." (7).
(7) Section 45D(e)(1) of the Internal Revenue Code, relating to
determining the eligible low-income community is modified to add the
following: "When the United States Census Bureau discontinues using
the decennial census to report median family income on a census tract
basis, census block group data shall be used based on the American
Community Survey."
(8) The following shall apply in lieu of the provisions of Section
45(D)(f)(1) of the Internal Revenue Code, relating to national
limitation on amount of investments designated: "The aggregate amount
of credit that may be allocated in any calendar year pursuant to
this section, and Section 12283, and Section
17053.9 shall be an amount equal to any unused portion of the one
hundred million dollars ($100,000,000) in exclusions, authorized
pursuant to Section 6010.8, as determined by the California
Alternative Energy and Advanced Transportation Financing Authority
and reported to the committee, not to exceed forty million dollars
($40,000,000). The committee shall limit the allocation of credits
permitted under this section, and Section 12283,
and Section 23622.9 17053.9 to a
cumulative total of no more than two hundred million dollars
($200,000,000). Any unused or recaptured credits
shall be returned to the committee on March 1 of the year following
allocation and the value of the unused or recaptured
credit shall be available for reallocation
allocation in the following calendar years
in accordance with the application process. Any recaptured credits
shall be returned to the committee by March 1 of the year following
recapture and the value of the recaptured credit shall be available
for allocation in the following calendar years in
accordance with clause (ii) of subparagraph (B) of paragraph (9)
. Reallocation credits shall not count against the forty
million dollars ($40,000,000) annual limit or the two hundred million
dollars ($200,000,000) cumulative limit."
(9) (A) Section 45D(g)(2)(B) of the Internal Revenue Code,
relating to credit recapture amount, is modified to substitute
"Section 19101 of this code" for "section 6621".
(9)
(B) Section 45D(g)(3) of the Internal Revenue Code,
relating to recapture event, does not apply and is replaced with the
following:
(A) (i) The committee shall
recapture, from the entity that claimed the credit on a return, the
tax credit allowed under this section if any of the following:
(I) Any amount of a federal tax credit available with respect to a
qualified equity investment that is eligible for a credit under this
section is recaptured under Section 45D of the Internal Revenue
Code. In such case the committee's recapture shall be proportionate
to the federal recapture with respect to such qualified equity
investment.
(II) The qualified community development entity redeems or makes
principal repayment with respect to a qualified equity investment
prior to the seventh anniversary of the issuance of such qualified
equity investment. In such case the committee's recapture shall be
proportionate to the amount of the redemption or repayment with
respect to such qualified equity investment.
(III) The qualified community development entity fails to invest
an amount equal to at least 85 percent of the purchase
price of the qualified equity investment in qualified low-income
community investments in California within 12 months of the issuance
of the qualified equity investment and maintain at least 85 percent
of such level of investment in qualified low-income community
investments in California until the last credit allowance date for
the qualified equity investment. For purposes of this section, an
investment shall be considered held by a qualified community
development entity even if the investment has been sold or repaid if
the qualified community development entity reinvests an amount equal
to the capital returned to, or recovered by, the qualified community
development entity from the original investment, exclusive of any
profits realized, in another qualified low-income community
investment within 12 months of the receipt of such capital. Periodic
amounts received as repayment of principal pursuant to regularly
scheduled amortization payments on a loan that is a qualified
low-income community investment shall be treated as continuously
invested in a qualified low-income community investment if the
amounts are reinvested in one or more qualified low-income community
investments by the end of the following calendar year. A qualified
community development entity shall 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, and the qualified low-income community investment shall
be considered held by the qualified community development entity
through the seventh anniversary of the qualified equity investment's
issuance.
(ii) Recaptured tax credits and the related qualified equity
investment authority revert back to the committee and shall be
reissued in the following order:
(I) First, pro rata to applicants whose qualified equity
investment allocations were reduced pursuant to subparagraph (B)
of paragraph (5) of subdivision (d) by the allocation
limitation of forty million dollars ($40,000,000) in paragraph (8) of
subdivision (c).
(II) Thereafter, in accordance with the application process.
(iii) Enforcement of each of the recapture provisions shall be
subject to a six month cure period. No recapture shall occur until
the qualified community development entity shall have been given
notice of noncompliance and afforded six months from the date of such
notice to cure the noncompliance.
(10) Section 45D(i) of the Internal Revenue Code, relating to
regulations, shall not apply.
(11) Section 45D(h) of the Internal Revenue Code, relating to
basis, shall not apply.
(11)
(12) If a qualified community development entity makes
a capital or equity investment or a loan with respect to a qualified
low-income building under the state Low Income
Low-Income Tax Credit Program, the investment or loan is
not a qualified low-income community investment under this section.
(d) (1) The committee shall adopt guidelines necessary or
appropriate to carry out the purposes of this section. The guidelines
shall not disqualify a low-income community investment for the
single reason that public or private incentives, loans, equity
investments, technical assistance, or other forms of support have
been or continue to be provided. The adoption of the guidelines shall
not be subject to the rulemaking provisions of the Administrative
Procedure Act of Chapter 3.5 (commencing with Section 11340) of Part
1 of Division 3 of Title 2 of the Government Code.
(2) The committee shall establish and impose reasonable fees upon
entities that apply for the allocation pursuant to this subdivision
and use the revenue to defray the cost of administering the program.
The committee shall establish the fees in a manner that ensures that
(A) the total amount collected equals the amount reasonably necessary
to defray the committee's costs in performing its administrative
duties under this section, and (B) the amount paid by each entity
reasonably corresponds with the value of the services provided to the
entity.
(3) In developing guidelines the committee shall adopt an
allocation process that does all of the following:
(A) Creates an equitable distribution process that ensures that
low-income communities across the state have an opportunity to
benefit from the program.
(B) Sets minimum organizational capacity standards that applicants
must meet in order to receive an allocation of credits
including, but not limited to, its business strategy, community
outcomes, capitalization strategy, and management capacity .
(C) Provides for the annual return of unused credits on
by March 1 of the year following the year the
credits are awarded so that they may be reallocated to other
community development entities.
(4) (A) The committee shall begin accepting applications on March
15, 2019, 2015, and shall award credits
at least two times a year at dates set annually by the committee
through 2025, 2019, to the extent that
allocations are available pursuant to Section 26011.9 of the Public
Resources Code.
(B) Within 20 calendar days after receipt of an application the
committee shall determine whether the application is complete or
whether additional information is necessary in order to fully
evaluate the application. If additional information is requested and
the qualified community development entity provides that information
within five working business days, the
application shall be considered completed as of the original date of
submission receipt . If the qualified
community development entity fails to provide the information within
the five-working-day five-business-day
period, the application shall be denied and must be resubmitted in
full with a new submission receipt
date.
(C) Within 20 calendar days after receipt of an
application determined to be complete by the committee, the committee
shall grant or deny the application in full or in part. If the
committee denies any part of the application, it shall inform the
qualified community development entity of the grounds for the denial.
(5) (A) The committee shall award tax credits to applicants
with federal new markets tax credits in the order applications
are received by the committee. Applications received on the same day
shall be deemed to have been received simultaneously.
(i) In 2015, the committee shall only award tax credits to a
qualified community development entity that also has federal new
markets tax credits, that will be used for projects and activities in
California. In the 2016 to 2019 award cycles, inclusive, at least 60
percent of the credit allocation shall be awarded to a qualified
community development entity with an allocation of federal new
markets tax credits. At the committee's discretion, a higher
percentage of credits may be targeted to applicants with federal new
markets tax credits.
(ii) The committee shall award credits to a qualified community
development entity without federal new markets tax credits on a
competitive basis with priority given to rural, urban, and suburban
applications that can demonstrate that the credits will allow the
entity to undertake qualified low-income community investments in an
area that has been historically underserved, newly established
businesses, and real estate development that results in the greatest
benefit to the largest number of lower income individuals.
(B) For applications that are complete and received on
the same day, and in In the event tax credit
requests exceed the allocation limitation of forty million dollars
($40,000,000) in paragraph (8) of subdivision (c), the committee
shall certify, consistent with remaining qualified equity investment
capacity, qualified equity investments of applicants in proportionate
percentages based upon
the ratio of the amount of qualified equity investments requested in
such applications to the total amount of qualified equity investments
requested in all such applications received on the same day.
(C) If a pending request cannot be fully certified due to this
limit, the committee shall certify the portion that may be certified
unless the qualified community development entity elects to withdraw
its request rather than receive partial certification.
(D) An approved applicant may transfer all or a portion of its
certified qualified equity investment authority to its controlling
entity or any subsidiary qualified community development entity of
the controlling entity, provided that the applicant and the
transferee notify the committee of such transfer and include the
information required in the application with respect to such
transferee with such notice.
(E) Within 60 calendar days of the applicant
receiving committee sending notice of
certification, the qualified community development entity or any
transferee, under paragraph (3) of subdivision (b)
subparagraph (D) , shall issue the qualified equity
investment, receive cash in the amount of the certified amount, and,
if applicable, designate the required amount of qualified equity
investment authority as federal qualified equity investments. The
qualified community development entity or transferee, under
paragraph (3) of subdivision (b) subparagraph (D)
, must provide the committee with evidence of the receipt of
the cash investment and designation of the qualified equity
investment as a federal qualified equity investment within 65 days of
the applicant receiving notice of certification. If the qualified
community development entity or any transferee, under
paragraph (3) of subdivision (b) subparagraph (D)
, does not receive the cash investment, and issue
the qualified equity investment and, if applicable, designate the
required amount of qualified equity investment authority as federal
qualified equity investments within 60 calendar days
following receipt of of the committee sending
the certification notice, the certification shall lapse and
the entity may not issue the qualified equity investment without
reapplying to the committee for certification. Only applicants
that state in their applications that the entity has been awarded a
federal new markets tax credit shall be required to show evidence, as
determined by the committee, that the qualified equity
investment authority qualifies as a fede ral qualified
equity investment. Lapsed certifications revert back to the
committee and shall be reissued in the following order:
(i) First, pro rata to applicants whose qualified equity
investment allocations were reduced pursuant to subparagraph (B)
of paragraph (5) under the allocation limitation of forty
million dollars ($40,000,000) in paragraph (8) of subdivision (c).
(ii) Thereafter, in accordance with the application process.
(F) A qualified community development entity that issues qualified
equity investments must notify the committee of the names of the
entities that are eligible to utilize tax credits under paragraph (3)
of subdivision (b) pursuant to an allocation of tax credits or
change in allocation of tax credits or due to a transfer of a
qualified equity investment.
(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to the committee
within the first five business days after the first anniversary of
the initial credit allowance date that provides documentation as to
the investment of at least 85 percent of the purchase
price in qualified low-income community investments in qualified
active low-income community businesses located in California. Such
report shall include all of the following:
(i) A bank statement of such qualified community development
entity evidencing each qualified low-income community investment.
(ii) Evidence that such business was a qualified active low-income
community business at the time of such qualified low-income
community investment.
(iii) Any other information required by the committee.
(B) Thereafter, the qualified community development entity shall
submit an annual report to the committee within 60 days of the
beginning of the calendar year during the compliance period
seven years following submittal of the report,
pursuant to subparagraph (A) . No annual report shall be due
prior to the first anniversary of the initial credit allowance date.
The report shall include, but is not limited to, the following:
(i) The impact the credit had on the low-income community.
(ii) The amount of moneys used for qualified low-income
investments in qualified low-income community businesses.
(iii) The number of employment positions created and retained as a
result of qualified low-income community investments and the
average annual salary of such positions .
(iv) Average annual salary of positions in the projects described
in subdivision (a).
(iv) The number of operating businesses assisted as a result of
qualified low-income community investments, by industry and number of
employees.
(v) Number of real estate projects and type of community
development facilities that resulted.
(e) In the case where the credit allowed by this section exceeds
the "tax," the excess may be carried over to reduce the "tax" in the
following year, and the six succeeding years if necessary, until the
credit is exhausted.
(f) The committee shall annually report on its Internet Web site
the information provided by low-income community development entities
and on the geographic distribution of the credits.
(g) (1) The Franchise Tax Board may prescribe any rules or
regulations that may be necessary or appropriate to implement this
section. The Franchise Tax Board shall have access to any
documentation held by the committee relative to the application and
reporting of a qualified community development entity.
(2) A qualifying community development entity shall provide the
committee with the name, address, and tax identification number of
each investor and entity for which a credit was allocated by the
qualifying community development entity, pursuant to paragraph (3) of
subdivision (b). The committee shall provide this information to the
Franchise Tax Board in a manner determined by the Franchise Tax
Board.
(g)
(h) This section shall remain in effect only until
December 1, 2028, and as of that date is repealed.
SEC. 6. SEC. 7. This act provides
for a tax levy within the meaning of Article IV of the Constitution
and shall go into immediate effect.