HF 4246

as introduced - 92nd Legislature (2021 - 2022) Posted on 03/14/2022 03:09pm

A bill for an act
relating to taxation; income and corporate franchise; establishing a new markets
tax credit program; requiring a report; appropriating money; amending Minnesota
Statutes 2020, section 297I.20, by adding a subdivision; proposing coding for new
law in Minnesota Statutes, chapter 290; proposing coding for new law as Minnesota
Statutes, chapter 116X.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

new text begin [116X.01] NEW MARKETS TAX CREDIT.
new text end

new text begin Subdivision 1. new text end

new text begin Definitions. new text end

new text begin (a) For purposes of this section, the following terms have
the meanings given.
new text end

new text begin (b) "Applicable percentage" means zero percent for each of the first two credit allowance
dates and ten percent for each of the final five credit allowance dates.
new text end

new text begin (c) "CDFI fund" means the Community Development Financial Institutions fund of the
United States Department of the Treasury.
new text end

new text begin (d) "Credit allowance date" means:
new text end

new text begin (1) the date on which a qualified equity investment is initially made; and
new text end

new text begin (2) each of the six anniversary dates thereafter.
new text end

new text begin (e) "Greater Minnesota allocation" means $100,000,000 in qualified equity investment
authority to be awarded for investment in qualified active low-income community businesses
with principal business operations in a greater Minnesota county.
new text end

new text begin (f) "Greater Minnesota county" means any county that is not a metropolitan county.
new text end

new text begin (g) "Metropolitan allocation" means $100,000,000 in qualified equity investment authority
to be awarded for investment in qualified active low-income community businesses with
principal business operations in a metropolitan county.
new text end

new text begin (h) "Metropolitan county" has the meaning given in section 473.121, subdivision 4.
new text end

new text begin (i) "Minnesota qualified community development entity" means a qualified community
development entity that is or whose controlling entity is headquartered in this state.
new text end

new text begin (j) "Internal Revenue Code" has the meaning given in section 290.01, subdivision 31.
new text end

new text begin (k) "Principal business operations" means the physical location of a business where at
least 60 percent of a qualified active low-income community business' employees work or
where employees that are paid at least 60 percent of the business' payroll work. An
out-of-state business that has agreed to relocate employees or a Minnesota business that has
agreed to hire employees using the proceeds of a qualified low-income community investment
to establish principal business operations in Minnesota is deemed to have principal business
operations in Minnesota if the business satisfies the requirements of this paragraph within
180 days of receiving the qualified low-income community investment or another date as
agreed by the business and the commissioner.
new text end

new text begin (l) "Purchase price" means the amount paid to the qualified community development
entity for a qualified equity investment.
new text end

new text begin (m) "Qualified active low-income community business" has the meaning given in section
45D of the Internal Revenue Code, except that any business that derives or projects to derive
15 percent 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. This exception does not apply to
a business that is controlled by or under common control with another business if the second
business:
new text end

new text begin (1) does not derive or project to derive 15 percent or more of its annual revenue from
the rental or sale of real estate; and
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new text begin (2) is the primary tenant of the real estate leased from the initial business.
new text end

new text begin A business is deemed a qualified active low-income community business for the duration
of a qualified low-income community investment if the qualified community development
entity reasonably expects, at the time it makes the qualified low-income community
investment, that the business will continue to satisfy the requirements for being a qualified
active low-income community business throughout the entire period of the qualified
low-income community investment.
new text end

new text begin (n) "Qualified community development entity" has the meaning given in section 45D
of the Internal Revenue Code, provided that the entity:
new text end

new text begin (1) has previously entered into an allocation agreement with the CDFI fund with respect
to credits authorized by section 45D of the Internal Revenue Code; and
new text end

new text begin (2) includes the state within the service area set forth in the allocation agreement.
new text end

new text begin (o) "Qualified equity investment" means an equity investment in a qualified community
development entity, if the equity investment:
new text end

new text begin (1) is acquired after the effective date of this section at its original issuance solely in
exchange for cash;
new text end

new text begin (2) has at least 100 percent 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 that have their principal business operations in
the state of Minnesota; and
new text end

new text begin (3) is:
new text end

new text begin (i) designated by the qualified community development entity as a qualified equity
investment under this section; and
new text end

new text begin (ii) except for a Minnesota qualified community development entity, is at least 50 percent
designated by the qualified community development entity as a qualified equity investment
under section 45D of the Internal Revenue Code.
new text end

new text begin An investment that does not qualify under clause (1) is a qualified equity investment if the
investment met the requirements of this paragraph while under possession of a prior holder.
new text end

new text begin (p) "Qualified low-income community investment" means any capital or equity investment
in, or loan to, any qualified active low-income community business.
new text end

new text begin (q) "Tax credit" or "credit" means a credit against the tax imposed by chapter 290 or
297I.
new text end

new text begin (r) "Taxpayer" means a taxpayer as defined in section 290.01, subdivision 6, or a taxpayer
as defined in section 297I.01, subdivision 16.
new text end

new text begin Subd. 2. new text end

new text begin Credit allowed; qualification; limitation. new text end

new text begin (a) A person or entity earns a vested
right to a credit against the tax imposed under chapter 290 or 297I, subject to the requirements
of this subdivision. The credit may be claimed against the tax imposed by chapter 290 or
297I, but not both.
new text end

new text begin (b) The credit equals the applicable percentage for each credit allowance date multiplied
by the purchase price paid to the qualified community development entity for the qualified
equity investment.
new text end

new text begin Subd. 3. new text end

new text begin Application. new text end

new text begin (a) A qualified community development entity that seeks to have
an equity investment designated as a qualified equity investment and eligible for the credit
under this section shall apply to the commissioner on a form provided by the commissioner
that includes:
new text end

new text begin (1) the name, address, and tax identification number of the applicant, and evidence of
the applicant's certification as a qualified community development entity by the CDFI fund;
new text end

new text begin (2) a copy of the allocation agreement executed by the applicant or its controlling entity,
and the CDFI fund;
new text end

new text begin (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 CDFI
fund;
new text end

new text begin (4) a description of the proposed amount, structure, and purchaser of the equity
investment;
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new text begin (5) the amount of qualified equity investment authority sought under the greater
Minnesota allocation or the metropolitan allocation, as applicable, which collectively may
not exceed the applicant or its controlling entity's available qualified equity investment
authority under section 45D of the Internal Revenue Code multiplied by two, provided this
limitation does not apply to a Minnesota qualified community development entity;
new text end

new text begin (6) if required by clause (5), evidence of the applicant or its controlling entity's available
qualified equity investment authority under section 45D of the Internal Revenue Code; and
new text end

new text begin (7) a nonrefundable application fee of $5,000 paid to the commissioner to offset costs
associated with personnel and administrative expenses related to administering the credit.
new text end

new text begin (b) The commissioner shall set a date to accept applications not less than 30 days but
not more than 45 days after the CDFI fund treasury announces allocation awards under a
notice of funding availability that was published in the Federal Register in November 2022.
new text end

new text begin (c) A qualified community development entity may apply for both a greater Minnesota
allocation and a metropolitan allocation.
new text end

new text begin Subd. 4. new text end

new text begin Certification of qualified equity investments. new text end

new text begin (a) Within 30 days after receipt
of an application, the commissioner shall grant or deny the application in full or in part. If
the commissioner denies any part of the application, the commissioner shall inform the
applicant of the grounds for the denial. If the applicant provides the information required
by the commissioner or otherwise completes its application within 15 days of the notice of
denial, the application is deemed complete as of the original date of submission. If the
applicant fails to provide the requested information or complete its application within the
15-day period, the applicant must submit a new application.
new text end

new text begin (b) If the application is deemed complete, the commissioner shall certify the proposed
equity investment as a qualified equity investment eligible for a credit under this section.
The commissioner shall provide written notice of the certification to the qualified community
development entity. Once the qualified community development entity identifies the
taxpayers who are allocated credits and their respective credit amounts, the qualified
community development entity shall provide a notice of allocation to the commissioner,
and the commissioner shall provide a certification to the qualified community development
entity and each taxpayer containing the credit amount and utilization schedule for which
the taxpayer is eligible. If the taxpayer is eligible to utilize the credits change due to a transfer
of a qualified equity investment or a change in allocation pursuant to paragraph (c), the
qualified community development entity shall notify the commissioner of the change.
new text end

new text begin (c) The commissioner shall certify applications for the greater Minnesota allocation and
the metropolitan allocation in proportionate percentages based upon the ratio of the amount
of qualified equity investments requested in applications for each allocation to the total
amount of qualified equity investments requested in all applications for each allocation
received on the same day.
new text end

new text begin (d) The annual aggregate amount of credits allowed to all certified qualified equity
investments in greater Minnesota counties is $50,000,000. The annual aggregate amount
of credits allowed to all certified equity investments in metropolitan counties is $50,000,000.
If a pending request cannot be fully certified, the commissioner shall certify the portion that
may be certified unless the qualified community development entity elects to withdraw its
request rather than receive a partial award of qualified equity investment authority.
new text end

new text begin (e) An approved applicant may transfer all or a portion of its certified qualified equity
investment authority to its controlling entity or any affiliate or partner of the controlling
entity that is also a qualified community development entity if the applicant provides the
information required in the application with respect to the transferee and the applicant
notifies the commissioner in the notice required by paragraph (f). Within 30 days after
receiving notice of certification under paragraph (b), the applicant or transferee shall:
new text end

new text begin (1) issue qualified equity investments in an amount equal to the total amount of certified
qualified equity investment authority;
new text end

new text begin (2) receive cash in the amount of the certified qualified equity investment; and
new text end

new text begin (3) if the applicant or transferee is not a Minnesota qualified community development
entity, designate 50 percent of the qualified equity investment authority as a qualified equity
investment under section 45D of the Internal Revenue Code.
new text end

new text begin (f) The qualified community development entity must provide the commissioner with
evidence of the receipt of the cash investment and, if the qualified community development
entity is not a Minnesota qualified community development entity, the designation of 50
percent of the qualified equity investment as a qualified equity investment under section
45D of the Internal Revenue Code within 35 days after receiving notice of certification. If
the qualified community development entity does not receive the cash investment, issue the
qualified equity investment within 30 days following receipt of the certification notice, and
comply with paragraph (e), clause (3), if applicable, the certification is void. A voided
certification must be returned to the commissioner and must first be awarded pro rata to
applicants that received awards of qualified equity investment authority and complied with
paragraph (e).
new text end

new text begin (g) The commissioner shall notify the commissioner of revenue of credits approved
under this subdivision.
new text end

new text begin Subd. 5. new text end

new text begin Credit recapture. new text end

new text begin (a) The commissioner shall recapture credits allowed under
this act and future credits are forfeited if:
new text end

new text begin (1) any amount of the 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 that case, the commissioner's recapture shall be proportionate
to the federal recapture with respect to that qualified equity investment;
new text end

new text begin (2) the qualified community development entity redeems or makes principal repayment
with respect to a qualified equity investment prior to seven years after the date of issuance
of the qualified equity investment. In that case, the commissioner's recapture shall be
proportionate to the amount of the redemption or repayment with respect to the qualified
equity investment; or
new text end

new text begin (3) the qualified community development entity fails to invest at least 100 percent of
the cash purchase price of the qualified equity investment in qualified low-income community
investments in greater Minnesota counties or metropolitan counties, as applicable, within
12 months of the issuance of the qualified equity investment and maintains the investment
in qualified low-income community investments in greater Minnesota counties or
metropolitan counties, as applicable, until the last credit allowance date for the qualified
equity investment. A qualified community development entity must use the proceeds of
qualified equity investments awarded under the greater Minnesota allocation to make
qualified low-income community investments in qualified active low-income community
businesses with principal business operations in greater Minnesota counties.
new text end

new text begin (b) For purposes of paragraph (a), clause (3), an investment is considered maintained
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 as required under the greater Minnesota allocation or
metropolitan allocation within 12 months after the receipt of that capital. Periodic loan
repayments received by a qualified community development entity from a qualified active
low-income community business within a calendar year must be treated as maintained in
qualified low-income community investments if a qualified community development entity
reinvests the repayments in qualified low-income community investments by the end of the
following calendar year.
new text end

new text begin (c) 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
is considered held by the qualified community development entity through the seventh
anniversary of the qualified equity investment's issuance.
new text end

new text begin (d) With respect to any one qualified active low-income community business, the
maximum amount of qualified low-income community investments made in that business
in aggregate with all of its affiliates that may be counted toward the satisfaction of paragraph
(a), clause (3), is $10,000,000, whether made by one or several qualified community
development entities but exclusive of redeemed or repaid qualified low-income community
investment by the qualified active low-income community business.
new text end

new text begin (e) The commissioner shall provide notice to the qualified community development
entity of any proposed recapture of credits pursuant to this subdivision. The notice must
specify the conditions under which the deficiency resulting in the proposed recapture occurred
and state that the credits will be recaptured within 90 days unless the qualified community
development entity complies with the conditions identified in the notice. If the entity fails
or is unable to cure the deficiency within the 90-day period, the commissioner shall provide
the entity and the taxpayer from whom the credit is to be recaptured with a final order of
recapture. Any credit for which a final recapture order has been issued must be recaptured
by the commissioner from the taxpayer who claimed the credit on a tax return. The qualified
equity investment authority of the recaptured credits must be returned to the commissioner
and must first be awarded pro rata to applicants that have received awards of qualified equity
investment authority and complied with this subdivision.
new text end

new text begin Subd. 6. new text end

new text begin Examination and rulemaking. new text end

new text begin (a) The commissioner may conduct examinations
to verify that the credits under this section have been received and applied according to the
requirements of this section and to verify that no event has occurred that would result in a
recapture of credits under subdivision 5.
new text end

new text begin (b) The commissioner may issue advisory letters to individual qualified community
development entities and their investors that are limited to the specific facts outlined in an
advisory letter request from a qualified community development entity. The rulings cannot
be relied upon by any person or entity other than the qualified community development
entity that requested the letter and the taxpayers that are entitled to any tax credits generated
from investments in the entity.
new text end

new text begin (c) In rendering advisory letters and making other determinations under this section, to
the extent applicable, the commissioner shall rely upon guidance to section 45D of the
Internal Revenue Code and the rules and regulations issued thereunder.
new text end

new text begin Subd. 7. new text end

new text begin Annual reporting by community development entities. new text end

new text begin (a) Each qualified
community development entity shall submit an annual report to the commissioner within
120 days after the beginning of each calendar year during the compliance period. No annual
report is due prior to the first anniversary of the initial credit allowance date. The report
must include but is not limited to information with respect to all qualified low-income
community investments made by the qualified community development entity, including:
new text end

new text begin (1) the date and amount of, and bank statements or wire transfer reports documenting,
qualified low-income community investments;
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new text begin (2) the name and address of each qualified active low-income community business
funded by the qualified community development entity, the number of persons employed
by the business at the time of the initial qualified low-income community investment, and
a brief description of the business and its financing;
new text end

new text begin (3) the number of employment positions maintained by each qualified active low-income
community business as of the date of the report or the end of the preceding calendar year
and the average annual salaries of those positions;
new text end

new text begin (4) the total number of employment positions created and retained as a result of qualified
low-income community investments and the average annual salaries of those positions;
new text end

new text begin (5) a certification by its chief executive officer or similar officer that no credits have
been subject to recapture under subdivision 5; and
new text end

new text begin (6) any changes with respect to the taxpayers entitled to claim credits with respect to
qualified equity investments issued by the qualified community development entity since
its last report pursuant to this section.
new text end

new text begin (b) The qualified community development entity is not required to provide the annual
report set forth in this section for qualified low-income community investments that have
been redeemed or repaid.
new text end

new text begin Subd. 8. new text end

new text begin Program report. new text end

new text begin If the credit under this section has not been reviewed under
the provisions of section 3.8855 by December 15, 2031, the commissioner shall report to
the legislature no later than December 31, 2031, regarding the implementation of the credit
under this section, including an evaluation of the credit using the components listed in
section 3.885, subdivision 5.
new text end

new text begin Subd. 9. new text end

new text begin Expiration. new text end

new text begin This section expires for taxable years beginning after December
31, 2030, except that the commissioner's authority to allow the credit under subdivision 2
based on certificates that were issued under subdivision 4 before expiration remains in effect
through the year following the year in which all certificates have either been canceled or
resulted in issuance of credit certificates, or 2033, whichever is earlier.
new text end

new text begin Subd. 10. new text end

new text begin Account created; appropriation. new text end

new text begin The Minnesota new markets tax credit
account is created in the ..... fund in the state treasury. The account is administered by the
commissioner. Application fees required under subdivision 3, paragraph (a), clause (7), are
appropriated to the commissioner for costs associated with certifying applications and for
personnel and administrative expenses related to administering the credit under this section.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2022.
new text end

Sec. 2.

new text begin [290.0693] NEW MARKETS TAX CREDIT.
new text end

new text begin Subdivision 1. new text end

new text begin Definitions. new text end

new text begin For purposes of this section, terms defined in section 116X.01
have the meanings given in that section.
new text end

new text begin Subd. 2. new text end

new text begin Credit allowed. new text end

new text begin (a) A taxpayer that makes a qualified equity investment is
allowed a credit against the tax imposed under this chapter equal to the amount calculated
under section 116X.01, subdivision 2.
new text end

new text begin (b) Tax credits earned by or allocated to a partnership, a limited liability company taxed
as a partnership, or an S-corporation are passed through to the partners, members,
shareholders, or owners, respectively, in accordance with the provisions of any agreement
among such partners, members, shareholders, or owners, or, in the absence of such agreement,
pro rata to each partner, member, shareholder, or owner based on their share of the entity's
assets as of the last day of the taxable year. A pass-through of a credit is not considered a
sale for the purposes of section 116X.01.
new text end

new text begin (c) If the amount of the credit under this section exceeds the taxpayer's liability for tax
under this chapter, the excess is a credit carryover to each of the five succeeding taxable
years. The entire amount of the excess unused credit for the taxable year must be carried
first to the earliest of the taxable years to which the credit may be carried and then to each
successive year to which the credit may be carried. The amount of the unused credit that
may be added under this paragraph may not exceed the taxpayer's liability for tax, less any
credit for the current taxable year.
new text end

new text begin Subd. 3. new text end

new text begin Audit powers. new text end

new text begin Notwithstanding the certification eligibility issued by the
commissioner of employment and economic development under section 116X.01, subdivision
4, the commissioner may utilize any audit and examination powers under chapter 270C or
289A to the extent necessary to verify that the taxpayer is eligible for the credit and to assess
for the amount of any improperly claimed credit.
new text end

new text begin Subd. 4. new text end

new text begin Sunset. new text end

new text begin This section expires at the same time and on the same terms as section
116X.01, except that the expiration of this section does not affect the commissioner of
revenue's authority to audit or power of examination and assessment for credits claimed
under this section.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2022.
new text end

Sec. 3.

Minnesota Statutes 2020, section 297I.20, is amended by adding a subdivision to
read:

new text begin Subd. 6. new text end

new text begin New markets tax credit. new text end

new text begin A taxpayer may claim a credit against the premiums
tax imposed under this chapter equal to the amount calculated under section 116X.01,
subdivision 2. If the amount of the credit exceeds the liability for tax under this chapter, the
excess is a credit carryover to each of the five succeeding taxable years. The entire amount
of the excess unused credit for the taxable year must be carried first to the earliest of the
taxable years to which the credit may be carried and then to each successive year to which
the credit may be carried. This credit does not affect the calculation of fire state aid under
section 477B.03 and police state aid under section 477C.03.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for premiums received after December
31, 2022, and before January 1, 2030.
new text end