By: Hancock	S.B. No. 931

	A BILL TO BE ENTITLED
	AN ACT
	relating to tax credits for investments in economically distressed
	communities.
	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
	SECTION 1.  Chapter 481, Government Code, is amended by
	adding Subchapter C to read as follows:
	SUBCHAPTER C.  CREDIT FOR BUSINESS GROWTH IN ECONOMICALLY
	DISTRESSED COMMUNITIES
	Sec. 481.031.  SHORT TITLE.  This subchapter shall be known
	and may be cited as the "Texas New Markets Jobs Act."
	Sec. 481.032.  DEFINITIONS.  In this subchapter:
	(1)  "Administrator" means the Economic Development
	and Tourism Division of the office of the governor.
	(2)  "Applicable percentage" means zero percent for the
	first two credit allowance dates, seven percent for the third
	credit allowance date, and eight percent for the next four credit
	allowance dates.
	(3)  "Credit allowance date" means, with respect to any
	qualified equity investment:
	(A)  the date on which the investment is initially
	made; and
	(B)  each of the first six anniversary dates after
	that date.
	(4)  "Long-term debt security" means any debt
	instrument issued by a qualified community development entity, at
	par value or a premium, with an original maturity date of at least
	seven years from the date of its issuance, with no acceleration of
	repayment, amortization, or prepayment features before its
	original maturity date.  The qualified community development entity
	that issues the debt instrument may not make cash interest payments
	on the debt instrument during the period beginning on the date of
	issuance and ending on the final credit allowance date in an amount
	that exceeds the cumulative operating income, as defined by
	regulations adopted under Section 45D, Internal Revenue Code of
	1986, as amended, of the qualified community development entity for
	that period before giving effect to the expense of such cash
	interest payments. The provisions of this subdivision in no way
	limit the holder's ability to accelerate payments on the debt
	instrument in situations where the issuer has defaulted on
	covenants designed to ensure compliance with this subchapter or
	Section 45D, Internal Revenue Code of 1986, as amended.
	(5)  "Purchase price" means the amount paid to the
	issuer of a qualified equity investment for the qualified equity
	investment.
	(6)  "Qualified active low-income community business"
	has the meaning assigned by Section 45D, Internal Revenue Code of
	1986, as amended, and 26 C.F.R. Sec. 1.45D-1, but limited to the
	businesses meeting the size eligibility standards of the Small
	Business Administration established in 13 C.F.R. 121.101-201 at the
	time the qualified low-income community investment is made.  A
	business is 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, other than
	the size standards of the Small Business Administration, throughout
	the entire period of the investment or loan.  The term excludes 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:
	(A)  does not derive or project to derive 15
	percent or more of its annual revenue from the rental or sale of
	real estate; and
	(B)  is the primary tenant of the real estate
	leased from the first business.
	(7)  "Qualified community development entity" has the
	meaning assigned by Section 45D, Internal Revenue Code of 1986, as
	amended, provided that the entity has entered into, for the current
	year or any prior year, an allocation agreement with the Community
	Development Financial Institutions Fund of the United States
	Department of the Treasury with respect to credits authorized by
	Section 45D, Internal Revenue Code of 1986, as amended, which
	includes the state of Texas within the service area designated in
	the allocation agreement. The term includes subsidiary community
	development entities of any qualified community development entity
	described by this subdivision.
	(8)  "Qualified equity investment" means an equity
	investment in, or long-term debt security issued by, a qualified
	community development entity that:
	(A)  is acquired after October 1, 2013, at its
	original issuance solely in exchange for cash;
	(B)  has used an amount equal to at least 100
	percent of the cash purchase price of the investment to make
	qualified low-income community investments in qualified active
	low-income community businesses located in this state not later
	than the first anniversary of the initial credit allowance date;
	and
	(C)  is designated by the issuer as a qualified
	equity investment under this subchapter and is certified by the
	administrator as not exceeding the limitation under Section
	481.035(e).  The term includes any qualified equity investment that
	does not meet the requirements of Paragraph (A) if the investment
	was a qualified equity investment in the hands of a prior holder.
	(9)  "Qualified low-income community investment" means
	a capital or equity investment in, or loan to, any qualified active
	low-income community business in which:
	(A)  a federal qualified active low-income
	community investment of some amount is made at the same time; and
	(B)  the annual reporting information submitted
	to the United States Department of the Treasury for that federal
	qualified active low-income community investment is also submitted
	to the administrator.
	(10)  "State premium tax liability" means any liability
	incurred by an entity under Chapters 221 through 226, Insurance
	Code, or, if the tax liability under any of those chapters is
	eliminated or reduced, the term also includes any tax liability
	imposed on an insurance company or other person that had premium tax
	liability under the laws of this state.
	Sec. 481.033.  CREDIT ESTABLISHED.  Any entity that makes a
	qualified equity investment earns a vested right to credit against
	the entity's state premium tax liability on a premium tax report
	filed under Subtitle B, Title 3, Insurance Code, which may be used
	as follows:
	(1)  on each credit allowance date of the qualified
	equity investment, the entity, or the subsequent holder of the
	qualified equity investment, is entitled to use a portion of the
	credit, during the taxable year that includes the credit allowance
	date, equal to the applicable percentage for that credit allowance
	date multiplied by the purchase price paid to the issuer of the
	qualified equity investment;
	(2)  the amount of the credit claimed by an entity may
	not exceed the amount of the entity's state premium tax liability
	for the tax year for which the credit is claimed; and
	(3)  any amount of tax credit that the entity is
	prohibited from claiming in a taxable year under the provisions of
	this subchapter may be carried forward for use in any subsequent
	taxable year.
	Sec. 481.034.  TRANSFERABILITY.  No tax credit claimed
	under this subchapter is refundable or saleable on the open market.
	Tax credits earned by a partnership, limited liability company, S
	corporation, or other pass-through entity may be allocated to the
	partners, members, or shareholders of that entity for their direct
	use in accordance with the provisions of any agreement among those
	partners, members, or shareholders. An allocation under this
	section is not considered a sale for the purposes of this
	subchapter.
	Sec. 481.035.  CERTIFICATION OF QUALIFIED EQUITY
	INVESTMENTS.  (a)  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 under this subchapter shall apply to the administrator.
	The administrator shall begin accepting applications on October 2,
	2013. In its application, the qualified community development
	entity shall include the following:
	(1)  evidence of the applicant's certification as a
	qualified community development entity, including evidence of the
	service area of the entity that includes this state;
	(2)  a copy of the allocation agreement executed by the
	applicant, or its controlling entity, and the Community Development
	Financial Institutions Fund;
	(3)  a certificate executed by an executive officer of
	the applicant attesting that the allocation agreement remains in
	effect and has not been revoked or canceled by the Community
	Development Financial Institutions Fund;
	(4)  a description of the proposed amount, structure,
	and purchaser of the qualified equity investment;
	(5)  identifying information for any entity that will
	earn tax credits as a result of the issuance of the qualified equity
	investment;
	(6)  examples of the types of qualified active
	low-income community businesses in which the applicant, its
	controlling entity, or affiliates of its controlling entity have
	invested under the federal New Markets Tax Credit Program;
	applicants are not required to identify qualified active low-income
	community businesses in which they will invest when submitting an
	application;
	(7)  a nonrefundable application fee of $5,000, which
	is to be paid to the administrator and is required for each
	application submitted; and
	(8)  the refundable performance fee of $500,000
	required by Section 481.038(a).
	(b)  Not later than 30 days after the date of receipt of a
	completed application containing the information required under
	Subsection (a), including the payment of the application fee and
	the refundable performance fee, the administrator shall grant or
	deny the application in full or in part.  If the administrator
	denies any part of the application, the administrator shall inform
	the qualified community development entity of the grounds for the
	denial.  If the entity provides any additional information required
	by the administrator or otherwise completes its application within
	15 days after receiving notice of denial, the application shall be
	considered completed as of the original date of submission.  If the
	qualified community development entity fails to provide the
	information or complete its application within the 15-day period,
	the application remains denied and must be resubmitted in full with
	a new submission date.
	(c)  If the application is complete, the administrator shall
	certify the proposed equity investment or long-term debt security
	as a qualified equity investment that is eligible for tax credits
	under this subchapter, subject to the limitations provided by
	Subsection (e).  The administrator shall provide written notice of
	the certification to the qualified community development entity and
	to the comptroller.  The notice must include the names of the
	entities that earned the credits and their respective credit
	amounts.  If the names of the entities that are eligible to use the
	credits change because of a transfer of a qualified equity
	investment or an allocation under Section 481.034, the qualified
	community development entity shall notify the administrator of the
	change and the administrator shall notify the comptroller.
	(d)  The administrator shall certify qualified equity
	investments in the order it receives applications under this
	section.  Applications received on the same day are considered to
	have been received simultaneously.  For applications that are
	complete and received on the same day, the administrator shall
	certify, consistent with remaining qualified equity investment
	capacity, the qualified equity investments in proportionate
	percentages based on the ratio of the amount of qualified equity
	investment requested in an application to the total amount of
	qualified equity investments requested in all applications
	received on the same day.
	(e)  The administrator shall certify $750 million in
	qualified equity investments.  If a pending request cannot be fully
	certified because of this limit, the administrator shall certify
	the portion of the qualified equity investment requested that may
	be certified, unless the qualified community development entity
	elects to withdraw its request rather than receive a partial
	certification.
	(f)  An approved applicant may transfer all or a portion of
	its certified qualified equity investment authority to its
	controlling entity, or any subsidiary qualified community
	development entity of the controlling entity, provided that the
	applicant provides the information required in the application with
	respect to the transferee and notifies the administrator of the
	transfer not later than the 30th day after the date of the transfer.
	(g)  Not later than the 30th day after the date the applicant
	receives notice of certification, the qualified community
	development entity or any transferee under Subsection (f) shall
	issue the qualified equity investment and receive cash in the
	amount of the certified amount.  The qualified community
	development entity or transferee under Subsection (f) must provide
	the administrator with evidence of the receipt of the cash
	investment not later than the 10th day after the date of receipt.
	If the qualified community development entity or any transferee
	under Subsection (f) does not receive the cash investment and issue
	the qualified equity investment by the 30th day following the date
	of receipt of the certification notice, the certification lapses
	and the entity may not issue the qualified equity investment
	without reapplying to the administrator for certification.  Lapsed
	certifications revert to the administrator and shall be reissued,
	first, pro rata to other applicants whose qualified equity
	investment allocations were reduced under Subsection (e) and,
	thereafter, in accordance with the application process.
	Sec. 481.036.  RECAPTURE. (a)  The comptroller shall
	recapture, from the entity that claimed the credit on a return, the
	tax credit allowed under this subchapter if:
	(1)  any amount of a federal tax credit available with
	respect to a qualified equity investment that is eligible for a
	credit under this subchapter is recaptured under Section 45D,
	Internal Revenue Code of 1986, as amended, in which event, the
	comptroller's recapture shall be proportionate to the federal
	recapture with respect to the qualified equity investment;
	(2)  the issuer redeems or makes principal repayment
	with respect to a qualified equity investment before the seventh
	anniversary of the date of issuance of the qualified equity
	investment, in which event the comptroller's recapture shall be
	proportionate to the amount of the redemption or repayment with
	respect to such qualified equity investment;
	(3)  the issuer fails to invest an amount equal to 100
	percent of the purchase price of the qualified equity investment in
	qualified low-income community investments in the state not later
	than 12 months after the date of issuance of the qualified equity
	investment and to maintain at least 100 percent of such level of
	investment in qualified low-income community investments in the
	state until the last credit allowance date for the qualified equity
	investment; or
	(4)  at any time prior to the final credit allowance
	date of a qualified equity investment, the issuer uses the cash
	proceeds of the qualified equity investment to make qualified
	low-income community investments in any qualified active
	low-income community business, including affiliated qualified
	active low-income community businesses, exclusive of reinvestments
	of capital returned or repaid with respect to earlier investments
	in such qualified active low-income community business and its
	affiliates, in excess of 25 percent of such cash proceeds.
	(b)  For the purposes of this subchapter, an investment shall
	be considered held by an issuer even if the investment has been sold
	or repaid if the issuer reinvests an amount equal to the capital
	returned to or recovered by the issuer from the original
	investment, exclusive of any profits realized, in another qualified
	low-income community investment not later than 12 months after the
	date of the receipt of such capital.  An issuer is not required to
	reinvest capital returned from qualified low-income community
	investments after the sixth anniversary of the date of 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 issuer through the seventh anniversary of the date of the
	qualified equity investment's issuance.
	Sec. 481.037.  NOTICE OF NONCOMPLIANCE.  Enforcement of each
	recapture provision is subject to a six-month cure period. A
	recapture may not occur until the qualified community development
	entity has been given notice of noncompliance and given six months
	from the date of the notice to correct the noncompliance.
	Sec. 481.038.  REFUNDABLE PERFORMANCE FEE.  (a)  A qualified
	community development entity that has an equity investment or
	long-term debt security designated as a qualified equity investment
	and eligible for tax credits under this subchapter must pay a fee in
	the amount of $500,000 to the comptroller for deposit in the new
	markets performance guarantee account if:
	(1)  the qualified community development entity and its
	subsidiary qualified community development entities fail to issue
	the total amount of qualified equity investments certified by the
	administrator and receive cash in the total amount certified under
	Section 481.035(c); or
	(2)  the qualified community development entity or any
	subsidiary qualified community development entity that issues a
	qualified equity investment certified under this section fails to
	meet the investment requirement under Section 481.036(a)(3) by the
	second credit allowance date of the qualified equity investment.
	Forfeiture of the fee under this subdivision shall be subject to the
	six-month period provided under Section 481.037.
	(b)  The fee required under Subsection (a) shall be paid to
	the comptroller and held in the new markets performance guarantee
	account until compliance with this subsection has been established.
	The qualified community development entity may request a refund of
	the fee from the comptroller not earlier than 30 days after the date
	the entity meets all the requirements of Subsection (a). The
	comptroller has 30 days to comply with the request or to give notice
	of noncompliance.
	Sec. 481.039.  LETTER RULINGS.  (a)  The administrator or
	the comptroller shall issue letter rulings regarding the tax credit
	program authorized under this subchapter, subject to the terms and
	conditions provided by this section.  For the purposes of this
	subchapter, the term "letter ruling" means a written interpretation
	of law to a specific set of facts provided by the applicant
	requesting a letter ruling.
	(b)  The administrator or comptroller shall respond to a
	request for a letter ruling not later than the 60th day after the
	date of receipt of the request.  The applicant may provide a draft
	letter ruling for the administrator's or comptroller's
	consideration. The applicant may withdraw the request for a letter
	ruling, in writing, before the issuance of the letter ruling. The
	administrator or comptroller may refuse to issue a letter ruling
	for good cause but must list the specific reasons for refusing to
	issue the letter ruling.  Good cause includes cases in which:
	(1)  the applicant requests that the administrator or
	comptroller determine whether a statute is constitutional or a
	regulation is lawful;
	(2)  the applicant's request involves a hypothetical
	situation or alternative plans;
	(3)  the facts or issues presented in the request are
	unclear, overbroad, insufficient, or otherwise inappropriate as a
	basis on which to issue a letter ruling; and
	(4)  the issue is currently being considered in a
	rulemaking procedure, contested case, or other agency or judicial
	proceeding that may definitively resolve the issue.
	(c)  Letter rulings shall bind the administrator and
	comptroller and their agents and successors until the entity or its
	shareholders, members, or partners, as applicable, claim all tax
	credits on a Texas tax return or report, subject to the terms and
	conditions provided in properly published regulations.  The letter
	ruling shall apply only to the applicant.  In making determinations
	under this subchapter, the administrator or comptroller shall, to
	the extent applicable, look for guidance to Section 45D, Internal
	Revenue Code of 1986, as amended, and the rules and regulations
	issued under that section.
	Sec. 481.040.  RETALIATORY TAX.  (a)  An entity claiming a
	tax credit under this subchapter is not required to pay any
	additional retaliatory tax levied under Chapter 281, Insurance
	Code, as a result of claiming that credit.
	(b)  In addition to the exemption under Subsection (a), an
	entity claiming a tax credit under this subchapter is not required
	to pay any additional tax that may arise from claiming the credit.
	SECTION 2.  This Act applies only to a tax report originally
	due on or after the effective date of this Act.
	SECTION 3.  This Act takes effect September 1, 2013.