HF 438

1st Engrossment - 89th Legislature (2015 - 2016) Posted on 03/23/2015 03:51pm

A bill for an act
relating to taxation; economic development; adopting the Minnesota New
Markets Jobs Act; amending Minnesota Statutes 2014, section 297I.20, by adding
a subdivision; 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] TITLE.
new text end

new text begin This chapter is titled and may be cited as the "Minnesota New Markets Jobs Act."
new text end

Sec. 2.

new text begin [116X.02] DEFINITIONS.
new text end

new text begin Subdivision 1. new text end

new text begin Scope. new text end

new text begin For the purposes of this chapter, the terms defined in this
section have the meanings given.
new text end

new text begin Subd. 2. new text end

new text begin Affiliate. new text end

new text begin (a) For the purposes of subdivision 10, the term "affiliate"
includes:
new text end

new text begin (1) any entity, without regard to whether the entity is a qualified community
development entity under subdivision 10, that is the initial holder, either directly or
through one or more special purpose entities, of a qualified equity investment in the
qualified community development entity; and
new text end

new text begin (2) any entity, without regard to whether the entity is a qualified community
development entity under subdivision 10, that provides insurance or any other form of
guaranty to the ultimate recipient of tax credits under section 116X.03 with respect to a
recapture or forfeiture of tax credits under section 116X.06, either directly or through the
guaranty of any other economic benefit that is paid in lieu of the tax credits allowable
under section 116X.03.
new text end

new text begin (b) The determination of whether an entity is an affiliate must be made by taking
into account all relevant facts and circumstances, including the description of the proposed
amount, structure, and initial purchaser of the qualified equity investment required by
section 116X.05, subdivision 1, clause (4), and the determination assumes that the
information provided pursuant to section 116X.05, subdivision 1, clause (4), is true and
complete as of the date an application is submitted pursuant to section 116X.05.
new text end

new text begin Subd. 3. new text end

new text begin Applicable percentage. new text end

new text begin "Applicable percentage" means zero percent
for the first two credit allowance dates, eight percent for the third through sixth credit
allowance dates, and seven percent for the seventh credit allowance date.
new text end

new text begin Subd. 4. new text end

new text begin Code. new text end

new text begin "Code" or "the Code" means the Internal Revenue Code of 1986 as
amended through the date in section 290.01, subdivision 19.
new text end

new text begin Subd. 5. new text end

new text begin Credit allowance date. new text end

new text begin "Credit allowance date" means with respect to
any qualified equity investment:
new text end

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

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

new text begin Subd. 6. new text end

new text begin Department. new text end

new text begin "Department" means the Department of Employment and
Economic Development.
new text end

new text begin Subd. 7. new text end

new text begin Long-term debt security. new text end

new text begin "Long-term debt security" means any debt
instrument issued by a qualified community development entity at par value 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 prior to its original
maturity date. The qualified community development entity that issues the debt instrument
must 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 of the Code of the qualified community development entity for that period prior to
giving effect to the expense of the cash interest payments. This subdivision does not 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 section or
section 45D of the Code.
new text end

new text begin Subd. 8. new text end

new text begin Purchase price. new text end

new text begin "Purchase price" means the amount paid to the issuer of a
qualified equity investment for such qualified equity investment.
new text end

new text begin Subd. 9. new text end

new text begin Qualified active low-income community business. new text end

new text begin (a) "Qualified active
low-income community business" means a business as defined in section 45D of the
Code and Code of Federal Regulations, title 26, section 1.45D-1, and that is engaged
primarily in a qualified high-technology field, as defined in section 116J.8737, subdivision
2, paragraph (g), clause (1), manufacturing, mining, or forestry. 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, throughout the entire period of the investment or loan.
new text end

new text begin (b) Qualified active low-income community business excludes any business that
derives or projects to derive 15 percent or more of its annual revenue from activities
described in section 116J.8737, subdivision 2, paragraph (c), clause (4).
new text end

new text begin Subd. 10. new text end

new text begin Qualified community development entity. new text end

new text begin (a) "Qualified community
development entity" has the meaning given in section 45D of the Code, 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 of the Code, which
includes Minnesota within the service area set forth in the allocation agreement. The
term includes subsidiary community development entities or affiliates of any qualified
community development entity, all of which are treated as a single applicant for purposes
of section 116X.05.
new text end

new text begin (b) Qualified community development entity excludes any regulated financial
institution that is subject to the Community Reinvestment Act of 1977, United States
Code, title 12, chapter 30, or any subsidiary or affiliate of a regulated financial institution.
new text end

new text begin (c) Paragraph (b) does not apply to a regulated financial institution, or its subsidiary or
affiliate, if the regulated financial institution is chartered by, or headquartered in, Minnesota
and the regulated financial institution otherwise meets the requirements of paragraph (a).
new text end

new text begin Subd. 11. new text end

new text begin Qualified equity investment. new text end

new text begin (a) "Qualified equity investment" means
any equity investment in, or long-term debt security issued by, a qualified community
development entity that:
new text end

new text begin (1) is acquired after January 1, 2016, 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 issuer to make
qualified low-income community investments in qualified active low-income community
businesses located in this state by the first anniversary of the initial credit allowance
date; and
new text end

new text begin (3) is designated by the issuer as a qualified equity investment under this subdivision
and is certified by the department as not exceeding the limitation contained in section
116X.05, subdivision 4.
new text end

new text begin (b) Notwithstanding the restrictions on transferability contained in section 116X.04,
this term includes any qualified equity investment that does not meet the provisions of
paragraph (a) if the investment:
new text end

new text begin (1) is transferred to a subsequent holder; and
new text end

new text begin (2) was a qualified equity investment in the hands of any prior holder.
new text end

new text begin (c) Qualified equity investment does not include:
new text end

new text begin (1) any investment that entitles the holder to claim tax credits under section 45D
of the Code; or
new text end

new text begin (2) any investment, the proceeds of which are used to make debt or equity
investments in, directly or indirectly, any other qualified community development entity.
new text end

new text begin Subd. 12. new text end

new text begin Qualified low-income community investment. new text end

new text begin "Qualified low-income
community investment" means any capital or equity investment in, or loan to, any
qualified active low-income community business. With respect to any one qualified
active low-income community business, the maximum amount of qualified low-income
community investments that may be made in the business, on a collective basis with
all of its affiliates, with the proceeds of qualified equity investments that have been
certified under section 116X.05 is $10,000,000 whether made by one or several qualified
community development entities.
new text end

new text begin Subd. 13. new text end

new text begin Refundable performance fee. new text end

new text begin "Refundable performance fee" means a
fee that a qualified community development entity seeking to have an equity investment or
long-term debt security designated as a qualified equity investment and eligible for tax
credits under section 116X.05 must pay to the department as assurance of compliance
with certain requirements of this chapter. The amount of the fee equals one-half of one
percent of the amount of the equity investment or long-term debt security requested to be
designated as a qualified equity investment, up to a maximum performance fee of $500,000.
new text end

new text begin Subd. 14. new text end

new text begin State premium tax liability. new text end

new text begin "State premium tax liability" means any
liability incurred by any entity under chapter 297I.
new text end

Sec. 3.

new text begin [116X.03] CREDIT ESTABLISHED.
new text end

new text begin (a) 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 this
section that may be utilized as described in paragraphs (b) to (e).
new text end

new text begin (b) On each credit allowance date of the qualified equity investment, the entity, or
subsequent holder of the qualified equity investment, is entitled to utilize a portion of the
credit during the taxable year, including the credit allowance date.
new text end

new text begin (c) The credit amount equals the applicable percentage for the credit allowance date
multiplied by the purchase price paid to the issuer of the qualified equity investment.
new text end

new text begin (d) The amount of the credit claimed by an entity must not exceed the amount of the
entity's state premium tax liability for the tax year for which the credit is claimed. Any
amount of tax credit that the entity is prohibited from claiming in a taxable year as a result
of this chapter may be carried forward for use in any subsequent taxable year.
new text end

new text begin (e) An entity claiming a credit under this chapter is not required to pay any additional
retaliatory tax levied under section 297I.05 as a result of claiming that credit. In addition,
it is the intent of this section that an entity claiming a credit under this chapter is not
required to pay any additional tax that may arise as a result of claiming that credit.
new text end

Sec. 4.

new text begin [116X.04] TRANSFERABILITY.
new text end

new text begin No tax credit claimed under this chapter is refundable or saleable on the open
market. However, a participating investor may transfer credits to an affiliated insurance
company, if it notifies the department in writing. 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 the entity for their direct use in accordance
with the provisions of any agreement among those partners, members, or shareholders.
Any allocation of tax credits made to a partner, member, or shareholder in accordance
with this section is not considered a sale of such tax credits for purposes of this chapter.
new text end

Sec. 5.

new text begin [116X.05] CERTIFICATION OF QUALIFIED EQUITY INVESTMENTS.
new text end

new text begin Subdivision 1. new text end

new text begin Application. new text end

new text begin 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 chapter may apply to the department on
or after January 1, 2017. The application must include the following:
new text end

new text begin (1) evidence of the applicant's certification as a qualified community development
entity, including evidence of the service area of the entity that includes Minnesota;
new text end

new text begin (2) a copy of the allocation agreement executed by the applicant, or its controlling
entity, and the Community Development Financial Institutions Fund under section
116X.02, subdivision 10;
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
Community Development Financial Institutions Fund;
new text end

new text begin (4) a description of the proposed amount, structure, and initial purchaser of the
qualified equity investment;
new text end

new text begin (5) the minimum amount of the qualified equity investment the qualified community
development entity is willing to accept if the amount proposed to be certified under clause
(4) is less than the applicant's proposed amount of qualified equity investment;
new text end

new text begin (6) a plan describing the proposed investment of the proceeds of the qualified equity
investment, including the types of qualified active low-income community businesses in
which the applicant expects to invest. Applicants are not required to identify qualified
active low-income community businesses in which they will invest when submitting
an application;
new text end

new text begin (7) a nonrefundable application fee of $5,000. This fee must be paid to the
department and is required for each application submitted; and
new text end

new text begin (8) the refundable performance fee required by section 116X.08.
new text end

new text begin Subd. 2. new text end

new text begin Consideration of application. new text end

new text begin Within 30 days after receipt of a completed
application containing the information in subdivision 1, including the payment of the
application fee and the refundable performance fee, the department shall grant or deny the
application in full or in part. If the department denies any part of the application, it shall
inform the qualified community development entity of the grounds for the denial. If the
qualified community development entity provides any additional information required
by the department or otherwise completes its application within 15 days of the notice of
denial, the application is 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.
new text end

new text begin Subd. 3. new text end

new text begin Certification. new text end

new text begin If the application required under this section is complete, the
department shall certify the proposed equity investment or long-term debt security as a
qualified equity investment that is eligible for tax credits under this chapter, subject to the
limitations in subdivision 5. The department shall provide written notice of the certification
to the qualified community development entity. The notice must include the name of the
initial purchaser of the qualified equity investment and the credit amount. Before any tax
credits are claimed under this chapter, the qualified community development entity shall
provide written notice to the department of the names of the entities eligible to claim the
credits as a result of holding a qualified equity investment. If the names of the entities that
are eligible to utilize the credits change due to a transfer of a qualified equity investment
or an allocation or affiliate transfer pursuant to section 116X.04, the qualified community
development entity shall notify the department of the change.
new text end

new text begin Subd. 4. new text end

new text begin Amount certified. new text end

new text begin The department shall certify $250,000,000 in qualified
equity investments. The department shall certify qualified equity investments in the order
applications are received by the department. Applications received on the same day are
deemed to have been received simultaneously. For applications that are complete and
received on the same day, the department shall certify, consistent with remaining qualified
equity investment capacity, the qualified equity investments in proportionate percentages
based upon 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. If any amount of qualified equity investment that would be
certified under this section is less than the acceptable minimum amount specified in the
application as required by subdivision 1, clause (5), the application is deemed withdrawn
and the amount of qualified equity investment is proportionately allocated among the
other applicants pursuant to this subdivision.
new text end

new text begin Subd. 5. new text end

new text begin Transfer of authority. new text end

new text begin 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, if the
applicant provides the information required in the application with respect to the transferee
and the applicant notifies the department of the transfer within 30 days of the transfer.
new text end

new text begin Subd. 6. new text end

new text begin Cash investment. new text end

new text begin Within 60 days of the applicant receiving notice
of certification, the qualified community development entity, or any transferee under
subdivision 5, shall issue the qualified equity investment and receive cash in the amount of
the certified amount. The qualified community development entity or transferee under
subdivision 5 must provide the department with evidence of the receipt of the cash
investment within ten business days after receipt. If the qualified community development
entity or any transferee under subdivision 5 does not receive the cash investment and issue
the qualified equity investment within 60 days following receipt of the certification notice,
the certification lapses and the entity may not issue the qualified equity investment without
reapplying to the department for certification. Lapsed certifications revert back to the
department and must be reissued, first, pro rata to other applicants whose qualified equity
investment allocations were reduced under subdivision 4 and, thereafter, in accordance
with the application process.
new text end

Sec. 6.

new text begin [116X.06] DISALLOWANCE OF TAX CREDITS AND PENALTIES.
new text end

new text begin (a) The department shall disallow the utilization of any tax credits earned as a result
of holding a qualified equity investment, but not yet claimed, if:
new text end

new text begin (1) 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 this case, the department's disallowance of unclaimed tax credits are
proportionate to the amount of the redemption or repayment with respect to the qualified
equity investment;
new text end

new text begin (2) 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 Minnesota within 12 months of the issuance of the qualified equity investment
and maintain at least 100 percent of the level of investment in qualified low-income
community investments in Minnesota until the last credit allowance date for the qualified
equity investment. For purposes of this section, an investment is 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
within 12 months of the receipt of the capital. An issuer 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, if proceeds were used to make the
qualified low-income community investment, and the qualified low-income community
investment is considered to be held by the issuer through the seventh anniversary of the
qualified equity investment's issuance; or
new text end

new text begin (3) there is any violation of section 116X.10.
new text end

new text begin (b) Notwithstanding any contrary provision, any tax credit already claimed under
this chapter is not subject to recapture upon the occurrence of an event set forth in
paragraph (a), clause (1) or (2).
new text end

new text begin (c) If the department disallows the utilization of tax credits under this section, it may
also, at its discretion, impose penalties on the qualified community development entity that
issued the qualified equity investment for which tax credits are disallowed, not to exceed
the amount of the refundable performance fee required under section 116X.08 and without
regard to whether the fee has been refunded to the qualified community development entity.
new text end

Sec. 7.

new text begin [116X.07] NOTICE OF NONCOMPLIANCE.
new text end

new text begin Enforcement of each of the disallowance and penalty provisions is subject to a
six-month cure period. No disallowance or penalty may be imposed until the qualified
community development entity has been given notice of noncompliance and afforded six
months from the date of the notice to cure the noncompliance.
new text end

Sec. 8.

new text begin [116X.08] REFUNDABLE PERFORMANCE FEE.
new text end

new text begin Subdivision 1. new text end

new text begin Performance guarantee amount. new text end

new text begin 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 section
shall pay a refundable performance fee to the department for deposit in the new markets
performance guarantee account, which is hereby established. The following amounts
are forfeited to the department:
new text end

new text begin (1) the performance fee in its entirety if 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 department and receive cash in the total
amount certified under section 116X.05, subdivision 3; or
new text end

new text begin (2) the amount of the performance fee equal to the product of the original amount of
the refundable performance fee multiplied by the percentage of the remaining amount of
the proceeds of the qualified equity investment not used to make qualified low-income
equity investments if 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 116X.06 by
the second credit allowance date of the qualified equity investment. Forfeiture of the
fee or any portion thereof under this paragraph is subject to the six-month cure period
established under section 116X.07.
new text end

new text begin Subd. 2. new text end

new text begin Request for refund. new text end

new text begin The fee required under subdivision 1 must be paid
to the department and held in the new markets performance guarantee account until
compliance with subdivision 1 is established. The qualified community development
entity may request a refund of the fee from the department no sooner than 30 days after it
meets all the requirements of subdivision 1. The department has 30 days to comply with
the request or give notice of noncompliance.
new text end

Sec. 9.

new text begin [116X.09] PREAPPROVAL OF INVESTMENTS.
new text end

new text begin Before making a proposed qualified low-income community investment, a qualified
community development entity may request from the department a written determination
that the proposed investment will qualify as a qualified low-income community investment
and will satisfy all applicable provisions of this chapter. The department must notify a
qualified community development entity within ten business days from the receipt of a
request of its determination and an explanation thereof. Any determination made by the
department pursuant to this section is binding on the department.
new text end

Sec. 10.

new text begin [116X.10] USE OF PROCEEDS PROHIBITED.
new text end

new text begin A qualified active low-income community business that receives a qualified
low-income community investment under this chapter, or any affiliates of a qualified
active low-income community business, may not directly or indirectly use the proceeds
of the qualified active low-income community investment to lend to or invest in a
qualified community development entity or member or affiliate of a qualified community
development entity where the proceeds of the loan or investment are directly or indirectly
used to fund or refinance the purchase of a qualified equity investment under this chapter.
new text end

Sec. 11.

Minnesota Statutes 2014, section 297I.20, is amended by adding a subdivision
to read:

new text begin Subd. 4. new text end

new text begin New markets tax credit. new text end

new text begin (a) For purposes of this subdivision, "qualified
equity investment" has the meaning given in section 116X.02, subdivision 11.
new text end

new text begin (b) An insurance company that makes a qualified equity investment may claim a
credit against the premiums tax imposed under this chapter equal to the amount provided
under section 116X.03.
new text end

new text begin (c) This credit does not affect the calculation of police and fire aid under section
69.021.
new text end

Sec. 12. new text begin EFFECTIVE DATE.
new text end

new text begin Sections 1 to 11 are effective the day following final enactment, and apply to
premium tax returns originally due on or after December 31, 2015.
new text end