Amended in Assembly January 11, 2016

Amended in Assembly May 20, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 185

Introduced by Assembly Members Eduardo Garcia and Medina

January 26, 2015

An act to add Section 26011.9 to the Public Resources Code, and to add Section 18410.3 to, and to add and repeal Sections 12283, 17053.9, and 23622.9 of, the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 185, as amended, Eduardo Garcia. Income taxation: insurance taxation: credits: California New 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 creates the California Competes Tax Credit Committee, which has specified duties in regard to tax credits for economic development. Existing law establishes the Governor’s Office of Business and Economic Development, also known as “GO-Biz,” to, among other duties, serve the Governor as the lead entity for economic strategy and the marketing of California on issues relating to business development, private sector investment, and economic growth.

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 tax imposed on an insurer, in modified conformity with a federal New Markets Tax Credit, for taxable years beginning on or after January 1, begin delete 2016, end delete begin insert 2017, end insert and before January 1, begin delete 2028, end delete begin insert 2029, end insert 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. The bill would impose specified duties on the California Competes Tax Credit Committee and GO-Biz with regard to the application for, and allocation of, the credit. The bill would require GO-Biz to establish and impose reasonable fees upon entities that apply for the allocation of the credit, to be deposited in the California New Markets Tax Credit Fund established by the bill, and use the revenue, upon appropriation by the Legislature, to defray the cost of applying to, and administering the program, as specified. The bill would specify that the credit would not be allowed unless the Legislature makes an appropriation from the fund.

The bill would provide that its provisions are severable.

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:

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 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 the 2013-14 funding round,
the CDFI Fund had awarded approximately $40,000,000,000 in
NMTC in 836 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). Any investment by
any 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 a state more attractive to CDEs,
which results in increasing the amount of federal NMTCs being
utilized in a 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 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 committee and GO-Biz
shall administer this program as provided in this section, Section
17053.9, and Section 23622.9. The Director of GO-Biz may
delegate the administration of all or portions of the program within
GO-Biz.

(b) (1) For taxable years beginning on or after January 1, begin delete 2016, end delete
begin insert 2017, end insert and before January 1, begin delete 2028, end delete begin insert 2029, end insert and subject to subdivision
(h), there shall be allowed as a credit against the tax described in
Sections 12201, 12204, 12206, and 12209, an amount determined
in accordance with Section 45D of the Internal Revenue Code, as
modified as set forth in this section.

(2) (A) For purposes of this section, “committee” means the
California Competes Tax Credit Committee established under
Section 18410.2.

(B) For purposes of this section, “GO-Biz” means the
Governor’s Office of Business and Economic Development.

(c) Section 45D of the Internal Revenue Code is modified as
follows:

(1) 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.

(2) (A) Section 45D(c)(1) of the Internal Revenue Code is
modified to only include a qualified community development
entity, that is certified by the Secretary of the Treasury, and its
subsidiary qualified community development entities that have
entered into an allocation agreement with the Community
Development Financial Institutions Fund of the United States
Treasury Department, with respect to credits authorized by Section
45D of the Internal Revenue Code, that includes California within
the service area and is dated on or after January 1, 2012.

(B)  Section 45D(c)(2) of the Internal Revenue Code is modified
to only include a specialized small business investment company
or community development financial institution that entered into
an allocation agreement with the Community Development
Financial Institutions Fund of the United States Treasury
Department, with respect to credits authorized by Section 45D of
the Internal Revenue Code, that includes California within the
service area and is dated on or after January 1, 2012.

(3) 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) By substituting “any low-income community in California”
for “any low-income community” every place it appears in Section
45D of the Internal Revenue Code.

(B) A qualified active low-income community business shall
not include 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.

(C) 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 one or more
California low-income communities. The operating business shall
meet all other conditions of a qualified active low-income
community business, except as modified by this paragraph. begin insert This
requirement does not apply to a business that is controlled by, or
under common control with, a federally recognized tribe. end insert

(D) A qualified active low-income community business shall
only include a business located in census tracts with a poverty rate
greater than 30 percent, or census tracts, if located within a
non-metropolitan area, with a median family income that does not
exceed 60 percent of median family income for the State of
California, or census tracts, if located within a metropolitan area,
with a median family income that does not exceed 60 percent of
the greater of the California median family income or the
metropolitan area median family income, or census tracts with
unemployment rates at least 1.5 times the national average.

(E) A qualified active low-income community business shall
not include any business that operates or derives revenues from
the operation of a country club, gaming establishment, massage
parlor, liquor store, or golf course.

(F) A qualified active low-income community business shall
not include a sexually oriented business. A “sexually oriented
business” means a nightclub, bar, restaurant, or similar commercial
enterprise that provides for an audience of two or more individuals
live nude entertainment or live nude performances where the nudity
is a function of everyday business operations and where nudity is
a planned and intentional part of the entertainment or performance.
“Nude” means clothed in a manner that leaves uncovered or visible,
through less than fully opaque clothing, any portion of the genitals
or, in the case of a female, any portion of the breasts below the
top of the areola of the breasts.

(G) A qualified active low-income community business shall
not include a charter school.

(4) Section 45D(f) of the Internal Revenue Code, relating to
national limitation on amount of investments designated, is
modified as follows:

(A)  The following shall apply in lieu of the provisions of
Section 45D(f)(1) of the Internal Revenue Code: “The aggregate
amount of qualified equity investments that may be allocated in
any calendar year for purposes of this section, Section 17053.9,
and Section 23622.9 shall be an amount as determined by GO-Biz
in consultation with the Department of Finance based upon 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
an amount based upon a credit of forty million dollars
($40,000,000). The committee shall limit the allocation of
investments that may be designated under this section, Section
17053.9, and Section 23622.9 to a cumulative total amount based
on credits of no more than two hundred million dollars
($200,000,000). The allocation of any undesignated qualified
equity investments shall be returned to the committee by March
1 of the year following allocation and the value of the undesignated
qualified equity investment shall be available for allocation in the
following calendar years in accordance with the application
process. Any qualified equity investment attributable to recaptured
credits shall be available to the committee on March 1 of the year
following recapture and shall be available for allocation in the
following calendar years in accordance with subparagraph (B) of
paragraph (5). Reallocated qualified equity investments attributable
to recapture credits shall not count against the annual or the
cumulative limit.”

(B) The references to “the Secretary” in Section 45D(f)(2) of
the Internal Revenue Code, relating to allocation of limitation, is
modified to read “GO-Biz.”

(C) The last sentence of Section 45D(f)(3) of the Internal
Revenue Code, relating to carryover of unused limitation, shall
not apply.

(5) Section 45D(g)(3) of the Internal Revenue Code, relating
to recapture event, is modified to add the following:

(A) (i) The qualified community development entity fails to
comply with subparagraph (D) of paragraph (5) of subdivision (d).
In this case, recapture shall be 100 percent of the credit. The
qualified community development entity shall send notice to
GO-Biz within 30 calendar days of the close of any calendar year
in which the qualified community development entity has failed
to invest at least 15 percent of the purchase price of the qualified
equity investment in satisfaction of the requirements of
subparagraph (D) of paragraph (5) of subdivision (d).

(ii) The qualified community development entity made an
investment without performing a revenue impact assessment that
satisfies subparagraph (J) of paragraph (5) of subdivision (d). In
this case, recapture shall be 100 percent of the credit, unless
GO-Biz has approved a waiver pursuant to clause (ii) of
subparagraph (J) of paragraph (5) of subdivision (d). The qualified
community development entity shall send notice to GO-Biz within
30 calendar days of the close of any calendar year in which the
qualified community development entity has made an investment
that fails to meet the requirements set forth in subparagraph (J) of
paragraph (5) of subdivision (d).

(B) GO-Biz shall establish a process, in consultation with the
Department of Insurance, for the recapture of credits allowed under
this section from the entity that claimed the credit on a return.

(C) Recaptured qualified equity investments revert back to
GO-Biz and shall be reissued. The reissue shall not count toward
the annual or cumulative allocation limitation. The reissue shall
be done in the following order:

(i) First, pro rata to applicants whose qualified equity investment
allocations were reduced pursuant to subparagraph (F) of paragraph
(5) of subdivision (d) by the annual allocation limitation.

(ii) Thereafter, in accordance with the application process.

(D) (i) Enforcement of each of the recapture provisions shall
be subject to a six-month cure period.

(ii) Not more than 45 calendar days following the close of the
cure period, GO-Biz shall make a final determination as to whether
the noncompliance has been cured. This determination shall be
based on information submitted by the qualified community
development entity, and any other information GO-Biz deems
relevant to this determination. Within 30 calendar days of making
the final determination, GO-Biz shall notify the Department of
Insurance and the Franchise Tax Board of the determination and
other related information including, but not limited to, the tax
identification number of the qualified community development
entity.

(iii) GO-Biz shall post, and update monthly, a tally of
undesignated qualified equity investments, pursuant to paragraph
(4), and recaptured credits pursuant to this paragraph.

(6) 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 Housing Tax
Credit Program, the investment or loan is not a qualified
low-income community investment under this section.

(d) (1) GO-Biz shall adopt guidelines necessary or appropriate
to carry out its responsibilities with respect to the allocation of the
qualified equity investments and recapture of credit allowed by
this section. 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) (A) GO-Biz shall establish and impose reasonable fees upon
entities that apply for the allocation pursuant to this subdivision
that in the aggregate defray the cost of reviewing applications for
the program. GO-Biz may impose other reasonable fees upon
entities that receive the allocation pursuant to this subdivision that
in the aggregate defray the cost of administering the program.

(B) The fees collected shall be deposited in the California New
Markets Tax Credit Fund established in Section 18410.3.

(3) In developing guidelines GO-Biz shall adopt an allocation
process that does all of the following:

(A) Creates an equitable distribution process that ensures that
low-income community populations across the state are engaged
and 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 authority
to designate qualified equity investments including, but not limited
to, its business strategy, targeted community outcomes,
capitalization strategy, and management capacity.

(C) Considers the qualified community development entity’s
prior qualified low-income community investments under Section
45D of the Internal Revenue Code.

(D) Considers the qualified community development entity’s
prior qualified low-income community investments under this
section, including subparagraph (D) of paragraph (5).

(4) GO-Biz shall begin accepting applications on or before May
15, begin delete 2016, end delete begin insert 2017, end insert and shall award authority to designate qualified
equity investments annually through begin delete 2020, end delete begin insert 2021, end insert to the extent that
allocations are available pursuant to Section 26011.9 of the Public
Resources Code. To the extent reasonable and consistent in
carrying out the purposes of this section, GO-Biz shall consider
how the timing of the state allocation rounds correspond with the
allocation schedule of the federal New Markets Tax Credit
Program. In the instance where GO-Biz determines that an
application is incomplete, the qualified community development
entity shall be given five business days to provide the omitted
information.

(5) (A) In the begin delete 2016 end delete begin insert 2017 end insert awards cycle, the committee shall
award authority to designate qualified equity investments to
qualified community development entities described in paragraph
(2) of subdivision (c) in the order applications are received by the
committee. Applications received on the same day shall be deemed
to have been received simultaneously.

(B) In the begin delete 2017 to 2020 end delete begin insert 2018 to 2021 end insert award cycles, inclusive,
at least 60 percent of the authority to designate qualified equity
investments shall be awarded pursuant to subparagraph (A). At
the committee’s discretion, a higher percentage of authority to
designate qualified equity investments may be awarded pursuant
to subparagraph (A).

(C) The committee shall award up to 40 percent of the authority
to designate qualified equity investments in the begin delete 2017 to 2020, end delete begin insert 2018
to 2021, end insert inclusive, award cycles, to qualified community
development entities on a competitive basis using blind scoring
and a review committee that is comprised of community
development finance practitioners and members having
demonstrated experience in assessing organizational business
strategy, community outcomes, capitalization strategy, and
management capacity. A member of the review committee shall
not have a financial interest, which includes, but is not limited to,
asking, consenting, or agreeing to receive any commission,
emolument, gratuity, money, property, or thing of value for his or
her own use, benefit, or personal advantage for procuring or
endeavoring to procure for any person, partnership, joint venture,
association, or corporation any qualified equity investment or other
assistance from any applicant.

(D) (i) For qualified equity investments derived from the begin delete 2016
to 2020, end delete begin insert 2017 to 2021, end insert inclusive, awards cycles, pursuant to
subparagraphs (A), (B), and (C), a qualified community
development entity shall invest at least 15 percent of the qualified
equity investment in a qualified low-income community business
in consultation or in partnership with either of the following:

(I) A qualified community development entity certified under
Section 45D of the Internal Revenue Code that has not received a
federal New Markets Tax Credit allocation on or after January 1,
2012, and has either a local service area that includes one or more
California communities or a California statewide service area, but
excluding qualified community development entities with a
national service area.

(II) A nonprofit organization begin delete certified by GO-Biz, pursuant to
clause (iii). end delete begin insert that does the following: end insert

begin insert

(ia) Meets the requirements of Section 23701 of the Revenue
and Taxation Code.

end insert begin insert

(ib) Is registered with the Attorney General.

end insert begin insert

(ic) Has articles of incorporation that state the primary mission
of the organization is focused on improving the economic
well-being of low-income communities or individuals.

end insert begin insert

(id) Has bylaws that provide that the organization maintains
accountability to residents of low-income communities through
their representation on any governing board or on an advisory
board of the nonprofit organization.

end insert

(ii) The 15-percent investment shall be calculated by multiplying
the total purchase price of the qualified equity investments issued
by the qualified community development entity by 15 percent.
Each community development entity application shall indicate
how the qualified community development entity will meet this
requirement.

begin delete

(iii) GO-Biz shall establish guidelines for certifying a nonprofit
organization pursuant to this subparagraph. A nonprofit
organization shall meet the requirements of Section 23701 and be
certified by GO-Biz as having a primary mission of serving or
providing investment capital in low-income communities in
California. The nonprofit organization shall maintain accountability
to residents of low-income communities through their
representation on any governing board or on an advisory board of
the nonprofit organization. GO-Biz 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 appeal and
be heard by the committee, if GO-Biz finds that the nonprofit
organization no longer meets the requirements for certification.

end delete

(E)  In making competitive awards of authority to designate
qualified equity investments, priority shall be given to applications
that can demonstrate that the qualified equity investment authority
will allow the qualified community development entity to undertake
qualified low-income community investments in rural, suburban,
or urban areas that have been historically underserved and result
in the greatest benefit to the hardest to serve and undercapitalized
lower income populations, or in newly established businesses, or
in activities that support neighborhood revitalization strategies
driven by local grassroots stakeholders in multiple low-income
communities across one or more regions or the state for the purpose
of scaling economic development activities that compliment
regional industry clusters that result in the greatest benefit to the
largest number of lower income individuals.

(F) (i)  For applications described in subparagraph (A), in the
event requests for authority to designate qualified equity
investments exceed the applicable annual allocation limitation,
GO-Biz 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.

(ii) If a pending request cannot be fully certified due to this
limit, GO-Biz shall certify the portion that may be certified unless
the qualified community development entity elects to withdraw
its request rather than receive partial certification.

(G) 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 within 30 calendar days of such
transfer and include the information required in the application
with respect to such transferee with such notice. The transferee
shall be subject to the same rules, requirements, and limitations
applicable to the transferor.

(H) Within begin delete 60 end delete begin insert 200 end insert calendar days of GO-Biz sending notice of
certification, the qualified community development entity or any
transferee, under subparagraph (G), shall issue the qualified equity
investment and receive cash in the amount of the certified amount.
The qualified community development entity or transferee, under
subparagraph (G), begin delete must end delete begin insert shall end insert provide GO-Biz with evidence of
the receipt of the cash investment within begin delete 65 end delete begin insert 205 end insert calendar days of
the applicant receiving notice of certification. If the qualified
community development entity or any transferee, under
subparagraph (G), does not receive the cash investment and issue
the qualified equity investment within begin delete 60 end delete begin insert 200 end insert calendar days of
GO-Biz sending the certification notice, the certification shall lapse
and the entity may not issue the qualified equity investment without
reapplying to GO-Biz for certification. Lapsed certifications revert
back to GO-Biz and shall be reissued in the following order:

(i) First, pro rata to applicants whose qualified equity investment
allocations were reduced pursuant to subparagraph (F) under the
annual allocation limitation of forty million dollars ($40,000,000)
in paragraph (4) of subdivision (c).

(ii) Thereafter, in accordance with the application process.

(I) A qualified community development entity that issues
qualified equity investments begin delete must end delete begin insert shall end insert notify GO-Biz of the names
of taxpayers that are eligible to utilize tax credits pursuant to this
section and any transfer of a qualified equity investment.

(J) (i) A qualified community development entity shall only
make a qualified low-income community investment that
demonstrates a positive revenue impact on the state over a 10-year
period against the aggregate tax credit utilization over the same
10-year period. GO-Biz shall approve one or more nationally
recognized revenue impact assessment models that shall be used
by the qualified community development entity to demonstrate
positive revenue impact. If it is demonstrated that the qualified
low-income community investment has a positive revenue impact
on the state at the time the investment is made, it shall be treated
as if the investment continues to meet the requirement of this
subparagraph for the duration of the seven-year program period.

(ii) Upon application and approval by GO-Biz, the requirement
of this subparagraph may be waived.

(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to GO-Biz 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) Evidence that the community development entity complied
with subparagraph (D) of paragraph (5).

(iv) Evidence that each qualified low-income community
investment was determined to have a positive revenue impact on
the state. This requirement does not apply for any qualified
low-income community investment for which GO-Biz approved
a waiver, pursuant to clause (ii) of subparagraph (J) of paragraph
(5) or to reinvestments of redeemed qualified low-income
investments.

(v) Any other information required by GO-Biz as being
necessary to meet the requirements of this section.

(B) Thereafter, the qualified community development entity
shall submit an annual report to GO-Biz within 60 calendar days
of the beginning of the calendar year during the 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 social, environmental, and economic impact the credit
had on the low-income community during the report period and
cumulatively.

(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 owner-occupied real estate projects.

(vi) Location of each qualified low-income community business
assisted by a qualified low-income community investment.

(vii) Summary of the outcomes of each of the revenue impact
assessments undertaken by the qualified community development
entity during the year.

(viii) Any other information requested by GO-Biz.

(e) (1) In the case where the credit allowed by this section
exceeds the tax described in 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.

(2) A taxpayer allowed a credit under this section for a qualified
equity investment shall not be eligible for any other credit under
this part with respect to that investment.

begin insert

(3) The credit allowed under this section may be in addition to
any credit allowed under Section 45D of the Internal Revenue
Code.

end insert

(f) GO-Biz shall annually report on its Internet Web site the
information provided by low-income community development
entities and on the geographic distribution of the qualified active
low-income community businesses assisted.

(g) (1) The Insurance Commissioner and the Franchise Tax
Board may prescribe any rules or regulations that may be necessary
or appropriate to implement this section. The Insurance
Commissioner and 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
GO-Biz with the name, address, and tax identification number of
each investor and entity for which a qualified equity investment
was designated by the qualifying community development entity,
pursuant to this section. GO-Biz shall provide this information to
the Insurance Commissioner and the Franchise Tax Board in a
manner determined by the Insurance Commissioner and the
Franchise Tax Board.

(h) GO-Biz and the committee shall only make awards pursuant
to paragraph (4) of subdivision (d) in a calendar year in which the
Legislature appropriates funds in the California New Markets Tax
Credit Fund pursuant to subdivision (b) of Section 18410.3.

(i) This section shall remain in effect only until December 1,
begin delete 2028, end delete begin insert 2029, end insert 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 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 committee
and GO-Biz shall administer this program as provided in this
section, Section 12283, and Section 23622.9. The Director of
GO-Biz may delegate the administration of all or portions of the
program within GO-Biz.

(b) (1) For taxable years beginning on or after January 1, begin delete 2016, end delete
begin insert 2017, end insert and before January 1, begin delete 2028, end delete begin insert 2029, end insert and subject to subdivision
(h), 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 modified as
set forth in this section.

(2) (A) For purposes of this section, “committee” means the
California Competes Tax Credit Committee established under
Section 18410.2.

(B) For purposes of this section, “GO-Biz” means the
Governor’s Office of Business and Economic Development.

(c) Section 45D of the Internal Revenue Code is modified as
follows:

(1) 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.

(2) (A) Section 45D(c)(1) of the Internal Revenue Code is
modified to only include a qualified community development
entity, that is certified by the Secretary of the Treasury, and its
subsidiary qualified community development entities that have
entered into an allocation agreement with the Community
Development Financial Institutions Fund of the United States
Treasury Department, with respect to credits authorized by Section
45D of the Internal Revenue Code, that includes California within
the service area and is dated on or after January 1, 2012.

(B) Section 45D(c)(2) of the Internal Revenue Code is modified
to only include a specialized small business investment company
or community development financial institution that entered into
an allocation agreement with the Community Development
Financial Institutions Fund of the United States Treasury
Department, with respect to credits authorized by Section 45D of
the Internal Revenue Code, that includes California within the
service area and is dated on or after January 1, 2012.

(3) 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) By substituting “any low-income community in California”
for “any low-income community” every place it appears in Section
45D of the Internal Revenue Code.

(B) A qualified active low-income community business shall
not include 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.

(C) 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 one or more
California low-income communities. The operating business shall
meet all other conditions of a qualified active low-income
community business, except as modified by this paragraph. begin insert This
requirement does not apply to a business that is controlled by, or
under common control with, a federally recognized tribe. end insert

(D) A qualified active low-income community business shall
only include a business located in census tracts with a poverty rate
greater than 30 percent, or census tracts, if located within a
non-metropolitan area, with a median family income that does not
exceed 60 percent of median family income for the State of
California, or census tracts, if located within a metropolitan area,
with a median family income that does not exceed 60 percent of
the greater of the California median family income or the
metropolitan area median family income, or census tracts with
unemployment rates at least 1.5 times the national average.

(E) A qualified active low-income community business shall
not include any business that operates or derives revenues from
the operation of a country club, gaming establishment, massage
parlor, liquor store, or golf course.

(F) A qualified active low-income community business shall
not include a sexually oriented business. A “sexually oriented
business” means a nightclub, bar, restaurant, or similar commercial
enterprise that provides for an audience of two or more individuals
live nude entertainment or live nude performances where the nudity
is a function of everyday business operations and where nudity is
a planned and intentional part of the entertainment or performance.
“Nude” means clothed in a manner that leaves uncovered or visible,
through less than fully opaque clothing, any portion of the genitals
or, in the case of a female, any portion of the breasts below the
top of the areola of the breasts.

(G) A qualified active low-income community business shall
not include a charter school.

(4) Section 45D(f) of the Internal Revenue Code, relating to
national limitation on amount of investments designated, is
modified as follows:

(A) The following shall apply in lieu of the provisions of Section
45D(f)(1) of the Internal Revenue Code: “The aggregate amount
of qualified equity investments that may be allocated in any
calendar year for purposes of this section, Section 12283, and
Section 23622.9 shall be an amount as determined by GO-Biz in
consultation with the Department of Finance based upon 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
an amount based upon a credit of forty million dollars
($40,000,000). The committee shall limit the allocation of
investments that may be designated under this section, Section
12283, and Section 23622.9 to a cumulative total amount based
on credits of no more than two hundred million dollars
($200,000,000). The allocation of any undesignated qualified
equity investments shall be returned to the committee by March
1 of the year following allocation and the value of the undesignated
qualified equity investment shall be available for allocation in the
following calendar years in accordance with the application
process. Any qualified equity investment attributable to recaptured
credits shall be available to the committee on March 1 of the year
following recapture and shall be available for allocation in the
following calendar years in accordance with clause (ii) of
subparagraph (B) of paragraph (5). Reallocated qualified equity
investments attributable to recapture credits shall not count against
the annual or the cumulative limit.”

(B) The references to “the Secretary” in Section 45D(f)(2) of
the Internal Revenue Code, relating to allocation of limitation, is
modified to read “GO-Biz.”

(C) The last sentence of Section 45D(f)(3) of the Internal
Revenue Code, relating to carryover of unused limitation, shall
not apply.

(5) (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”.

(B) Section 45D(g)(3) of the Internal Revenue Code, relating
to recapture event, is modified to add the following:

(i) (I) The qualified community development entity fails to
comply with subparagraph (D) of paragraph (5) of subdivision (d).
In this case, recapture shall be 100 percent of the credit. The
qualified community development entity shall send notice to
GO-Biz within 30 calendar days of the close of any calendar year
in which the qualified community development entity has failed
to invest at least 15 percent of the purchase price of the qualified
equity investment in satisfaction of the requirements of
subparagraph (D) of paragraph (5) of subdivision (d).

(II) The qualified community development entity made an
investment without performing a revenue impact assessment that
satisfies subparagraph (J) of paragraph (5) of subdivision (d). In
this case, recapture shall be 100 percent of the credit, unless
GO-Biz has approved a waiver pursuant to clause (ii) of
subparagraph (J) of paragraph (5) of subdivision (d). The qualified
community development entity shall send notice to GO-Biz within
30 calendar days of the close of any calendar year in which the
qualified community development entity has made an investment
that fails to meet the requirements set forth in subparagraph (J) of
paragraph (5) of subdivision (d).

(ii) GO-Biz shall establish a process, in consultation with the
Franchise Tax Board, for the recapture of credits allowed under
this section from the entity that claimed the credit on a return.

(iii)  Recaptured qualified equity investments revert back to
GO-Biz and shall be reissued. The reissue shall not count toward
the annual or cumulative allocation limitation. The reissue shall
be done in the following order:

(I)  First, pro rata to applicants whose qualified equity
investment allocations were reduced pursuant to subparagraph (F)
of paragraph (5) of subdivision (d) by the annual allocation
limitation.

(II)  Thereafter, in accordance with the application process.

(iv) (I) Enforcement of each of the recapture provisions shall
be subject to a six-month cure period.

(II) Not more than 45 calendar days following the close of the
cure period, GO-Biz shall make a final determination as to whether
the noncompliance has been cured. This determination shall be
based on information submitted by the qualified community
development entity, and any other information GO-Biz deems
relevant to this determination. Within 30 calendar days of making
the final determination, GO-Biz shall notify the Franchise Tax
Board of the determination and other related information including,
but not limited to, the tax identification number of the qualified
community development entity.

(III) GO-Biz shall post, and update monthly, a tally of
undesignated qualified equity investments, pursuant to paragraph
(4), and recaptured credits pursuant to this paragraph.

(6) 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 Housing Tax
Credit Program, the investment or loan is not a qualified
low-income community investment under this section.

(d) (1) GO-Biz shall adopt guidelines necessary or appropriate
to carry out its responsibilities with respect to the allocation of the
qualified equity investments and recapture of credit allowed by
this section. 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) (A) GO-Biz shall establish and impose reasonable fees upon
entities that apply for the allocation pursuant to this subdivision
that in the aggregate defray the cost of reviewing applications for
the program. GO-Biz may impose other reasonable fees upon
entities that receive the allocation pursuant to this subdivision that
in the aggregate defray the cost of administering the program.

(B) The fees collected shall be deposited in the California New
Markets Tax Credit Fund established in Section 18410.3.

(3) In developing guidelines GO-Biz shall adopt an allocation
process that does all of the following:

(A) Creates an equitable distribution process that ensures that
low-income community populations across the state are engaged
and 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 authority
to designate qualified equity investments including, but not limited
to, its business strategy, targeted community outcomes,
capitalization strategy, and management capacity.

(C) Considers the qualified community development entity’s
prior qualified low-income community investments under Section
45D of the Internal Revenue Code.

(D) Considers the qualified community development entity’s
prior qualified low-income community investments under this
section, including subparagraph (D) of paragraph (5).

(4) GO-Biz shall begin accepting applications on or before May
15, begin delete 2016, end delete begin insert 2017, end insert and shall award authority to designate qualified
equity investments annually through begin delete 2020, end delete begin insert 2021, end insert to the extent that
allocations are available pursuant to Section 26011.9 of the Public
Resources Code. To the extent reasonable and consistent in
carrying out the purposes of this section, GO-Biz shall consider
how the timing of the state allocation rounds correspond with the
allocation schedule of the federal New Markets Tax Credit
Program. In the instance where GO-Biz determines that an
application is incomplete, the qualified community development
entity shall be given five business days to provide the omitted
information.

(5) (A) In the begin delete 2016 end delete begin insert 2017 end insert awards cycle, the committee shall
award authority to designate qualified equity investments to
qualified community development entities described in paragraph
(2) of subdivision (c) in the order applications are received by the
committee. Applications received on the same day shall be deemed
to have been received simultaneously.

(B) In the begin delete 2017 to 2020 end delete begin insert 2018 to 2021 end insert award cycles, inclusive,
at least 60 percent of the authority to designate qualified equity
investments shall be awarded pursuant to subparagraph (A). At
the committee’s discretion, a higher percentage of authority to
designate qualified equity investments may be awarded pursuant
to subparagraph (A).

(C) The committee shall award up to 40 percent of the authority
to designate qualified equity investments in the begin delete 2017 to 2020, end delete begin insert 2018
to 2021, end insert inclusive, award cycles, to qualified community
development entities on a competitive basis using blind scoring
and a review committee that is comprised of community
development finance practitioners and members having
demonstrated experience in assessing organizational business
strategy, community outcomes, capitalization strategy, and
management capacity. A member of the review committee shall
not have a financial interest, which includes, but is not limited to,
asking, consenting, or agreeing to receive any commission,
emolument, gratuity, money, property, or thing of value for his or
her own use, benefit, or personal advantage for procuring or
endeavoring to procure for any person, partnership, joint venture,
association, or corporation any qualified equity investment or other
assistance from any applicant.

(D) (i) For qualified equity investments derived from the begin delete 2016
to 2020, end delete begin insert 2017 to 2021, end insert inclusive, awards cycles, pursuant to
subparagraphs (A), (B), and (C), a qualified community
development entity shall invest at least 15 percent of the qualified
equity investment in a qualified low-income community business
in consultation or in partnership with either of the following:

(I) A qualified community development entity certified under
Section 45D of the Internal Revenue Code that has not received a
federal New Markets Tax Credit allocation on or after January 1,
2012, and has either a local service area that includes one or more
California communities or a California statewide service area, but
excluding qualified community development entities with a
national service area.

(II) A nonprofit organization begin delete certified by GO-Biz, pursuant to
clause (iii). end delete begin insert that does the following: end insert

begin insert

(ia) Meets the requirements of Section 23701.

end insert begin insert

(ib) Is registered with the Attorney General.

end insert begin insert

(ic) Has articles of incorporation that state the primary mission
of the organization is focused on improving the economic
well-being of low-income communities or individuals.

end insert begin insert

(id) Has bylaws that provide that the organization maintains
accountability to residents of low-income communities through
their representation on any governing board or on an advisory
board of the nonprofit organization.

end insert

(ii) The 15-percent investment shall be calculated by multiplying
the total purchase price of the qualified equity investments issued
by the qualified community development entity by 15 percent.
Each community development entity application shall indicate
how the qualified community development entity will meet this
requirement.

begin delete

(iii) GO-Biz shall establish guidelines for certifying a nonprofit
organization pursuant to this subparagraph. A nonprofit
organization shall meet the requirements of Section 23701 and be
certified by GO-Biz as having a primary mission of serving or
providing investment capital in low-income communities in
California. The nonprofit organization shall maintain accountability
to residents of low-income communities through their
representation on any governing board or on an advisory board of
the nonprofit organization. GO-Biz 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 appeal and
be heard by the committee, if GO-Biz finds that the nonprofit
organization no longer meets the requirements for certification.

end delete

(E) In making competitive awards of authority to designate
qualified equity investments, priority shall be given to applications
that can demonstrate that the qualified equity investment authority
will allow the qualified community development entity to undertake
qualified low-income community investments in rural, suburban,
or urban areas that have been historically underserved and result
in the greatest benefit to the hardest to serve and undercapitalized
lower income populations, or in newly established businesses, or
in activities that support neighborhood revitalization strategies
driven by local grassroots stakeholders in multiple low-income
communities across one or more regions or the state for the purpose
of scaling economic development activities that compliment
regional industry clusters that result in the greatest benefit to the
largest number of lower income individuals.

(F) (i)  For applications described in subparagraph (A), in the
event requests for authority to designate qualified equity
investments exceed the applicable annual allocation limitation,
GO-Biz 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.

(ii) If a pending request cannot be fully certified due to this
limit, GO-Biz shall certify the portion that may be certified unless
the qualified community development entity elects to withdraw
its request rather than receive partial certification.

(G) 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 within 30 calendar days of such
transfer and include the information required in the application
with respect to such transferee with such notice. The transferee
shall be subject to the same rules, requirements, and limitations
applicable to the transferor.

(H) Within begin delete 60 end delete begin insert 200 end insert calendar days of GO-Biz sending notice of
certification, the qualified community development entity or any
transferee, under subparagraph (G), shall issue the qualified equity
investment and receive cash in the amount of the certified amount.
The qualified community development entity or transferee, under
subparagraph (G), begin delete must end delete begin insert shall end insert provide GO-Biz with evidence of
the receipt of the cash investment within begin delete 65 end delete begin insert 205 end insert calendar days of
the applicant receiving notice of certification. If the qualified
community development entity or any transferee, under
subparagraph (G), does not receive the cash investment and issue
the qualified equity investment within begin delete 60 end delete begin insert 200 end insert calendar days of
GO-Biz sending the certification notice, the certification shall lapse
and the entity may not issue the qualified equity investment without
reapplying to GO-Biz for certification. Lapsed certifications revert
back to GO-Biz and shall be reissued in the following order:

(i) First, pro rata to applicants whose qualified equity investment
allocations were reduced pursuant to subparagraph (F) under the
annual allocation limitation of forty million dollars ($40,000,000)
in paragraph (4) of subdivision (c).

(ii) Thereafter, in accordance with the application process.

(I) A qualified community development entity that issues
qualified equity investments begin delete must end delete begin insert shall end insert notify GO-Biz of the names
of taxpayers that are eligible to utilize tax credits pursuant to this
section and any transfer of a qualified equity investment.

(J) (i) A qualified community development entity shall only
make a qualified low-income community investment that
demonstrates a positive revenue impact on the state over a 10-year
period against the aggregate tax credit utilization over the same
10-year period. GO-Biz shall approve one or more nationally
recognized revenue impact assessment models that shall be used
by the qualified community development entity to demonstrate
positive revenue impact. If it is demonstrated that the qualified
low-income community investment has a positive revenue impact
on the state at the time the investment is made, it shall be treated
as if the investment continues to meet the requirement of this
subparagraph for the duration of the seven-year program period.

(ii) Upon application and approval by GO-Biz, the requirement
of this subparagraph may be waived.

(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to GO-Biz 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) Evidence that the community development entity complied
with subparagraph (D) of paragraph (5).

(iv) Evidence that each qualified low-income community
investment was determined to have a positive revenue impact on
the state. This requirement does not apply for any qualified
low-income community investment for which GO-Biz approved
a waiver, pursuant to clause (ii) of subparagraph (J) of paragraph
(5) or to reinvestments of redeemed qualified low-income
investments.

(v) Any other information required by GO-Biz as being
necessary to meet the requirements of this section.

(B) Thereafter, the qualified community development entity
shall submit an annual report to GO-Biz within 60 calendar days
of the beginning of the calendar year during the 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 social, environmental, and economic impact the credit
had on the low-income community during the report period and
cumulatively.

(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 owner-occupied real estate projects.

(vi) Location of each qualified low-income community business
assisted by a qualified low-income community investment.

(vii) Summary of the outcomes of each of the revenue impact
assessments undertaken by the qualified community development
entity during the year.

(viii) Any other information requested by GO-Biz.

(e) (1) 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.

(2) A taxpayer allowed a credit under this section for a qualified
equity investment shall not be eligible for any other credit under
this part with respect to that investment.

begin insert

(3) The credit allowed under this section may be in addition to
any credit allowed under Section 45D of the Internal Revenue
Code.

end insert

(f) GO-Biz shall annually report on its Internet Web site the
information provided by low-income community development
entities and on the geographic distribution of the qualified active
low-income community businesses assisted.

(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
GO-Biz with the name, address, and tax identification number of
each investor and entity for which a qualified equity investment
was designated by the qualifying community development entity,
pursuant to this section. GO-Biz shall provide this information to
the Franchise Tax Board in a manner determined by the Franchise
Tax Board.

(h) GO-Biz and the committee shall only make awards pursuant
to paragraph (4) of subdivision (d) in a calendar year in which the
Legislature appropriates funds in the California New Markets Tax
Credit Fund pursuant to subdivision (b) of Section 18410.3.

(i) This section shall remain in effect only until December 1,
begin delete 2028, end delete begin insert 2029, end insert and as of that date is repealed.

SEC. 5.  

Section 18410.3 is added to the Revenue and Taxation
Code, to read:

18410.3.  

(a) The California New Markets Tax Credit Fund is
hereby established in the State Treasury.

(b) Upon appropriation, moneys in the fund shall be used for
the purposes described in subdivision (d) of Section 12283,
subdivision (d) of Section 17053.9, and subdivision (d) of Section
23622.9.

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 private sector investment in lower income communities
by providing a tax incentive to 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 committee
and GO-Biz shall administer this program as provided in this
section, Section 12283, and Section 17053.9. The Director of
GO-Biz may delegate the administration of all or portions of the
program within GO-Biz.

(b) (1) For taxable years beginning on or after January 1, begin delete 2016, end delete
begin insert 2017, end insert and before January 1, begin delete 2028, end delete begin insert 2029, end insert and subject to subdivision
(h), 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 modified as set forth in this
section.

(2) (A) For purposes of this section, “committee” means the
California Competes Tax Credit Committee established under
Section 18410.2.

(B) For purposes of this section, “GO-Biz” means the
Governor’s Office of Business and Economic Development.

(c) Section 45D of the Internal Revenue Code is modified as
follows:

(1) 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.

(2) (A) Section 45D(c)(1) of the Internal Revenue Code is
modified to only include a qualified community development
entity, that is certified by the Secretary of the Treasury, and its
subsidiary qualified community development entities that have
entered into an allocation agreement with the Community
Development Financial Institutions Fund of the United States
Treasury Department, with respect to credits authorized by Section
45D of the Internal Revenue Code, that includes California within
the service area and is dated on or after January 1, 2012.

(B) Section 45D(c)(2) of the Internal Revenue Code is modified
to only include a specialized small business investment company
or community development financial institution that entered into
an allocation agreement with the Community Development
Financial Institutions Fund of the United States Treasury
Department, with respect to credits authorized by Section 45D of
the Internal Revenue Code, that includes California within the
service area and is dated on or after January 1, 2012.

(3) 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) By substituting “any low-income community in California”
for “any low-income community” every place it appears in Section
45D of the Internal Revenue Code.

(B) A qualified active low-income community business shall
not include 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.

(C) 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 one or more
California low-income communities. The operating business shall
meet all other conditions of a qualified active low-income
community business, except as modified by this paragraph. begin insert This
requirement does not apply to a business that is controlled by, or
under common control with, a federally recognized tribe. end insert

(D) A qualified active low-income community business shall
only include a business located in census tracts with a poverty rate
greater than 30 percent, or census tracts, if located within a
non-metropolitan area, with a median family income that does not
exceed 60 percent of median family income for the State of
California, or census tracts, if located within a metropolitan area,
with a median family income that does not exceed 60 percent of
the greater of the California median family income or the
metropolitan area median family income, or census tracts with
unemployment rates at least 1.5 times the national average.

(E) A qualified active low-income community business shall
not include any business that operates or derives revenues from
the operation of a country club, gaming establishment, massage
parlor, liquor store, or golf course.

(F) A qualified active low-income community business shall
not include a sexually oriented business. A “sexually oriented
business” means a nightclub, bar, restaurant, or similar commercial
enterprise that provides for an audience of two or more individuals
live nude entertainment or live nude performances where the nudity
is a function of everyday business operations and where nudity is
a planned and intentional part of the entertainment or performance.
“Nude” means clothed in a manner that leaves uncovered or visible,
through less than fully opaque clothing, any portion of the genitals
or, in the case of a female, any portion of the breasts below the
top of the areola of the breasts.

(G) A qualified active low-income community business shall
not include a charter school.

(4) Section 45D(f) of the Internal Revenue Code, relating to
national limitation on amount of investments designated, is
modified as follows:

(A) The following shall apply in lieu of the provisions of Section
45D(f)(1) of the Internal Revenue Code: “The aggregate amount
of qualified equity investments that may be allocated in any
calendar year for purposes of this section, Section 12283, and
Section 17053.9 shall be an amount as determined by GO-Biz in
consultation with the Department of Finance based upon 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
an amount based upon a credit of forty million dollars
($40,000,000). The committee shall limit the allocation of
investments that may be designated under this section, Section
12283, and Section 17053.9 to a cumulative total amount based
on credits of no more than two hundred million dollars
($200,000,000). The allocation of any undesignated qualified
equity investments shall be returned to the committee by March
1 of the year following allocation and the value of the undesignated
qualified equity investment shall be available for allocation in the
following calendar years in accordance with the application
process. Any qualified equity investment attributable to recaptured
credits shall be available to the committee on March 1 of the year
following recapture and shall be available for allocation in the
following calendar years in accordance with clause (ii) of
subparagraph (B) of paragraph (5). Reallocated qualified equity
investments attributable to recapture credits shall not count against
the annual or the cumulative limit.”

(B) The references to “the Secretary” in Section 45D(f)(2) of
the Internal Revenue Code, relating to allocation of limitation, is
modified to read “GO-Biz.”

(C) The last sentence of Section 45D(f)(3) of the Internal
Revenue Code, relating to carryover of unused limitation, shall
not apply.

(5) (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”.

(B) Section 45D(g)(3) of the Internal Revenue Code, relating
to recapture event, is modified to add the following:

(i) (I) The qualified community development entity fails to
comply with subparagraph (D) of paragraph (5) of subdivision (d).
In this case, recapture shall be 100 percent of the credit. The
qualified community development entity shall send notice to
GO-Biz within 30 calendar days of the close of any calendar year
in which the qualified community development entity has failed
to invest at least 15 percent of the purchase price of the qualified
equity investment in satisfaction of the requirements of
subparagraph (D) of paragraph (5) of subdivision (d).

(II) The qualified community development entity made an
investment without performing a revenue impact assessment that
satisfies subparagraph (J) of paragraph (5) of subdivision (d). In
this case, recapture shall be 100 percent of the credit, unless
GO-Biz has approved a waiver pursuant to clause (ii) of
subparagraph (J) of paragraph (5) of subdivision (d). The qualified
community development entity shall send notice to GO-Biz within
30 calendar days of the close of any calendar year in which the
qualified community development entity has made an investment
that fails to meet the requirements set forth in subparagraph (J) of
paragraph (5) of subdivision (d).

(ii) GO-Biz shall establish a process, in consultation with the
Franchise Tax Board, for the recapture of credits allowed under
this section from the entity that claimed the credit on a return.

(iii) Recaptured qualified equity investments revert back to
GO-Biz and shall be reissued. The reissue shall not count toward
the annual or cumulative allocation limitation. The reissue shall
be done in the following order:

(I) First, pro rata to applicants whose qualified equity investment
allocations were reduced pursuant to subparagraph (F) of paragraph
(5) of subdivision (d) by the annual allocation limitation.

(II) Thereafter, in accordance with the application process.

(iv) (I) Enforcement of each of the recapture provisions shall
be subject to a six-month cure period.

(II) Not more than 45 calendar days following the close of the
cure period, GO-Biz shall make a final determination as to whether
the noncompliance has been cured. This determination shall be
based on information submitted by the qualified community
development entity, and any other information GO-Biz deems
relevant to this determination. Within 30 calendar days of making
the final determination, GO-Biz shall notify the Franchise Tax
Board of the determination and other related information including,
but not limited to, the tax identification number of the qualified
community development entity.

(III) GO-Biz shall post, and update monthly, a tally of
undesignated qualified equity investments, pursuant to paragraph
(4), and recaptured credits pursuant to this paragraph.

(6) 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 Housing Tax
Credit Program, the investment or loan is not a qualified
low-income community investment under this section.

(d) (1)  GO-Biz shall adopt guidelines necessary or appropriate
to carry out its responsibilities with respect to the allocation of the
qualified equity investments and recapture of credit allowed by
this section. 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) (A) GO-Biz shall establish and impose reasonable fees upon
entities that apply for the allocation pursuant to this subdivision
that in the aggregate defray the cost of reviewing applications for
the program. GO-Biz may impose other reasonable fees upon
entities that receive the allocation pursuant to this subdivision that
in the aggregate defray the cost of administering the program.

(B) The fees collected shall be deposited in the California New
Markets Tax Credit Fund established in Section 18410.3.

(3) In developing guidelines GO-Biz shall adopt an allocation
process that does all of the following:

(A) Creates an equitable distribution process that ensures that
low-income community populations across the state are engaged
and 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 authority
to designate qualified equity investments including, but not limited
to, its business strategy, targeted community outcomes,
capitalization strategy, and management capacity.

(C) Considers the qualified community development entity’s
prior qualified low-income community investments under Section
45D of the Internal Revenue Code.

(D) Considers the qualified community development entity’s
prior qualified low-income community investments under this
section, including subparagraph (D) of paragraph (5).

(4) GO-Biz shall begin accepting applications on or before May
15, begin delete 2016, end delete begin insert 2017, end insert and shall award authority to designate qualified
equity investments annually through begin delete 2020, end delete begin insert 2021, end insert to the extent that
allocations are available pursuant to Section 26011.9 of the Public
Resources Code. To the extent reasonable and consistent in
carrying out the purposes of this section, GO-Biz shall consider
how the timing of the state allocation rounds correspond with the
allocation schedule of the federal New Markets Tax Credit
Program. In the instance where GO-Biz determines that an
application is incomplete, the qualified community development
entity shall be given five business days to provide the omitted
information.

(5) (A) In the begin delete 2016 end delete begin insert 2017 end insert awards cycle, the committee shall
award authority to designate qualified equity investments to
qualified community development entities described in paragraph
(2) of subdivision (c) in the order applications are received by the
committee. Applications received on the same day shall be deemed
to have been received simultaneously.

(B) In the begin delete 2017 to 2020 end delete begin insert 2018 to 2021 end insert award cycles, inclusive,
at least 60 percent of the authority to designate qualified equity
investments shall be awarded pursuant to subparagraph (A). At
the committee’s discretion, a higher percentage of authority to
designate qualified equity investments may be awarded pursuant
to subparagraph (A).

(C) The committee shall award up to 40 percent of the authority
to designate qualified equity investments in the begin delete 2017 to 2020, end delete begin insert 2018
to 2021, end insert inclusive, award cycles, to qualified community
development entities on a competitive basis using blind scoring
and a review committee that is comprised of community
development finance practitioners and members having
demonstrated experience in assessing organizational business
strategy, community outcomes, capitalization strategy, and
management capacity. A member of the review committee shall
not have a financial interest, which includes, but is not limited to,
asking, consenting, or agreeing to receive any commission,
emolument, gratuity, money, property, or thing of value for his or
her own use, benefit, or personal advantage for procuring or
endeavoring to procure for any person, partnership, joint venture,
association, or corporation any qualified equity investment or other
assistance from any applicant.

(D) (i) For qualified equity investments derived from the begin delete 2016
to 2020, end delete begin insert 2017 to 2021, end insert inclusive, awards cycles, pursuant to
subparagraphs (A), (B), and (C), a qualified community
development entity shall invest at least 15 percent of the qualified
equity investment in a qualified low-income community business
in consultation or in partnership with either of the following:

(I) A qualified community development entity certified under
Section 45D of the Internal Revenue Code that has not received a
federal New Markets Tax Credit allocation on or after January 1,
2012, and has either a local service area that includes one or more
California communities or a California statewide service area, but
excluding qualified community development entities with a
national service area.

(II) A nonprofit organization begin delete certified by GO-Biz, pursuant to
clause (iii). end delete begin insert that does the following: end insert

begin insert

(ia) Meets the requirements of Section 23701.

end insert begin insert

(ib) Is registered with the Attorney General.

end insert begin insert

(ic) Has articles of incorporation that state the primary mission
of the organization is focused on improving the economic
well-being of low-income communities or individuals.

end insert begin insert

(id) Has bylaws that provide that the organization maintains
accountability to residents of low-income communities through
their representation on any governing board or on an advisory
board of the nonprofit organization.

end insert

(ii) The 15-percent investment shall be calculated by multiplying
the total purchase price of the qualified equity investments issued
by the qualified community development entity by 15 percent.
Each community development entity application shall indicate
how the qualified community development entity will meet this
requirement.

begin delete

(iii) GO-Biz shall establish guidelines for certifying a nonprofit
organization pursuant to this subparagraph. A nonprofit
organization shall meet the requirements of Section 23701 and be
certified by GO-Biz as having a primary mission of serving or
providing investment capital in low-income communities in
California. The nonprofit organization shall maintain accountability
to residents of low-income communities through their
representation on any governing board or on an advisory board of
the nonprofit organization. GO-Biz 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 appeal and
be heard by the committee, if GO-Biz finds that the nonprofit
organization no longer meets the requirements for certification.

end delete

(E) In making competitive awards of authority to designate
qualified equity investments, priority shall be given to applications
that can demonstrate that the qualified equity investment authority
will allow the qualified community development entity to undertake
qualified low-income community investments in rural, suburban,
or urban areas that have been historically underserved and result
in the greatest benefit to the hardest to serve and undercapitalized
lower income populations, or in newly established businesses, or
in activities that support neighborhood revitalization strategies
driven by local grassroots stakeholders in multiple low-income
communities across one or more regions or the state for the purpose
of scaling economic development activities that compliment
regional industry clusters that result in the greatest benefit to the
largest number of lower income individuals.

(F) (i) For applications described in subparagraph (A), in the
event requests for authority to designate qualified equity
investments exceed the applicable annual allocation limitation,
GO-Biz 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.

(ii) If a pending request cannot be fully certified due to this
limit, GO-Biz shall certify the portion that may be certified unless
the qualified community development entity elects to withdraw
its request rather than receive partial certification.

(G) 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 within 30 calendar days of such
transfer and include the information required in the application
with respect to such transferee with such notice. The transferee
shall be subject to the same rules, requirements, and limitations
applicable to the transferor.

(H) Within begin delete 60 end delete begin insert 200 end insert calendar days of GO-Biz sending notice of
certification, the qualified community development entity or any
transferee, under subparagraph (G), shall issue the qualified equity
investment and receive cash in the amount of the certified amount.
The qualified community development entity or transferee, under
subparagraph (G), begin delete must end delete begin insert shall end insert provide GO-Biz with evidence of
the receipt of the cash investment within begin delete 65 end delete begin insert 205 end insert calendar days of
the applicant receiving notice of certification. If the qualified
community development entity or any transferee, under
subparagraph (G), does not receive the cash investment and issue
the qualified equity investment within begin delete 60 end delete begin insert 200 end insert calendar days of
GO-Biz sending the certification notice, the certification shall lapse
and the entity may not issue the qualified equity investment without
reapplying to GO-Biz for certification. Lapsed certifications revert
back to GO-Biz and shall be reissued in the following order:

(i) First, pro rata to applicants whose qualified equity investment
allocations were reduced pursuant to subparagraph (F) under the
annual allocation limitation of forty million dollars ($40,000,000)
in paragraph (4) of subdivision (c).

(ii) Thereafter, in accordance with the application process.

(I) A qualified community development entity that issues
qualified equity investments begin delete must end delete begin insert shall end insert notify GO-Biz of the names
of taxpayers that are eligible to utilize tax credits pursuant to this
section and any transfer of a qualified equity investment.

(J) (i) A qualified community development entity shall only
make a qualified low-income community investment that
demonstrates a positive revenue impact on the state over a 10-year
period against the aggregate tax credit utilization over the same
10-year period. GO-Biz shall approve one or more nationally
recognized revenue impact assessment models that shall be used
by the qualified community development entity to demonstrate
positive revenue impact. If it is demonstrated that the qualified
low-income community investment has a positive revenue impact
on the state at the time the investment is made, it shall be treated
as if the investment continues to meet the requirement of this
subparagraph for the duration of the seven-year program period.

(ii) Upon application and approval by GO-Biz, the requirement
of this subparagraph may be waived.

(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to GO-Biz 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) Evidence that the community development entity complied
with subparagraph (D) of paragraph (5).

(iv) Evidence that each qualified low-income community
investment was determined to have a positive revenue impact on
the state. This requirement does not apply for any qualified
low-income community investment for which GO-Biz approved
a waiver, pursuant to clause (ii) of subparagraph (J) of paragraph
(5) or to reinvestments of redeemed qualified low-income
investments.

(v) Any other information required by GO-Biz as being
necessary to meet the requirements of this section.

(B) Thereafter, the qualified community development entity
shall submit an annual report to GO-Biz within 60 calendar days
of the beginning of the calendar year during the 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 social, environmental, and economic impact the credit
had on the low-income community during the report period and
cumulatively.

(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 owner-occupied real estate projects.

(vi) Location of each qualified low-income community business
assisted by a qualified low-income community investment.

(vii) Summary of the outcomes of each of the revenue impact
assessments undertaken by the qualified community development
entity during the year.

(viii) Any other information requested by GO-Biz.

(e) (1) 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.

(2) A taxpayer allowed a credit under this section for a qualified
equity investment shall not be eligible for any other credit under
this part with respect to that investment.

begin insert

(3) The credit allowed under this section may be in addition to
any credit allowed under Section 45D of the Internal Revenue
Code.

end insert

(f) GO-Biz shall annually report on its Internet Web site the
information provided by low-income community development
entities and on the geographic distribution of the qualified active
low-income community businesses assisted.

(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
GO-Biz with the name, address, and tax identification number of
each investor and entity for which a qualified equity investment
was designated by the qualifying community development entity,
pursuant to this section. GO-Biz shall provide this information to
the Franchise Tax Board in a manner determined by the Franchise
Tax Board.

(h) GO-Biz and the committee shall only make awards pursuant
to paragraph (4) of subdivision (d) in a calendar year in which the
Legislature appropriates funds in the California New Markets Tax
Credit Fund pursuant to subdivision (b) of Section 18410.3.

(i) This section shall remain in effect only until December 1,
begin delete 2028, end delete begin insert 2029, end insert and as of that date is repealed.

SEC. 7.  

The provisions of this act are severable. If any
provision of this act or its application is held invalid, that invalidity
shall not affect other provisions or applications that can be given
effect without the invalid provision or application.

SEC. 8.  

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