BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 1399|
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THIRD READING
Bill No: AB 1399
Author: Medina (D) and V. Manuel Perez (D)
Amended: 9/6/13 in Senate
Vote: 21
PRIOR VOTES NOT RELEVANT
SUBJECT : Income taxation credits: New Market Tax Credit
SOURCE : Author
DIGEST : This bill enacts the California New Markets Tax
Credit (NMTC) Program, administered by the California Tax Credit
Allocation Committee (CTCAC), beginning in the 2015 taxable year
and ending in the 2021 taxable year, based largely on the
federal credit program. Sunsets the Program on December 1,
2028.
Senate Floor Amendments of 9/6/13 (1) delete the prior version
of the bill relating to economic development; (2) insert
language enacting the NMTC Program, in partial conformity with
federal law; and (3) replace the author of the bill with
Assemblymembers Medina and V. Manuel Perez.
ANALYSIS : Existing federal law authorizes a tax payer to
claim a federal tax credit for qualified investments made to
qualified community development entities (CDEs), as specified.
The value of the federal NMTC is 39% of the qualified equity
investment. The credit is applied by the tax payer over a
seven-year period.
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Existing law:
1. Under the Personal Income Tax Law and the Corporation Tax
Law, allows various credits against the taxes imposed by
those laws.
2. Creates the CTCAC, which has specified duties in regard to
low-income housing credits.
This bill creates a $200 million NMTC Program for the purpose of
stimulating economic development and hasten California's
economic recovery. In general, the new state credit parallels
the federal NMTC. Tax expenditure authority for this bill is
provided through the reallocation of previously authorized
expenditures from the California State Sales and Use Tax
Exclusion Program. Specifically, this bill:
1. Authorizes the creation of the NMTC Program, administered
through the CTCAC, for the purpose of allocating tax credits
in tax years 2015 through 2021 to a CDE.
2. Authorizes CTCAC to allocate up to $40 million in tax
credits annually to qualified CDEs for a total allocation of
$200 million. As a condition of receiving the credits, CDEs
must annually report to CTCAC on the use and impact of the
credits. Unused credits are to be returned for reallocation.
3. Authorizes a qualified CDE to re-award these credits to
private investors who make qualified equity investment in the
CDE. Moneys received from these investments are to be used
to make qualified low-income community investments, which may
include loans and capital investments in businesses, real
estate, and other qualified CDEs that undertake development
projects in eligible low-income areas.
4. Authorizes the 39% credit, spread over seven years, to be
applied against the tax payer's personal and corporate tax
liability. There would be no credit allowance in the first
two years, 7% for the third year; and 8% for each of the
final four years. Provides for the recapture of the value of
the credit if the investment is withdrawn from the CDE prior
to the close of the seventh year, as specified.
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5. Defines qualified low-income community investments to mean:
A. Any capital or equity investment in, or loan to a
qualified low-income business, as defined;
B. Any capital or equity investment in, or a loan to, a
real estate project in a low-income community;
C. The purchase of a loan from another CDE that meets the
other requirements for a low-income community investment;
D. Financial counseling and other services in support of
business activities to businesses and residents of a
low-income community; or
E. Any equity investment in, or a loan to, a CDE.
1. Defines a qualified CDE as a domestic corporation or
partnership that has a primary mission of serving or
providing investment capital for low-income communities or
low-income persons; has low-income residents on its governing
or advisory board; and is certified by the CTCAC.
2. Requires CTCAC to establish guidelines for implementing the
NMTC Program and set fees to cover the costs for
administering the Program. These guidelines will include the
allocation process, which, among other things, is required to
create an equitable distribution of the credits throughout
the state.
3. Requires the California Alternative Energy and Advanced
Transportation Financing Authority to annually determine the
difference between the $100 million statutory limitation on
sales and use tax exclusion and the amount assigned during
the calendar year. This difference is made available to
CTCAC for award to qualified CDEs in the following calendar
year under the NMTC Program.
Background
Federal New Market Tax Credit Program . Congress enacted the
NMTC Program with the Community Renewal Tax Relief Act of 2000
for the purpose of stimulating equity investments in low-income
communities. Under the Program, CDEs apply to the United States
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Department of the Treasury's Community Development Financial
Institutions Fund, for an allocation of federal tax credits,
which the CDE can then offer to individual and corporate
investors in exchange for making an equity investment in the CDE
or its subsidiary.
Supporters of a state NMTC Program have expressed concern that
California has not received its fair share of federal NMTC
allocations. States that regularly receive larger shares have
parallel state tax credit programs or other resources that
encourage the community development within lower income
communities. In 2012, 29 California CDEs received federal NMTC
allocations totaling $17 million. Individual allocations range
from $1.4 million for Northern California Community Loan Fund to
$100,000 to the Women's Economic Ventures of Santa Barbara.
Comments
According to the author's office, this bill proposes the
establishment of a new state tax credit to help spur investments
in low-income neighborhoods. Funding for the new credit is
provided through the reallocation of an unused portion of an
existing state business development incentive.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
MW:k 9/9/13 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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