Amended in Senate June 18, 2014

Amended in Senate June 9, 2014

Amended in Senate September 6, 2013

Amended in Senate August 22, 2013

California Legislature—2013–14 Regular Session

Assembly Bill No. 1399

Introduced by Assembly Members Medina and V. Manuel Pérez

March 11, 2013

An act to add Section 26011.9 to the Public Resources Code, begin insert and to amend Section 18410.2 of, end insert and to add and repeal Sections 12283, 17053.9 and 23622.9 begin delete of end delete begin insert of, end insert the Revenue and Taxation Code, relating to taxation, and making an appropriation therefor, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 1399, as amended, Medina. Income taxation: insurance taxation: credits: California New begin delete Market end delete begin insert Markets end insert Tax Credit.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws. Existing law also creates the California Competes Tax Credit Committee, which has specified duties in regard to tax credits for economic development.

begin delete

The California Constitution imposes on insurers doing business in California, an annual tax in lieu of all other taxes and licenses, state, county, and municipal, upon those insurers and their property except, among others, a retaliatory tax, as specified.

end delete begin insert

Existing law imposes an annual tax on the gross premiums of an insurer, as defined, doing business in this state at specified rates.

end insert

This bill would allow a credit under the Personal Income Tax Law and the Corporation Tax Law, and a credit against the begin delete retaliatory end delete tax imposed on an insurer, in modified conformity with a federal New begin delete Market end delete begin insert Markets end insert Tax Credit, for taxable years beginning on or after January 1, 2015, and before January 1, 2027, in a specified amount for investments in low-income communities. The bill would limit the total annual amount of credit allowed pursuant to these provisions to an amount equal to any portion not granted under a specified sales and use tax exclusion, not to exceed $40,000,000 per calendar year, and would limit the allocation of the credit to a cumulative total of no more than $200,000,000, as provided. This bill would impose specified duties on the California Competes Tax Credit Committee with regard to the application for, and allocation of, the credit. The bill would require the committee to establish and impose reasonable fees upon entities that apply for the allocation of the credit and use the revenue to defray the cost of administering the program, as specified, thereby making an appropriation.

This bill would take effect immediately as a tax levy.

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

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

SECTION 1.  

The Legislature finds and declares the following:

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

(b) Initially enacted in 2000, the federal government established
the New Markets Tax Credit (NMTC) Program, which uses a
market-based approach for expanding capital and technical
assistance to businesses in lower income communities. The federal
program is jointly administered by the Community Development
Financial Institutions Fund (CDFI Fund) and the Internal Revenue
Service. The NMTC Program allocates federal tax incentives to
community development entities (CDE), which they then use to
attract private investors who contribute funds that can be used to
finance and invest in businesses and develop real estate in
low-income communities. Through May 2013, the CDFI Fund had
awarded approximately $36,500,000,000 in NMTC in 749 awards
including $3,000,000,000 in American Recovery and Investment
Act of 2009 awards and $1,000,000,000 of special allocation
authority to be used for the recovery and redevelopment of the
Gulf Opportunity Zone.

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

(d) Fourteen states in the United States have adopted state
programs using the NMTC model including Alabama, Florida,
Illinois, Nevada, and Oregon. While some of the programs
substantially mirror the federal program, others vary in both the
percentage of the credit and some of the policies that form the
foundation of the credit. One of the reasons cited for establishing
state-level programs is to make their state more attractive to CDEs,
which results in increasing the amount of federal NMTCs being
utilized in their state. Further, several studies, including a January
1, 2011, case study by Pacific Community Ventures, showed that
for every dollar of forgone tax revenue, the federal NMTC
leverages $12 to $14 of private investment.

SEC. 2.  

Section 26011.9 is added to the Public Resources Code,
to read:

26011.9.  

The authority shall make a determination of the
amount of the one hundred million dollars ($100,000,000) in
exclusions not granted in the assigned calendar year pursuant to
Section 26011.8. An amount equal to that amount shall be granted
in the subsequent calendar year through the California New
Markets Tax Credit Program pursuant to Sections 12283, 17053.9,
and 23622.9 of the Revenue and Taxation Code. This section shall
not prevent a taxpayer granted an exclusion pursuant to Section
6010.8 of the Revenue and Taxation Code from applying for, and
receiving a refund for, taxes paid under Part 1 (commencing with
Section 6001) of Division 2 of the Revenue and Taxation Code.

SEC. 3.  

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

12283.  

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

(b) (1) For taxable years beginning on or after January 1, 2015,
and before January 1, 2027, there shall be allowed as a credit
against the tax described in begin delete paragraph (1) of subdivision (a) of
Section 12204, end delete begin insert Sections 12201, 12204, 12206, and 12209, end insert an
amount determined in accordance with Section 45D of the Internal
Revenue Code, as amended by Public Law 111-5, Public Law
111-312, and Public Law 112-240, as modified as set forth in this
section.

(2) This credit shall be allowed only if the taxpayer holds the
qualified equity investment begin insert , or has been allocated a credit pursuant
to paragraph (3), end insert on the credit allowance date and each of the six
following anniversary dates of that date.

(3) A tax credit allowed under this section shall not be sold and
is not a refundable credit. Tax credits allowed begin insert or allocated end insert to a
partnership, limited liability company, or “S” corporation may be
allocated to the partners, members, managers, or shareholders of
such entity begin insert for their use end insert in accordance with the provisions of any
agreement among such partners, members, managers, or
shareholders. Such allocations shall not be considered a sale for
the purposes of this section.

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

(1) (A) The references to “the Secretary” in Section 45D of the
Internal Revenue Code are modified to read “the committee.”

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

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

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

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

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

begin delete

(3) Section 45D(b) of the Internal Revenue Code, relating to
qualified equity investment, is modified as follows:

end delete begin delete

(A) Section 45D(b)(6) of the Internal Revenue Code, relating
to equity investments, is modified to also include long-term debt
securities issued by any qualified active low-income community
business that substantially supports projects within a low-income
community.

end delete begin delete

(B)

end delete

begin insert (3) end insert  Section 45D(b)(3) of the Internal Revenue Code, relating
to safe harbor for determining use of cash, is modified by
substituting “qualified low-income community investments in
California” for “qualified low-income community investments.”

(4)  Section 45D(c)(1) of the Internal Revenue Code, relating
to qualified community development entities, is modified to
additionally include:

(A) A subsidiary community development entity of any such
qualified community development entity.

(B) A nonprofit begin delete organization end delete begin insert organization, pursuant to Section
23701, end insert certified by the committee as having a primary mission of
serving or providing investment capital in low-income communities
and the entity maintains accountability to residents of low-income
communities through their representation on any governing board
of the entity or on an advisory board of the entity. The committee
shall establish guidelines for certifying nonprofit organizations
pursuant to this subparagraph. begin insert The committee may include
reasonable conditions on the certification to effectuate the intent
of this section and may suspend or revoke a certification, after
affording the nonprofit organization notice and the opportunity
to be heard, if the committee finds that the nonprofit organization
no longer meets the requirements for certification. end insert

(5)  Section 45D(d)(1)(A) of the Internal Revenue Code, relating
to qualified low-income community investments, is modified to
begin insert only end insert include any capital or equity investment in, or loan to, begin delete any
real estate project located in a low-income community or any
operating business that, at the time the initial investment is made,
has 250 or fewer employees and is located in a low-income
community. The real estate project or operating business shall
meet all other requirements of a qualified active low-income
community business, except as modified by paragraphs (6) and
(7) end delete begin insert a qualified active low-income community business end insert .

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

(A) Section 45D(d)(2)(A)(i) of the Internal Revenue Code,
relating to qualified active low-income community businesses, is
modified by substituting “any low-income community in
California” for “any low-income community.”

(B) Section 45D(d)(2)(A)(ii) of the Internal Revenue Code,
relating to qualified active low-income community businesses, is
modified as follows:

(i) Substituting “any low-income community in California” for
“any low-income community.”

(ii) In determining whether the qualified active low-income
community business uses a substantial portion of its tangible
personal property within any low-income community, the term
“substantial portion” shall mean “at least 40 percent” as calculated
by the average value of the tangible property owned or leased and
used within a California low-income community by the entity
divided by the average value of the total tangible property owned
or leased and used by the entity begin insert in California end insert during the taxable
year. The value assigned to the leased property by the entity must
be reasonable.

(iii) Adding the provision that if the business meets the
requirements of a qualified low-income community business at
the time the investment is made, the business shall continue to
satisfy the requirements of Section 45D(d)(2)(A)(ii) for the duration
of the investment.

(C) Section 45D(d)(2)(A)(iii) of the Internal Revenue Code,
relating to qualified active low-income community businesses
which limits the services of employees to substantially those
performed within the low-income community, shall not apply begin insert to
a qualified community development entity that does not hold a
federal new markets tax credit end insert .

begin insert

(D) An entity complies with Section 45D(d)(2)(A)(i) of the
Internal Revenue Code, relating to qualified active low-income
community business, if, as calculated in subparagraph (B), it uses
50 percent of its tangible property, whether owned or leased, within
any low-income community for any taxable year.

end insert begin insert

(E) (i) A qualified active low-income community business shall
exclude any business that derives, or projects to derive, 15 percent
or more of its annual revenue from the rental or sale of real estate.
This exclusion does not apply to a business that is controlled by,
or under common control with, another business if the second
business: (I) does not derive or project to derive 15 percent or
more of its annual revenue from the rental or sale of real estate;
and (II) is the primary tenant of the real estate leased from the
first business.

end insert begin delete

(D) The following shall apply in lieu of the provisions of Section
45D(d)(2)(C) of the Internal Revenue Code, relating to qualified
active low-income community business: “A ‘qualified active
low-income community business’ shall include an operating
business

end delete

begin insert (ii) end insert begin insert   end insert begin insert A qualified active low-income community business shall
only include a business end insert that, at the time the initial investment is
made, has 250 or fewer employees and is located in a California
low-income community. The operating business shall meet all
other conditions of a qualified active low-income business, except
as modified by this paragraph and paragraph begin delete (7).” end delete begin insert (7). end insert

(7) Section 45D(e)(1) of the Internal Revenue Code, relating to
determining the eligible low-income community, is modified to
add the following: “When the United States Census Bureau
discontinues using the decennial census to report median family
income on a census tract basis, census block group data shall be
used based on the American Community Survey.”

(8) The following shall apply in lieu of the provisions of Section
45D(f)(1) of the Internal Revenue Code, relating to national
limitation on amount of investments designated: “The aggregate
amount of credit that may be allocated in any calendar year
pursuant to this section, Section 17053.9, and Section 23622.9
shall be an amount equal to any unused portion of the one hundred
million dollars ($100,000,000) in exclusions, authorized pursuant
to Section 6010.8, as determined by the California Alternative
Energy and Advanced Transportation Financing Authority and
reported to the committee, not to exceed forty million dollars
($40,000,000). The committee shall limit the allocation of credits
permitted under this section, Section begin delete 170533.9 end delete begin insert 17053.9 end insert , and
Section 23622.9 to a cumulative total of no more than two hundred
million dollars ($200,000,000). Any unused begin delete or recaptured end delete credits
shall be returned to the committee on March 1 of the year following
allocation and the value of the unused begin delete or recaptured end delete credit shall
be available for begin delete reallocation end delete begin insert allocation end insert in the following calendar
begin delete years. end delete begin insert years in accordance with the application process. Any
recaptured credits shall be returned to the committee by March 1
of the year following recapture and the value of the recaptured
credit shall be available for allocation in the following calendar
years in accordance with subparagraph (B) of paragraph
(9). end insert Reallocation credits shall not count against the forty million
dollars ($40,000,000) annual limit or the two hundred million
dollars ($200,000,000) cumulative limit.”

(9) Section 45D(g)(3) of the Internal Revenue Code, relating
to recapture event, does not apply and is replaced with the
following:

(A)  begin delete (i) end delete begin delete   end delete The committee shall recapture, from the entity that
claimed the credit on a return, the tax credit allowed under this
section if any of the following:

begin delete

(I)

end delete

begin insert (i) end insert  Any amount of a federal tax credit available with respect to
a qualified equity investment that is eligible for a credit under this
section is recaptured under Section 45D of the Internal Revenue
Code. In such case the committee’s recapture shall be proportionate
to the federal recapture with respect to such qualified equity
investment.

begin delete

(II) 

end delete

begin insert (ii) end insert begin insert   end insert The qualified community development entity redeems or
makes principal repayment with respect to a qualified equity
investment prior to the seventh anniversary of the issuance of such
qualified equity investment. In such case the committee’s recapture
shall be proportionate to the amount of the redemption or
repayment with respect to such qualified equity investment.

begin delete

(III)

end delete

begin insert (iii) end insert  The qualified community development entity fails to invest
an amount equal to begin insert at least end insert 85 percent of the purchase price of the
qualified equity investment in qualified low-income community
investments in California within 12 months of the issuance of the
qualified equity investment and maintain at least 85 percent of
such level of investment in qualified low-income community
investments in California until the last credit allowance date for
the qualified equity investment. For purposes of this section, an
investment shall be considered held by a qualified community
development entity even if the investment has been sold or repaid
if the qualified community development entity reinvests an amount
equal to the capital returned to, or recovered by, the qualified
community development entity from the original investment,
exclusive of any profits realized, in another qualified low-income
community investment within 12 months of the receipt of such
capital. Periodic amounts received as repayment of principal
pursuant to regularly scheduled amortization payments on a loan
that is a qualified low-income community investment shall be
treated as continuously invested in a qualified low-income
community investment if the amounts are reinvested in one or
more qualified low-income community investments by the end of
the following calendar year. A qualified community development
entity shall not be required to reinvest capital returned from
qualified low-income community investments after the sixth
anniversary of the issuance of the qualified equity investment, and
the qualified low-income community investment shall be
considered held by the qualified community development entity
through the seventh anniversary of the qualified equity investment’s
issuance.

begin delete

(ii)

end delete

begin insert (B) end insert  Recaptured tax credits and the related qualified equity
investment authority revert back to the committee and shall be
reissued in the following order:

begin delete

(I)

end delete

begin insert (i) end insert  First, pro rata to applicants whose qualified equity investment
allocations were reduced begin insert pursuant to subparagraph (B) of
paragraph (5) of subdivision (d) end insert by the allocation limitation of
forty million dollars ($40,000,000) in paragraph (8) of subdivision
(c).

begin delete

(II)

end delete

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

begin delete

(iii)

end delete

begin insert (C) end insert  Enforcement of each of the recapture provisions shall be
subject to a six-month cure period. No recapture shall occur until
the qualified community development entity shall have been given
notice of noncompliance and afforded six months from the date
of such notice to cure the noncompliance.

(10) Section 45D(i) of the Internal Revenue Code, relating to
regulations, shall not apply.

begin insert

(11) Section 45D(h) of the Internal Revenue Code, relating to
basis, shall not apply.

end insert begin delete

(11)

end delete

begin insert (12) end insert  If a qualified community development entity makes a
capital or equity investment or a loan with respect to a qualified
low-income building under the state begin delete Low Income end delete begin insert Low-Income end insert
Tax Credit Program, the investment or loan is not a qualified begin delete low
income end delete begin insert low-income end insert community investment under this section.

(d) (1) The committee shall adopt guidelines necessary or
appropriate to carry out the purposes of this section. The guidelines
shall not disqualify a low-income community investment for the
single reason that public or private incentives, loans, equity
investments, technical assistance, or other forms of support have
been or continue to be provided. The adoption of the guidelines
shall not be subject to the rulemaking provisions of the
Administrative Procedure Act of Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code.

(2) The committee shall establish and impose reasonable fees
upon entities that apply for the allocation pursuant to this
subdivision and use the revenue to defray the cost of administering
the program. The committee shall establish the fees in a manner
that ensures that (A) the total amount collected equals the amount
reasonably necessary to defray the committee’s costs in performing
its administrative duties under this section, and (B) the amount
paid by each entity reasonably corresponds with the value of the
services provided to the entity.

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

(A) Creates an equitable distribution process that ensures that
low-income communities across the state have an opportunity to
benefit from the program.

(B) Sets minimum organizational capacity standards that
applicants must meet in order to receive an allocation of credits
begin insert including, but not limited to, its business strategy, community
outcomes, capitalization strategy, and management capacity end insert .

(C) Provides for the annual return of unused credits begin delete on end delete begin insert by end insert March
1 of year following the year the credits are awarded so that they
may be reallocated to other community development entities.

(4) (A) The committee shall begin accepting applications on
March 15, 2015, and shall award credits at least two times a year
at dates set annually by the committee through 2019, to the extent
that allocations are available pursuant to Section 26011.9 of the
Public Resources Code.

(B) Within 20 calendar days after receipt of an application the
committee shall determine whether the application is complete or
whether additional information is necessary in order to fully
evaluate the application. If additional information is requested and
the qualified community development entity provides that
information within five begin delete working end delete begin insert business end insert days, the application
shall be considered completed as of the original date of begin delete submission end delete
begin insert receipt end insert . If the qualified community development entity fails to
provide the information within the begin delete five-working-day end delete
begin insert five-business-day end insert period, the application shall be denied and must
be resubmitted in full with a new begin delete submission end delete begin insert receipt end insert date.

(C) Within 20 begin insert calendar end insert days after receipt of an application
determined to be complete by the committee, the committee shall
grant or deny the application in full or in part. If the committee
denies any part of the application, it shall inform the qualified
community development entity of the grounds for the denial.

(5) (A) The committee shall award tax credits begin insert to applicants
with federal new markets tax credits end insert in the order applications are
received by the committee. Applications received on the same day
shall be deemed to have been received simultaneously.

begin insert

(i) In 2015, the committee shall only award tax credits to a
qualified community development entity that also has federal new
markets tax credits, that will be used for projects and activities in
California. In the 2016 to 2019 award cycles, inclusive, at least
60 percent of the credit allocation shall be awarded to a qualified
community development entity with an allocation of federal new
markets tax credits. At the committee’s discretion, a higher
percentage of credits may be targeted to applicants with federal
new markets tax credits.

end insert begin insert

(ii) The committee shall award credits to a qualified community
development entity without federal new markets tax credits on a
competitive basis with priority given to rural, urban, and suburban
applications that can demonstrate that the credits will allow the
entity to undertake qualified low-income community investments
in an area that has been historically underserved, newly established
businesses, and real estate development that results in the greatest
benefit to the largest number of lower income individuals.

end insert

(B)  begin delete For applications that are complete and received on the same
day, and in end delete begin insert In end insert the event tax credit requests exceed the allocation
limitation of forty million dollars ($40,000,000) in paragraph (8)
of subdivision (c), the committee shall certify, consistent with
remaining qualified equity investment capacity, qualified equity
investments of applicants in proportionate percentages based upon
the ratio of the amount of qualified equity investments requested
in such applications to the total amount of qualified equity
investments requested in all such applications received on the same
day.

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

(D) An approved applicant may transfer all or a portion of its
certified qualified equity investment authority to its controlling
entity or any subsidiary qualified community development entity
of the controlling entity, provided that the applicant and the
transferee notify the committee of such transfer and include the
information required in the application with respect to such
transferee with such notice.

(E) Within 60 begin insert calendar end insert days of the begin delete applicant receiving end delete
begin insert committee sending end insert notice of certification, the qualified community
development entity or any transferee, under begin delete paragraph (3) of
subdivision (b) end delete begin insert subparagraph (D) end insert , shall issue the qualified equity
investment, receive cash in the amount of the certified amount,
and, if applicable, designate the required amount of qualified equity
investment authority as federal qualified equity investments. The
qualified community development entity or transferee, under
begin delete paragraph (3) of subdivision (b) end delete begin insert subparagraph (D) end insert , must provide
the committee with evidence of the receipt of the cash investment
and designation of the qualified equity investment as a federal
qualified equity investment within 65 days of the applicant
receiving notice of certification. If the qualified community
development entity or any transferee, under begin delete paragraph (3) of
subdivision (b) end delete begin insert subparagraph (D) end insert , does not receive the cash
investment, begin insert and end insert issue the qualified equity investment and, if
applicable, designate the required amount of qualified equity
investment authority as federal qualified equity investments within
60 begin insert calendar end insert days begin delete following receipt end delete of begin insert the committee sending end insert the
certification notice, the certification shall lapse and the entity may
not issue the qualified equity investment without reapplying to the
committee for certification. begin insert Only applicants that state in their
applications that the entity has been awarded a federal new
markets tax credit shall be required to show evidence, as
determined by the committee, that the qualified equity investment
authority qualifies as a federal qualified equity investment. end insert Lapsed
certifications revert back to the committee and shall be reissued
in the following order:

(i) First, pro rata to applicants whose qualified equity investment
allocations were reduced begin insert pursuant to subparagraph (B) of
paragraph (5) end insert under the allocation limitation of forty million
dollars ($40,000,000) in paragraph (8) of subdivision (c).

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

(F) A qualified community development entity that issues
qualified equity investments must notify the committee of the
names of the entities that are eligible to utilize tax credits under
paragraph (3) of subdivision (b) pursuant to an allocation of tax
credits or change in allocation of tax credits or due to a transfer of
a qualified equity investment.

(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to the committee
within the first five business days after the first anniversary of the
initial credit allowance date that provides documentation as to the
investment of begin insert at least end insert 85 percent of the purchase price in qualified
low-income community investments in qualified active low-income
community businesses located in California. Such report shall
include all of the following:

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

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

(iii) Any other information required by the committee.

(B) Thereafter, the qualified community development entity
shall submit an annual report to the committee within 60 days of
the beginning of the calendar year during the begin delete compliance period end delete
begin insert seven years following submittal of the report, pursuant to
subparagraph (A) end insert . No annual report shall be due prior to the first
anniversary of the initial credit allowance date. The report shall
include, but is not limited to, the following:

(i) The impact the credit had on the low-income community.

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

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

begin delete

(iv) Average annual salary of positions in the projects described
in subdivision (a).

end delete begin insert

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

end insert begin insert

(v) Number of real estate projects and type of community
development facilities that resulted.

end insert

(e) In the case where the credit allowed by this section exceeds
the tax described in begin delete paragraph (1) of subdivision (a) of Section
12204, end delete begin insert Sections 12201, 12204, 12206, and 12209, end insert the excess may
be carried over to reduce that tax in the following year, and the
six succeeding years if necessary, until the credit is exhausted.

(f) The committee shall annually report on its Internet Web site
the information provided by low-income community development
entities and on the geographic distribution of the credits.

begin insert

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

end insert begin insert

(2) A qualifying community development entity shall provide
the committee with the name, address, and tax identification
number of each investor and entity for which a credit was allocated
by the qualifying community development entity, pursuant to
paragraph (3) of subdivision (b). The committee shall provide this
information to the Franchise Tax Board in a manner determined
by the Franchise Tax Board.

end insert begin delete

(g)

end delete

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

SEC. 4.  

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

17053.9.  

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

(b) (1) For taxable years beginning on or after January 1, 2015,
and before January 1, 2027, there shall be allowed as a credit
against the “net tax,” as defined in Section 17039, an amount
determined in accordance with Section 45D of the Internal Revenue
Code, as amended by Public Law 111-5, Public Law 111-312, and
Public Law 112-240, as modified as set forth in this section.

(2) This credit shall be allowed only if the taxpayer holds the
qualified equity investment begin insert , or has been allocated a credit pursuant
to paragraph (3), end insert on the credit allowance date and each of the six
following anniversary dates of that date.

(3) A tax credit allowed under this section shall not be sold and
is not a refundable credit. Tax credits allowed begin insert or allocated end insert to a
partnership, limited liability company, or “S” corporation may be
allocated to the partners, members, managers, or shareholders of
such entity begin insert for their use in end insert accordance with the provisions of any
agreement among such partners, members, managers, or
shareholders. Such allocations shall not be considered a sale for
the purposes of this section.

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

(1) (A) The references to “the Secretary” in Section 45D of the
Internal Revenue Code are modified to read “the committee.”

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

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

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

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

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

begin delete

(3) Section 45D(b) of the Internal Revenue Code, relating to
qualified equity investment, is modified as follows:

end delete begin delete

(A) Section 45D(b)(6) of the Internal Revenue Code, relating
to equity investments, is modified to also include long-term debt
securities issued by any qualified low-income community business
that substantially supports projects within a low-income
community.

end delete begin delete

(B)

end delete

begin insert (3) end insert  Section 45D(b)(3) of the Internal Revenue Code, relating
to safe harbor for determining use of cash, is modified by
substituting “qualified low-income community investments in
California” for “qualified low-income community investments.”

(4) Section 45D(c)(1) of the Internal Revenue Code, relating to
qualified community development entities, is modified to
additionally include:

(A) A subsidiary community development entity of any such
qualified community development entity.

(B) A nonprofit begin delete organization end delete begin insert organization, pursuant to Section
23701, end insert certified by the committee as having a primary mission of
serving or providing investment capital in low-income communities
and the entity maintains accountability to residents of low-income
communities through their representation on any governing board
of the entity or on an advisory board of the entity. The committee
shall establish guidelines for certifying nonprofit organizations
pursuant to this subparagraph. begin insert The committee may include
reasonable conditions on the certification to effectuate the intent
of this section and may suspend or revoke a certification, after
affording the nonprofit organization notice and the opportunity
to be heard, if the committee finds that the nonprofit organization
no longer meets the requirements for certification. end insert

(5) Section 45D(d)(1)(A) of the Internal Revenue Code, relating
to qualified low-income community investments, is modified to
begin insert only end insert include any capital or equity investment in, or loan to, begin delete any
real estate project located in a low-income community or any
operating business that, at the time the initial investment is made,
has 250 or fewer employees and is located in a low-income
community. The real estate project or operating business shall
meet all other requirements of a qualified active low-income
community business, except as modified by paragraphs (6) and
(7) end delete begin insert a qualified active low-income community business end insert .

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

(A) Section 45D(d)(2)(A)(i) of the Internal Revenue Code,
relating to qualified active low-income community businesses, is
modified by substituting “any low-income community in
California” for “any low-income community.”

(B) Section 45D(d)(2)(A)(ii) of the Internal Revenue Code,
relating to qualified active low-income community businesses, is
modified as follows:

(i) Substituting “any low-income community in California” for
“any low-income community.”

(ii) In determining whether the qualified active low-income
community business uses a substantial portion of its tangible
personal property within any low-income community, the term
“substantial portion” shall mean “at least 40 percent” as calculated
by the average value of the tangible property owned or leased and
used within a California low-income community by the entity
divided by the average value of the total tangible property owned
or leased and used by the entity begin insert in California end insert during the taxable
year. The value assigned to the leased property by the entity must
be reasonable.

(iii) Adding the provision that if the business meets the
requirements of a qualified low-income community business at
the time the investment is made, the business shall continue to
satisfy the requirements of Section 45D(d)(2)(A)(ii) for the duration
of the investment.

(C) Section 45D(d)(2)(A)(iii) of the Internal Revenue Code,
relating to qualified active low-income community businesses
which limits the services of employees to substantially those
performed within the low-income community, shall not apply begin insert to
a qualified community development entity that does not hold a
federal new markets tax credit end insert .

begin insert

(D) An entity complies with Section 45D(d)(2)(A)(i) of the
Internal Revenue Code, relating to qualified active low-income
community business, if, as calculated in subparagraph (B), it uses
50 percent of its tangible property, whether owned or leased, within
any low-income community for any taxable year.

end insert begin insert

(E) (i) A qualified active low-income community business shall
exclude any business that derives, or projects to derive, 15 percent
or more of its annual revenue from the rental or sale of real estate.
This exclusion does not apply to a business that is controlled by,
or under common control with, another business if the second
business: (I) does not derive or project to derive 15 percent or
more of its annual revenue from the rental or sale of real estate;
and (II) is the primary tenant of the real estate leased from the
first business.

end insert begin delete

(D) The following shall apply in lieu of the provisions of Section
45D(d)(2)(C) of the Internal Revenue Code, relating to qualified
active low-income community business: “A ‘qualified active
low-income community business’ shall include an operating
business

end delete

begin insert (ii) end insert begin insert   end insert begin insert A qualified active low-income community business shall
only include a business end insert that, at the time the initial investment is
made, has 250 or fewer employees and is located in a California
low-income community. The operating business shall meet all
other conditions of a qualified active low-income business, except
as modified by this paragraph and paragraph begin delete (7).” end delete begin insert (7). end insert

(7) Section 45D(e)(1) of the Internal Revenue Code, relating to
determining the eligible low-income community, is modified to
add the following: “When the United States Census Bureau
discontinues using the decennial census to report median family
income on a census tract basis, census block group data shall be
used based on the American Community Survey.”

(8) The following shall apply in lieu of the provisions of Section
45D(f)(1) of the Internal Revenue Code, relating to national
limitation on amount of investments designated: “The aggregate
amount of credit that may be allocated in any calendar year
pursuant to this section, Section 12283, and Section 23622.9 shall
be an amount equal to any unused portion of the one hundred
million dollars ($100,000,000) in exclusions, authorized pursuant
to Section 6010.8, as determined by the California Alternative
Energy and Advanced Transportation Financing Authority and
reported to the committee, not to exceed forty million dollars
($40,000,000). The committee shall limit the allocation of credits
permitted under this section, Section 12283, and Section 23622.9
to a cumulative total of no more than two hundred million dollars
($200,000,000). Any unused begin delete or recaptured end delete credits shall be returned
to the committee on March 1 of the year following allocation and
the value of the unused begin delete or recaptured end delete credit shall be available for
begin delete reallocation end delete begin insert allocation end insert in the following calendar years begin insert in
accordance with the application process. Any recaptured credits
shall be returned to the committee by March 1 of the year following
recapture and the value of the recaptured credit shall be available
for allocation in the following calendar years in accordance with
clause (ii) of subparagraph (B) of paragraph (9) end insert . Reallocation
credits shall not count against the forty million dollars
($40,000,000) annual limit or the two hundred million dollars
($200,000,000) cumulative limit.”

begin insert

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

end insert begin delete

(9)

end delete

begin insert (B) end insert  Section 45D(g)(3) of the Internal Revenue Code, relating
to recapture event, does not apply and is replaced with the
following:

begin delete (A) end delete begin delete   end delete (i) The committee shall recapture, from the entity that
claimed the credit on a return, the tax credit allowed under this
section if any of the following:

(I)  Any amount of a federal tax credit available with respect to
a qualified equity investment that is eligible for a credit under this
section is recaptured under Section 45D of the Internal Revenue
Code. In such case the committee’s recapture shall be proportionate
to the federal recapture with respect to such qualified equity
investment.

(II)  The qualified community development entity redeems or
makes principal repayment with respect to a qualified equity
investment prior to the seventh anniversary of the issuance of such
qualified equity investment. In such case the committee’s recapture
shall be proportionate to the amount of the redemption or
repayment with respect to such qualified equity investment.

(III)  The qualified community development entity fails to invest
an amount equal to begin insert at least end insert 85 percent of the purchase price of the
qualified equity investment in qualified low-income community
investments in California within 12 months of the issuance of the
qualified equity investment and maintain at least 85 percent of
such level of investment in qualified low-income community
investments in California until the last credit allowance date for
the qualified equity investment. For purposes of this section, an
investment shall be considered held by a qualified community
development entity even if the investment has been sold or repaid
if the qualified community development entity reinvests an amount
equal to the capital returned to, or recovered by, the qualified
community development entity from the original investment,
exclusive of any profits realized, in another qualified low-income
community investment within 12 months of the receipt of such
capital. Periodic amounts received as repayment of principal
pursuant to regularly scheduled amortization payments on a loan
that is a qualified low-income community investment shall be
treated as continuously invested in a qualified low-income
community investment if the amounts are reinvested in one or
more qualified low-income community investments by the end of
the following calendar year. A qualified community development
entity shall not be required to reinvest capital returned from
qualified low-income community investments after the sixth
anniversary of the issuance of the qualified equity investment, and
the qualified low-income community investment shall be
considered held by the qualified community development entity
through the seventh anniversary of the qualified equity investment’s
issuance.

(ii)  Recaptured tax credits and the related qualified equity
investment authority revert back to the committee and shall be
reissued in the following order:

(I)  First, pro rata to applicants whose qualified equity
investment allocations were reduced begin insert pursuant to subparagraph
(B) of paragraph (5) of subdivision (d) end insert by the allocation limitation
of forty million dollars ($40,000,000) in paragraph (8) of
subdivision (c).

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

(iii)  Enforcement of each of the recapture provisions shall be
subject to a six-month cure period. No recapture shall occur until
the qualified community development entity shall have been given
notice of noncompliance and afforded six months from the date
of such notice to cure the noncompliance.

(10) Section 45D(i) of the Internal Revenue Code, relating to
regulations, shall not apply.

begin insert

(11) Section 45D(h) of the Internal Revenue Code, relating to
basis, shall not apply.

end insert begin delete

(11)

end delete

begin insert (12) end insert  If a qualified community development entity makes a
capital or equity investment or a loan with respect to a qualified
low-income building under the state begin delete Low Income end delete begin insert Low-Income end insert
Tax Credit Program, the investment or loan is not a qualified
low-income community investment under this section.

(d) (1) The committee shall adopt guidelines necessary or
appropriate to carry out the purposes of this section. The guidelines
shall not disqualify a low-income community investment for the
single reason that public or private incentives, loans, equity
investments, technical assistance, or other forms of support have
been or continue to be provided. The adoption of the guidelines
shall not be subject to the rulemaking provisions of the
Administrative Procedure Act of Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code.

(2) The committee shall establish and impose reasonable fees
upon entities that apply for the allocation pursuant to this
subdivision and use the revenue to defray the cost of administering
the program. The committee shall establish the fees in a manner
that ensures that (A) the total amount collected equals the amount
reasonably necessary to defray the committee’s costs in performing
its administrative duties under this section, and (B) the amount
paid by each entity reasonably corresponds with the value of the
services provided to the entity.

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

(A) Creates an equitable distribution process that ensures that
low-income communities across the state have an opportunity to
benefit from the program.

(B) Sets minimum organizational capacity standards that
applicants must meet in order to receive an allocation of credits
begin insert including, but not limited to, its business strategy, community
outcomes, capitalization strategy, and management capacity end insert .

(C) Provides for the annual return of unused credits begin delete on end delete begin insert by end insert March
1 of the year following the year the credits are awarded so that
they may be reallocated to other community development entities.

(4) (A) The committee shall begin accepting applications on
March 15, 2015, and shall award credits at least two times a year
at dates set annually by the committee through begin delete 2015 end delete begin insert 2019 end insert , to the
extent that allocations are available pursuant to Section 26011.9
of the Public Resources Code.

(B) Within 20 calendar days after receipt of an application the
committee shall determine whether the application is complete or
whether additional information is necessary in order to fully
evaluate the application. If additional information is requested and
the qualified community development entity provides that
information within five begin delete working end delete begin insert business end insert days, the application
shall be considered completed as of the original date of begin delete submission end delete
begin insert receipt end insert . If the qualified community development entity fails to
provide the information within the begin delete five-working-day end delete
begin insert five-business-day end insert period, the application shall be denied and must
be resubmitted in full with a new begin delete submission end delete begin insert receipt end insert date.

(C) Within 20 begin insert calendar end insert days after receipt of an application
determined to be complete by the committee, the committee shall
grant or deny the application in full or in part. If the committee
denies any part of the application, it shall inform the qualified
community development entity of the grounds for the denial.

(5) (A) The committee shall award tax credits begin insert to applicants
with federal new markets tax credits end insert in the order applications are
received by the committee. Applications received on the same day
shall be deemed to have been received simultaneously.

begin insert

(i) In 2015, the committee shall only award tax credits to a
qualified community development entity that also has federal new
markets tax credits, that will be used for projects and activities in
California. In the 2016 to 2019 award cycles, inclusive, at least
60 percent of the credit allocation shall be awarded to a qualified
community development entity with an allocation of federal new
markets tax credits. At the committee’s discretion, a higher
percentage of credits may be targeted to applicants with federal
new markets tax credits.

end insert begin insert

(ii) The committee shall award credits to a qualified community
development entity without federal new markets tax credits on a
competitive basis with priority given to rural, urban, and suburban
applications that can demonstrate that the credits will allow the
entity to undertake qualified low-income community investments
in an area that has been historically underserved, newly established
businesses, and real estate development that results in the greatest
benefit to the largest number of lower income individuals.

end insert

(B)  begin delete For applications that are complete and received on the same
day, and in end delete begin insert In end insert the event tax credit requests exceed the allocation
limitation of forty million dollars ($40,000,000) in paragraph (8)
of subdivision (c), the committee shall certify, consistent with
remaining qualified equity investment capacity, qualified equity
investments of applicants in proportionate percentages based upon
the ratio of the amount of qualified equity investments requested
in such applications to the total amount of qualified equity
investments requested in all such applications received on the same
day.

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

(D) An approved applicant may transfer all or a portion of its
certified qualified equity investment authority to its controlling
entity or any subsidiary qualified community development entity
of the controlling entity, provided that the applicant and the
transferee notify the committee of such transfer and include the
information required in the application with respect to such
transferee with such notice.

(E) Within 60 begin insert calendar end insert days of the begin delete applicant receiving end delete
begin insert committee sending end insert notice of certification, the qualified community
development entity or any transferee, under begin delete paragraph (3) of
subdivision (b) end delete begin insert subparagraph (D) end insert , shall issue the qualified equity
investment, receive cash in the amount of the certified amount,
and, if applicable, designate the required amount of qualified equity
investment authority as federal qualified equity investments. The
qualified community development entity or transferee, under
begin delete paragraph (3) of subdivision (b) end delete begin insert subparagraph (D) end insert , must provide
the committee with evidence of the receipt of the cash investment
and designation of the qualified equity investment as a federal
qualified equity investment within 65 days of the applicant
receiving notice of certification. If the qualified community
development entity or any transferee, under begin delete paragraph (3) of
subdivision (b) end delete begin insert subparagraph (D) end insert , does not receive the cash
investment, begin insert and end insert issue the qualified equity investment and, if
applicable, designate the required amount of qualified equity
investment authority as federal qualified equity investments within
60 begin insert calendar end insert days begin delete following receipt of end delete begin insert of the committee sending end insert
the certification notice, the certification shall lapse and the entity
may not issue the qualified equity investment without reapplying
to the committee for certification. begin insert Only applicants that state in
their applications that the entity has been awarded a federal new
markets tax credit shall be required to show evidence, as
determined by the committee, that the qualified equity investment
authority qualifies as a federal qualified equity investment. end insert Lapsed
certifications revert back to the committee and shall be reissued
in the following order:

(i) First, pro rata to applicants whose qualified equity investment
allocations were reduced begin insert pursuant to subparagraph (B) of
paragraph (5) end insert under the allocation limitation of forty million
dollars ($40,000,000) in paragraph (8) of subdivision (c).

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

(F) A qualified community development entity that issues
qualified equity investments must notify the committee of the
names of the entities that are eligible to utilize tax credits under
paragraph (3) of subdivision (b) pursuant to an allocation of tax
credits or change in allocation of tax credits or due to a transfer of
a qualified equity investment.

(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to the committee
within the first five business days after the first anniversary of the
initial credit allowance date that provides documentation as to the
investment of begin insert at least end insert 85 percent of the purchase price in qualified
low-income community investments in qualified active low-income
community businesses located in California. Such report shall
include all of the following:

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

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

(iii) Any other information required by the committee.

(B) Thereafter, the qualified community development entity
shall submit an annual report to the committee within 60 days of
the beginning of the calendar year during the begin delete compliance period end delete
begin insert seven years following submittal of the report, pursuant to
subparagraph (A) end insert . No annual report shall be due prior to the first
anniversary of the initial credit allowance date. The report shall
include, but is not limited to, the following:

(i) The impact the credit had on the low-income community.

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

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

begin insert

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

end insert begin insert

(v) Number of real estate projects and type of community
development facilities that resulted.

end insert begin delete

(iv) Average annual salary of positions in the projects described
in subdivision (a).

end delete

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

(f) The committee shall annually report on its Internet Web site
the information provided by low-income community development
entities and on the geographic distribution of the credits.

begin insert

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

end insert begin insert

(2) A qualifying community development entity shall provide
the committee with the name, address, and tax identification
number of each investor and entity for which a credit was allocated
by the qualifying community development entity, pursuant to
paragraph (3) of subdivision (b). The committee shall provide this
information to the Franchise Tax Board in a manner determined
by the Franchise Tax Board.

end insert begin delete

(g)

end delete

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

begin insert

begin insert SEC. 5. end insert   

end insert

begin insert Section 18410.2 of the end insert begin insert Revenue and Taxation Code end insert begin insert is
amended to read: end insert

18410.2.  

(a) The California Competes Tax Credit Committee
is hereby established. The committee shall consist of the Treasurer,
the Director of Finance, and the Director of the Governor’s Office
of Business and Economic Development, who shall serve as chair
of the committee, or their designated representatives, and one
appointee each by the Speaker of the Assembly and the Senate
Committee on Rules. A Member of the Legislature shall not be
appointed.

(b) For purposes of Sections begin delete 17059.2 and 23689, end delete begin insert 12283,
17053.9, 17059.2, 23622.9, and 23689 end insert the California Competes
Tax Credit Committee shall do all of the following:

(1) Approve or reject any written agreement for a tax credit
allocation by resolution at a duly noticed public meeting held in
accordance with the Bagley-Keene Open Meeting Act (Article 9
(commencing with Section 11120) of Chapter 1 of Part 1 of
Division 3 of Title 2 of the Government Code), but only after
receipt of the fully executed written agreement between the
taxpayer and the Governor’s Office of Business and Economic
Development.

(2) Approve or reject any recommendation to recapture, in whole
or in part, a tax credit allocation by resolution at a duly noticed
public meeting held in accordance with the Bagley-Keene Open
Meeting Act (Article 9 (commencing with Section 11120) of
Chapter 1 of Part 1 of Division 3 of Title 2 of the Government
Code), but only after receipt of the recommendation from the
Governor’s Office of Business and Economic Development
pursuant to the terms of the fully executed written agreement.

begin delete SEC. 5. end delete
begin insert SEC. 6. end insert   

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

23622.9.  

(a) There is hereby created the California New
Markets Tax Credit Program as provided in this section, Section
12283, and Section 17053.9. The purpose of this program is to
stimulate begin delete economic development, and hasten California’s economic
recovery, by authorizing tax credits for investment in California,
including, but not limited to, retail businesses, real property,
financial institutions, and schools end delete private sector investment in
lower income communities by providing a tax incentive to qualified
community and economic development entities that can be
leveraged by the entity to attract private sector investment that in
turn will be deployed by providing financing and technical
assistance to small- and medium-size businesses and the
development of commercial, industrial and community
development projects, including, but not limited to, facilities for
nonprofit service organizations, light manufacturing, and mixed-use
and transit-oriented development. The California Competes Tax
Credit Committee shall administer this program as provided in
this section, Section 12283, and Section 17053.9.

(b) (1) For taxable years beginning on or after January 1, 2015,
and before January 1, 2027, there shall be allowed as a credit
against the “tax,” as defined in Section 23036, an amount
determined in accordance with Section 45D of the Internal Revenue
Code, as amended by Public Law 111-5, Public Law 111-312, and
Public Law 112-240, as modified as set forth in this section.

(2) This credit shall be allowed only if the taxpayer holds the
qualified equity investment begin insert , or has been allocated a credit pursuant
to paragraph (3), end insert on the credit allowance date and each of the six
following anniversary dates of that date.

(3) A tax credit allowed under this section shall not be sold and
is not a refundable credit. Tax credits allowed begin insert or allocated end insert to a
partnership, limited liability company, or “S” corporation may be
allocated to the partners, members, managers, or shareholders of
such entity begin insert for their use end insert in accordance with the provisions of any
agreement among such partners, members, managers, or
shareholders. Such allocations shall not be considered a sale for
the purposes of this section.

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

(1) (A) The references to “the Secretary” in Section 45D of the
Internal Revenue Code are modified to read “the committee.”

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

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

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

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

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

begin delete

(3) Section 45D(b) of the Internal Revenue Code, relating to
qualified equity investment, is modified as follows:

end delete begin delete

(A) Section 45D(b)(6) of the Internal Revenue Code, relating
to equity investments, is modified to also include long-term debt
securities issued by any qualified low-income community business
that substantially supports projects within a low-income
community.

end delete begin delete

(B)

end delete

begin insert (3) end insert  Section 45D(b)(3) of the Internal Revenue Code, relating
to safe harbor for determining use of cash, is modified by
substituting “qualified low-income community investments in
California” for “qualified low-income community investments.”

(4) Section 45D(c)(1) of the Internal Revenue Code, relating to
qualified community development entities, is modified to
additionally include:

(A) A subsidiary community development entity of any such
qualified community development entity.

(B) A nonprofit begin delete organization end delete begin insert organization, pursuant to Section
23701, end insert certified by the committee as having a primary mission of
serving or providing investment capital in low-income communities
and the entity maintains accountability to residents of low-income
communities through their representation on any governing board
of the entity or on an advisory board of the entity. The committee
shall establish guidelines for certifying nonprofit organizations
pursuant to this subparagraph. begin insert The committee may include
reasonable conditions on the certification to effectuate the intent
of this section and may suspend or revoke a certification, after
affording the nonprofit organization notice and the opportunity
to be heard, if the committee finds that the nonprofit organization
no longer meets the requirements for certification. end insert

(5) Section 45D(d)(1)(A) of the Internal Revenue Code, relating
to qualified low-income community investments, is modified to
begin insert only end insert include any capital or equity investment in, or loan to, begin delete any
real estate project located in a low-income community or any
operating business that, at the time the initial investment is made,
has 250 or fewer employees and is located in a low-income
community. The real estate project or operating business shall
meet all other requirements of a qualified active low-income
community business, except as modified by paragraphs (6) and
(7) end delete begin insert a qualified active low-income community business end insert .

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

(A) Section 45D(d)(2)(A)(i) of the Internal Revenue Code,
relating to qualified active low-income community businesses, is
modified by substituting “any low-income community in
California” for “any low-income community.”

(B) Section 45D(d)(2)(A)(ii) of the Internal Revenue Code,
relating to qualified active low-income community businesses, is
modified as follows:

(i) Substituting “any low-income community in California” for
“any low-income community.”

(ii) In determining whether the qualified active low-income
community business uses a substantial portion of its tangible
personal property within any low-income community, the term
“substantial portion” shall mean “at least 40 percent” as calculated
by the average value of the tangible property owned or leased and
used within a California low-income community by the entity
divided by the average value of the total tangible property owned
or leased and used by the entity begin insert in California end insert during the taxable
year. The value assigned to the leased property by the entity must
be reasonable.

(iii) Adding the provision that if the business meets the
requirements of a qualified low-income community business at
the time the investment is made, the business shall continue to
satisfy the requirements of Section 45D(d)(2)(A)(ii) for the duration
of the investment.

(C) Section 45D(d)(2)(A)(iii) of the Internal Revenue Code,
relating to qualified active low-income community businesses begin delete that end delete
begin insert which end insert limits the services of employees to substantially those
performed within the low-income community, shall not apply begin insert to
a qualified community development entity that does not hold a
federal new markets tax credit end insert .

begin insert

(D) An entity complies with Section 45D(d)(2)(A)(i) of the
Internal Revenue Code, relating to qualified active low-income
community business, if, as calculated in subparagraph (B), it uses
50 percent of its tangible property, whether owned or leased, within
any low-income community for any taxable year.

end insert begin insert

(E) (i) A qualified active low-income community business shall
exclude any business that derives, or projects to derive, 15 percent
or more of its annual revenue from the rental or sale of real estate.
This exclusion does not apply to a business that is controlled by,
or under common control with, another business if the second
business: (I) does not derive or project to derive 15 percent or
more of its annual revenue from the rental or sale of real estate;
and (II) is the primary tenant of the real estate leased from the
first business.

end insert begin delete

(D) The following shall apply in lieu of the provisions of Section
45D(d)(2)(C) of the Internal Revenue Code, relating to qualified
active low-income community business: “A ‘qualified active
low-income community business’ shall include an operating
business

end delete

begin insert (ii) end insert begin insert   end insert begin insert A qualified active low-income community business shall
only include a business end insert that, at the time the initial investment is
made, has 250 or fewer employees and is located in a California
low-income community. The operating business shall meet all
other conditions of a qualified active low-income business, except
as modified by this paragraph and paragraph begin delete (7).” end delete begin insert (7). end insert

(7) Section 45D(e)(1) of the Internal Revenue Code, relating to
determining the eligible low-income community is modified to
add the following: “When the United States Census Bureau
discontinues using the decennial census to report median family
income on a census tract basis, census block group data shall be
used based on the American Community Survey.”

(8) The following shall apply in lieu of the provisions of Section
45(D)(f)(1) of the Internal Revenue Code, relating to national
limitation on amount of investments designated: “The aggregate
amount of credit that may be allocated in any calendar year
pursuant to this section, begin delete and end delete Section 12283, and Section 17053.9
shall be an amount equal to any unused portion of the one hundred
million dollars ($100,000,000) in exclusions, authorized pursuant
to Section 6010.8, as determined by the California Alternative
Energy and Advanced Transportation Financing Authority and
reported to the committee, not to exceed forty million dollars
($40,000,000). The committee shall limit the allocation of credits
permitted under this section, begin delete and end delete Section 12283, and Section
begin delete 23622.9 end delete begin insert 17053.9 end insert to a cumulative total of no more than two hundred
million dollars ($200,000,000). Any unused begin delete or recaptured end delete credits
shall be returned to the committee on March 1 of the year following
allocation and the value of the unused begin delete or recaptured end delete credit shall
be available for begin delete reallocation end delete begin insert allocation end insert in the following calendar
years begin insert in accordance with the application process. Any recaptured
credits shall be returned to the committee by March 1 of the year
following recapture and the value of the recaptured credit shall
be available for allocation in the following calendar years in
accordance with clause (ii) of subparagraph (B) of paragraph (9) end insert .
Reallocation credits shall not count against the forty million dollars
($40,000,000) annual limit or the two hundred million dollars
($200,000,000) cumulative limit.”

begin insert

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

end insert begin delete

(9)

end delete

begin insert (B) end insert  Section 45D(g)(3) of the Internal Revenue Code, relating
to recapture event, does not apply and is replaced with the
following:

begin delete (A) end delete begin delete   end delete (i) The committee shall recapture, from the entity that
claimed the credit on a return, the tax credit allowed under this
section if any of the following:

(I) Any amount of a federal tax credit available with respect to
a qualified equity investment that is eligible for a credit under this
section is recaptured under Section 45D of the Internal Revenue
Code. In such case the committee’s recapture shall be proportionate
to the federal recapture with respect to such qualified equity
investment.

(II) The qualified community development entity redeems or
makes principal repayment with respect to a qualified equity
investment prior to the seventh anniversary of the issuance of such
qualified equity investment. In such case the committee’s recapture
shall be proportionate to the amount of the redemption or
repayment with respect to such qualified equity investment.

(III) The qualified community development entity fails to invest
an amount equal to begin insert at least end insert 85 percent of the purchase price of the
qualified equity investment in qualified low-income community
investments in California within 12 months of the issuance of the
qualified equity investment and maintain at least 85 percent of
such level of investment in qualified low-income community
investments in California until the last credit allowance date for
the qualified equity investment. For purposes of this section, an
investment shall be considered held by a qualified community
development entity even if the investment has been sold or repaid
if the qualified community development entity reinvests an amount
equal to the capital returned to, or recovered by, the qualified
community development entity from the original investment,
exclusive of any profits realized, in another qualified low-income
community investment within 12 months of the receipt of such
capital. Periodic amounts received as repayment of principal
pursuant to regularly scheduled amortization payments on a loan
that is a qualified low-income community investment shall be
treated as continuously invested in a qualified low-income
community investment if the amounts are reinvested in one or
more qualified low-income community investments by the end of
the following calendar year. A qualified community development
entity shall not be required to reinvest capital returned from
qualified low-income community investments after the sixth
anniversary of the issuance of the qualified equity investment, and
the qualified low-income community investment shall be
considered held by the qualified community development entity
through the seventh anniversary of the qualified equity investment’s
issuance.

(ii) Recaptured tax credits and the related qualified equity
investment authority revert back to the committee and shall be
reissued in the following order:

(I) First, pro rata to applicants whose qualified equity investment
allocations were reduced begin insert pursuant to subparagraph (B) of
paragraph (5) of subdivision (d) end insert by the allocation limitation of
forty million dollars ($40,000,000) in paragraph (8) of subdivision
(c).

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

(iii) Enforcement of each of the recapture provisions shall be
subject to a six month cure period. No recapture shall occur until
the qualified community development entity shall have been given
notice of noncompliance and afforded six months from the date
of such notice to cure the noncompliance.

(10) Section 45D(i) of the Internal Revenue Code, relating to
regulations, shall not apply.

begin insert

(11) Section 45D(h) of the Internal Revenue Code, relating to
basis, shall not apply.

end insert begin delete

(11)

end delete

begin insert (12) end insert  If a qualified community development entity makes a
capital or equity investment or a loan with respect to a qualified
low-income building under the state begin delete Low Income end delete begin insert Low-Income end insert
Tax Credit Program, the investment or loan is not a qualified
low-income community investment under this section.

(d) (1) The committee shall adopt guidelines necessary or
appropriate to carry out the purposes of this section. The guidelines
shall not disqualify a low-income community investment for the
single reason that public or private incentives, loans, equity
investments, technical assistance, or other forms of support have
been or continue to be provided. The adoption of the guidelines
shall not be subject to the rulemaking provisions of the
Administrative Procedure Act of Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code.

(2) The committee shall establish and impose reasonable fees
upon entities that apply for the allocation pursuant to this
subdivision and use the revenue to defray the cost of administering
the program. The committee shall establish the fees in a manner
that ensures that (A) the total amount collected equals the amount
reasonably necessary to defray the committee’s costs in performing
its administrative duties under this section, and (B) the amount
paid by each entity reasonably corresponds with the value of the
services provided to the entity.

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

(A) Creates an equitable distribution process that ensures that
low-income communities across the state have an opportunity to
benefit from the program.

(B) Sets minimum organizational capacity standards that
applicants must meet in order to receive an allocation of credits
begin insert including, but not limited to, its business strategy, community
outcomes, capitalization strategy, and management capacity end insert .

(C) Provides for the annual return of unused credits begin delete on end delete begin insert by end insert March
1 of the year following the year the credits are awarded so that
they may be reallocated to other community development entities.

(4) (A) The committee shall begin accepting applications on
March 15, begin delete 2019, end delete begin insert 2015, end insert and shall award credits at least two times
a year at dates set annually by the committee through begin delete 2025, end delete begin insert 2019, end insert
to the extent that allocations are available pursuant to Section
26011.9 of the Public Resources Code.

(B) Within 20 calendar days after receipt of an application the
committee shall determine whether the application is complete or
whether additional information is necessary in order to fully
evaluate the application. If additional information is requested and
the qualified community development entity provides that
information within five begin delete working end delete begin insert business end insert days, the application
shall be considered completed as of the original date of begin delete submission end delete
begin insert receipt end insert . If the qualified community development entity fails to
provide the information within the begin delete five-working-day end delete
begin insert five-business-day end insert period, the application shall be denied and must
be resubmitted in full with a new begin delete submission end delete begin insert receipt end insert date.

(C) Within 20 begin insert calendar end insert days after receipt of an application
determined to be complete by the committee, the committee shall
grant or deny the application in full or in part. If the committee
denies any part of the application, it shall inform the qualified
community development entity of the grounds for the denial.

(5) (A) The committee shall award tax credits begin insert to applicants
with federal new markets tax credits end insert in the order applications are
received by the committee. Applications received on the same day
shall be deemed to have been received simultaneously.

begin insert

(i) In 2015, the committee shall only award tax credits to a
qualified community development entity that also has federal new
markets tax credits, that will be used for projects and activities in
California. In the 2016 to 2019 award cycles, inclusive, at least
60 percent of the credit allocation shall be awarded to a qualified
community development entity with an allocation of federal new
markets tax credits. At the committee’s discretion, a higher
percentage of credits may be targeted to applicants with federal
new markets tax credits.

end insert begin insert

(ii) The committee shall award credits to a qualified community
development entity without federal new markets tax credits on a
competitive basis with priority given to rural, urban, and suburban
applications that can demonstrate that the credits will allow the
entity to undertake qualified low-income community investments
in an area that has been historically underserved, newly established
businesses, and real estate development that results in the greatest
benefit to the largest number of lower income individuals.

end insert

(B)  begin delete For applications that are complete and received on the same
day, and in end delete begin insert In end insert the event tax credit requests exceed the allocation
limitation of forty million dollars ($40,000,000) in paragraph (8)
of subdivision (c), the committee shall certify, consistent with
remaining qualified equity investment capacity, qualified equity
investments of applicants in proportionate percentages based upon
the ratio of the amount of qualified equity investments requested
in such applications to the total amount of qualified equity
investments requested in all such applications received on the same
day.

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

(D) An approved applicant may transfer all or a portion of its
certified qualified equity investment authority to its controlling
entity or any subsidiary qualified community development entity
of the controlling entity, provided that the applicant and the
transferee notify the committee of such transfer and include the
information required in the application with respect to such
transferee with such notice.

(E) Within 60 begin insert calendar end insert days of the begin delete applicant receiving end delete
begin insert committee sending end insert notice of certification, the qualified community
development entity or any transferee, under begin delete paragraph (3) of
subdivision (b) end delete begin insert subparagraph (D) end insert , shall issue the qualified equity
investment, receive cash in the amount of the certified amount,
and, if applicable, designate the required amount of qualified equity
investment authority as federal qualified equity investments. The
qualified community development entity or transferee, under
begin delete paragraph (3) of subdivision (b) end delete begin insert subparagraph (D) end insert , must provide
the committee with evidence of the receipt of the cash investment
and designation of the qualified equity investment as a federal
qualified equity investment within 65 days of the applicant
receiving notice of certification. If the qualified community
development entity or any transferee, under begin delete paragraph (3) of
subdivision (b) end delete begin insert subparagraph (D) end insert , does not receive the cash
investment, begin insert and end insert issue the qualified equity investment and, if
applicable, designate the required amount of qualified equity
investment authority as federal qualified equity investments within
60 begin insert calendar end insert days begin delete following receipt of end delete begin insert of the committee sending end insert
the certification notice, the certification shall lapse and the entity
may not issue the qualified equity investment without reapplying
to the committee for certification. begin insert Only applicants that state in
their applications that the entity has been awarded a federal new
markets tax credit shall be required to show evidence, as
determined by the committee, that the qualified equity investment
authority qualifies as a federal qualified equity investment. end insert Lapsed
certifications revert back to the committee and shall be reissued
in the following order:

(i) First, pro rata to applicants whose qualified equity investment
allocations were reduced begin insert pursuant to subparagraph (B) of
paragraph (5) end insert under the allocation limitation of forty million
dollars ($40,000,000) in paragraph (8) of subdivision (c).

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

(F) A qualified community development entity that issues
qualified equity investments must notify the committee of the
names of the entities that are eligible to utilize tax credits under
paragraph (3) of subdivision (b) pursuant to an allocation of tax
credits or change in allocation of tax credits or due to a transfer of
a qualified equity investment.

(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to the committee
within the first five business days after the first anniversary of the
initial credit allowance date that provides documentation as to the
investment of begin insert at least end insert 85 percent of the purchase price in qualified
low-income community investments in qualified active low-income
community businesses located in California. Such report shall
include all of the following:

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

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

(iii) Any other information required by the committee.

(B) Thereafter, the qualified community development entity
shall submit an annual report to the committee within 60 days of
the beginning of the calendar year during the begin delete compliance period end delete
begin insert seven years following submittal of the report, pursuant to
subparagraph (A) end insert . No annual report shall be due prior to the first
anniversary of the initial credit allowance date. The report shall
include, but is not limited to, the following:

(i) The impact the credit had on the low-income community.

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

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

begin delete

(iv) Average annual salary of positions in the projects described
in subdivision (a).

end delete begin insert

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

end insert begin insert

(v) Number of real estate projects and type of community
development facilities that resulted.

end insert

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

(f) The committee shall annually report on its Internet Web site
the information provided by low-income community development
entities and on the geographic distribution of the credits.

begin insert

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

end insert begin insert

(2) A qualifying community development entity shall provide
the committee with the name, address, and tax identification
number of each investor and entity for which a credit was allocated
by the qualifying community development entity, pursuant to
paragraph (3) of subdivision (b). The committee shall provide this
information to the Franchise Tax Board in a manner determined
by the Franchise Tax Board.

end insert begin delete

(g)

end delete

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

begin delete SEC. 6. end delete
begin insert SEC. 7. end insert   

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