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HF 688

2nd Engrossment - 89th Legislature (2015 - 2016) Posted on 03/25/2015 12:27pm

KEY: stricken = removed, old language.
underscored = added, new language.

Bill Text Versions

Engrossments
Introduction Posted on 02/09/2015
1st Engrossment Posted on 03/05/2015
2nd Engrossment Posted on 03/19/2015

Current Version - 2nd Engrossment

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A bill for an act
relating to taxation; income; establishing a new markets tax credit program;
requiring a report; appropriating money; amending Minnesota Statutes 2014,
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) "Applicant" means a qualified community development entity as defined in
paragraph (l).
new text end

new text begin (c) "Applicable percentage" means five percent for each of the first three credit
allowance dates and six percent for each of the final four credit allowance dates.
new text end

new text begin (d) "Commissioner" means the commissioner of employment and economic
development.
new text end

new text begin (e) "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 (f) "Greater Minnesota" means the area of the state that excludes the metropolitan
area, as defined in section 473.121, subdivision 2.
new text end

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

new text begin (h) "Investments held by an issuer" means any capital or equity investment or loan
held by an issuer, even if the qualified low-income community investment has been sold
or repaid; provided that 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 return or
recovery of the capital investment. For the purposes of this requirement, 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. 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. Periodic amounts
received by the issuer during a calendar year as repayment of principal on a loan that is
a qualified low-income community investment shall be treated as continuously invested
in a qualified low-income community business if the amounts received are reinvested in
another qualified low-income community business within 12 months.
new text end

new text begin (i) "Issuer" means a qualified community development entity or its subsidiary
community development entity that applies for an allocation of state tax credit authority
which it issues to taxpayers for their qualified equity investment in a qualified community
development entity pursuant to this section.
new text end

new text begin (j) "Purchase price" means the amount paid by an investor as a qualified equity
investment to the issuer in exchange for a tax credit allocation.
new text end

new text begin (k) "Qualified active low-income community business" has the meaning given in
section 45D of the Internal Revenue Code. The term does not include:
new text end

new text begin (1) any trade or business engaged in insurance, banking, lending, lobbying, political
consulting, or leisure; or
new text end

new text begin (2) any trade or business activity consisting of the operation of any private or
commercial golf course, country club, suntan facility, hot tub facility, massage parlor, race
track, or other facility used for gambling, or any store the principal business of which is
the sale of alcoholic beverages for consumption off premises.
new text end

new text begin (l) "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 Community
Development Financial Institutions Fund of the United States Treasury Department with
respect to credits authorized by section 45D of the Internal Revenue Code;
new text end

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

new text begin (3) has direct lending experience serving businesses in disadvantaged communities
in the state and a primary mission of economic development.
new text end

new text begin (m) "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 January 1, 2015, at its original issuance solely in exchange
for cash;
new text end

new text begin (2) has at least 95 percent of its cash purchase price used by the issuer to make initial
qualified low-income community investments with reinvestments required to be made in
Minnesota at a minimum of 85 percent of the amount returned or recovered by the issuer;
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 commissioner as not exceeding the limitation contained in
subdivision 2. The term includes any qualified equity investment that does not meet the
provisions of this paragraph if the investment met the definition of a qualified equity
investment while under possession of a prior holder; and
new text end

new text begin (4) not more than five percent of the qualified equity investment is held as a loan
loss reserve.
new text end

new text begin (n) 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 (o) "Tax credit" means a credit against the tax otherwise due under chapter 290 or
any gross premiums tax under chapter 297I.
new text end

new text begin (p) "Taxpayer" means any individual or entity subject to the tax imposed under
chapter 290 or 297I.
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 taxpayer that makes
a qualified equity investment is entitled to a tax credit subject to the conditions and
limitations provided in this section.
new text end

new text begin (b) The tax credit amount equals 39 percent of the state tax credit authority allocated
pursuant to this section and assigned to a qualified equity investment. The amount of the
tax credit claimed must not exceed the amount of the taxpayer's state tax liability under
chapter 290 or 297I for the tax year for which the tax credit is claimed. On each credit
allowance date of the qualified equity investment the taxpayer, or subsequent holder of the
qualified entity investment, is entitled to a tax credit during the taxable year including the
credit allowance date. The tax credit is not transferable.
new text end

new text begin (c) Tax credits earned by a partnership, a limited liability company, an 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
the partners, members, or shareholders.
new text end

new text begin (d) Any amount of tax credit that the taxpayer is prohibited by this section from
claiming in a taxable year may be carried forward to any of the taxpayer's five subsequent
taxable years.
new text end

new text begin (e) The amount of allocation authority under this subdivision cannot exceed a
cumulative outstanding and unused allocation of $300,000,000.
new text end

new text begin Subd. 3. new text end

new text begin Certification. new text end

new text begin The issuer of the qualified equity investment must certify to
the commissioner the anticipated dollar amount of the investment to be made within the
state of Minnesota during the first 12-month period following the initial credit allowance
date.
new text end

new text begin Subd. 4. new text end

new text begin Amount certified. new text end

new text begin The commissioner shall certify up to $300,000,000 in
tax credit authority over a three-year period for taxable years beginning after December
31, 2014. The commissioner shall certify allocations of tax credit to issuers based on a
competitive review of applications received by the commissioner using criteria established
in subdivision 5.
new text end

new text begin Subd. 5. new text end

new text begin Application. new text end

new text begin (a) The commissioner shall develop an application form
calling for information necessary to evaluate Minnesota benefits from tax credit projects.
new text end

new text begin (b) Prior to allocating state tax credits to an issuer under this subdivision, the
commissioner shall consider the following:
new text end

new text begin (1) whether the qualified community development entity has demonstrated
experience providing capital or technical assistance to disadvantaged businesses or
communities in the state;
new text end

new text begin (2) the extent to which an applicant demonstrates direct experience in asset and
risk management and in fulfilling government compliance requirements, particularly for
tax credit program compliance;
new text end

new text begin (3) the extent to which an applicant demonstrates a capitalization strategy that
ensures that the economic benefit of the tax credit remains in the state;
new text end

new text begin (4) the extent to which the applicant establishes standards for wages and benefits
exceeding federal poverty guidelines and includes a means by which to monitor and
measure ongoing compliance with those standards;
new text end

new text begin (5) in circumstances where the state allocation is paired with a federal new market tax
allocation, the extent to which the applicant develops evaluation criteria and tools to assess
the extent to which the state allocation is necessary to produce the community benefit to
be provided through financing of the qualified active low-income community business;
new text end

new text begin (6) the financial contributions expected to be made to the project from nonstate
sources; and
new text end

new text begin (7) any other criteria the commissioner deems necessary.
new text end

new text begin Subd. 6. new text end

new text begin Credit recapture. new text end

new text begin (a) The commissioner shall recapture the tax credit
allowed under this section if any amount of the federal tax credit 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.
new text end

new text begin (b) Any tax credit that is subject to recapture must be recaptured from the taxpayer
that claimed the tax credit on a return.
new text end

new text begin Subd. 7. new text end

new text begin Allocation of credit. new text end

new text begin The commissioner shall allocate the credits based on
criteria in subdivision 5, provided that a proportional allocation of the available annual
allocation authority is allocated to qualified equity investment located in greater Minnesota
as defined in subdivision 1, paragraph (f).
new text end

new text begin Subd. 8. new text end

new text begin Suballocation. new text end

new text begin An approved qualified community development entity may
transfer all or a portion of its qualified equity investment authority from its qualified
community development entity to a subsidiary qualified community development entity
provided that the qualified community development entity provides written notification
to the commissioner within 30 days of the transfer. The subsidiary shall be subjected
to the same rules, requirements, and limitations applicable to the qualified community
development entity.
new text end

new text begin Subd. 9. new text end

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

new text begin (a) A community
development entity that has issued a qualified equity investment must submit an annual
report to the commissioner within 180 days after the end of the fiscal year of a community
development entity which includes a credit allowance date. The report shall include
information on investments made in the preceding year, including but not limited to the
following:
new text end

new text begin (1) the identity of the types of industries, identified by the North American Industry
Classification System Code, in which a qualified low-income community investment
were made;
new text end

new text begin (2) the names of the counties in which the qualified active low-income community
businesses are located which received qualified low-income community investments;
new text end

new text begin (3) the number of jobs created and retained by qualified active low-income
community businesses receiving qualified low-income community investments, including
verification that the average wages and benefits paid to full-time employees, based on an
hourly wage for a 40-hour work week, meet or exceed 105 percent of the federal poverty
income guidelines for a family of four; and
new text end

new text begin (4) other information and documentation required by the commissioner to verify
continued certification as a qualified community development entity under United States
Code, title 26, section 45D.
new text end

new text begin (b) Within 120 days after the end of the applicant's fiscal year which includes a credit
allowance date, an applicant must submit annual financial statements for the preceding tax
year in a form established by the commissioner.
new text end

new text begin Subd. 10. new text end

new text begin Application fees; account created. new text end

new text begin A nonrefundable application fee shall
be submitted by the qualified community development entity at the time the application is
submitted and shall be equal to an amount as published in the Minnesota new markets tax
credit program application. The commissioner may allow up to 25 percent of the fee to
be submitted up to 180 days following the allocation award and up to 25 percent of the
fee to be submitted up to 270 days following the allocation award. Application fees are
deposited in the new market tax credit administration account in the special revenue fund.
new text end

new text begin Subd. 11. new text end

new text begin Administrative fees. new text end

new text begin Upon the issuance of a qualified equity investment
by a qualified community development entity, an administrative fee in an amount
determined by the commissioner and published in the allocation agreement will be
deposited in the new markets tax credit administration account in the special revenue fund.
new text end

new text begin Subd. 12. new text end

new text begin Administrative expenses. new text end

new text begin Amounts in the new markets tax credit
administration account are appropriated annually to the commissioner for administrative
expenses related to administering the new markets tax credit in this section.
new text end

new text begin Subd. 13. new text end

new text begin Program report. new text end

new text begin The commissioner shall report to the legislature no
later than December 31, 2022, regarding the implementation of this tax credit, including
an evaluation of the success of the tax credit in the state.
new text end

new text begin Subd. 14. new text end

new text begin Expiration. new text end

new text begin This section expires seven taxable years following final
enactment, except that the commissioner's authority to allow the credit under subdivision
2 based on certificates that were issued under subdivision 3 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 2029, whichever is earlier.
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, 2014.
new text end

Sec. 2.

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

new text begin Subdivision 1. new text end

new text begin Definition. new text end

new text begin For purposes of this section, "qualified equity
investment" has the meaning given in section 116X.01, subdivision 1.
new text end

new text begin Subd. 2. new text end

new text begin Credit allowed. new text end

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

new text begin Subd. 3. new text end

new text begin Audit powers. new text end

new text begin Notwithstanding any issuance of credit by the
commissioner of employment and economic development under section 116X.01, 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 EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2014.
new text end

Sec. 3.

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.01, subdivision 1.
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.01, subdivision 2.
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