HF 1303

1st Engrossment - 90th Legislature (2017 - 2018) Posted on 03/15/2017 01:00pm

A bill for an act
relating to taxation; income; establishing a new markets tax credit program;
requiring a report; appropriating money; amending Minnesota Statutes 2016,
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.
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new text begin (b) "Affiliate" means a business that shares 50 percent or more common ownership with
another entity.
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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.
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new text begin (d) "Applicant" means a qualified community development entity as defined in paragraph
(m).
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new text begin (e) "Commissioner" means the commissioner of employment and economic development.
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new text begin (f) "Credit allowance date" means:
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new text begin (1) the date on which a qualified equity investment is initially made; and
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new text begin (2) each of the six anniversary dates thereafter.
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new text begin (g) "Greater Minnesota" means the area of the state that excludes the metropolitan area.
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new text begin (h) "Internal Revenue Code" has the meaning given in section 290.01, subdivision 31.
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new text begin (i) "Investments held by a qualified community development entity" means any capital
or equity investment or loan held by a qualified community development entity, even if the
qualified low-income community 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
within 12 months of the return or recovery of the capital investment. For the purposes of
this requirement, 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 qualified low-income community
investment is considered to be held by the qualified community development entity 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.
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new text begin (j) "Metropolitan area" means the area defined in section 473.121, subdivision 2.
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new text begin (k) "Purchase price" means the amount paid by an investor as a qualified equity
investment to the qualified community development entity in exchange for a tax credit
allocation.
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new text begin (l) "Qualified active low-income community business" has the meaning given in section
45D of the Internal Revenue Code, or is a project the commissioner deems to have regional
economic significance. The term does not include:
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new text begin (1) any trade or business engaged in insurance, banking, lending, lobbying, political
consulting, or leisure; or
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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.
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new text begin (m) "Qualified community development entity" has the meaning given in section 45D
of the Internal Revenue Code; provided that the entity:
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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 or has received a Minnesota
allocation under this bill within the past three years;
new text end

new text begin (2) includes Minnesota within the service area set forth in the allocation agreement and
has an office or headquarters in Minnesota from which it conducts business; and
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new text begin (3) has direct lending experience serving businesses in disadvantaged communities in
the state and a primary mission of economic development.
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new text begin (n) "Qualified equity investment" means an equity investment in a qualified community
development entity, if the equity investment:
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new text begin (1) is acquired after January 1, 2018, at its original issuance solely in exchange for cash;
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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 qualified
community development entity;
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new text begin (3) is designated by the qualified community development entity 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
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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 (o) "Qualified low-income community investment" means any investment in, or loan
to, any qualified active low-income community business.
new text end

new text begin (p) "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 (q) "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 equity investment, is entitled to a tax credit during the taxable year including the
credit allowance date. The tax credit equals the qualified equity investment multiplied by
the applicable percentage. 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 subsequent taxable years.
new text end

new text begin (e) An entity claiming a tax credit under this chapter is not required to pay any 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 as a result of claiming that credit.
new text end

new text begin (f) 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 (a) The qualified community development entity receiving the
qualified equity investment must certify to the commissioner the dollar amount of the loan
or investment to be made within the state of Minnesota during the first 24-month period
following the initial credit allowance date, subject to a maximum amount of $15,000,000
of all qualified low-income community investments from all sources to a specific business
and all of its affiliates collectively, beyond which no Minnesota new markets tax credit is
allowed to that business or any of its affiliates.
new text end

new text begin (b) If the qualified community development entity or transferee as allowed in subdivision
8 does not receive the qualified equity investment and issue the qualified low-income
community investment within 24 months following receipt of the certification notice, the
certification lapses and the entity may not accept the qualified equity investment without
reapplying to the commissioner for certification. Lapsed certifications revert to the
commissioner and must be reissued, first, pro rata to other applicants whose qualified equity
investment allocations were reduced under subdivision 6 and, thereafter, in accordance with
the application process.
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new text begin (c) 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 qualified active low-income community business and the qualified certified
development entity reasonably expects, when the qualified certified development entity
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 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,
2017. The commissioner shall certify allocations of tax credit to qualified community
development entities based on a competitive review of applications received by the
commissioner using criteria established in subdivisions 5 and 6.
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. A qualified
community development entity that seeks to have an equity investment designated as a
qualified equity investment and eligible for tax credits under this chapter may apply to the
commissioner on or after final enactment, according to the application deadline. The
application must include the following:
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new text begin (1) evidence of the applicant's certification as a qualified community development entity,
such as a copy of an allocation agreement that is executed by the applicant or its controlling
entity and the Community Development Financial Institutions Fund under section 116X.02,
subdivision 10, and that includes a service area including the state of Minnesota, or a
Minnesota allocation within the past three years;
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new text begin (2) evidence that the applicant or its controlling entity has received at least $20,000,000
of allocation of qualified equity investment authority from the Community Development
Financial Institutions Fund, or has received a Minnesota allocation within the past three
years;
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new text begin (3) evidence that the applicant, its controlling entity, and subsidiary qualified community
development entities of the controlling entity have collectively made at least $20,000,000
in qualified low-income community loans or investments under the federal new markets
tax credit program, and either:
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new text begin (i) at least $20,000,000 of those investments were made in the state of Minnesota; or
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new text begin (ii) the applicant has direct lending experience serving businesses in disadvantaged
communities in the state of at least $10,000,000 and a primary mission of economic
development serving areas including part or all of the state of Minnesota;
new text end

new text begin (4) evidence that the qualified community development entity has demonstrated
experience providing capital or technical assistance to disadvantaged businesses or
communities in the state;
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new text begin (5) 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;
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new text begin (6) the extent to which an applicant demonstrates a capitalization strategy that ensures
that the economic benefit of the tax credit remains in the state;
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new text begin (7) 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;
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new text begin (8) 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;
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new text begin (9) a plan describing the proposed types of qualified active low-income community
businesses in which the applicant expects to invest, and the financial contributions expected
to be made to the project from nonstate sources;
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new text begin (10) a nonrefundable application fee of $5,000, which is required to be paid to the
commissioner for each application submitted; and
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new text begin (11) any other criteria the commissioner deems necessary.
new text end

new text begin (b) The requirements of paragraph (a), clauses (2) and (3), do not apply to a qualified
community development entity incorporated or headquartered in Minnesota, if the qualified
community development entity provides evidence of direct experience with at least
$20,000,000 of allocation of qualified equity investment authority from the Community
Development Financial Institutions Fund as:
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new text begin (1) a direct lender to a new markets tax credit structure; or
new text end

new text begin (2) a direct investor to such a structure, as long as the applicant has direct lending
experience serving businesses in disadvantaged communities in the state of at least
$10,000,000 and a primary mission of economic development serving areas including part
or all of the state of Minnesota.
new text end

new text begin Subd. 6. new text end

new text begin Consideration of application. new text end

new text begin (a) Within 90 days after the application deadline,
for each completed application containing all of the information in subdivision 5, including
the payment of the application fee, 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 qualified community development entity of the grounds for the denial. If
the qualified community development entity provides any additional information required
by the commissioner 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 until the next application
date.
new text end

new text begin (b) If the application required under this section is complete, the commissioner shall
certify the proposed equity investment as a qualified equity investment that is eligible for
tax credits under this chapter, subject to the limitations in subdivision 4 and the pro rata
award of allocations to eligible applicants within the limitations. The commissioner shall
provide written notice of the certification to the qualified community development entity.
The notice must include the name of the qualified community development entity and the
credit amount. Before any tax credits are claimed under this chapter, the qualified community
development entity shall provide written notice to the commissioner 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 under section 116X.04, the
qualified community development entity shall notify the commissioner of the change.
new text end

new text begin (c) The commissioner shall certify up to $300,000,000 in qualified equity investments,
to be spread evenly over three years. The commissioner shall certify qualified equity
investments to those eligible applicants who have submitted a complete application meeting
all requirements, subject to the limitations in subdivision 4, with no more than $100,000,000
per applicant and its affiliates across all three years. For applications that are complete and
received within the same application round, the commissioner 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, up to the total available in that year per entity, to the total amount
of qualified equity investments requested in all eligible and complete applications received.
new text end

new text begin (d) Notwithstanding the requirements of this subdivision, the commissioner shall certify
half of the available annual allocation authority to qualified equity investments located in
the metropolitan area and half to qualified equity investments located in greater Minnesota.
new text end

new text begin Subd. 7. 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 for a specific qualified equity investment if any amount of the federal tax
credit available with respect to a qualified equity investment is recaptured under section
45D of the Internal Revenue Code due to any of the following reasons:
new text end

new text begin (1) the qualified active low-income community business receiving the benefit of the
investment fails to reasonably document at the initial loan or investment closing evidence
of being a qualified active low-income community business;
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new text begin (2) the qualified community development entity under this section causes the recapture
of the federal tax credit under section 45D of the Internal Revenue Code for the specific
qualified equity investment by losing its certification as a qualified community development
entity as determined by the Community Development Financial Institutions Fund within
the United States Department of Treasury; or
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new text begin (3) if any of the qualified equity investment is returned to the investor prior to the end
of the compliance period. If the tax credit is recaptured under this section, no further tax
credits are allowed for the investor for the specific qualified equity investment.
new text end

new text begin (b) If there are no federal tax credits involved in a specific qualified equity investment
but any of the reasons listed in paragraph (a), clauses (1) to (3), occur, the commissioner
shall recapture the tax credit allowed under this section for that specific qualified equity
investment.
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new text begin (c) Notwithstanding the recapture provisions of this subdivision, any portion of the tax
credit already rightfully claimed by the investor for the specific qualified equity investment
for years ended before the year in which the recapture occurs, is not recaptured.
new text end

new text begin (d) Enforcement of each of the above recapture provisions is subject to a six-month cure
period after the qualified community development entity determines, should have reasonably
determined, or has received notice of, the noncompliance.
new text end

new text begin (e) If the commissioner disallows tax credits under this subdivision, the commissioner
may also impose penalties on the qualified community development entity that received
the qualified equity investment for which tax credits are disallowed, not to exceed one-half
of one percent of the qualified equity investment.
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new text begin (f) 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. 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 subject 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 qualified
community development entity that has received a qualified equity investment must submit
an annual report to the commissioner within 180 days after the end of the fiscal year of a
qualified 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:
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new text begin (1) the identity of the types of industries, identified by the North American Industry
Classification System Code, in which qualified low-income community investments were
made;
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new text begin (2) the identity of the types of industries, identified by the North American Industry
Classification System Code, in which qualified low-income community investments were
made;
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new text begin (3) 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 (4) 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
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new text begin (5) other information and documentation required by the commissioner to:
new text end

new text begin (i) determine the investments made in the metropolitan area and greater Minnesota;
new text end

new text begin (ii) verify continued certification as a qualified community development entity under
section 45D of the Internal Revenue Code; and
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new text begin (iii) any other necessary reporting data.
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 qualified
community development entity and any subsidiary qualified community development entities
having a credit allowance date 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, initially set at $5,000. 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 receipt of a qualified equity investment by a
qualified community development entity, an administrative fee in an amount determined
by the commissioner, no more than two percent of the qualified equity investment, 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, 2024, regarding the implementation of this tax credit, including an
evaluation of the success of the tax credit in the state. The report must include:
new text end

new text begin (1) the extent to which wages and benefits for the qualified equity investments exceed
federal poverty guidelines;
new text end

new text begin (2) the community development benefits resulting from qualified equity investments,
including permanent job creation or retention, construction jobs, and job training;
new text end

new text begin (3) the financial contributions made to projects from sources other than the state new
markets tax credit program;
new text end

new text begin (4) the extent to which the reduced cost of borrowing or other flexible or nontraditional
terms are provided to the borrower, thereby ensuring that the benefits of the tax credit equity
accrued to the borrower; and
new text end

new text begin (5) other information the commissioner deems necessary.
new text end

new text begin Subd. 14. new text end

new text begin Economic significance determination. new text end

new text begin The commissioner must provide
written explanation concerning any "qualified active low-income business" not eligible
under section 45D of the Internal Revenue Code, but allowed under subdivision 1, paragraph
(l), to the chairs and ranking minority members of the legislative committees and budget
divisions with jurisdiction over the agency. The written explanation must be provided as
soon after the determination as practicable.
new text end

new text begin Subd. 15. new text end

new text begin Expiration. new text end

new text begin This section expires nine 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 2031, 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, 2017.
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 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, 2017.
new text end

Sec. 3.

Minnesota Statutes 2016, 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

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment and
applies to premium tax returns originally due on or after December 31, 2017.
new text end