Bill Text: MI HB5435 | 2013-2014 | 97th Legislature | Introduced

Michigan House Bill 5435 (Prior Session Legislation)

Introduced

Bill Title: Individual income tax; credit; new markets small business incentive credits; create. Amends 1967 PA 281 (MCL 206.1 - 206.713) by adding secs. 277 & 675.

Spectrum: Partisan Bill (Democrat 4-0)

Status: (Introduced - Dead) 2014-04-17 - Printed Bill Filed 03/28/2014 [HB5435 Detail]

Download: Michigan-2013-HB5435-Introduced.html

HOUSE BILL No. 5435

March 27, 2014, Introduced by Reps. Knezek, Irwin, Schor and Switalski and referred to the Committee on Tax Policy.

A bill to amend 1967 PA 281, entitled

"Income tax act of 1967,"

(MCL 206.1 to 206.713) by adding sections 277 and 675.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 277. (1) Subject to the limitations provided under

subsection (9), for tax years that begin after December 31, 2013, a

taxpayer that purchases a qualified equity investment earns a

vested right to a tax credit under this section. The holder of that

qualified equity investment may claim a credit against the tax

imposed by this act or section 476a of the insurance code of 1956,

1956 PA 218, MCL 500.476a, equal to the applicable percentage of

the purchase price paid to the qualified community development

entity for the qualified equity investment. The amount of the

credit allowed to be claimed under this section shall not exceed

the tax liability of the taxpayer for the tax year. If the amount

of the credit allowed under this section and any unused

carryforward of the credit allowed by this section exceed the tax

liability of the taxpayer for the tax year, that portion that

exceeds the tax liability shall not be refunded or transferred,

except as provided in subsection (7), but may be carried forward to

offset tax liability in subsequent tax years.

(2) A qualified community development entity that seeks to

have an equity investment or long-term debt security designated as

a qualified equity investment and eligible for tax credits shall

apply to the Michigan economic development corporation for

certification. A taxpayer shall not claim a credit under this

section unless the qualified community development entity that

issued the qualified equity investment has submitted an application

for certification, along with the application fee, and the Michigan

economic development corporation has issued a certificate to the

qualified community development entity for that qualified equity

investment. The taxpayer shall attach the certificate to the annual

return filed under this act or section 476a of the insurance code

of 1956, 1956 PA 218, MCL 500.476a, on which a credit under this

section is claimed.

(3) The application required under this section shall be

accompanied by a $5,000.00 application fee and shall state all of

the following:

(a) The applicant is a qualified community development entity.

(b) The equity investment or long-term debt security is a

qualified equity investment.

investment.

(4) The Michigan economic development corporation shall

certify qualified equity investments in the order applications are

received by the Michigan economic development corporation.

Applications received on the same day shall be deemed to have been

received simultaneously. For applications received on the same day

and deemed complete, the Michigan economic development corporation

shall certify qualified equity investments and, in the event there

is insufficient remaining tax credit capacity, reduce the amount of

certified qualified equity investment in proportionate percentages

based upon the ratio of the amount of qualified equity investments

requested in an application to the total amount of qualified equity

investments requested in all applications received on the same day.

(5) Within 30 days after receiving notice of certification,

the qualified community development entity shall issue the

qualified equity investment and receive cash in the amount of the

certified amount. The qualified community development entity shall

provide the Michigan economic development corporation with a

written notice in a form or manner as provided by the Michigan

economic development corporation and evidence of receipt of the

cash investment within 10 business days after receipt. Within 30

days after making qualified low-income community investments in

qualified active low-income community businesses located in this

state, the qualified community development entity shall provide the

Michigan economic development corporation with a written notice, in

a form or manner as provided by the Michigan economic development

corporation, of those investments including the name and address of

each qualified active low-income community business that received

all or a portion of those investments. If the qualified community

development entity fails to provide the Michigan economic

development corporation with the written notices and evidence as

required under this subsection, the certification shall lapse. If

the qualified community development entity does not receive the

cash investment and issue the qualified equity investment within 30

days following receipt of the certification notice, the

certification shall lapse. A certification that lapses reverts back

to the Michigan economic development corporation and may be

reissued in accordance with the application process outlined in

this section.

(6) The qualified community development entity shall not use

any of the cash proceeds from the issuance of the qualified equity

investment to invest in qualified low-income community investments

in qualified active low-income community businesses outside this

state.

(7) The department shall recapture in a manner as provided

under 1941 PA 122, MCL 205.1 to 205.31, from the taxpayer that

claimed the credit on a return the tax credit allowed under this

section under any of the following circumstances:

(a) If any federal tax credit that may be available with

respect to a qualified equity investment that is eligible for a tax

credit under this section is recaptured under section 45D of the

internal revenue code. In that case, the department's recapture

shall be proportionate to the federal recapture with respect to

that qualified equity investment.

(b) If the issuer redeems or makes principal repayment with

respect to a qualified equity investment prior to the seventh

anniversary of the issuance of the qualified equity investment. In

that case, the department's recapture shall be proportionate to the

amount of the redemption or repayment with respect to the qualified

equity investment.

purchase price of the qualified equity investment in qualified low-

income community investments in this state within 12 months of the

issuance of the qualified equity investment and maintain such level

of investment in qualified low-income community investments in this

state until the last credit allowance date for that qualified

equity investment.

(8) For purposes of this section, a qualified low-income

community investment shall be considered held by a qualified

community development entity even if the investment has been sold

or repaid, provided that 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 in this state within 12 months

after the receipt of that capital. A qualified community

development entity is not required to reinvest capital returned

from qualified low-income community investments after the sixth

anniversary of the issuance of the qualified equity investment, the

proceeds of which were used to make the qualified low-income

community 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. In addition to the notification

required under 1941 PA 122, MCL 205.1 to 205.31, the department

shall provide notice to the qualified community development entity

of any proposed recapture of tax credits pursuant to this section

for which the qualified community development entity issued a

qualified equity investment.

(9) The total amount of all qualified equity investments that

may be certified by the Michigan economic development corporation

under this section, section 675, and section 476a of the insurance

code of 1956, 1956 PA 218, MCL 500.476a, shall not result in more

than $20,000,000.00 in tax credits available in any 1 tax year not

including any carried-forward amounts from credits approved in a

previous tax year. The total amount of all credits certified for a

qualified equity investment under this section, section 675, and

section 476a of the insurance code of 1956, 1956 PA 218, MCL

500.476a, shall not exceed the amount of the credit allowed under

section 45d of the internal revenue code for that same qualified

equity investment. A qualified community development entity shall

not issue a qualified equity investment before July 1, 2014 or

after December 31, 2016. A qualified community development entity

that issues a long-term debt security shall not make cash interest

payments on that long-term debt security during the period

commencing with its issuance and ending on its final credit

allowance date that are in excess of the sum of those cash interest

payments and the cumulative operating income of that qualified

community development entity for the same period. For purposes of

this subsection, "cash interest payments" and "cumulative operating

income" shall be determined in accordance with section 45D of the

internal revenue code and any federal regulations relating to that

section.

(11) The department, in cooperation with the Michigan economic

development corporation, may promulgate rules to implement this

section.

(12) As used in this section:

(a) "Applicable percentage" means 5% for each of the first 3

credit allowance dates, 6% for the fourth and fifth credit

allowance dates, and 12% for the last allowance date.

(b) "Credit allowance date" means January 1, 2016, or exactly

1 year after the date on which the qualified equity investment is

initially made, whichever is later, and each of the 6 anniversary

dates of that date thereafter.

by a qualified community development entity, at par value or a

premium, with an original maturity date of at least 7 years from

the date of its issuance, with no acceleration of repayment,

amortization, or prepayment features prior to its original maturity

date. This definition in no way limits the holder's ability to

accelerate payments on the debt instrument in situations where the

qualified community development entity has defaulted on covenants

designed to ensure compliance with this act or section 45D of the

internal revenue code.

(d) "Michigan economic development corporation" means the

public body corporate created under section 28 of article VII of

the state constitution of 1963 and the urban cooperation act of

1967, 1967 (Ex Sess) PA 7, MCL 124.501 to 124.512, by a contractual

interlocal agreement effective April 5, 1999, as amended, between

local participating economic development corporations formed under

the economic development corporations act, 1974 PA 338, MCL

125.1601 to 125.1636, and the Michigan strategic fund.

(e) "Purchase price" means the amount paid to the qualified

community development entity for the qualified equity investment.

(f) "Qualified active low-income community business" has the

meaning given to that term in section 45D of the internal revenue

code, except that any business that derives or projects to derive

15% or more of its annual revenue from the rental or sale of real

estate is not considered to be a qualified active low-income

community business unless the business is controlled by, or under

common control with, another business that does not derive or

project to derive 20% or more of its annual revenue from the rental

or sale of real estate and is the primary tenant of the real estate

leased from the initial business. A business shall be considered a

qualified active low-income community business for the duration of

the qualified community development entity's investment in, or loan

to, the business if the entity reasonably expects, at the time it

makes the investment or loan, that the business will continue to

satisfy the requirements for being a qualified active low-income

community business throughout the entire period of the investment

or loan.

(g) "Qualified community development entity" has the meaning

given to that term in section 45D of the internal revenue code,

provided that such entity has entered into, or is controlled by a

qualified community development entity that has entered into, an

allocation agreement with the community development financial

institutions fund of the United States treasury department with

respect to credits authorized by section 45D of the internal

revenue code. The allocation agreement shall include the state of

Michigan within the service area set forth in that allocation

agreement.

(h) "Qualified equity investment" means any equity investment

in, or long-term debt security issued by, a qualified community

development entity that is acquired after July 1, 2014 at its

original issuance solely in exchange for cash, has at least 85% of

its cash purchase price used by the qualified community development

entity to make qualified low-income community investments in

qualified active low-income community businesses located in this

state, and is designated by the qualified community development

entity as a qualified equity investment under this section and is

certified by the Michigan economic development corporation as not

exceeding the limitation contained in subsection (9). Qualified

equity investment includes any qualified equity investment that is

not acquired after July 1, 2014 at its original issuance solely in

exchange for cash if the investment was a qualified equity

investment in the hands of a prior holder.

(i) "Qualified low-income community investment" means, subject

to the limitation provided under this subdivision, any capital or

equity investment in, or loan to, any qualified active low-income

community business made after July 1, 2013. With respect to any 1

qualified active low-income community business, the maximum amount

allowed of qualified low-income community investments made in that

business, on a collective basis with all of its affiliates, with

proceeds of qualified equity investments certified as eligible for

tax credits under this section, whether issued to 1 or more

qualified community development entities, is $10,000,000.00.

Sec. 675. (1) Subject to the limitations provided under