Amended in Assembly May 17, 2016

Amended in Assembly April 12, 2016

Amended in Assembly March 29, 2016

California Legislature—2015–16 Regular Session

Assembly BillNo. 2647


Introduced by Assembly Members Eduardo Garcia and Medina

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(Principal coauthors: Assembly Members Brown, Chu, and Dodd)

end delete

February 19, 2016


An act tobegin delete add Section 18410.3 to, and to add and repeal Sections 12283, 17053.9, and 23622.9 of,end deletebegin insert amend Sections 12209, 17053.57, and 23657end insertbegin insert ofend insert the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 2647, as amended, Eduardo Garcia. begin deleteIncome taxation: insurance taxation: credits: California New Markets Tax Credit. end deletebegin insertInsurance taxes: income taxes: credits: community development financial institution investments.end insert

begin insert

Existing law, until January 1, 2017, allows a credit under the Personal Income Tax Law, the Corporation Tax Law, and a credit against the tax imposed on an insurer in an amount equal to 20% of a qualified investment, as defined, made into a community development financial institution, as defined, but not to exceed, in the aggregate amount under all those laws, $50,000,000 per year, and authorizes the California Organized Investment Network to certify investments for the credit until January 1, 2017.

end insert
begin insert

This bill would extend the provisions relating to the authorization of the credits and certification by the Department of Insurance and the California Organized Investment Network until January 1, 2027. The bill would also increase the aggregate amount under all those laws of qualified investments allowed to be certified by the California Organized Investment Network for the credits to $120,000,000 per year.

end insert
begin insert

This bill would take effect immediately as a tax levy.

end insert
begin delete

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.

end delete
begin delete

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.

end delete
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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.

end delete
begin delete

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.

end delete
begin delete

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.

end delete
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This bill would also include that additional information required for any bill authorizing a new personal or corporation income tax credit.

end delete
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The bill would provide that its provisions are severable.

end delete
begin delete

This bill would take effect immediately as a tax levy.

end delete

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

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

P3    1begin insert

begin insertSECTION 1.end insert  

end insert

begin insertSection 12209 of the end insertbegin insertRevenue and Taxation Codeend insert
2
begin insert is amended to read:end insert

3

12209.  

(a) For each year beginning on or after January 1, 1999,
4and before January 1,begin delete 2017,end deletebegin insert 2027,end insert there shall be allowed as a credit
5against the amount of tax, as defined in Section 28 of Article XIII
6of the California Constitution, an amount equal to 20 percent of
7the amount of each qualified investment made by a taxpayer during
8the taxable year into a community development financial institution
9that is certified by the Department of Insurance, California
10Organized Investment Network, or any successor thereof.

11(b) For purposes of determining any tax that may be imposed
12under Section 685 of the Insurance Code on a taxpayer not
13organized under the laws of this state, the amount of the credit
14allowed by subdivision (a) shall be treated as a tax paid under
15Section 12201 or Section 28 of Article XIII of the California
16Constitution.

17(c) (1) Notwithstanding any other provision of this part, a credit
18shall not be allowed under this section unless the California
19Organized Investment Network, or its successor within the
20Department of Insurance, certifies that the investment described
21in subdivision (a) qualifies for the credit under this section and
22certifies the total amount of the credit allocated to the taxpayer
23pursuant to this section.

24(2) A credit shall not be allowed by this section unless the
25applicant and the taxpayer provide satisfactory substantiation to,
26and in the form and manner requested by, the Department of
27Insurance, California Organized Investment Network, or any
28successor thereof, that the investment is a qualified investment as
29defined in paragraph (1) of subdivision (h).

P4    1(3) (A) The aggregate amount of qualified investments made
2by all taxpayers pursuant to this section, Section 17053.57, and
3Section 23657 shall not exceedbegin delete fifty million dollars ($50,000,000)end delete
4begin insert one hundred twenty million dollars ($120,000,000)end insert for each
5calendar year. However, if the aggregate amount of qualified
6investments made in any calendar year is less thanbegin delete fifty million
7dollars ($50,000,000),end delete
begin insert one hundred twenty million dollars
8($120,000,000),end insert
the difference may be carried over to the next
9year, and any succeeding year during which this section remains
10in effect, and added to the aggregate amount authorized for those
11years.

12(B) The total amount of qualified investments certified by the
13California Organized Investment Network in any calendar year to
14any one community development financial institution together
15with its affiliates, as defined in Section 1215 of the Insurance Code,
16shall not exceed 30 percent of the annual aggregate amount of
17qualified investments certified by the California Organized
18Investment Network. If, after October 1, the California Organized
19Investment Network has determined that the availability of tax
20credits exceed their demand, then a community development
21financial institution that has been allocated 30 percent of the annual
22aggregate amount of qualified investments shall become eligible
23to apply to be certified for any remaining tax credits in that calendar
24year.

25(C) Each year, 10 percent of the annual aggregate amount of
26qualified investments shall be reserved for investment amounts of
27less than or equal to two hundred thousand dollars ($200,000). If,
28after October 1, there remains an unallocated portion of the amount
29reserved for investments of less than or equal to two hundred
30thousand dollars ($200,000), then qualified investments in excess
31of two hundred thousand dollars ($200,000) may be eligible for
32that remaining unallocated portion.

33(4) Priority among housing applications shall be given to
34applications that support affordable rental housing, housing for
35veterans, mortgages for community-based residential programs,
36and self-help housing ahead of single-family owned housing.

37(d) The community development financial institution shall do
38all of the following:

P5    1(1) Apply to the Department of Insurance, California Organized
2Investment Network, or its successor, for certification of its status
3as a community development financial institution.

4(2) (A) Apply to the Department of Insurance, California
5Organized Investment Network, or its successor, on behalf of the
6taxpayer for certification of the amount of the investment and the
7credit amount allocated to the taxpayer, obtain the certification,
8and retain a copy of the certification.

9(B) Provide in the application a detailed description of the
10intended use of the investment funds including, but not limited to,
11the following:

12(i) All of the programs, projects, and services that would be
13funded.

14(ii) The percentage of the intended use of the investment funds
15that would directly benefit low-to-moderate income households.

16(iii) The percentage of the intended use of the investment funds
17that would directly benefit rural areas.

18(iv) The percentage of the intended use of the investment funds
19that is a green investment as defined in Section 926.1 of the
20Insurance Code.

21(3) (A) Provide in the application required in paragraph (2) the
22following information to the Department of Insurance, California
23Organized Investment Network, or its successor:

24(i) Name of the taxpayer.

25(ii) Postal address of the taxpayer, or residential address of the
26taxpayer if the taxpayer is an individual.

27(iii) Phone number of the taxpayer.

28(iv) Email address of the taxpayer.

29(v) The taxpayer’s California company identification number
30for tax administration purposes.

31(B) The information provided in subparagraph (A) shall be used
32only for internal purposes by the Department of Insurance,
33California Organized Investment Network, or its successor, and
34any public disclosure of that information shall be limited to the
35name of the taxpayer only.

36(4) Provide an annual listing to the State Board of Equalization,
37in the form and manner agreed upon by the State Board of
38Equalization and the Department of Insurance, California
39Organized Investment Network, or its successor, of the names and
40taxpayer’s California company identification numbers of any
P6    1taxpayer who makes any withdrawal or partial withdrawal of a
2qualified investment before the expiration of 60 months from the
3date of the qualified investment.

4(5) Submit reports to the department, California Organized
5Investment Network, or any successor thereof, as required pursuant
6to subdivision (a) of Section 12939.1 of the Insurance Code.

7(e) The California Organized Investment Network may certify
8investments for the credit allowed by this section on or before
9January 1,begin delete 2017,end deletebegin insert 2027,end insert but not after that date.

10(f) (1) The Insurance Commissioner may develop instructions,
11procedures, and standards for applications, and for administering
12the criteria for the evaluation of applications under this section.
13The Insurance Commissioner may, from time to time, adopt,
14amend, or repeal regulations to implement the provisions of this
15section.

16(2) The initial adoption of the regulations implementing this
17section shall be deemed to be an emergency and necessary in order
18to address a situation calling for immediate action to avoid serious
19harm to the public peace, health, safety, or general welfare.

20(3) Notwithstanding Chapter 3.5 (commencing with Section
2111340) of Part 1 of Division 3 of Title 2 of the Government Code,
22any emergency regulation adopted or amended by the Insurance
23Commissioner pursuant to this section shall remain in effect until
24amended or repealed by the department.

25(g) The Department of Insurance, California Organized
26Investment Network, or any successor thereof, shall do all of the
27following:

28(1) Accept and evaluate applications for certification from
29financial institutions and issue certificates that the applicant is a
30community development financial institution qualified to receive
31qualified investments. To receive a certificate, an applicant shall
32satisfy the Department of Insurance, California Organized
33Investment Network, or any successor thereof, that it meets the
34specific requirements to be a community development financial
35institution for this state program as defined in paragraph (2) of
36subdivision (h). The certificate may be issued for a specified period
37of time, and may include reasonable conditions to effectuate the
38intent of this section. The Insurance Commissioner may suspend
39or revoke a certification, after affording the institution notice and
P7    1the opportunity to be heard, if the commissioner finds that an
2institution no longer meets the requirement for certification.

3(2) Accept and evaluate applications for certification from any
4community development financial institution on behalf of the
5taxpayer and issue certificates to taxpayers in an aggregate amount
6that shall not exceed the limit specified in subdivision (c), with
7highest priority granted to those applications where the intended
8use of the investments has the greatest aggregate benefit for
9low-to-moderate income areas or households or rural areas or
10households. The certificate shall include the amount eligible to be
11made as an investment that qualifies for the credit and the total
12amount of the credit to which the taxpayer is entitled for the year.
13Applications for tax credits shall be accepted and evaluated
14throughout the year. The Insurance Commissioner shall establish
15tax credit issuance cycles throughout the year as necessary in order
16to issue tax credit certificates to those applications granted the
17highest priority.

18(3) Provide an annual listing to the State Board of Equalization,
19in the form or manner agreed upon by the State Board of
20Equalization and the Department of Insurance, California
21Organized Investment Network, or its successor, of the taxpayers
22who were issued certificates, their respective National Association
23of Insurance Commissioners company number and employer’s tax
24identification number, the amount of the qualified investment made
25by each taxpayer, and the total amount of qualified investments.

26(4) Include information specified pursuant to subdivision (b) of
27Section 12939.1 of the Insurance Code in the report required by
28Section 12922 of the Insurance Code.

29(h) For purposes of this section:

30(1) “Qualified investment” means an investment that is a deposit
31or loan that does not earn interest, or an equity investment, or an
32equity-like debt instrument that conforms to the specifications for
33these instruments as prescribed by the United States Department
34of the Treasury, Community Development Financial Institutions
35Fund, or its successor, or, in the absence of that prescription, as
36defined by the Insurance Commissioner. The investment must be
37equal to or greater than fifty thousand dollars ($50,000) and made
38for a minimum duration of 60 months. During that 60-month
39period, the community development financial institution shall have
40full use and control of the proceeds of the entire amount of the
P8    1investment as well as any earnings on the investment for its
2community development purposes. The entire amount of the
3investment shall be received by the community development
4financial institution before the application for the tax credit is
5submitted. The community development financial institution shall
6use the proceeds of the investment for a purpose that is consistent
7with its community development mission and for the benefit of
8economically disadvantaged communities and low-income people
9in California.

10(2) “Community development financial institution” means a
11private financial institution located in this state that is certified by
12the Department of Insurance, California Organized Investment
13Network, or its successor, that, consistent with the legislative
14findings, declarations, and intent set forth in Section 12939 of the
15Insurance Code, has community development as its primary
16mission, and that lends in urban, rural, or reservation-based
17communities in this state. A community development financial
18institution may include a community development bank, a
19community development loan fund, a community development
20credit union, a microenterprise fund, a community development
21corporation-based lender, or a community development venture
22fund.

23(i) (1) If a qualified investment is withdrawn before the end of
24the 60th month and not reinvested in another community
25development financial institution within 60 days, there shall be
26added to the “tax,” as defined in Section 28 of Article XIII of the
27California Constitution, for the year in which the withdrawal
28occurs, the entire amount of any credit previously allowed under
29this section.

30(2) If a qualified investment is reduced before the end of the
3160th month, but not below fifty thousand dollars ($50,000), there
32shall be added to the “tax,” as defined in Section 28 of Article XIII
33of the California Constitution, for the taxable year in which the
34reduction occurs, an amount equal to 20 percent of the total
35reduction for the year.

36(j) In the case where the credit allowed by this section exceeds
37the “tax,” the excess may be carried over to reduce the “tax” for
38the next four years, or until the credit has been exhausted,
39whichever occurs first.

P9    1(k) The State Board of Equalization shall, as requested by the
2Department of Insurance, California Organized Investment
3Network, or its successor, advise and assist in the administration
4of this section.

5(l) On or before June 30, 2016, the Legislative Analyst’s Office
6shall submit a report to the Legislature, in compliance with Section
79795 of the Government Code, on the effects of the tax credits
8allowed under this section, Section 17053.57, and Section 23657,
9with a focus on employment in low-to-moderate income and rural
10areas, and on the benefits of these tax credits to low-to-moderate
11income and rural persons.

12(m) This section shall remain in effect only until December 1,
13begin delete 2017,end deletebegin insert 2027,end insert and as of that date is repealed.

14begin insert

begin insertSEC. 2.end insert  

end insert

begin insertSection 17053.57 of the end insertbegin insertRevenue and Taxation Codeend insert
15
begin insert is amended to read:end insert

16

17053.57.  

(a) For each taxable year beginning on or after
17January 1, 1997, and before January 1,begin delete 2017,end deletebegin insert 2027,end insert there shall be
18allowed as a credit against the amount of “net tax,” as defined in
19Section 17039, an amount equal to 20 percent of the amount of
20each qualified investment made by a taxpayer during the taxable
21year into a community development financial institution that is
22certified by the Department of Insurance, California Organized
23Investment Network, or any successor thereof.

24(b) (1) Notwithstanding any other provision of this part, a credit
25shall not be allowed under this section unless the California
26Organized Investment Network, or its successor within the
27Department of Insurance, certifies that the investment described
28in subdivision (a) qualifies for the credit under this section and
29certifies the total amount of the credit allocated to the taxpayer
30pursuant to this section.

31(2) A credit shall not be allowed by this section unless the
32applicant and the taxpayer provide satisfactory substantiation to,
33and in the form and manner requested by, the Department of
34Insurance, California Organized Investment Network, or any
35successor thereof, that the investment is a qualified investment, as
36defined in paragraph (1) of subdivision (g).

37(3) (A) The aggregate amount of qualified investments made
38by all taxpayers pursuant to this section, Section 12209, and Section
3923657 shall not exceedbegin delete fifty million dollars ($50,000,000)end deletebegin insert one
40hundred twenty million dollars ($120,000,000)end insert
for each calendar
P10   1year. However, if the aggregate amount of qualified investments
2made in any calendar year is less thanbegin delete fifty million dollars
3($50,000,000),end delete
begin insert one hundred twenty million dollars ($120,000,000),end insert
4 the difference may be carried over to the next year, and any
5succeeding year during which this section remains in effect, and
6added to the aggregate amount authorized for those years.

7(B) The total amount of qualified investments certified by the
8California Organized Investment Network in any calendar year to
9any one community development financial institution together
10with its affiliates, as defined in Section 1215 of the Insurance Code,
11shall not exceed 30 percent of the annual aggregate amount of
12qualified investments certified by the California Organized
13Investment Network. If, after October 1, the California Organized
14Investment Network has determined that the availability of tax
15credits exceed their demand, then a community development
16financial institution that has been allocated 30 percent of the annual
17aggregate amount of qualified investments shall become eligible
18to apply to be certified for any remaining tax credits in that calendar
19year.

20(C) Each year, 10 percent of the annual aggregate amount of
21qualified investments shall be reserved for investment amounts of
22less than or equal to two hundred thousand dollars ($200,000). If,
23after October 1, there remains an unallocated portion of the amount
24reserved for investments of less than or equal to two hundred
25thousand dollars ($200,000), then qualified investments in excess
26of two hundred thousand dollars ($200,000) may be eligible for
27that remaining unallocated portion.

28(4) Priority among housing applications shall be given to
29applications that support affordable rental housing, housing for
30veterans, mortgages for community-based residential programs,
31and self-help housing ahead of single-family owned housing.

32(c) The community development financial institution shall do
33all of the following:

34(1) Apply to the Department of Insurance, California Organized
35Investment Network, or its successor, for certification of its status
36as a community development financial institution.

37(2) (A) Apply to the Department of Insurance, California
38Organized Investment Network, or its successor, on behalf of the
39taxpayer, for certification of the amount of the investment and the
P11   1credit amount allocated to the taxpayer, obtain the certification,
2and retain a copy of the certification.

3(B) Provide in the application a detailed description of the
4intended use of the investment funds including, but not limited to,
5the following:

6(i) All of the programs, projects, and services that would be
7funded.

8(ii) The percentage of the intended use of the investment funds
9that would directly benefit low-to-moderate income households.

10(iii) The percentage of the intended use of the investment funds
11that would directly benefit rural areas.

12(iv) The percentage of the intended use of the investment funds
13that is a green investment as defined in Section 926.1 of the
14Insurance Code.

15(3) (A) Provide in the application required in paragraph (2) the
16following information to the Department of Insurance, California
17Organized Investment Network, or its successor:

18(i) Name of the taxpayer.

19(ii) Postal address of the taxpayer, or residential address of the
20taxpayer if the taxpayer is an individual.

21(iii) Phone number of the taxpayer.

22(iv) Email address of the taxpayer.

23(v) The taxpayer’s identification number, or in the case of a
24partnership, the taxpayer identification numbers of all the partners
25for tax administration purposes.

26(B) The information provided in subparagraph (A) shall be used
27only for internal purposes by the Department of Insurance,
28California Organized Investment Network, or its successor, and
29begin delete any network or its successor shall limitend delete all public disclosure of that
30informationbegin insert shall be limitedend insert to the name of the taxpayer only.

31(4) Provide an annual listing to the Franchise Tax Board, in the
32form and manner agreed upon by the Franchise Tax Board and the
33Department of Insurance, California Organized Investment
34Network, or its successor, of the names and taxpayer identification
35numbers of any taxpayer who makes any withdrawal or partial
36withdrawal of a qualified investment before the expiration of 60
37months from the date of the qualified investment.

38(5) Submit reports to the Department of Insurance, California
39Organized Investment Network, or any successor thereof, as
P12   1required pursuant to subdivision (a) of Section 12939.1 of the
2Insurance Code.

3(d) (1) The Insurance Commissioner may develop instructions,
4procedures, and standards for applications, and for administering
5the criteria for the evaluation of applications under this section.
6The Insurance Commissioner may, from time to time, adopt,
7amend, or repeal regulations to implement the provisions of this
8section.

9(2) The initial adoption of the regulations implementing this
10section shall be deemed to be an emergency and necessary in order
11to address a situation calling for immediate action to avoid serious
12harm to the public peace, health, safety, or general welfare.

13(3) Notwithstanding Chapter 3.5 (commencing with Section
1411340) of Part 1 of Division 3 of Title 2 of the Government Code,
15any emergency regulation adopted or amended by the Insurance
16Commissioner pursuant to this section shall remain in effect until
17amended or repealed by the department.

18(e) The California Organized Investment Network may certify
19investments for the credit allowed by this section on or before
20January 1,begin delete 2017,end deletebegin insert 2027,end insert but not after that date.

21(f) The Department of Insurance, California Organized
22Investment Network, or any successor thereof, shall do all of the
23following:

24(1) Accept and evaluate applications for certification from
25financial institutions and issue certificates that the applicant is a
26community development financial institution qualified to receive
27qualified investments. To receive a certificate, an applicant shall
28satisfy the Department of Insurance, California Organized
29Investment Network, or any successor thereof, that it meets the
30specific requirements to be a community development financial
31institution for this state program as defined in paragraph (2) of
32subdivision (g). The certificate may be issued for a specified period
33of time, and may include reasonable conditions to effectuate the
34intent of this section. The Insurance Commissioner may suspend
35or revoke a certification, after affording the institution notice and
36the opportunity to be heard, if the commissioner finds that an
37institution no longer meets the requirement for certification.

38(2) Accept and evaluate applications for certification from a
39community development financial institution on behalf of the
40taxpayer and issue certificates to taxpayers in an aggregate amount
P13   1that shall not exceed the limit specified in subdivision (b), with
2highest priority granted to those applications where the intended
3use of the investments has the greatest aggregate benefit for
4low-to-moderate income areas or households or rural areas or
5households. The certificate shall include the amount eligible to be
6made as an investment that qualifies for the credit and the total
7amount of the credit to which the taxpayer is entitled for the taxable
8year. Applications for tax credits shall be accepted and evaluated
9throughout the year. The Insurance Commissioner shall establish
10tax credit issuance cycles throughout the year as necessary in order
11to issue tax credit certificates to those applications granted the
12highest priority.

13(3) Provide an annual listing to the Franchise Tax Board, in the
14form or manner agreed upon by the Franchise Tax Board and the
15Department of Insurance, California Organized Investment
16Network, or its successor, of the taxpayers who were issued
17certificates, their respective tax identification numbers, the amount
18of the qualified investment made by each taxpayer, and the total
19amount of qualified investments.

20(4) Include information specified pursuant to subdivision (b) of
21Section 12939.1 of the Insurance Code in the report required by
22Section 12922 of the Insurance Code.

23(g) For purposes of this section:

24(1) “Qualified investment” means an investment that is a deposit
25or loan that does not earn interest, or an equity investment, or an
26equity-like debt instrument that conforms to the specifications for
27these instruments as prescribed by the United States Department
28of the Treasury, Community Development Financial Institutions
29Fund, or its successor, or, in the absence of that prescription, as
30defined by the Insurance Commissioner. The investment must be
31equal to or greater than fifty thousand dollars ($50,000) and made
32for a minimum duration of 60 months. During that 60-month
33period, the community development financial institution shall have
34full use and control of the proceeds of the entire amount of the
35investment as well as any earnings on the investment for its
36community development purposes. The entire amount of the
37investment shall be received by the community development
38financial institution before the application for the tax credit is
39submitted. The community development financial institution shall
40use the proceeds of the investment for a purpose that is consistent
P14   1with its community development mission and for the benefit of
2economically disadvantaged communities and low-income people
3in California.

4(2) “Community development financial institution” means a
5private financial institution located in this state that is certified by
6the Department of Insurance, California Organized Investment
7Network, or its successor, that, consistent with the legislative
8findings, declarations, and intent set forth in Section 12939 of the
9Insurance Code, has community development as its primary
10mission, and that lends in urban, rural, or reservation-based
11communities in this state. A community development financial
12institution may include a community development bank, a
13community development loan fund, a community development
14credit union, a microenterprise fund, a community development
15corporation-based lender, or a community development venture
16fund.

17(h) (1) If a qualified investment is withdrawn before the end
18of the 60th month and not reinvested in another community
19development financial institution within 60 days, there shall be
20added to the “net tax,” as defined in Section 17039, for the taxable
21year in which the withdrawal occurs, the entire amount of any
22credit previously allowed under this section.

23(2) If a qualified investment is reduced before the end of the
2460th month, but not below fifty thousand dollars ($50,000), there
25shall be added to the “net tax,” as defined in Section 17039, for
26the taxable year in which the reduction occurs, an amount equal
27to 20 percent of the total reduction for the taxable year.

28(i) In the case where the credit allowed by this section exceeds
29the “net tax,” the excess may be carried over to reduce the “net
30tax” for the next four taxable years, or until the credit has been
31exhausted, whichever occurs first.

32(j) The Franchise Tax Board shall, as requested by the
33Department of Insurance, California Organized Investment
34Network, or its successor, advise and assist in the administration
35of this section.

36(k) On or before June 30, 2016, the Legislative Analyst’s Office
37shall submit a report to the Legislature, in compliance with Section
389795 of the Government Code, on the effects of the tax credits
39allowed under this section, Section 12209, and Section 23657,
40with a focus on employment in low-to-moderate income and rural
P15   1areas, and on the benefits of these tax credits to low-to-moderate
2income and rural persons.

3(l) This section shall remain in effect only until December 1,
4begin delete 2017,end deletebegin insert 2027,end insert and as of that date is repealed.

5begin insert

begin insertSEC. 3.end insert  

end insert

begin insertSection 23657 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
6amended to read:end insert

7

23657.  

(a) For each taxable year beginning on or after January
81, 1997, and before January 1,begin delete 2017,end deletebegin insert 2027,end insert there shall be allowed
9as a credit against the amount of “tax,” as defined in Section 23036,
10an amount equal to 20 percent of the amount of each qualified
11investment made by a taxpayer during the taxable year into a
12community development financial institution that is certified by
13the Department of Insurance, California Organized Investment
14Network, or any successor thereof.

15(b) (1) Notwithstanding any other provision of this part, a credit
16shall not be allowed under this section unless the California
17Organized Investment Network, or its successor within the
18Department of Insurance, certifies that the investment described
19in subdivision (a) qualifies for the credit under this section and
20certifies the total amount of the credit allocated to the taxpayer
21pursuant to this section.

22(2) A credit shall not be allowed by this section unless the
23applicant and the taxpayer provide satisfactory substantiation to,
24and in the form and manner requested by, the Department of
25Insurance, California Organized Investment Network, or any
26successor thereof, that the investment is a qualified investment, as
27defined in paragraph (1) of subdivision (g).

28(3) (A) The aggregate amount of qualified investments made
29by all taxpayers pursuant to this section, Section 12209, and Section
3017053.57 shall not exceedbegin delete fifty million dollars ($50,000,000)end deletebegin insert one
31hundred twenty million dollars ($120,000,000)end insert
for each calendar
32year. However, if the aggregate amount of qualified investments
33made in any calendar year is less thanbegin delete fifty million dollars
34($50,000,000),end delete
begin insert one hundred twenty million dollars ($120,000,000),end insert
35 the difference may be carried over to the next year, and any
36succeeding year during which this section remains in effect, and
37added to the aggregate amount authorized for those years.

38(B) The total amount of qualified investments certified by the
39California Organized Investment Network in any calendar year to
40any one community development financial institution together
P16   1with its affiliates, as defined in Section 1215 of the Insurance Code,
2shall not exceed 30 percent of the annual aggregate amount of
3qualified investments certified by the California Organized
4Investment Network. If, after October 1, the California Organized
5Investment Network has determined that the availability of tax
6credits exceed their demand, then a community development
7financial institution that has been allocated 30 percent of the annual
8aggregate amount of qualified investments shall become eligible
9to apply to be certified for any remaining tax credits in that calendar
10year.

11(C) Each year, 10 percent of the annual aggregate amount of
12qualified investments shall be reserved for investment amounts of
13less than or equal to two hundred thousand dollars ($200,000). If,
14after October 1, there remains an unallocated portion of the amount
15reserved for investments of less than or equal to two hundred
16thousand dollars ($200,000), then qualified investments in excess
17of two hundred thousand dollars ($200,000) may be eligible for
18that remaining unallocated portion.

19(4) Priority among housing applications shall be given to
20applications that support affordable rental housing, housing for
21veterans, mortgages for community-based residential programs,
22and self-help housing ahead of single-family owned housing.

23(c) The community development financial institution shall do
24all of the following:

25(1) Apply to the Department of Insurance, California Organized
26Investment Network, or its successor, for certification of its status
27as a community development financial institution.

28(2) (A) Apply to the Department of Insurance, California
29Organized Investment Network, or its successor, on behalf of the
30taxpayer, for certification of the amount of the investment and the
31credit amount allocated to the taxpayer, obtain the certification,
32and retain a copy of the certification.

33(B) Provide in the application a detailed description of the
34intended use of the investment funds including, but not limited to,
35the following:

36(i) All of the programs, projects, and services that would be
37funded.

38(ii) The percentage of the intended use of the investment funds
39that would directly benefit low-to-moderate income households.

P17   1(iii) The percentage of the intended use of the investment funds
2that would directly benefit rural areas.

3(iv) The percentage of the intended use of the investment funds
4that is a green investment as defined in Section 926.1 of the
5Insurance Code.

6(3) (A) Provide in the application required in paragraph (2) the
7following information to the Department of Insurance, California
8Organized Investment Network, or its successor:

9(i) Name of the taxpayer.

10(ii) Postal address of the taxpayer, or residential address of the
11taxpayer if the taxpayer is an individual.

12(iii) Phone number of the taxpayer.

13(iv) Email address of the taxpayer.

14(v) The taxpayer’s California company identification number
15for tax administration purposes, or in the case of an “S”
16corporation, the taxpayer identification numbers of all the
17shareholders for tax administration purposes.

18(B) The information provided in subparagraph (A) shall be used
19only for internal purposes by the Department of Insurance,
20California Organized Investment Network, or its successor, and
21any public disclosure of that information shall be limited to the
22name of the taxpayer only.

23(4) Provide an annual listing to the Franchise Tax Board, in the
24form and manner agreed upon by the Franchise Tax Board and the
25Department of Insurance, California Organized Investment
26Network, or its successor, of the names and taxpayer identification
27numbers of any taxpayer who makes any withdrawal or partial
28withdrawal of a qualified investment before the expiration of 60
29months from the date of the qualified investment.

30(5) Submit reports to thebegin delete department,end deletebegin insert Department of Insurance,end insert
31 California Organized Investment Network, or any successor
32thereof, as required pursuant to subdivision (a) of Section 12939.1
33of the Insurance Code.

34(d) The California Organized Investment Network may certify
35investments for the credit allowed by this section on or before
36January 1,begin delete 2017,end deletebegin insert 2027,end insert but not after that date.

37(e) (1) The Insurance Commissioner may develop instructions,
38procedures, and standards for applications, and for administering
39the criteria for the evaluation of applications under this section.
40The Insurance Commissioner may, from time to time, adopt,
P18   1amend, or repeal regulations to implement the provisions of this
2section.

3(2) The initial adoption of the regulations implementing this
4section shall be deemed to be an emergency and necessary in order
5to address a situation calling for immediate action to avoid serious
6harm to the public peace, health, safety, or general welfare.

7(3) Notwithstanding Chapter 3.5 (commencing with Section
811340) of Part 1 of Division 3 of Title 2 of the Government Code,
9any emergency regulation adopted or amended by the Insurance
10Commissioner pursuant to this section shall remain in effect until
11amended or repealed by the department.

12(f) The Department of Insurance, California Organized
13Investment Network, or any successor thereof, shall do all of the
14following:

15(1) Accept and evaluate applications for certification from
16financial institutions and issue certificates that the applicant is a
17community development financial institution qualified to receive
18qualified investments. To receive a certificate, an applicant shall
19satisfy the Department of Insurance, California Organized
20Investment Network, or any successor thereof, that it meets the
21specific requirements to be a community development financial
22institution for this state program as defined in paragraph (2) of
23subdivision (g). The certificate may be issued for a specified period
24of time, and may include reasonable conditions to effectuate the
25intent of this section. The Insurance Commissioner may suspend
26or revoke a certification, after affording the institution notice and
27the opportunity to be heard, if the commissioner finds that an
28institution no longer meets the requirement for certification.

29(2) Accept and evaluate applications for certification from any
30community development financial institution on behalf of the
31taxpayer and issue certificates to taxpayers in an aggregate amount
32that shall not exceed the limit specified in subdivision (b), with
33highest priority granted to those applications where the intended
34use of the investments has the greatest aggregate benefit for
35low-to-moderate income areas or households or rural areas or
36households. The certificate shall include the amount eligible to be
37made as an investment that qualifies for the credit and the total
38amount of the credit to which the taxpayer is entitled for the taxable
39year. Applications for tax credits shall be accepted and evaluated
40throughout the year. The Insurance Commissioner shall establish
P19   1tax credit issuance cycles throughout the year as necessary in order
2to issue tax credit certificates to those applications granted the
3highest priority.

4(3) Provide an annual listing to the Franchise Tax Board, in the
5form or manner agreed upon by the Franchise Tax Board and the
6Department of Insurance, California Organized Investment
7Network, or its successor, of the taxpayers who were issued
8certificates, their respective tax identification numbers, the amount
9of the qualified investment made by each taxpayer, and the total
10amount of qualified investments.

11(4) Include information specified pursuant to subdivision (b) of
12Section 12939.1 of the Insurance Code in the report required by
13Section 12922 of the Insurance Code.

14(g) For purposes of this section:

15(1) “Qualified investment” means an investment that is a deposit
16or loan that does not earn interest, or an equity investment, or an
17equity-like debt instrument that conforms to the specifications for
18these instruments as prescribed by the United States Department
19of the Treasury, Community Development Financial Institutions
20Fund, or its successor, or, in the absence of that prescription, as
21defined by the Insurance Commissioner. The investment must be
22equal to or greater than fifty thousand dollars ($50,000) and made
23for a minimum duration of 60 months. During that 60-month
24period, the community development financial institution shall have
25full use and control of the proceeds of the entire amount of the
26investment as well as any earnings on the investment for its
27community development purposes. The entire amount of the
28investment shall be received by the community development
29financial institution before the application for the tax credit is
30submitted. The community development financial institution shall
31use the proceeds of the investment for a purpose that is consistent
32with its community development mission and for the benefit of
33economically disadvantaged communities and low-income people
34in California.

35(2) “Community development financial institution” means a
36private financial institution located in this state that is certified by
37the Department of Insurance, California Organized Investment
38Network, or its successor, that, consistent with the legislative
39findings, declarations, and intent set forth in Section 12939 of the
40Insurance Code, has community development as its primary
P20   1mission, and that lends in urban, rural, or reservation-based
2communities in this state. A community development financial
3institution may include a community development bank, a
4community development loan fund, a community development
5credit union, a microenterprise fund, a community development
6corporation-based lender, or a community development venture
7fund.

8(h) (1) If a qualified investment is withdrawn before the end
9of the 60th month and not reinvested in another community
10development financial institution within 60 days, there shall be
11added to the “tax,” as defined in Section 23036, for the taxable
12year in which the withdrawal occurs, the entire amount of any
13credit previously allowed under this section.

14(2) If a qualified investment is reduced before the end of the
1560th month, but not below fifty thousand dollars ($50,000), there
16shall be added to the “tax,” as defined in Section 23036, for the
17taxable year in which the reduction occurs, an amount equal to 20
18percent of the total reduction for the taxable year.

19(i) In the case where the credit allowed by this section exceeds
20the “tax,” the excess may be carried over to reduce the “tax” for
21the next four taxable years, or until the credit has been exhausted,
22whichever occurs first.

23(j) The Franchise Tax Board shall, as requested by the
24Department of Insurance, California Organized Investment
25Network, or its successor, advise and assist in the administration
26of this section.

27(k) On or before June 30, 2016, the Legislative Analyst’s Office
28shall submit a report to the Legislature, in compliance with Section
299795 of the Government Code, on the effects of the tax credits
30allowed under this section, Section 12209, and Section 17053.57,
31with a focus on employment in low-to-moderate income and rural
32areas, and on the benefits of these tax credits to low-to-moderate
33income and rural persons.

34(l) This section shall remain in effect only until December 1,
35begin delete 2017,end deletebegin insert 2027,end insert and as of that date is repealed.

36begin insert

begin insertSEC. 4.end insert  

end insert
begin insert

This act provides for a tax levy within the meaning of
37Article IV of the Constitution and shall go into immediate effect.

end insert
begin delete
38

SECTION 1.  

The Legislature finds and declares the following:

39(a) While many areas of California have recovered from the
40economic and community development impacts of the 2006
P21   1Financial Crisis and the 2010 global recession, Californians in a
2number of communities and neighborhoods are still experiencing
3their lingering effects. In some cases this has resulted in small and
4medium businesses in low-income areas lacking sufficient access
5to capital and technical assistance. Given that the state has many
6needs and limited resources, moneys from the private sector are
7necessary to fill this capital and investment gap.

8(b) Initially enacted in 2000, the federal government established
9the New Markets Tax Credit (NMTC) Program, which uses a
10market-based approach for expanding capital and technical
11assistance to businesses in lower income communities. The federal
12program is jointly administered by the Community Development
13Financial Institutions Fund (CDFI Fund) and the Internal Revenue
14Service. The NMTC Program allocates federal tax incentives to
15community development entities (CDE), which they then use to
16attract private investors who contribute funds that can be used to
17finance and invest in businesses and develop real estate in
18low-income communities. Through the 2013-14 funding round,
19the CDFI Fund had awarded approximately forty billion dollars
20($40,000,000,000) in NMTC in 836 awards, including three billion
21dollars ($3,000,000,000) in American Recovery and Investment
22Act of 2009 awards and one billion dollars ($1,000,000,000) of
23special allocation authority to be used for the recovery and
24redevelopment of the Gulf Opportunity Zone.

25(c) Since 2003, the NMTC Program has created or retained an
26estimated 197,585 jobs nationally. It has also supported the
27construction of 32.4 million square feet of manufacturing space,
2874.8 million square feet of office space, and 57.5 million square
29feet of retail space. The United States Department of the Treasury
30reports that a secondary benefit is that as these communities
31develop, they become more attractive to investors, catalyzing a
32ripple effect that spurs further investments and revitalization.

33(d) For every one dollar ($1) invested by the federal government,
34the NMTC Program generates over eight dollars ($8) of private
35investment. The NMTC Program catalyzes investment in the most
36economically challenged areas of the state. Over 75 percent of
37New Markets Tax Credit investments have been made in highly
38distressed areas, meaning the household income was less than 60
39percent of statewide median income and the poverty rate was higher
40than 30 percent.

P22   1(e) The federal NMTC totals 39 percent of the original
2investment amount in the CDE and is claimed over a period of
3seven years (5 percent for each of the first three years and 6 percent
4for each of the remaining four years). Any investment by any
5taxpayer in the CDE redeemed before the end of the seven-year
6period will be recaptured.

7(f) Fourteen states in the United States have adopted state
8programs using the NMTC model including Alabama, Florida,
9Illinois, Nevada, and Oregon. While some of the programs
10substantially mirror the federal program, others vary in both the
11percentage of the credit and some of the policies that form the
12foundation of the credit. One of the reasons cited for establishing
13state-level programs is to make a state more attractive to CDEs,
14which results in increasing the amount of federal NMTCs being
15utilized in a state. Further, several studies, including a January 1,
162011, case study by Pacific Community Ventures, showed that for
17every dollar of forgone tax revenue, the federal NMTC leverages
18twelve dollars ($12) to fourteen dollars ($14) of private investment.

19

SEC. 2.  

Section 12283 is added to the Revenue and Taxation
20Code
, to read:

21

12283.  

(a) There is hereby created the California New Markets
22Tax Credit Program as provided in this section, Section 17053.9,
23and Section 23622.9. The purpose of this program is to stimulate
24private sector investment in lower income communities by
25providing a tax incentive to community and economic development
26entities that can be leveraged by the entity to attract private sector
27investment that in turn will be deployed by providing financing
28and technical assistance to small- and medium-sized businesses
29and the development of commercial, industrial, and community
30development projects, including, but not limited to, facilities for
31nonprofit service organizations, light manufacturing, and mixed-use
32and transit-oriented development. RTCA shall administer this
33program as provided in this section, Section 17053.9, and Section
3423622.9.

35(b) (1) For taxable years beginning on or after January 1, 2017,
36and before January 1, 2022, and subject to subdivision (h), there
37shall be allowed as a credit against the tax described in Section
3812201, in an amount determined in accordance with Section 45D
39of the Internal Revenue Code, relating to the new markets tax
40credit, as modified in this section.

P23   1(2) For the purposes of this section, “RTCA” means the
2Responsible Tax Credit Administrator, as designated by the
3Governor.

4(c) Section 45D of the Internal Revenue Code is modified as
5follows:

6(1) Section 45D(a)(2) of the Internal Revenue Code, relating to
7applicable percentage, is modified by substituting for “(A) 5
8percent with respect to the first 3 credit allowance dates, and (B)
96 percent with respect to the remainder of the credit allowance
10dates” with the following:

11(A) Zero percent with respect to the first two credit allowance
12dates.

13(B) Seven percent with respect to the third credit allowance
14date.

15(C) Eight percent with respect to the remainder of the credit
16allowance dates.

17(2) (A) Section 45D(c)(1) of the Internal Revenue Code, relating
18to qualified community development entity, is modified to only
19 include a qualified community development entity, that is certified
20by the Secretary of the Treasury, and its subsidiary qualified
21community development entities that have entered into an
22allocation agreement with the Community Development Financial
23Institutions Fund of the United States Treasury Department, with
24respect to credits authorized by Section 45D of the Internal
25Revenue Code, that includes California within the service area and
26is dated on or after January 1, 2012.

27(B)  Section 45D(c)(2) of the Internal Revenue Code, relating
28to special rules for certain organizations, is modified to only
29include a specialized small business investment company or
30community development financial institution that entered into an
31allocation agreement with the Community Development Financial
32Institutions Fund of the United States Treasury Department, with
33respect to credits authorized by Section 45D of the Internal
34Revenue Code, that includes California within the service area and
35is dated on or after January 1, 2012.

36(3) The term “qualified active low-income community business,”
37as defined in Section 45D(d)(2) of the Internal Revenue Code, is
38modified as follows:

P24   1(A) By substituting “any low-income community in California”
2for “any low-income community” every place it appears in Section
345D of the Internal Revenue Code.

4(B) A qualified active low-income community business shall
5not include any business that derives, or projects to derive, 15
6percent or more of its annual revenue from the rental or sale of
7real estate. This exclusion does not apply to a business that is
8controlled by, or under common control with, another business if
9the second business: (i) does not derive or project to derive 15
10percent or more of its annual revenue from the rental or sale of
11real estate; and (ii) is the primary tenant of the real estate leased
12from the first business.

13(C) A qualified active low-income community business shall
14only include a business that, at the time the initial investment is
15made, has 250 or fewer employees and is located in one or more
16California low-income communities. The operating business shall
17meet all other conditions of a qualified active low-income
18community business, except as modified by this paragraph. This
19requirement does not apply to a business that is located on land
20and is controlled by, or under common control with, a federally
21recognized tribe.

22(D) A qualified active low-income community business shall
23only include a business located in census tracts with a poverty rate
24greater than 30 percent, or census tracts, if located within a
25nonmetropolitan area, with a median family income that does not
26exceed 60 percent of median family income for this state, or census
27tracts, if located within a metropolitan area, with a median family
28income that does not exceed 60 percent of the greater of the
29California median family income or the metropolitan area median
30family income, or census tracts with unemployment rates at least
311.5 times the national average.

32(E) A qualified active low-income community business shall
33not include any business that operates or derives revenues from
34the operation of a country club, gaming establishment, massage
35parlor, liquor store, or golf course.

36(F) A qualified active low-income community business shall
37not include a sexually oriented business. A “sexually oriented
38business” means a nightclub, bar, restaurant, or similar commercial
39enterprise that provides for an audience of two or more individuals
40live nude entertainment or live nude performances where the nudity
P25   1is a function of everyday business operations and where nudity is
2a planned and intentional part of the entertainment or performance.
3“Nude” means clothed in a manner that leaves uncovered or visible,
4through less than fully opaque clothing, any portion of the genitals
5or, in the case of a female, any portion of the breasts below the
6top of the areola of the breasts.

7(G) A qualified active low-income community business shall
8not include a charter school.

9(4) Section 45D(f) of the Internal Revenue Code, relating to
10national limitation on amount of investments designated, is
11modified as follows:

12(A) The following shall apply in lieu of the provisions of Section
1345D(f)(1) of the Internal Revenue Code: The aggregate amount
14of qualified equity investments that may be allocated in any
15calendar year for purposes of this section, Section 17053.9, and
16Section 23622.9 shall be forty million dollars ($40,000,000) per
17calendar year. The allocation of any undesignated qualified equity
18investments shall be returned to RTCA by March 1 of the year
19following allocation and the value of the undesignated qualified
20equity investment shall be available for allocation in the following
21calendar years in accordance with the application process. Any
22qualified equity investment attributable to recaptured credits shall
23be available to RTCA on March 1 of the year following recapture
24and shall be available for allocation in the following calendar years
25in accordance with subparagraph (B) of paragraph (5). Reallocated
26qualified equity investments attributable to recapture credits shall
27not count against the annual or the cumulative limit.

28(B) The references to “the Secretary” in Section 45D(f)(2) of
29the Internal Revenue Code, relating to allocation of limitation, is
30modified to read “RTCA.”

31(C) The last sentence of Section 45D(f)(3) of the Internal
32Revenue Code, relating to carryover of unused limitation, shall
33not apply.

34(5) Section 45D(g)(3) of the Internal Revenue Code, relating
35to recapture event, is modified to add the following:

36(A) The qualified community development entity fails to comply
37with subparagraph (D) of paragraph (5) of subdivision (d). In this
38case, recapture shall be 100 percent of the credit.

P26   1(B) RTCA shall establish a process, in consultation with the
2Department of Insurance, for the recapture of credits allowed under
3this section from the entity that claimed the credit on a return.

4(C) Recaptured qualified equity investments revert back to
5 RTCA and shall be reissued. The reissue shall not count toward
6the annual or cumulative allocation limitation. The reissue shall
7be done in the following order:

8(i) First, pro rata to applicants whose qualified equity investment
9allocations were reduced pursuant to subparagraph (E) of paragraph
10(5) of subdivision (d) by the annual allocation limitation.

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

12(D) Enforcement of each of the recapture provisions shall be
13subject to a six-month cure period.

14(d) (1) RTCA shall adopt guidelines necessary or appropriate
15to carry out its responsibilities with respect to the allocation,
16monitoring, and management of the tax credit program authorized
17by this section.

18(2) (A) RTCA shall establish and impose reasonable fees upon
19entities that apply for the allocation pursuant to this subdivision
20that in the aggregate defray the cost of reviewing applications for
21the program. RTCA may impose other reasonable fees upon entities
22that receive the allocation pursuant to this subdivision that in the
23aggregate defray the cost of administering the program.

24(B) The fees collected shall be deposited in the California New
25Markets Tax Credit Fund established in Section 18410.3.

26(3) In developing guidelines, RTCA shall adopt an allocation
27process that does all of the following:

28(A) Creates an equitable distribution process that ensures that
29low-income community populations across the state have an
30opportunity to benefit from the program.

31(B) Sets minimum organizational capacity standards that
32applicants must meet in order to receive an allocation of authority
33to designate qualified equity investments, including, but not limited
34to, its business strategy, targeted community outcomes,
35capitalization strategy, and management capacity.

36(C) Considers the qualified community development entity’s
37prior qualified low-income community investments under Section
3845D of the Internal Revenue Code.

P27   1(D) Considers the qualified community development entity’s
2prior qualified low-income community investments under this
3section, including subparagraph (D) of paragraph (5).

4(4) (A) Subject to subdivision (h), RTCA shall begin accepting
5applications on or before May 15, 2017, and shall award authority
6to designate qualified equity investments annually through 2021.

7(B) In the instance where RTCA determines that an application
8is incomplete, the qualified community development entity shall
9be given five business days to provide the omitted information.

10(5) (A) In the 2017 awards cycle, RTCA shall award authority
11to designate qualified equity investments to qualified community
12development entities described in paragraph (2) of subdivision (c)
13in the order applications are received by RTCA. Applications
14received on the same day shall be deemed to have been received
15simultaneously.

16(B) In the 2018 to 2021 award cycles, inclusive, at least 60
17percent of the authority to designate qualified equity investments
18shall be awarded pursuant to subparagraph (A). At the discretion
19of RTCA, a higher percentage of authority to designate qualified
20equity investments may be awarded pursuant to subparagraph (A).

21(C) RTCA shall award up to 40 percent of the authority to
22designate qualified equity investments in the 2018 to 2021,
23inclusive, award cycles, to qualified community development
24entities on a competitive basis that meets the following criteria:

25(i) Awards shall be reviewed using blind scoring and a review
26committee that is composed of community development finance
27practitioners and members having demonstrated experience in
28assessing organizational business strategy, community outcomes,
29capitalization strategy, and management capacity.

30(ii) A member of the review committee shall not have a financial
31interest, which includes, but is not limited to, asking, consenting,
32or agreeing to receive any commission, emolument, gratuity,
33money, property, or thing of value for his or her own use, benefit,
34or personal advantage for procuring or endeavoring to procure for
35any person, partnership, joint venture, association, or corporation
36any qualified equity investment or other assistance from any
37applicant.

38(iii) Priority shall be provided to both of the following:

39(I) Applications that commit to addressing the hardest to serve
40and undercapitalized lower income populations.

P28   1(II) Applications that support neighborhood revitalization
2strategies driven by local grassroots stakeholders in multiple
3low-income communities across one or more regions or the state.
4These applications shall demonstrate how their investment activity
5provides a scalable economic development model.

6(D) For applications described in subparagraphs (A) and (B),
7applications for awards shall include a commitment to make at
8least 15 percent of qualified community development investments
9to a qualified community development entity with the assistance
10of a nonprofit organization, as documented by a cooperation
11agreement that states the terms and conditions of that assistance.
12For the purposes of this subparagraph, the following shall apply:

13(i) A qualified community development entity shall be certified
14under Section 45D of the Internal Revenue Code but has not
15received a federal New Markets Tax Credit allocation on or after
16January 1, 2012, and has either a local service area that includes
17one or more California communities or a California statewide
18service area, but excluding qualified community development
19entities with a national service area.

20(ii) A nonprofit organization shall meet all of the following
21requirements: Is tax exempt under Section 23701, is registered
22with the Registry of Charitable Trusts, which is administered by
23the Attorney General, has articles of incorporation or articles of
24organization that state the primary mission of the organization is
25focused on improving the economic well-being of low-income
26communities or individuals, and has bylaws that provide that the
27organization maintains accountability to residents of low-income
28communities through their representation on any governing board
29or on an advisory board of the nonprofit organization.

30(E) (i)  For applications described in subparagraph (A), in the
31event requests for authority to designate qualified equity
32investments exceed the applicable annual allocation limitation,
33 RTCA shall certify, consistent with remaining qualified equity
34investment capacity, qualified equity investments of applicants in
35proportionate percentages based upon the ratio of the amount of
36qualified equity investments requested in such applications to the
37total amount of qualified equity investments requested in all such
38applications received on the same day.

39(ii) If a pending request cannot be fully certified due to this
40limit, RTCA shall certify the portion that may be certified unless
P29   1the qualified community development entity elects to withdraw
2its request rather than receive partial certification.

3(F) An approved applicant may transfer all or a portion of its
4certified qualified equity investment authority to its controlling
5entity or any subsidiary qualified community development entity
6of the controlling entity, provided that the applicant and the
7transferee notify RTCA within 30 calendar days of such transfer
8and include the information required in the application with respect
9to such transferee with such notice. The transferee shall be subject
10to the same rules, requirements, and limitations applicable to the
11transferor.

12(G) Within 200 calendar days of RTCA sending notice of
13certification, the qualified community development entity or any
14transferee, under subparagraph (F), shall issue the qualified equity
15investment and receive cash in the amount of the certified amount.
16The qualified community development entity or transferee, under
17subparagraph (F), shall provide RTCA with evidence of the receipt
18of the cash investment within 205 calendar days of the applicant
19receiving notice of certification. If the qualified community
20development entity or any transferee, under subparagraph (F), does
21not receive the cash investment and issue the qualified equity
22investment within 200 calendar days of RTCA sending the
23certification notice, the certification shall lapse and the entity may
24not issue the qualified equity investment without reapplying to
25RTCA for certification. Lapsed certifications revert back to RTCA
26and shall be reissued in the following order:

27(i) First, pro rata to applicants whose qualified equity investment
28allocations were reduced pursuant to subparagraph (E) under the
29annual allocation limitation of forty million dollars ($40,000,000)
30in paragraph (4) of subdivision (c).

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

32(H) A qualified community development entity that issues
33qualified equity investments shall notify RTCA of the names of
34taxpayers that are eligible to utilize tax credits pursuant to this
35section and any transfer of a qualified equity investment.

36(6) (A) A qualified community development entity that issues
37qualified equity investments shall submit a report to RTCA that
38provides documentation as to the investment of at least 85 percent
39of the funds being deployed within one year in qualified
40low-income community investments in qualified active low-income
P30   1community businesses located in California. Such report shall
2include all of the following:

3(i) A bank statement of such qualified community development
4entity evidencing each qualified low-income community
5investment.

6(ii) Evidence that such business was a qualified active
7low-income community business at the time of such qualified
8low-income community investment.

9(iii) Evidence that the community development entity complied
10with subparagraph (D) of paragraph (5).

11(iv) Any other information required by RTCA as being necessary
12to meet the requirements of this section.

13(B) Thereafter, the qualified community development entity
14shall submit an annual report to RTCA during the seven years
15following submittal of the report, pursuant to subparagraph (A).
16No annual report shall be due prior to the first anniversary of the
17initial credit allowance date. The report shall include, but is not
18limited to, the following:

19(i) The social, environmental, and economic impact the credit
20had on the low-income community during the report period and
21cumulatively.

22(ii) The amount of moneys used for qualified low-income
23investments in qualified low-income community businesses.

24(iii) The number of employment positions created and retained
25as a result of qualified low-income community investments and
26the average annual salary of such positions.

27(iv) The number of operating businesses assisted as a result of
28qualified low-income community investments, by industry and
29number of employees.

30(v) Number of owner-occupied real estate projects.

31(vi) Location of each qualified low-income community business
32assisted by a qualified low-income community investment.

33(vii) Summary of the outcomes of each of the revenue impact
34assessments undertaken by the qualified community development
35entity during the year.

36(viii) Any other information requested by RTCA.

37(e) (1) In the case where the credit allowed by this section
38exceeds the tax described in Section 12201, the excess may be
39carried over to reduce that tax in the following year, and the six
40succeeding years if necessary, until the credit is exhausted.

P31   1(2) A taxpayer allowed a credit under this section for a qualified
2equity investment shall not be eligible for any other credit under
3this part with respect to that investment.

4(3) The credit allowed under this section may be in addition to
5any credit allowed under Section 45D of the Internal Revenue
6Code.

7(f) RTCA shall annually report on its Internet Web site the
8information provided by low-income community development
9entities and on the geographic distribution of the qualified active
10low-income community businesses assisted.

11(g) (1) The Insurance Commissioner may prescribe any rules
12or regulations that may be necessary or appropriate to implement
13this section. The Insurance Commissioner shall have access to any
14documentation held by RTCA relative to the application and
15reporting of a qualified community development entity.

16(2) A qualified community development entity shall provide
17RTCA with the name, address, and tax identification number of
18each investor and entity for which a qualified equity investment
19was designated by the qualified community development entity,
20pursuant to this section. RTCA shall provide this information to
21the Insurance Commissioner in a manner determined by the
22 Insurance Commissioner.

23(h) (1) The credit authorized by this section shall only be
24allowed for those taxable years for which moneys are appropriated
25to RTCA to administer the California New Markets Tax Credit
26pursuant to 18410.3 for that taxable year. The appropriation shall
27specifically identify the California New Markets Tax Credit.

28(2) For those taxable years for which those moneys are
29appropriated pursuant to paragraph (1), RTCA shall post notice
30of the appropriation on the homepage of its Internet Web site and
31send notice of such appropriation to the Secretary of State and the
32Legislative Counsel.

33(i) This section shall be repealed on December 1, 2022.

34

SEC. 3.  

Section 17053.9 is added to the Revenue and Taxation
35Code
, to read:

36

17053.9.  

(a) There is hereby created the California New
37Markets Tax Credit Program as provided in this section, Section
3812283, and Section 23622.9. The purpose of this program is to
39stimulate private sector investment in lower income communities
40by providing a tax incentive to community and economic
P32   1development entities that can be leveraged by the entity to attract
2private sector investment that in turn will be deployed by providing
3financing and technical assistance to small- and medium-sized
4businesses and the development of commercial, industrial, and
5community development projects, including, but not limited to,
6facilities for nonprofit service organizations, light manufacturing,
7and mixed-use and transit-oriented development. RTCA shall
8administer this program as provided in this section, Section 12283,
9and Section 23622.9.

10(b) (1) For taxable years beginning on or after January 1, 2017,
11and before January 1, 2022, and subject to subdivision (h), there
12shall be allowed as a credit against the “net tax,” as defined in
13Section 17039, in an amount determined in accordance with Section
1445D of the Internal Revenue Code, relating to the new markets tax
15credit, as modified in this section.

16(2) For the purposes of this section, “RTCA” means the
17Responsible Tax Credit Administrator, as designated by the
18Governor.

19(c) Section 45D of the Internal Revenue Code is modified as
20follows:

21(1) Section 45D(a)(2) of the Internal Revenue Code, relating to
22applicable percentage, is modified by substituting for “(A)   5
23percent with respect to the first 3 credit allowance dates, and (B)  
246 percent with respect to the remainder of the credit allowance
25dates” with the following:

26(A) Zero percent with respect to the first two credit allowance
27dates.

28(B) Seven percent with respect to the third credit allowance
29date.

30(C) Eight percent with respect to the remainder of the credit
31allowance dates.

32(2) (A) Section 45D(c)(1) of the Internal Revenue Code, relating
33to qualified community development entity, is modified to only
34include a qualified community development entity, that is certified
35by the Secretary of the Treasury, and its subsidiary qualified
36community development entities that have entered into an
37allocation agreement with the Community Development Financial
38Institutions Fund of the United States Treasury Department, with
39respect to credits authorized by Section 45D of the Internal
P33   1Revenue Code, that includes California within the service area and
2is dated on or after January 1, 2012.

3(B) Section 45D(c)(2) of the Internal Revenue Code, relating
4to special rules for certain organizations, is modified to only
5include a specialized small business investment company or
6community development financial institution that entered into an
7allocation agreement with the Community Development Financial
8Institutions Fund of the United States Treasury Department, with
9respect to credits authorized by Section 45D of the Internal
10Revenue Code, that includes California within the service area and
11is dated on or after January 1, 2012.

12(3) The term “qualified active low-income community business,”
13as defined in Section 45D(d)(2) of the Internal Revenue Code, is
14modified as follows:

15(A) By substituting “any low-income community in California”
16for “any low-income community” every place it appears in Section
1745D of the Internal Revenue Code.

18(B) A qualified active low-income community business shall
19not include any business that derives, or projects to derive, 15
20percent or more of its annual revenue from the rental or sale of
21real estate. This exclusion does not apply to a business that is
22controlled by, or under common control with, another business if
23the second business: (i) does not derive or project to derive 15
24percent or more of its annual revenue from the rental or sale of
25real estate; and (ii) is the primary tenant of the real estate leased
26from the first business.

27(C) A qualified active low-income community business shall
28only include a business that, at the time the initial investment is
29made, has 250 or fewer employees and is located in one or more
30California low-income communities. The operating business shall
31meet all other conditions of a qualified active low-income
32community business, except as modified by this paragraph. This
33requirement does not apply to a business that is located on land
34and is controlled by, or under common control with, a federally
35recognized tribe.

36(D) A qualified active low-income community business shall
37only include a business located in census tracts with a poverty rate
38greater than 30 percent, or census tracts, if located within a
39nonmetropolitan area, with a median family income that does not
40exceed 60 percent of median family income for this state, or census
P34   1tracts, if located within a metropolitan area, with a median family
2income that does not exceed 60 percent of the greater of the
3California median family income or the metropolitan area median
4family income, or census tracts with unemployment rates at least
51.5 times the national average.

6(E) A qualified active low-income community business shall
7not include any business that operates or derives revenues from
8the operation of a country club, gaming establishment, massage
9parlor, liquor store, or golf course.

10(F) A qualified active low-income community business shall
11not include a sexually oriented business. A “sexually oriented
12business” means a nightclub, bar, restaurant, or similar commercial
13enterprise that provides for an audience of two or more individuals
14live nude entertainment or live nude performances where the nudity
15is a function of everyday business operations and where nudity is
16a planned and intentional part of the entertainment or performance.
17“Nude” means clothed in a manner that leaves uncovered or visible,
18through less than fully opaque clothing, any portion of the genitals
19or, in the case of a female, any portion of the breasts below the
20top of the areola of the breasts.

21(G) A qualified active low-income community business shall
22not include a charter school.

23(4) Section 45D(f) of the Internal Revenue Code, relating to
24national limitation on amount of investments designated, is
25modified as follows:

26(A) The following shall apply in lieu of the provisions of Section
2745D(f)(1) of the Internal Revenue Code: The aggregate amount
28of qualified equity investments that may be allocated in any
29calendar year for purposes of this section, Section 12283, and
30Section 23622.9 shall be forty million dollars ($40,000,000) per
31calendar year. The allocation of any undesignated qualified equity
32investments shall be returned to RTCA by March 1 of the year
33following allocation and the value of the undesignated qualified
34equity investment shall be available for allocation in the following
35calendar years in accordance with the application process. Any
36qualified equity investment attributable to recaptured credits shall
37be available to RTCA on March 1 of the year following recapture
38and shall be available for allocation in the following calendar years
39in accordance with clause (ii) of subparagraph (B) of paragraph
40(5). Reallocated qualified equity investments attributable to
P35   1recapture credits shall not count against the annual or the
2cumulative limit.

3(B) The references to “the Secretary” in Section 45D(f)(2) of
4the Internal Revenue Code, relating to allocation of limitation, is
5modified to read “RTCA.”

6(C) The last sentence of Section 45D(f)(3) of the Internal
7Revenue Code, relating to carryover of unused limitation, shall
8not apply.

9(5) (A) Section 45D(g)(2)(B) of the Internal Revenue Code,
10relating to credit recapture amount, is modified to substitute
11“Section 19101 of this code” for “Section 6621.”

12(B) Section 45D(g)(3) of the Internal Revenue Code, relating
13to recapture event, is modified to add the following:

14(i) The qualified community development entity fails to comply
15with subparagraph (D) of paragraph (5) of subdivision (d). In this
16case, recapture shall be 100 percent of the credit.

17(ii) RTCA shall establish a process, in consultation with the
18Franchise Tax Board, for the recapture of credits allowed under
19this section from the entity that claimed the credit on a return.

20(iii)  Recaptured qualified equity investments revert back to
21RTCA and shall be reissued. The reissue shall not count toward
22the annual or cumulative allocation limitation. The reissue shall
23be done in the following order:

24(I)  First, pro rata to applicants whose qualified equity
25investment allocations were reduced pursuant to subparagraph (E)
26of paragraph (5) of subdivision (d) by the annual allocation
27limitation.

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

29(iv) Enforcement of each of the recapture provisions shall be
30subject to a six-month cure period.

31(d) (1) RTCA shall adopt guidelines necessary or appropriate
32to carry out its responsibilities with respect to the allocation,
33monitoring, and management of the tax credit program authorized
34by this section.

35(2) (A) RTCA shall establish and impose reasonable fees upon
36entities that apply for the allocation pursuant to this subdivision
37that in the aggregate defray the cost of reviewing applications for
38the program. RTCA may impose other reasonable fees upon entities
39that receive the allocation pursuant to this subdivision that in the
40aggregate defray the cost of administering the program.

P36   1(B) The fees collected shall be deposited in the California New
2Markets Tax Credit Fund established in Section 18410.3.

3(3) In developing guidelines, RTCA shall adopt an allocation
4process that does all of the following:

5(A) Creates an equitable distribution process that ensures that
6low-income community populations across the state have an
7opportunity to benefit from the program.

8(B) Sets minimum organizational capacity standards that
9applicants must meet in order to receive an allocation of authority
10to designate qualified equity investments, including, but not limited
11to, its business strategy, targeted community outcomes,
12capitalization strategy, and management capacity.

13(C) Considers the qualified community development entity’s
14prior qualified low-income community investments under Section
1545D of the Internal Revenue Code.

16(D) Considers the qualified community development entity’s
17prior qualified low-income community investments under this
18section, including subparagraph (D) of paragraph (5).

19(4) (A) Subject to subdivision (h), RTCA shall begin accepting
20applications on or before May 15, 2017, and shall award authority
21to designate qualified equity investments annually through 2021.

22(B) In the instance where RTCA determines that an application
23is incomplete, the qualified community development entity shall
24be given five business days to provide the omitted information.

25(5) (A) In the 2017 awards cycle, RTCA shall award authority
26 to designate qualified equity investments to qualified community
27development entities described in paragraph (2) of subdivision (c)
28in the order applications are received by RTCA. Applications
29received on the same day shall be deemed to have been received
30simultaneously.

31(B) In the 2018 to 2021 award cycles, inclusive, at least 60
32percent of the authority to designate qualified equity investments
33shall be awarded pursuant to subparagraph (A). At the discretion
34of RTCA, a higher percentage of authority to designate qualified
35equity investments may be awarded pursuant to subparagraph (A).

36(C) RTCA shall award up to 40 percent of the authority to
37designate qualified equity investments in the 2018 to 2021,
38inclusive, award cycles, to qualified community development
39entities on a competitive basis that meets the following criteria:

P37   1(i) Awards shall be reviewed using blind scoring and a review
2committee that is composed of community development finance
3practitioners and members having demonstrated experience in
4assessing organizational business strategy, community outcomes,
5capitalization strategy, and management capacity.

6(ii) A member of the review committee shall not have a financial
7interest, which includes, but is not limited to, asking, consenting,
8or agreeing to receive any commission, emolument, gratuity,
9money, property, or thing of value for his or her own use, benefit,
10or personal advantage for procuring or endeavoring to procure for
11any person, partnership, joint venture, association, or corporation
12any qualified equity investment or other assistance from any
13applicant.

14(iii) Priority shall be provided to both of the following:

15(I) Applications that commit to addressing the hardest to serve
16and undercapitalized lower income populations.

17(II) Applications that support neighborhood revitalization
18strategies driven by local grassroots stakeholders in multiple
19low-income communities across one or more regions or the state.
20These applications shall demonstrate how their investment activity
21provides a scalable economic development model.

22(D) For applications described in subparagraphs (A) and (B),
23applications for awards shall include a commitment to make at
24least 15 percent of qualified community development investments
25to a qualified community development entity with the assistance
26of a nonprofit organization as documented by a cooperation
27agreement that states the terms and conditions of that assistance.
28For the purposes of this subparagraph, the following shall apply:

29(i) A qualified community development entity shall be certified
30under Section 45D of the Internal Revenue Code but has not
31received a federal New Markets Tax Credit allocation on or after
32January 1, 2012, and has either a local service area that includes
33one or more California communities or a California statewide
34service area, but excluding qualified community development
35entities with a national service area.

36(ii) A nonprofit organization shall meet all of the following
37requirements: Is tax exempt under Section 23701, is registered
38with the Registry of Charitable Trusts, which is administered by
39the Attorney General, has articles of incorporation or articles of
40organization that state the primary mission of the organization is
P38   1focused on improving the economic well-being of low-income
2communities or individuals, and has bylaws that provide that the
3organization maintains accountability to residents of low-income
4communities through their representation on any governing board
5or on an advisory board of the nonprofit organization.

6(E) (i) For applications described in subparagraph (A), in the
7event requests for authority to designate qualified equity
8investments exceed the applicable annual allocation limitation,
9 RTCA shall certify, consistent with remaining qualified equity
10investment capacity, qualified equity investments of applicants in
11proportionate percentages based upon the ratio of the amount of
12qualified equity investments requested in such applications to the
13total amount of qualified equity investments requested in all such
14applications received on the same day.

15(ii) If a pending request cannot be fully certified due to this
16limit, RTCA shall certify the portion that may be certified unless
17the qualified community development entity elects to withdraw
18its request rather than receive partial certification.

19(F) An approved applicant may transfer all or a portion of its
20certified qualified equity investment authority to its controlling
21entity or any subsidiary qualified community development entity
22of the controlling entity, provided that the applicant and the
23transferee notify RTCA within 30 calendar days of such transfer
24and include the information required in the application with respect
25to such transferee with such notice. The transferee shall be subject
26to the same rules, requirements, and limitations applicable to the
27transferor.

28(G) Within 200 calendar days of RTCA sending notice of
29certification, the qualified community development entity or any
30transferee, under subparagraph (F), shall issue the qualified equity
31investment and receive cash in the amount of the certified amount.
32The qualified community development entity or transferee, under
33subparagraph (F), shall provide RTCA with evidence of the receipt
34of the cash investment within 205 calendar days of the applicant
35receiving notice of certification. If the qualified community
36development entity or any transferee, under subparagraph (F), does
37not receive the cash investment and issue the qualified equity
38investment within 200 calendar days of RTCA sending the
39certification notice, the certification shall lapse and the entity may
40not issue the qualified equity investment without reapplying to
P39   1RTCA for certification. Lapsed certifications revert back to RTCA
2and shall be reissued in the following order:

3(i) First, pro rata to applicants whose qualified equity investment
4allocations were reduced pursuant to subparagraph (E) under the
5annual allocation limitation of forty million dollars ($40,000,000)
6in paragraph (4) of subdivision (c).

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

8(H) A qualified community development entity that issues
9qualified equity investments shall notify RTCA of the names of
10taxpayers that are eligible to utilize tax credits pursuant to this
11section and any transfer of a qualified equity investment.

12(6) (A) A qualified community development entity that issues
13qualified equity investments shall submit a report to RTCA that
14provides documentation as to the investment of at least 85 percent
15of the funds being deployed within one year in qualified
16low-income community investments in qualified active low-income
17community businesses located in California. Such report shall
18include all of the following:

19(i) A bank statement of such qualified community development
20entity evidencing each qualified low-income community
21investment.

22(ii) Evidence that such business was a qualified active
23low-income community business at the time of such qualified
24low-income community investment.

25(iii) Evidence that the community development entity complied
26with subparagraph (D) of paragraph (5).

27(iv) Any other information required by RTCA as being necessary
28to meet the requirements of this section.

29(B) Thereafter, the qualified community development entity
30shall submit an annual report to RTCA during the seven years
31following submittal of the report, pursuant to subparagraph (A).
32No annual report shall be due prior to the first anniversary of the
33initial credit allowance date. The report shall include, but is not
34limited to, the following:

35(i) The social, environmental, and economic impact the credit
36had on the low-income community during the report period and
37cumulatively.

38(ii) The amount of moneys used for qualified low-income
39investments in qualified low-income community businesses.

P40   1(iii) The number of employment positions created and retained
2as a result of qualified low-income community investments and
3the average annual salary of such positions.

4(iv) The number of operating businesses assisted as a result of
5qualified low-income community investments, by industry and
6number of employees.

7(v) Number of owner-occupied real estate projects.

8(vi) Location of each qualified low-income community business
9assisted by a qualified low-income community investment.

10(vii) Summary of the outcomes of each of the revenue impact
11assessments undertaken by the qualified community development
12entity during the year.

13(viii) Any other information requested by RTCA.

14(e) (1) In the case where the credit allowed by this section
15exceeds the “net tax,” the excess may be carried over to reduce
16the “net tax” in the following year, and the six succeeding years
17if necessary, until the credit is exhausted.

18(2) A taxpayer allowed a credit under this section for a qualified
19equity investment shall not be eligible for any other credit under
20this part with respect to that investment.

21(3) The credit allowed under this section may be in addition to
22any credit allowed under Section 45D of the Internal Revenue
23Code.

24(f) RTCA shall annually report on its Internet Web site the
25information provided by low-income community development
26entities and on the geographic distribution of the qualified active
27low-income community businesses assisted.

28(g) (1) The Franchise Tax Board may prescribe any rules or
29regulations that may be necessary or appropriate to implement this
30section. The Franchise Tax Board shall have access to any
31documentation held by RTCA relative to the application and
32reporting of a qualified community development entity.

33(2) A qualified community development entity shall provide
34RTCA with the name, address, and tax identification number of
35each investor and entity for which a qualified equity investment
36was designated by the qualified community development entity,
37pursuant to this section. RTCA shall provide this information to
38the Franchise Tax Board in a manner determined by the Franchise
39Tax Board.

P41   1(h) (1) The credit authorized by this section shall only be
2allowed for those taxable years for which moneys are appropriated
3to RTCA to administer the California New Markets Tax Credit
4pursuant to 18410.3 for that taxable year. The appropriation shall
5specifically identify the California New Markets Tax Credit.

6(2) For those taxable years for which those moneys are
7appropriated pursuant to paragraph (1), RTCA shall post notice
8of the appropriation on the homepage of its Internet Web site and
9send notice of such appropriation to the Secretary of State and the
10Legislative Counsel.

11(i) This section shall be repealed on December 1, 2022.

12

SEC. 4.  

Section 18410.3 is added to the Revenue and Taxation
13Code
, to read:

14

18410.3.  

(a) The California New Markets Tax Credit Fund is
15hereby established in the State Treasury.

16(b) Upon annual appropriation, moneys in the fund shall be used
17for the purposes described in subdivision (d) of Section 12283,
18subdivision (d) of Section 17053.9, and subdivision (d) of Section
1923622.9.

20

SEC. 5.  

Section 23622.9 is added to the Revenue and Taxation
21Code
, to read:

22

23622.9.  

(a) There is hereby created the California New
23Markets Tax Credit Program as provided in this section, Section
2412283, and Section 17053.9. The purpose of this program is to
25stimulate private sector investment in lower income communities
26by providing a tax incentive to community and economic
27development entities that can be leveraged by the entity to attract
28private sector investment that in turn will be deployed by providing
29financing and technical assistance to small- and medium-sized
30businesses and the development of commercial, industrial, and
31community development projects, including, but not limited to,
32facilities for nonprofit service organizations, light manufacturing,
33and mixed-use and transit-oriented development. RTCA shall
34administer this program as provided in this section, Section 12283,
35and Section 17053.9.

36(b) (1) For taxable years beginning on or after January 1, 2017,
37and before January 1, 2022, and subject to subdivision (h), there
38shall be allowed as a credit against the “tax,” as defined in Section
3923036, in an amount determined in accordance with Section 45D
P42   1of the Internal Revenue Code, relating to the new markets tax
2credit, as modified in this section.

3(2) For the purposes of this section, “RTCA” means the
4Responsible Tax Credit Administrator, as designated by the
5Governor.

6(c) Section 45D of the Internal Revenue Code is modified as
7follows:

8(1) Section 45D(a)(2) of the Internal Revenue Code, relating to
9applicable percentage, is modified by substituting for “(A)   5
10percent with respect to the first 3 credit allowance dates, and (B)  
116 percent with respect to the remainder of the credit allowance
12dates” with the following:

13(A) Zero percent with respect to the first two credit allowance
14dates.

15(B) Seven percent with respect to the third credit allowance
16date.

17(C) Eight percent with respect to the remainder of the credit
18allowance dates.

19(2) (A) Section 45D(c)(1) of the Internal Revenue Code, relating
20to qualified community development entity, is modified to only
21include a qualified community development entity, that is certified
22by the Secretary of the Treasury, and its subsidiary qualified
23community development entities that have entered into an
24allocation agreement with the Community Development Financial
25Institutions Fund of the United States Treasury Department, with
26respect to credits authorized by Section 45D of the Internal
27Revenue Code, that includes California within the service area and
28is dated on or after January 1, 2012.

29(B) Section 45D(c)(2) of the Internal Revenue Code, relating
30to special rules for certain organizations, is modified to only
31include a specialized small business investment company or
32community development financial institution that entered into an
33allocation agreement with the Community Development Financial
34Institutions Fund of the United States Treasury Department, with
35respect to credits authorized by Section 45D of the Internal
36Revenue Code, that includes California within the service area and
37is dated on or after January 1, 2012.

38(3) The term “qualified active low-income community business,”
39as defined in Section 45D(d)(2) of the Internal Revenue Code, is
40modified as follows:

P43   1(A) By substituting “any low-income community in California”
2for “any low-income community” every place it appears in Section
345D of the Internal Revenue Code.

4(B) A qualified active low-income community business shall
5not include any business that derives, or projects to derive, 15
6percent or more of its annual revenue from the rental or sale of
7real estate. This exclusion does not apply to a business that is
8controlled by, or under common control with, another business if
9the second business: (i) does not derive or project to derive 15
10percent or more of its annual revenue from the rental or sale of
11real estate; and (ii) is the primary tenant of the real estate leased
12from the first business.

13(C) A qualified active low-income community business shall
14only include a business that, at the time the initial investment is
15made, has 250 or fewer employees and is located in one or more
16California low-income communities. The operating business shall
17meet all other conditions of a qualified active low-income
18community business, except as modified by this paragraph. This
19requirement does not apply to a business that is located on land
20and is controlled by, or under common control with, a federally
21recognized tribe.

22(D) A qualified active low-income community business shall
23only include a business located in census tracts with a poverty rate
24greater than 30 percent, or census tracts, if located within a
25nonmetropolitan area, with a median family income that does not
26exceed 60 percent of median family income for this state, or census
27tracts, if located within a metropolitan area, with a median family
28income that does not exceed 60 percent of the greater of the
29California median family income or the metropolitan area median
30family income, or census tracts with unemployment rates at least
311.5 times the national average.

32(E) A qualified active low-income community business shall
33not include any business that operates or derives revenues from
34the operation of a country club, gaming establishment, massage
35parlor, liquor store, or golf course.

36(F) A qualified active low-income community business shall
37not include a sexually oriented business. A “sexually oriented
38business” means a nightclub, bar, restaurant, or similar commercial
39enterprise that provides for an audience of two or more individuals
40live nude entertainment or live nude performances where the nudity
P44   1is a function of everyday business operations and where nudity is
2a planned and intentional part of the entertainment or performance.
3“Nude” means clothed in a manner that leaves uncovered or visible,
4through less than fully opaque clothing, any portion of the genitals
5or, in the case of a female, any portion of the breasts below the
6top of the areola of the breasts.

7(G) A qualified active low-income community business shall
8not include a charter school.

9(4) Section 45D(f) of the Internal Revenue Code, relating to
10national limitation on amount of investments designated, is
11modified as follows:

12(A) The following shall apply in lieu of the provisions of Section
1345D(f)(1) of the Internal Revenue Code: The aggregate amount
14of qualified equity investments that may be allocated in any
15calendar year for purposes of this section, Section 12283, and
16Section 17053.9 shall be forty million dollars ($40,000,000) per
17calendar year. The allocation of any undesignated qualified equity
18investments shall be returned to RTCA by March 1 of the year
19following allocation and the value of the undesignated qualified
20equity investment shall be available for allocation in the following
21 calendar years in accordance with the application process. Any
22qualified equity investment attributable to recaptured credits shall
23be available to RTCA on March 1 of the year following recapture
24and shall be available for allocation in the following calendar years
25in accordance with clause (ii) of subparagraph (B) of paragraph
26(5). Reallocated qualified equity investments attributable to
27recapture credits shall not count against the annual or the
28cumulative limit.

29(B) The references to “the Secretary” in Section 45D(f)(2) of
30the Internal Revenue Code, relating to allocation of limitation, is
31modified to read “RTCA.”

32(C) The last sentence of Section 45D(f)(3) of the Internal
33Revenue Code, relating to carryover of unused limitation, shall
34not apply.

35(5) (A) Section 45D(g)(2)(B) of the Internal Revenue Code,
36relating to credit recapture amount, is modified to substitute
37“Section 19101 of this code” for “Section 6621.”

38(B) Section 45D(g)(3) of the Internal Revenue Code, relating
39to recapture event, is modified to add the following:

P45   1(i) The qualified community development entity fails to comply
2with subparagraph (D) of paragraph (5) of subdivision (d). In this
3case, recapture shall be 100 percent of the credit.

4(ii) RTCA shall establish a process, in consultation with the
5Franchise Tax Board, for the recapture of credits allowed under
6this section from the entity that claimed the credit on a return.

7(iii) Recaptured qualified equity investments revert back to
8RTCA and shall be reissued. The reissue shall not count toward
9the annual or cumulative allocation limitation. The reissue shall
10be done in the following order:

11(I) First, pro rata to applicants whose qualified equity investment
12allocations were reduced pursuant to subparagraph (E) of paragraph
13(5) of subdivision (d) by the annual allocation limitation.

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

15(iv) Enforcement of each of the recapture provisions shall be
16subject to a six-month cure period.

17(d) (1) RTCA shall adopt guidelines necessary or appropriate
18to carry out its responsibilities with respect to the allocation,
19monitoring, and management of the tax credit program authorized
20by this section.

21(2) (A) RTCA shall establish and impose reasonable fees upon
22entities that apply for the allocation pursuant to this subdivision
23that in the aggregate defray the cost of reviewing applications for
24the program. RTCA may impose other reasonable fees upon entities
25that receive the allocation pursuant to this subdivision that in the
26aggregate defray the cost of administering the program.

27(B) The fees collected shall be deposited in the California New
28Markets Tax Credit Fund established in Section 18410.3.

29(3) In developing guidelines, RTCA shall adopt an allocation
30process that does all of the following:

31(A) Creates an equitable distribution process that ensures that
32low-income community populations across the state have an
33opportunity to benefit from the program.

34(B) Sets minimum organizational capacity standards that
35applicants must meet in order to receive an allocation of authority
36to designate qualified equity investments, including, but not limited
37to, its business strategy, targeted community outcomes,
38capitalization strategy, and management capacity.

P46   1(C) Considers the qualified community development entity’s
2prior qualified low-income community investments under Section
345D of the Internal Revenue Code.

4(D) Considers the qualified community development entity’s
5prior qualified low-income community investments under this
6section, including subparagraph (D) of paragraph (5).

7(4) (A) Subject to subdivision (h), RTCA shall begin accepting
8applications on or before May 15, 2017, and shall award authority
9to designate qualified equity investments annually through 2021.

10(B) In the instance where RTCA determines that an application
11is incomplete, the qualified community development entity shall
12be given five business days to provide the omitted information.

13(5) (A) In the 2017 awards cycle, RTCA shall award authority
14 to designate qualified equity investments to qualified community
15development entities described in paragraph (2) of subdivision (c)
16in the order applications are received by RTCA. Applications
17received on the same day shall be deemed to have been received
18simultaneously.

19(B) In the 2018 to 2021 award cycles, inclusive, at least 60
20percent of the authority to designate qualified equity investments
21shall be awarded pursuant to subparagraph (A). At the discretion
22of RTCA, a higher percentage of authority to designate qualified
23equity investments may be awarded pursuant to subparagraph (A).

24(C) RTCA shall award up to 40 percent of the authority to
25designate qualified equity investments in the 2018 to 2021,
26inclusive, award cycles, to qualified community development
27entities on a competitive basis that meets the following criteria:

28(i) Awards shall be reviewed using blind scoring and a review
29committee that is composed of community development finance
30practitioners and members having demonstrated experience in
31assessing organizational business strategy, community outcomes,
32capitalization strategy, and management capacity.

33(ii) A member of the review committee shall not have a financial
34interest, which includes, but is not limited to, asking, consenting,
35or agreeing to receive any commission, emolument, gratuity,
36money, property, or thing of value for his or her own use, benefit,
37or personal advantage for procuring or endeavoring to procure for
38any person, partnership, joint venture, association, or corporation
39any qualified equity investment or other assistance from any
40applicant.

P47   1(iii) Priority shall be provided to both of the following:

2(I) Applications that commit to addressing the hardest to serve
3and undercapitalized lower income populations.

4(II) Applications that support neighborhood revitalization
5strategies driven by local grassroots stakeholders in multiple
6low-income communities across one or more regions or the state.
7These applications shall demonstrate how their investment activity
8provides a scalable economic development model.

9(D) For applications described in subparagraphs (A) and (B),
10applications for awards shall include a commitment to make at
11least 15 percent of qualified community development investments
12to a qualified community development entity with the assistance
13of a nonprofit organization as documented by a cooperation
14agreement that states the terms and conditions of that assistance.
15For the purposes of this subparagraph, the following shall apply:

16(i) A qualified community development entity shall be certified
17under Section 45D of the Internal Revenue Code but has not
18received a federal New Markets Tax Credit allocation on or after
19January 1, 2012, and has either a local service area that includes
20one or more California communities or a California statewide
21service area, but excluding qualified community development
22entities with a national service area.

23(ii) A nonprofit organization shall meet all of the following
24requirements: Is tax exempt under Section 23701, is registered
25with the Registry of Charitable Trusts, which is administered by
26the Attorney General, has articles of incorporation or articles of
27organization that state the primary mission of the organization is
28focused on improving the economic well-being of low-income
29communities or individuals, and has bylaws that provide that the
30organization maintains accountability to residents of low-income
31communities through their representation on any governing board
32or on an advisory board of the nonprofit organization.

33(E) (i) For applications described in subparagraph (A), in the
34event requests for authority to designate qualified equity
35investments exceed the applicable annual allocation limitation,
36 RTCA shall certify, consistent with remaining qualified equity
37investment capacity, qualified equity investments of applicants in
38proportionate percentages based upon the ratio of the amount of
39qualified equity investments requested in such applications to the
P48   1total amount of qualified equity investments requested in all such
2applications received on the same day.

3(ii) If a pending request cannot be fully certified due to this
4limit, RTCA shall certify the portion that may be certified unless
5the qualified community development entity elects to withdraw
6its request rather than receive partial certification.

7(F) An approved applicant may transfer all or a portion of its
8certified qualified equity investment authority to its controlling
9entity or any subsidiary qualified community development entity
10of the controlling entity, provided that the applicant and the
11transferee notify RTCA within 30 calendar days of such transfer
12and include the information required in the application with respect
13to such transferee with such notice. The transferee shall be subject
14to the same rules, requirements, and limitations applicable to the
15transferor.

16(G) Within 200 calendar days of RTCA sending notice of
17certification, the qualified community development entity or any
18transferee, under subparagraph (F), shall issue the qualified equity
19investment and receive cash in the amount of the certified amount.
20The qualified community development entity or transferee, under
21subparagraph (F), shall provide RTCA with evidence of the receipt
22of the cash investment within 205 calendar days of the applicant
23receiving notice of certification. If the qualified community
24development entity or any transferee, under subparagraph (F), does
25not receive the cash investment and issue the qualified equity
26investment within 200 calendar days of RTCA sending the
27certification notice, the certification shall lapse and the entity may
28not issue the qualified equity investment without reapplying to
29RTCA for certification. Lapsed certifications revert back to RTCA
30and shall be reissued in the following order:

31(i) First, pro rata to applicants whose qualified equity investment
32allocations were reduced pursuant to subparagraph (E) under the
33annual allocation limitation of forty million dollars ($40,000,000)
34in paragraph (4) of subdivision (c).

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

36(H) A qualified community development entity that issues
37qualified equity investments shall notify RTCA of the names of
38taxpayers that are eligible to utilize tax credits pursuant to this
39section and any transfer of a qualified equity investment.

P49   1(6) (A) A qualified community development entity that issues
2qualified equity investments shall submit a report to RTCA that
3provides documentation as to the investment of at least 85 percent
4of the funds being deployed within one year in qualified
5low-income community investments in qualified active low-income
6community businesses located in California. Such report shall
7include all of the following:

8(i) A bank statement of such qualified community development
9entity evidencing each qualified low-income community
10investment.

11(ii) Evidence that such business was a qualified active
12low-income community business at the time of such qualified
13low-income community investment.

14(iii) Evidence that the community development entity complied
15with subparagraph (D) of paragraph (5).

16(iv) Any other information required by RTCA as being necessary
17to meet the requirements of this section.

18(B) Thereafter, the qualified community development entity
19shall submit an annual report to RTCA during the seven years
20following submittal of the report, pursuant to subparagraph (A).
21No annual report shall be due prior to the first anniversary of the
22initial credit allowance date. The report shall include, but is not
23limited to, the following:

24(i) The social, environmental, and economic impact the credit
25had on the low-income community during the report period and
26cumulatively.

27(ii) The amount of moneys used for qualified low-income
28investments in qualified low-income community businesses.

29(iii) The number of employment positions created and retained
30as a result of qualified low-income community investments and
31the average annual salary of such positions.

32(iv) The number of operating businesses assisted as a result of
33qualified low-income community investments, by industry and
34number of employees.

35(v) Number of owner-occupied real estate projects.

36(vi) Location of each qualified low-income community business
37assisted by a qualified low-income community investment.

38(vii) Summary of the outcomes of each of the revenue impact
39assessments undertaken by the qualified community development
40entity during the year.

P50   1(viii) Any other information requested by RTCA.

2(e) (1) In the case where the credit allowed by this section
3exceeds the “tax,” the excess may be carried over to reduce the
4“tax” in the following year, and the six succeeding years if
5necessary, until the credit is exhausted.

6(2) A taxpayer allowed a credit under this section for a qualified
7equity investment shall not be eligible for any other credit under
8this part with respect to that investment.

9(3) The credit allowed under this section may be in addition to
10any credit allowed under Section 45D of the Internal Revenue
11Code.

12(f) RTCA shall annually report on its Internet Web site the
13information provided by low-income community development
14entities and on the geographic distribution of the qualified active
15low-income community businesses assisted.

16(g) (1) The Franchise Tax Board may prescribe any rules or
17regulations that may be necessary or appropriate to implement this
18section. The Franchise Tax Board shall have access to any
19documentation held by RTCA relative to the application and
20reporting of a qualified community development entity.

21(2) A qualified community development entity shall provide
22RTCA with the name, address, and tax identification number of
23each investor and entity for which a qualified equity investment
24was designated by the qualified community development entity,
25pursuant to this section. RTCA shall provide this information to
26the Franchise Tax Board in a manner determined by the Franchise
27Tax Board.

28(h) (1) The credit authorized by this section shall only be
29allowed for those taxable years for which moneys are appropriated
30to RTCA to administer the California New Markets Tax Credit
31pursuant to 18410.3 for that taxable year. The appropriation shall
32specifically identify the California New Markets Tax Credit.

33(2) For those taxable years for which those moneys are
34appropriated pursuant to paragraph (1), RTCA shall post notice
35of the appropriation on the homepage of its Internet Web site and
36send notice of such appropriation to the Secretary of State and the
37Legislative Counsel.

38(i) This section shall be repealed on December 1, 2022.

P51   1

SEC. 6.  

For the purposes of complying with Section 41 of the
2Revenue and Taxation Code, the Legislature finds and declares as
3follows:

4(a) Specific goals, purposes, and objectives: attract private sector
5investment in lower income communities in California.

6(b) Performance indicators:

7(1) Amount of qualified low-income community investments
8issued.

9(2) Amount of dollars deployed in qualified low-income
10community investments.

11(3) Number of operating businesses assisted as a result of
12qualified low-income community investments.

13(4) Number of employment positions created and retained as a
14result of qualified low-income community investments and the
15average annual salary of those positions.

16(c) Data collection requirements and baseline measurements:

17(1) The baseline measurements include:

18(A) The amount of tax credits issued in the year.

19(B) The unemployment rate of the area.

20(C) The poverty rate of the area.

21(2) Data to collect includes:

22(A) The amount of tax credits issued in the year.

23(B) The number of operating businesses in a low-income
24community assisted.

25(C) The number of jobs created and retained as a result of
26qualified low-income community investments.

27

SEC. 7.  

The provisions of this act are severable. If any
28provision of this act or its application is held invalid, that invalidity
29shall not affect other provisions or applications that can be given
30effect without the invalid provision or application.

31

SEC. 8.  

This act provides for a tax levy within the meaning of
32Article IV of the Constitution and shall go into immediate effect.

end delete


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