BILL NUMBER: AB 2647 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 12, 2016
AMENDED IN ASSEMBLY MARCH 29, 2016
INTRODUCED BY Assembly Members Eduardo Garcia and Medina
(Principal coauthors: Assembly Members Brown, Chu, and Dodd)
FEBRUARY 19, 2016
An act 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 2647, as amended, Eduardo Garcia. Income taxation: insurance
taxation: credits: California New Markets Tax Credit.
Existing federal law allows a New Markets Tax Credit to a taxpayer
holding a qualified equity investment in an amount equal to the
applicable percentage of the amount paid to the qualified community
development entity for investment in low-income communities.
The state Personal Income Tax Law and the Corporation Tax Law
allow various credits against the taxes imposed by those laws.
Existing state constitutional law governing insurance taxation
imposes an annual tax on the gross premiums of an insurer, as
defined, doing business in this state at specified rates.
Existing law establishes the Governor's Office of Business and
Economic Development, also known as " GO-Biz," to, among other
things, 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.
This bill would allow a California New Markets Tax Credit under
the Personal Income Tax Law, the Corporation Tax Law, and the law
governing insurance taxation, in modified conformity with the federal
New Markets Tax Credit, for taxable years beginning on or after
January 1, 2017, and before January 1, 2022, 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
$40,000,000 per calendar year. The bill would impose specified
duties on the Responsible Tax Credit Administrator (RTCA), to be
designated by the Governor, with regard to the application for, and
allocation of, the credit. The bill would require the RTCA 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 annual appropriation by the Legislature, to defray the cost of
applying to and administering the credits, as specified. The bill
would only authorize the allocation for these credits for those
taxable years for which moneys are appropriated to the RTCA to
administer these credits for those taxable years.
Existing law requires any bill authorizing a new personal or
corporation income tax credit to contain, among other things,
specific goals, purposes, and objectives that the tax credit will
achieve, detailed performance indicators, and data collection
requirements, as provided.
This bill would also include that additional information required
for any bill authorizing a new personal or corporation income tax
credit.
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 forty
billion dollars ($40,000,000,000) in NMTC in 836 awards, including
three billion dollars ($3,000,000,000) in American Recovery and
Investment Act of 2009 awards and one billion dollars
($1,000,000,000) of special allocation authority to be used for the
recovery and redevelopment of the Gulf Opportunity Zone.
(c) Since 2003, the NMTC Program has created or retained an
estimated 197,585 jobs nationally. It has also supported the
construction of 32.4 million square feet of manufacturing space, 74.8
million square feet of office space, and 57.5 million square feet of
retail space. The United States Department of the Treasury reports
that a secondary benefit is that as these communities develop, they
become more attractive to investors, catalyzing a ripple effect that
spurs further investments and revitalization.
(d) For every one dollar ($1) invested by the federal government,
the NMTC Program generates over eight dollars ($8) of private
investment. The NMTC Program catalyzes investment in the most
economically challenged areas of the state. Over 75 percent of New
Markets Tax Credit investments have been made in highly distressed
areas, meaning the household income was less than 60 percent of
statewide median income and the poverty rate was higher than 30
percent.
(e) 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.
(f) 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 twelve dollars ($12) to fourteen dollars ($14)
of private investment.
SEC. 2. 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-sized 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. RTCA shall administer this program as
provided in this section, Section 17053.9, and Section 23622.9.
(b) (1) For taxable years beginning on or after January 1, 2017,
and before January 1, 2022, and subject to subdivision (h), there
shall be allowed as a credit against the tax described in Section
12201, in an amount determined in accordance with Section 45D of the
Internal Revenue Code, relating to the new markets tax credit, as
modified in this section.
(2) For the purposes of this section, "RTCA" means the Responsible
Tax Credit Administrator, as designated by the Governor.
(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, relating
to qualified community development entity, 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, relating to
special rules for certain organizations, 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. This requirement does not apply
to a business that is located on land and is controlled by, or under
common control with, a federally recognized tribe.
(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
nonmetropolitan area, with a median family income that does not
exceed 60 percent of median family income for this state, 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 forty million dollars ($40,000,000) per calendar
year. The allocation of any undesignated qualified equity investments
shall be returned to RTCA 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 RTCA 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 "RTCA."
(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) The qualified community development entity fails to comply
with subparagraph (C) (D) of paragraph
(5) of subdivision (d). In this case, recapture shall be 100 percent
of the credit.
(B) RTCA 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 RTCA
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
(D) (E) of paragraph (5) of subdivision (d) by
the annual allocation limitation.
(ii) Thereafter, in accordance with the application process.
(D) Enforcement of each of the recapture provisions shall be
subject to a six-month cure period.
(d) (1) RTCA shall adopt guidelines necessary or appropriate to
carry out its responsibilities with respect to the allocation,
monitoring, and management of the tax credit program authorized by
this section.
(2) (A) RTCA 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. RTCA 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, RTCA 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 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 (C) (D) of
paragraph (5).
(4) (A) Subject to subdivision (h), RTCA shall begin accepting
applications on or before May 15, 2017, and shall award authority to
designate qualified equity investments annually through
2022. 2021.
(B) In the instance where RTCA 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 2017 awards cycle, RTCA 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 RTCA. Applications received
on the same day shall be deemed to have been received simultaneously.
(B) In the 2018 to 2022 2021 award
cycles, inclusive, at least 60 percent of the authority to designate
qualified equity investments shall be awarded pursuant to
subparagraph (A). At the discretion of RTCA, a higher percentage of
authority to designate qualified equity investments may be awarded
pursuant to subparagraph (A).
(C) RTCA shall award up to 40 percent of the authority to
designate qualified equity investments in the 2018 to 2022,
2021, inclusive, award cycles, to qualified
community development entities on a competitive basis that meets the
following criteria:
(i) Awards shall be reviewed using blind scoring and a review
committee that is composed of community development finance
practitioners and members having demonstrated experience in assessing
organizational business strategy, community outcomes, capitalization
strategy, and management capacity.
(ii) 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.
(iii) Applications for awards shall include a commitment to make
at least 15 percent of qualified community development investments to
a qualified community development entity with the assistance of a
nonprofit organization, as documented by a cooperation agreement that
states the terms and conditions of that assistance. For the purposes
of this clause, the following shall apply:
(I) A qualified community development entity shall be certified
under Section 45D of the Internal Revenue Code but 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 shall meet all of the following
requirements: Is tax exempt under Section 23701, is registered with
the Registry of Charitable Trusts, which is administered by the
Attorney General, has articles of incorporation or articles of
organization that state the primary mission of the organization is
focused on improving the economic well-being of low-income
communities or individuals, and 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.
(iv)
(iii) Priority shall be provided to both of the
following:
(I) Applications that commit to addressing the hardest to serve
and undercapitalized lower income populations.
(II) Applications that support neighborhood revitalization
strategies driven by local grassroots stakeholders in multiple
low-income communities across one or more regions or the state. These
applications shall demonstrate how their investment activity
provides a scalable economic development model.
(D) For applications described in subparagraphs (A) and (B),
applications for awards shall include a commitment to make at least
15 percent of qualified community development investments to a
qualified community development entity with the assistance of a
nonprofit organization, as documented by a cooperation agreement that
states the terms and conditions of that assistance. For the purposes
of this subparagraph, the following shall apply:
(i) A qualified community development entity shall be certified
under Section 45D of the Internal Revenue Code but 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 shall meet all of the following
requirements: Is tax exempt under Section 23701, is registered with
the Registry of Charitable Trusts, which is administered by the
Attorney General, has articles of incorporation or articles of
organization that state the primary mission of the organization is
focused on improving the economic well-being of low-income
communities or individuals, and 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.
(D)
(E) (i) For applications described in subparagraph
(A), in the event requests for authority to designate qualified
equity investments exceed the applicable annual allocation
limitation, RTCA 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, RTCA shall certify the portion that may be certified unless
the qualified community development entity elects to withdraw its
request rather than receive partial certification.
(E)
(F) 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 RTCA 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.
(F)
(G) Within 200 calendar days of RTCA sending notice of
certification, the qualified community development entity or any
transferee, under subparagraph (E), (F),
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 (E),
(F), shall provide RTCA with evidence of the
receipt of the cash investment within 205 calendar days of the
applicant receiving notice of certification. If the qualified
community development entity or any transferee, under subparagraph
(E), (F), does not receive the cash
investment and issue the qualified equity investment within 200
calendar days of RTCA sending the certification notice, the
certification shall lapse and the entity may not issue the qualified
equity investment without reapplying to RTCA for certification.
Lapsed certifications revert back to RTCA and shall be reissued in
the following order:
(i) First, pro rata to applicants whose qualified equity
investment allocations were reduced pursuant to subparagraph
(D) (E) 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.
(G)
(H) A qualified community development entity that
issues qualified equity investments shall notify RTCA of the names of
taxpayers that are eligible to utilize tax credits pursuant to this
section and any transfer of a qualified equity investment.
(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to RTCA that
provides documentation as to the investment of at least 85 percent of
the funds being deployed within one year 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 (C) (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 to reinvestments of redeemed qualified
low-income investments.
(v)
(iv) Any other information required by RTCA as being
necessary to meet the requirements of this section.
(B) Thereafter, the qualified community development entity shall
submit an annual report to RTCA 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 RTCA.
(e) (1) In the case where the credit allowed by this section
exceeds the tax described in Section 12201, 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.
(3) The credit allowed under this section may be in addition to
any credit allowed under Section 45D of the Internal Revenue Code.
(f) RTCA 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 may prescribe any rules or
regulations that may be necessary or appropriate to implement this
section. The Insurance Commissioner shall have access to any
documentation held by RTCA relative to the application and reporting
of a qualified community development entity.
(2) A qualified community development entity shall provide RTCA
with the name, address, and tax identification number of each
investor and entity for which a qualified equity investment was
designated by the
qualified community development entity, pursuant to this section.
RTCA shall provide this information to the Insurance Commissioner in
a manner determined by the Insurance Commissioner.
(h) (1) The credit authorized by this section shall only be
allowed for those taxable years for which moneys are appropriated to
RTCA to administer the California New Markets Tax Credit pursuant to
18410.3 for that taxable year. The appropriation shall specifically
identify the California New Markets Tax Credit.
(2) For those taxable years for which those moneys are
appropriated pursuant to paragraph (1), RTCA shall post notice of the
appropriation on the homepage of its Internet Web site and send
notice of such appropriation to the Secretary of State and the
Legislative Counsel.
(i) This section shall be repealed on December 1, 2022.
SEC. 3. 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-sized 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. RTCA shall administer this program as
provided in this section, Section 12283, and Section 23622.9.
(b) (1) For taxable years beginning on or after January 1, 2017,
and before January 1, 2022, and subject to subdivision (h), there
shall be allowed as a credit against the "net tax," as defined in
Section 17039, in an amount determined in accordance with Section 45D
of the Internal Revenue Code, relating to the new markets tax
credit, as modified in this section.
(2) For the purposes of this section, "RTCA" means the Responsible
Tax Credit Administrator, as designated by the Governor.
(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, relating
to qualified community development entity, 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, relating to
special rules for certain organizations, 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. This requirement does not apply
to a business that is located on land and is controlled by, or under
common control with, a federally recognized tribe.
(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
nonmetropolitan area, with a median family income that does not
exceed 60 percent of median family income for this state, 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 forty million dollars ($40,000,000) per calendar year. The
allocation of any undesignated qualified equity investments shall be
returned to RTCA 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
RTCA 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 "RTCA."
(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) The qualified community development entity fails to comply
with subparagraph (C) (D) of paragraph
(5) of subdivision (d). In this case, recapture shall be 100 percent
of the credit.
(ii) RTCA 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 RTCA
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
(D) (E) of paragraph (5) of subdivision (d) by
the annual allocation limitation.
(II) Thereafter, in accordance with the application process.
(iv) Enforcement of each of the recapture provisions shall be
subject to a six-month cure period.
(d) (1) RTCA shall adopt guidelines necessary or appropriate to
carry out its responsibilities with respect to the allocation,
monitoring, and management of the tax credit program authorized by
this section.
(2) (A) RTCA 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. RTCA 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, RTCA 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 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 (C) (D) of
paragraph (5).
(4) (A) Subject to subdivision (h), RTCA shall begin accepting
applications on or before May 15, 2017, and shall award authority to
designate qualified equity investments annually through
2022. 2021.
(B) In the instance where RTCA 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 2017 awards cycle, RTCA 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 RTCA. Applications received
on the same day shall be deemed to have been received simultaneously.
(B) In the 2018 to 2022 2021 award
cycles, inclusive, at least 60 percent of the authority to designate
qualified equity investments shall be awarded pursuant to
subparagraph (A). At the discretion of RTCA, a higher percentage of
authority to designate qualified equity investments may be awarded
pursuant to subparagraph (A).
(C) RTCA shall award up to 40 percent of the authority to
designate qualified equity investments in the 2018 to 2022,
2021, inclusive, award cycles, to qualified
community development entities on a competitive basis that meets the
following criteria:
(i) Awards shall be reviewed using blind scoring and a review
committee that is composed of community development finance
practitioners and members having demonstrated experience in assessing
organizational business strategy, community outcomes, capitalization
strategy, and management capacity.
(ii) 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.
(iii) Applications for awards shall include a commitment to make
at least 15 percent of qualified community development investments to
a qualified community development entity with the assistance of a
nonprofit organization as documented by a cooperation agreement that
states the terms and conditions of that assistance. For the purposes
of this clause, the following shall apply:
(I) A qualified community development entity shall be certified
under Section 45D of the Internal Revenue Code but 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 shall meet all of the following
requirements: Is tax exempt under Section 23701, is registered with
the Registry of Charitable Trusts, which is administered by the
Attorney General, has articles of incorporation or articles of
organization that state the primary mission of the organization is
focused on improving the economic well-being of low-income
communities or individuals, and 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.
(iv)
(iii) Priority shall be provided to both of the
following:
(I) Applications that commit to addressing the hardest to serve
and undercapitalized lower income populations.
(II) Applications that support neighborhood revitalization
strategies driven by local grassroots stakeholders in multiple
low-income communities across one or more regions or the state. These
applications shall demonstrate how their investment activity
provides a scalable economic development model.
(D) For applications described in subparagraphs (A) and (B),
applications for awards shall include a commitment to make at least
15 percent of qualified community development investments to a
qualified community development entity with the assistance of a
nonprofit organization as documented by a cooperation agreement that
states the terms and conditions of that assistance. For the purposes
of this subparagraph, the following shall apply:
(i) A qualified community development entity shall be certified
under Section 45D of the Internal Revenue Code but 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 shall meet all of the following
requirements: Is tax exempt under Section 23701, is registered with
the Registry of Charitable Trusts, which is administered by the
Attorney General, has articles of incorporation or articles of
organization that state the primary mission of the organization is
focused on improving the economic well-being of low-income
communities or individuals, and 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.
(D)
(E) (i) For applications described in subparagraph (A),
in the event requests for authority to designate qualified equity
investments exceed the applicable annual allocation limitation, RTCA
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, RTCA shall certify the portion that may be certified unless
the qualified community development entity elects to withdraw its
request rather than receive partial certification.
(E)
(F) 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 RTCA 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.
(F)
(G) Within 200 calendar days of RTCA sending notice of
certification, the qualified community development entity or any
transferee, under subparagraph (E), (F),
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 (E),
(F), shall provide RTCA with evidence of the
receipt of the cash investment within 205 calendar days of the
applicant receiving notice of certification. If the qualified
community development entity or any transferee, under subparagraph
(E), (F), does not receive the cash
investment and issue the qualified equity investment within 200
calendar days of RTCA sending the certification notice, the
certification shall lapse and the entity may not issue the qualified
equity investment without reapplying to RTCA for certification.
Lapsed certifications revert back to RTCA and shall be reissued in
the following order:
(i) First, pro rata to applicants whose qualified equity
investment allocations were reduced pursuant to subparagraph
(D) (E) 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.
(G)
(H) A qualified community development entity that
issues qualified equity investments shall notify RTCA of the names of
taxpayers that are eligible to utilize tax credits pursuant to this
section and any transfer of a qualified equity investment.
(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to RTCA that
provides documentation as to the investment of at least 85 percent of
the funds being deployed within one year 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 (C) (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 to reinvestments of redeemed qualified
low-income investments.
(v)
(iv) Any other information required by RTCA as being
necessary to meet the requirements of this section.
(B) Thereafter, the qualified community development entity shall
submit an annual report to RTCA 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 RTCA.
(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.
(3) The credit allowed under this section may be in addition to
any credit allowed under Section 45D of the Internal Revenue Code.
(f) RTCA 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 RTCA relative to the application and reporting
of a qualified community development entity.
(2) A qualified community development entity shall provide RTCA
with the name, address, and tax identification number of each
investor and entity for which a qualified equity investment was
designated by the qualified community development entity, pursuant to
this section. RTCA shall provide this information to the Franchise
Tax Board in a manner determined by the Franchise Tax Board.
(h) (1) The credit authorized by this section shall only be
allowed for those taxable years for which moneys are appropriated to
RTCA to administer the California New Markets Tax Credit pursuant to
18410.3 for that taxable year. The appropriation shall specifically
identify the California New Markets Tax Credit.
(2) For those taxable years for which those moneys are
appropriated pursuant to paragraph (1), RTCA shall post notice of the
appropriation on the homepage of its Internet Web site and send
notice of such appropriation to the Secretary of State and the
Legislative Counsel.
(i) This section shall be repealed on December 1, 2022.
SEC. 4. 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 annual 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. 5. 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-sized 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. RTCA shall administer this program as
provided in this section, Section 12283, and Section 17053.9.
(b) (1) For taxable years beginning on or after January 1, 2017,
and before January 1, 2022, and subject to subdivision (h), there
shall be allowed as a credit against the "tax," as defined in Section
23036, in an amount determined in accordance with Section 45D of the
Internal Revenue Code, relating to the new markets tax credit, as
modified in this section.
(2) For the purposes of this section, "RTCA" means the Responsible
Tax Credit Administrator, as designated by the Governor.
(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, relating
to qualified community development entity, 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, relating to
special rules for certain organizations, 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. This requirement does not apply
to a business that is located on land and is controlled by, or under
common control with, a federally recognized tribe.
(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
nonmetropolitan area, with a median family income that does not
exceed 60 percent of median family income for this state, 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 forty million dollars ($40,000,000) per calendar year. The
allocation of any undesignated qualified equity investments shall be
returned to RTCA 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
RTCA 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 "RTCA."
(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) The qualified community development entity fails to comply
with subparagraph (C) (D) of paragraph
(5) of subdivision (d). In this case, recapture shall be 100 percent
of the credit.
(ii) RTCA 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 RTCA
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
(D) (E) of paragraph (5) of subdivision (d) by
the annual allocation limitation.
(II) Thereafter, in accordance with the application process.
(iv) Enforcement of each of the recapture provisions shall be
subject to a six-month cure period.
(d) (1) RTCA shall adopt guidelines necessary or appropriate to
carry out its responsibilities with respect to the allocation,
monitoring, and management of the tax credit program authorized by
this section.
(2) (A) RTCA 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. RTCA 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, RTCA 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 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 (C) (D) of
paragraph (5).
(4) (A) Subject to subdivision (h), RTCA shall begin accepting
applications on or before May 15, 2017, and shall award authority to
designate qualified equity investments annually through
2022. 2021.
(B) In the instance where RTCA 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 2017 awards cycle, RTCA 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 RTCA. Applications received
on the same day shall be deemed to have been received simultaneously.
(B) In the 2018 to 2022 2021 award
cycles, inclusive, at least 60 percent of the authority to designate
qualified equity investments shall be awarded pursuant to
subparagraph (A). At the discretion of RTCA, a higher percentage of
authority to designate qualified equity investments may be awarded
pursuant to subparagraph (A).
(C) RTCA shall award up to 40 percent of the authority to
designate qualified equity investments in the 2018 to 2022,
2021, inclusive, award cycles, to qualified
community development entities on a competitive basis that meets the
following criteria:
(i) Awards shall be reviewed using blind scoring and a review
committee that is composed of community development finance
practitioners and members having demonstrated experience in assessing
organizational business strategy, community outcomes, capitalization
strategy, and management capacity.
(ii) 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.
(iii) Applications for awards shall include a commitment to make
at least 15 percent of qualified community development investments
with the assistance of a nonprofit organization as documented by a
cooperation agreement that states the terms and conditions of that
assistance. For the purposes of this clause, the following shall
apply:
(I) A qualified community development entity shall be certified
under Section 45D of the Internal Revenue Code but 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 shall meet all of the following
requirements: Is tax exempt under Section 23701, is registered with
the Registry of Charitable Trusts, which is administered by the
Attorney General, has articles of incorporation or articles of
organization that state the primary mission of the organization is
focused on improving the economic well-being of low-income
communities or individuals, and 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.
(iv)
(iii) Priority shall be provided to both of the
following:
(I) Applications that commit to addressing the hardest to serve
and undercapitalized lower income populations.
(II) Applications that support neighborhood revitalization
strategies driven by local grassroots stakeholders in multiple
low-income communities across one or more regions or the state. These
applications shall demonstrate how their investment activity
provides a scalable economic development model.
(D) For applications described in subparagraphs (A) and (B),
applications for awards shall include a commitment to make at least
15 percent of qualified community development investments to a
qualified community development entity with the assistance of a
nonprofit organization as documented by a cooperation agreement that
states the terms and conditions of that assistance. For the purposes
of this subparagraph, the following shall apply:
(i) A qualified community development entity shall be certified
under Section 45D of the Internal Revenue Code but 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 shall meet all of the following
requirements: Is tax exempt under Section 23701, is registered with
the Registry of Charitable Trusts, which is administered by the
Attorney General, has articles of incorporation or articles of
organization that state the primary mission of the organization is
focused on improving the economic well-being of low-income
communities or individuals, and 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.
(D)
(E) (i) For applications described in subparagraph (A),
in the event requests for authority to designate qualified equity
investments exceed the applicable annual allocation limitation, RTCA
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, RTCA shall certify the portion that may be certified unless
the qualified community development entity elects to withdraw its
request rather than receive partial certification.
(E)
(F) 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 RTCA 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.
(F)
(G) Within 200 calendar days of RTCA sending notice of
certification, the qualified community development entity or any
transferee, under subparagraph (E), (F),
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 (E),
(F), shall provide RTCA with evidence of the
receipt of the cash investment within 205 calendar days of the
applicant receiving notice of certification. If the qualified
community development entity or any transferee, under subparagraph
(E), (F), does not receive the cash
investment and issue the qualified equity investment within 200
calendar days of RTCA sending the certification notice, the
certification shall lapse and the entity may not issue the qualified
equity investment without reapplying to RTCA for certification.
Lapsed certifications revert back to RTCA 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) (E) 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.
(G)
(H) A qualified community development entity that
issues qualified equity investments shall notify RTCA of the names of
taxpayers that are eligible to utilize tax credits pursuant to this
section and any transfer of a qualified equity investment.
(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to RTCA that
provides documentation as to the investment of at least 85 percent of
the funds being deployed within one year 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 (C) (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 to reinvestments of redeemed qualified
low-income investments.
(v)
(iv) Any other information required by RTCA as being
necessary to meet the requirements of this section.
(B) Thereafter, the qualified community development entity shall
submit an annual report to RTCA 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 RTCA.
(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.
(3) The credit allowed under this section may be in addition to
any credit allowed under Section 45D of the Internal Revenue Code.
(f) RTCA 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 RTCA relative to the application and reporting
of a qualified community development entity.
(2) A qualified community development entity shall provide RTCA
with the name, address, and tax identification number of each
investor and entity for which a qualified equity investment was
designated by the qualified community development entity, pursuant to
this section. RTCA shall provide this information to the Franchise
Tax Board in a manner determined by the Franchise Tax Board.
(h) (1) The credit authorized by this section shall only be
allowed for those taxable years for which moneys are appropriated to
RTCA to administer the California New Markets Tax Credit pursuant to
18410.3 for that taxable year. The appropriation shall specifically
identify the California New Markets Tax Credit.
(2) For those taxable years for which those moneys are
appropriated pursuant to paragraph (1), RTCA shall post notice of the
appropriation on the homepage of its Internet Web site and send
notice of such appropriation to the Secretary of State and the
Legislative Counsel.
(i) This section shall be repealed on December 1, 2022.
SEC. 6. For the purposes of complying with Section 41 of the
Revenue and Taxation Code, the Legislature finds and declares as
follows:
(a) Specific goals, purposes, and objectives: attract private
sector investment in lower income communities in California.
(b) Performance indicators:
(1) Amount of qualified low-income community investments issued.
(2) Amount of dollars deployed in qualified low-income community
investments.
(3) Number of operating businesses assisted as a result of
qualified low-income community investments.
(4) Number of employment positions created and retained as a
result of qualified low-income community investments and the average
annual salary of those positions.
(c) Data collection requirements and baseline measurements:
(1) The baseline measurements include:
(A) The amount of tax credits issued in the year.
(B) The unemployment rate of the area.
(C) The poverty rate of the area.
(2) Data to collect includes:
(A) The amount of tax credits issued in the year.
(B) The number of operating businesses in a low-income community
assisted.
(C) The number of jobs created and retained as a result of
qualified low-income community investments.
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.