SF 1327

as introduced - 90th Legislature (2017 - 2018) Posted on 02/24/2017 08:55am

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.
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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) "Applicant" means a qualified community development entity as defined in paragraph
(l).
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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) "Commissioner" means the commissioner of employment and economic development.
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new text begin (e) "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 (f) "Greater Minnesota" means the area of the state that excludes the metropolitan area,
as defined in section 473.121, subdivision 2.
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new text begin (g) "Internal Revenue Code" has the meaning given in section 290.01, subdivision 31.
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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.
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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.
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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.
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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:
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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 (l) "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;
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new text begin (2) includes the state within the service area set forth in the allocation agreement; 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 (m) "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, 2017, 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 issuer;
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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
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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.
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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.
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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.
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new text begin (p) "Taxpayer" means any individual or entity subject to the tax imposed under chapter
290 or 297I.
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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.
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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.
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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.
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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.
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new text begin (e) The amount of allocation authority under this subdivision cannot exceed a cumulative
outstanding and unused allocation of $300,000,000.
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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,
2016. 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.
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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.
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new text begin (b) Prior to allocating state tax credits to an issuer under this subdivision, the
commissioner shall consider the following:
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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;
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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;
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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;
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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;
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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;
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new text begin (6) the financial contributions expected to be made to the project from nonstate sources;
and
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new text begin (7) any other criteria the commissioner deems necessary.
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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.
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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.
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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).
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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.
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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:
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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 a qualified low-income community investment were
made;
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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;
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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
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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.
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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.
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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.
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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.
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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.
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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 2031, whichever is earlier.
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new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2016.
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Sec. 2.

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

new text begin This section is effective for taxable years beginning after December
31, 2016.
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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.
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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.
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new text begin (c) This credit does not affect the calculation of police and fire aid under section 69.021.
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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