California Legislature—2015–16 Regular Session

Assembly BillNo. 35


Introduced by Assembly Member Chiu

December 1, 2014


An act to add Sections 17059 and 23610.6 to the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 35, as introduced, Chiu. Taxation: income taxes: very-low and extremely low-income housing credit.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws, including a state low-income housing tax credit, administered by the California Tax Credit Allocation Committee, which provides procedures and requirements for the allocation of state tax credit amounts among low-income housing projects based on federal law, which requires a 30 % present value credit for existing buildings, with the credit claimed over a 10-year period, as modified. Existing law generally requires the project’s housing sponsor to have been allocated a credit for federal income tax purposes, as specified.

This bill would allow a very low-income and extremely low-income housing credit against those taxes for each taxable year on or after January 1, 2015, in an amount computed and allowed in accordance with a specified section of the Internal Revenue Code, as provided. The bill would specify that a project is not required to have been previously or currently allocated a credit for federal or state income tax purposes, as specified. The bill would make the aggregate housing credit dollar amount $40,000,000 to be allocated annually by the committee on a first-come-first-served basis subject to certain requirements being met, including that the project will be used exclusively for the restructuring, including the acquisition and substantial rehabilitation, of buildings at least 20 years old that currently serve very low-income, extremely low-income, single room occupancy (SRO) or rural area residents. The bill would authorize the committee and the Franchise Tax Board to adopt regulations to carry out the purposes of this section. The bill would make findings and declarations in this regard.

This bill would take effect immediately as a tax levy.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

P2    1

SECTION 1.  

(a) The Legislature finds and declares all of the
2following:

3(1) The preservation and rehabilitation of existing affordable
4housing stock initially created through public investment is a
5critical strategy to address the affordable housing crisis in our state.

6(2) It is particularly important that older single room occupancy
7(SRO), special needs, and other buildings with deeply
8income-targeted rents be preserved and refurbished for low-income
9tenants and the public investment protected.

10(3) However, currently, most properties that are being
11recapitalized and resyndicated through the California Tax Credit
12Allocation Committee system for substantial rehabilitation tend
13to have higher rents and shallower income targeting because they
14appraise well and generate significant acquisition credits.

15(4) Unfortunately, the deeply targeted mostly SRO, special
16needs, and rural projects that very much need to capitalize are
17largely shut out of this opportunity precisely because they have
18agreed to very deep income-targeting which excludes them from
19acquisition credits.

20(b) Therefore, it is the intent of the Legislature to create a new
21source of investment and a pipeline for these older but very
22valuable public assets, which are often in the greatest need of
23rehabilitation.

24

SEC. 2.  

Section 17059 is added to the Revenue and Taxation
25Code
, to read:

26

17059.  

(a) For each taxable year beginning on or after January
271, 2015, there shall be allowed as a credit against the “net tax,” as
P3    1defined in Section 17039, a very low-income and extremely
2low-income housing credit in an amount computed in accordance
3with Section 42 of the Internal Revenue Code, except as otherwise
4provided in this section.

5(b) For the purposes of this section, the following definitions
6shall apply:

7(1) “Taxpayer” means the sole owner in the case of an
8individual, the partners in the case of a partnership, and the
9shareholders in the case of an “S” corporation.

10(2) “Housing sponsor” means the sole owner in the case of an
11individual, the partnership in the case of a partnership, and the “S”
12corporation in the case of an “S” corporation.

13(3) “Very low-income” has the same meaning as in Section
1450053 of the Health and Safety Code.

15(4) “Extremely low-income” has the same meaning as in Section
1650053 of the Health and Safety Code.

17(5) “SRO” means single room occupancy.

18(6) “Rural area resident” means a resident of a rural area as
19defined in Section 50199.21 of the Health and Safety Code.

20(7) “Committee” means the California Tax Credit Allocation
21Committee.

22(c) (1) The amount of the credit allocated to any housing
23sponsor shall be authorized by the committee, or any successor
24thereof, based on a project’s need for the credit in accordance with
25paragraph (2) of subdivision (e).

26(A) The very low-income or extremely low-income housing
27project shall be located in California.

28(B) Nothing in this section shall be construed to require a
29housing sponsor to have been previously or currently allocated a
30credit for federal income tax purposes under Section 42 of the
31Internal Revenue Code or for state income tax purposes under
32Section 17058.

33(2) (A) The committee shall certify to the housing sponsor the
34amount of tax credit under this section allocated to the housing
35sponsor for each credit period.

36(B) In the case of a partnership or an “S” corporation, the
37housing sponsor shall provide a copy of the committee certification
38to the taxpayer.

39(C) The taxpayer shall, upon request, provide a copy of the
40certification to the Franchise Tax Board.

P4    1(d) The aggregate housing credit dollar amount that may be
2allocated annually by the committee pursuant to this section and
3Section 23610.6 shall be an amount equal to the sum of all of the
4following:

5(1) Forty million dollars ($40,000,000).

6(2) The unused allocation credit amount, if any, for the preceding
7fiscal year.

8(3) The amount of housing credits returned in the calendar year.

9(e) (1) Subject to subdivision (c), the committee shall allocate
10the housing credit on a regular basis consisting of two or more
11periods in each calendar year during which applications may be
12filed and considered. The committee shall establish application
13filing deadlines, the maximum amounts of state very low-income
14and extremely low-income housing tax credits that may be
15allocated by the committee in that period, and the approximate
16date on which allocations shall be made. If the enactment of federal
17or state law, the adoption of rules or regulations, or other similar
18events prevent the use of two allocation periods, the committee
19may reduce the number of periods and adjust the filing deadlines,
20maximum percentage of credit allocated, and the allocation dates.

21(2) The committee shall, on a first-come-first-served basis,
22allocate the very low-income and extremely low-income housing
23credit in accordance with the following provisions:

24(A) All housing sponsors shall demonstrate at the time the
25application is filed with the committee that the project meets the
26following threshold requirements:

27(B) The housing sponsor shall demonstrate that the project will
28be used exclusively for the restructuring, including the acquisition
29and substantial rehabilitation, of buildings at least 20 years old
30and that currently serve very low-income, extremely low-income,
31SRO, or rural area residents. No new construction shall be eligible
32for a credit under this section.

33(C) The housing sponsor shall demonstrate that acquisition
34credits that would be received as part of the restructuring through
35the existing state credit program described in Section 17058 would
36be insufficient to complete substantial rehabilitation due to a low
37appraised fair market value.

38(D) The housing sponsor shall demonstrate that the project is
39currently subsidized, but may or may not currently be “at risk” for
40conversion to market rate.

P5    1(E) There is no requirement that the project previously received
2federal or state tax credits when originally constructed.

3(f) In the case where the credit allowed under this section
4exceeds the “net tax,” the excess may be carried over to reduce
5the “net tax” in the following year, and succeeding taxable years,
6if necessary, until the credit is exhausted.

7(g) A deduction otherwise allowed under this part for any
8amount paid or incurred by the qualified taxpayer upon which the
9credit is based shall be reduced by the amount of the credit allowed
10by this section.

11(h) Credit under this section shall be allowed only for credits
12claimed on a timely filed original return of the qualified taxpayer.

13(i) (1) The committee and the Franchise Tax Board may adopt
14regulations, rules, guidelines, or procedures necessary or
15appropriate to carry out the purposes of this section.

16(2) The Administrative Procedure Act (Chapter 3.5
17(commencing with Section 11340) of Part 1 of Division 3 of Title
182 of the Government Code) shall apply to any regulation, rule,
19guideline, or procedure adopted pursuant to this section.

20

SEC. 3.  

Section 23610.6 is added to the Revenue and Taxation
21Code
, to read:

22

23610.6.  

(a) For each taxable year beginning on or after
23January 1, 2015, there shall be allowed as a credit against the “tax,”
24as defined in Section 23036, a very low-income and extremely
25low-income housing credit in an amount computed in accordance
26with Section 42 of the Internal Revenue Code, except as otherwise
27provided in this section.

28(b) For the purposes of this section, the following definitions
29shall apply:

30(1) “Taxpayer” means the sole owner in the case of a “C”
31corporation, the partners in the case of a partnership, and the
32shareholders in the case of an “S” corporation.

33(2) “Housing sponsor” means the sole owner in the case of a
34“C” corporation, the partnership in the case of a partnership, and
35the “S” corporation in the case of an “S” corporation.

36(3) “Very low-income” has the same meaning as in Section
3750053 of the Health and Safety Code.

38(4) “Extremely low-income” has the same meaning as in Section
3950053 of the Health and Safety Code.

40(5) “SRO” means single room occupancy.

P6    1(6) “Rural area resident” means a resident of a rural area as
2defined in Section 50199.21 of the Health and Safety Code.

3(7) “Committee” means the California Tax Credit Allocation
4Committee.

5(c) (1) The amount of the credit allocated to any housing
6sponsor shall be authorized by the committee, or any successor
7thereof, based on a project’s need for the credit in accordance with
8paragraph (2) of subdivision (e).

9(A) The very low-income or extremely low-income housing
10project shall be located in California.

11(B) Nothing in this section shall be construed to require a
12housing sponsor to have been previously or currently allocated a
13credit for federal income tax purposes under Section 42 of the
14Internal Revenue Code or for state income tax purposes under
15Section 23610.5.

16(2) (A) The committee shall certify to the housing sponsor the
17amount of tax credit under this section allocated to the housing
18sponsor for each credit period.

19(B) In the case of a partnership or an “S” corporation, the
20housing sponsor shall provide a copy of the committee certification
21to the taxpayer.

22(C) The taxpayer shall, upon request, provide a copy of the
23certification to the Franchise Tax Board.

24(d) (1) The aggregate housing credit dollar amount that may
25be allocated annually by the committee pursuant to this section
26and Section 17059 shall be an amount equal to the sum of all of
27the following:

28(1) Forty million dollars ($40,000,000).

29(2) The unused allocation credit amount, if any, for the preceding
30fiscal year.

31(3) The amount of housing credits returned in the calendar year.

32(e) (1) Subject to subdivision (c), the committee shall allocate
33the housing credit on a regular basis consisting of two or more
34periods in each calendar year during which applications may be
35filed and considered. The committee shall establish application
36filing deadlines, the maximum amounts of state very low-income
37and extremely low-income housing tax credits that may be
38allocated by the committee in that period, and the approximate
39date on which allocations shall be made. If the enactment of federal
40or state law, the adoption of rules or regulations, or other similar
P7    1events prevent the use of two allocation periods, the committee
2may reduce the number of periods and adjust the filing deadlines,
3maximum percentage of credit allocated, and the allocation dates.

4(2) The committee shall, on a first-come-first-served basis,
5allocate the very low-income and extremely low-income housing
6credit in accordance with the following provisions:

7(A) All housing sponsors shall demonstrate at the time the
8application is filed with the committee that the project meets the
9following threshold requirements:

10(B) The housing sponsor shall demonstrate that the project will
11be used exclusively for the restructuring, including the acquisition
12and substantial rehabilitation, of buildings at least 20 years old
13and that currently serve very low-income, extremely low-income,
14SRO, or rural area residents. No new construction shall be eligible
15for a credit under this section.

16(C) The housing sponsor shall demonstrate that acquisition
17credits that would be received as part of the restructuring through
18the existing state credit program described in Section 23610.5
19would be insufficient to complete substantial rehabilitation due to
20a low appraised fair market value.

21(D) The housing sponsor shall demonstrate that the project is
22currently subsidized, but may or may not currently be “at risk” for
23conversion to market rate.

24(E) There is no requirement that the project previously received
25federal or state tax credits when originally constructed.

26(f) (1) A corporation may elect to assign any portion of any
27credit allowed under this section to one or more affiliated
28corporations for each taxable year in which the credit is allowed.
29For purposes of this subdivision, “affiliated corporation” has the
30meaning provided in subdivision (b) of Section 25110, as of the
31last day of the taxable year in which the credit is allowed, except
32that “100 percent” is substituted for “more than 50 percent”
33wherever it appears in the section, and “voting common stock” is
34substituted for “voting stock” wherever it appears in the section.

35(2) The election provided in paragraph (1):

36(A) May be based on any method selected by the corporation
37that originally receives the credit.

38(B) Shall be irrevocable for the taxable year the credit is allowed,
39once made.

P8    1(C) May be changed for any subsequent taxable year if the
2election to make the assignment is expressly shown on each of the
3returns of the affiliated corporations that assign and receive the
4credits.

5(g) In the case where the credit allowed under this section
6exceeds the “tax,” the excess may be carried over to reduce the
7“tax” in the following year, and succeeding taxable years, if
8necessary, until the credit is exhausted.

9(h) A deduction otherwise allowed under this part for any
10amount paid or incurred by the qualified taxpayer upon which the
11credit is based shall be reduced by the amount of the credit allowed
12by this section.

13(i) Credit under this section shall be allowed only for credits
14claimed on a timely filed original return of the qualified taxpayer.

15(j) (1) The committee and the Franchise Tax Board may adopt
16regulations, rules, guidelines, or procedures necessary or
17appropriate to carry out the purposes of this section.

18(2) The Administrative Procedure Act (Chapter 3.5
19(commencing with Section 11340) of Part 1 of Division 3 of Title
202 of the Government Code) shall apply to any regulation, rule,
21guideline, or procedure adopted pursuant to this section.

22

SEC. 4.  

In order to comply with the requirements of Section
2341 of the Revenue and Taxation Code, it is the intent of the
24Legislature that the California Tax Credit Allocation Committee
25provide the information required by that section to the Legislature.

26

SEC. 5.  

This act provides for a tax levy within the meaning of
27Article IV of the Constitution and shall go into immediate effect.



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