SB0373

SENATE BILL 373

51st legislature - STATE OF NEW MEXICO - first session, 2013

INTRODUCED BY

Phil A. Griego

AN ACT

RELATING TO TAXATION; PROVIDING FOR A NEW MARKET INCOME TAX CREDIT AND A NEW MARKET CORPORATE INCOME TAX CREDIT.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

SECTION 1. A new section of the Income Tax Act is enacted to read:

"[NEW MATERIAL] NEW MARKET INCOME TAX CREDIT.--

A. A taxpayer who files a New Mexico income tax return, is not a dependent of another taxpayer and who makes a qualified equity investment in a qualified community development entity on or after January 1, 2014 and prior to January 1, 2017 may claim and the department may allow a tax credit against the taxpayer's income tax liability in an amount equal to fifty-eight percent of the qualified equity investment applied in the corresponding seven consecutive taxable years as specified pursuant to Subsection B of this section. The tax credit provided in this section may be referred to as the "new market income tax credit".

B. A taxpayer may claim a new market income tax credit in an amount equal to:

(1) zero percent of the qualified equity investment in the taxable year in which the investment is made and in the taxable year immediately following the taxable year in which the investment was made;

(2) twelve percent of the qualified equity investment in the third, fourth and fifth taxable years following the taxable year in which the investment is made; and

(3) eleven percent of the qualified equity investment in the sixth and seventh taxable years following the taxable year in which the investment is made.

C. The purpose of the new market income tax credit is to attract affordable capital to small businesses in low-income communities, to create private sector jobs and to expand businesses.

D. The maximum aggregate of qualified equity investments that may be made on or after January 1, 2014 and prior to January 1, 2017 for the purposes of obtaining a new market income tax credit provided by this section or new market corporate income tax credit provided by the Corporate Income and Franchise Tax Act shall be one hundred twenty-five million dollars ($125,000,000). The maximum aggregate of new market income tax credits and new market corporate income tax credits provided pursuant to the Corporate Income and Franchise Tax Act that may be allowed shall be seventy-two million five hundred thousand dollars ($72,500,000).

E. The department may allow a maximum aggregate of ten million dollars ($10,000,000) for total new market income tax credits provided by this section and new market corporate income tax credits provided pursuant to the Corporate Income and Franchise Tax Act in one fiscal year. A taxpayer that submits a claim for a tax credit that is unable to receive the tax credit because the claims for the fiscal year exceed the limitation in this subsection shall be placed for the subsequent fiscal year at the front of a queue of new market income tax credit and new market corporate income tax credit claimants submitting claims in the subsequent fiscal year in the order of the date on which the credit is claimed.

F. Any amount of a credit claim that is carried forward pursuant to Subsection E of this section shall be subject to the limit on the aggregate amount of credit claims that may be allowed pursuant to Subsection D of this section in the fiscal year in which that amount is claimed.

G. A taxpayer shall apply for the credit within one year following the end of the calendar year in which the qualified equity investment was made; provided that a claim for the credit shall not be made or allowed with respect to any investment made after December 31, 2016. The new market income tax credit shall only be applied to the taxpayer's income tax liability. That portion of the new market income tax credit approved by the department that exceeds the taxpayer's income tax liability in the taxable year in which the credit is claimed shall not be refunded to the taxpayer. The credit may be carried forward for five consecutive years. The credit shall not be transferred to another taxpayer.

H. A husband and wife who file separate returns for a taxable year in which they could have filed a joint return may each claim only one-half of the credit that would have been allowed on a joint return.

I. A taxpayer who otherwise qualifies and claims a new market income tax credit that may be claimed by a partnership or limited liability company of which the taxpayer is a member may claim a credit only in proportion to the taxpayer's interest in the partnership or limited liability company. The total credit claimed by all members of the partnership or limited liability company shall not exceed the allowable credit pursuant to Subsection B of this section.

J. To be eligible for the new market income tax credit, the taxpayer shall submit an application to the economic development department on a form prescribed by the economic development department. A taxpayer may submit an application prior to making a qualified equity investment in a qualified community development entity for a determination of eligibility. In connection with the application a taxpayer shall provide:

(1) the name, address, tax identification number and certification as a federally qualified community development entity, including evidence that the service area of the qualified community development entity in which the taxpayer made a qualified equity investment includes New Mexico;

(2) a copy of the allocation agreement executed by the taxpayer;

(3) a certificate executed by the taxpayer:

(a) attesting that the allocation agreement remains in effect and has not been revoked or cancelled by the federal community development financial institutions fund; and

(b) stating the cumulative amount of allocations awarded to the taxpayer by the federal community development financial institutions fund;

(4) a description of the amount and structure of the qualified equity investment;

(5) a nonrefundable application fee of five thousand dollars ($5,000), which shall be paid to the economic development department and required of each application submitted; and

(6) any other information or documentation required by the economic development department to determine the taxpayer's eligibility for a new market income tax credit.

K. The economic development department shall promulgate rules establishing procedures to certify a taxpayer for purposes of obtaining a new market income tax credit. The rules shall ensure that the maximum aggregate of qualified equity investments is not exceeded and an equitable process to inform taxpayers that the maximum aggregate of qualified equity investments has been reached. The economic development department shall issue a dated certificate of eligibility containing the taxpayer's identifying information, the amount of the qualified equity investment, the identifying information of the qualified community development entity, the amount of credit the taxpayer is eligible for, the corresponding year following the taxable year in which the qualified equity investment was made and any other information the taxation and revenue department may require. All certificates of eligibility issued pursuant to this subsection shall be sequentially numbered, and an account of all certificates issued or destroyed shall be maintained by the economic development department. The taxation and revenue department shall audit the records of the new market income tax credit maintained by the economic development department on a periodic basis to ensure effective administration of the new market income tax credit and compliance with the Tax Administration Act and this section.

L. To claim a new market income tax credit, the taxpayer shall provide to the taxation and revenue department the certificate of eligibility issued by the economic development department pursuant to this section to the taxpayer for the taxable year for which a tax credit is allowed corresponding to the taxable year following the taxable year in which the qualified equity investment was made.

M. A qualified community development entity that receives a qualified equity investment shall provide the economic development department with:

(1) sufficiently detailed records with respect to investments made with the proceeds of qualified equity investments to allow the direct tracing of proceeds into qualified low-income community investments in qualified active low-income community businesses in the state;

(2) information about each qualified active low-income community business, including a description of:

(a) the type of business that received the qualified equity investment;

(b) the location of the business that received the qualified equity investment;

(d) the number of new jobs created;

(e) the number of New Mexico residents employed by the qualified active low-income community business and the aggregate wages paid to residents;

(f) the number of nonresidents employed by the qualified active low-income community business and the aggregate wages paid to nonresidents; and

(g) any other information required by the economic development department to assess objectively the effectiveness of the new market income tax credit.

N. The economic development department shall not issue a certificate of eligibility, and the taxation and revenue department shall recapture a tax credit allowed from a taxpayer if:

(1) any amount of a federal tax credit available with respect to a qualified equity investment is recaptured under Section 45D of the Internal Revenue Code; provided that the recapture amount shall be proportionate to the federal recapture with respect to that qualified equity investment;

(2) the qualified community development entity redeems or makes principal repayment of a qualified equity investment prior to the seventh taxable year following the taxable year in which the investment is made; provided that the recapture amount shall be proportionate to the amount of the redemption or repayment of that qualified equity investment;

(3) the qualified community development entity fails to:

(a) invest an amount equal to at least eighty-five percent of the qualified equity investment in qualified low-income community investments in New Mexico within twelve months of the date the qualified equity investment is made; or

(b) maintain an amount equal to at least eighty-five percent of the qualified equity investment in qualified low-income community investments in New Mexico through the seventh taxable year following the taxable year in which the qualified equity investment is made; provided that a qualified equity investment shall be deemed held by a qualified equity development entity, even if that investment is sold or repaid, if an amount equal to the capital returned or recovered from the original investment, exclusive of any profits realized, is invested in another qualified low-income community investment within twelve months of the receipt of that capital; or

(4) at any time prior to the seventh taxable year following the taxable year in which the qualified equity investment is made, the qualified community development entity uses the qualified equity investment to make qualified low-income community investments in any one qualified active low-income community business, including affiliated qualified active low-income community businesses, exclusive of reinvestments of capital returned or repaid with respect to earlier investments in that qualified active low-income community business and its affiliates, in excess of twenty-five percent of the qualified equity investment.

O. A qualified community development entity shall not be required to reinvest capital returned from a qualified low-income community investment and the qualified low-income community investment shall be considered held by the qualified community development entity through the seventh taxable year following the taxable year in which the qualified equity investment is made after the earlier of:

(1) the sixth taxable year following the taxable year in which the qualified equity investment is made and the proceeds of the qualified equity investment were used to make the qualified low-income community investment; or

(2) the date by which a qualified community development entity has made qualified low-income community investments with the proceeds of a qualified equity investment on a cumulative basis equal to at least one hundred fifty percent of the qualified equity investment.

P. The economic development department shall create an annual report that provides an objective assessment of the effectiveness of the new market income tax credit for annual presentation to the revenue stabilization and tax policy committee and any other appropriate legislative committees. For the purpose of assessing the effectiveness of the new market income tax credit the inability of the department to aggregate data due to sample size shall not relieve the economic development department of the requirement to report all relevant data to the legislature. The economic development department shall provide notice to qualified community development entities that receive qualified equity investments that information provided to the department may be revealed by the economic development department in reports to the legislature.

Q. As used in this section:

(1) "direct tracing" means the tracking, by accepted accounting methods, of the proceeds of a qualified equity investment into qualified low-income community investments;

(2) "long-term debt security" means any debt instrument issued by a qualified community development entity, at par value or a premium, 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, without cash interest payments on the debt instrument during the period beginning on the date of issuance and ending on the seventh year after issuance in an amount that exceeds the cumulative operating income, as defined by regulations adopted under Section 45D of the Internal Revenue Code, of the qualified community development entity for that period prior to giving effect to the expense of such cash interest payments; provided however, that the holder of the debt instrument may accelerate payments on the debt instrument in situations where the qualified community development entity has defaulted on covenants designed to ensure compliance with this section or Section 45D of the Internal Revenue Code;

(3) "low-income community" means "low-income community" as defined in Section 45D of the Internal Revenue Code;

(4) "qualified active low-income community business" means "qualified active low-income community business" as defined in Section 45D of the Internal Revenue Code, except that any business that derives or projects to derive fifteen percent or more of its annual revenue from the rental or sale of real estate shall not be considered a qualified active low-income community business; but the exclusion does not apply to a business that is controlled by, or under the common control with, another business if the second business does not derive or project to derive fifteen percent or more of its annual revenue from the rental or sale of real estate and is the primary tenant of the real estate leased from the first business; provided that a business shall be 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 community development 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;

(5) "qualified community development entity" means "qualified community development entity" as defined in Section 45D of the Internal Revenue Code; provided that the qualified community development entity has entered into an allocation agreement with the community development financial institutions fund of the United States department of treasury, with respect to credits authorized by Section 45D of the Internal Revenue Code, that includes New Mexico within the service areas set forth in the allocation agreement and includes a subordinate community development entity that also is a qualified community development entity under Section 45D of the Internal Revenue Code and is controlled by or under the common control with the qualified community development entity that received a qualified equity investment;

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

(a) is acquired on or after January 1, 2014 and prior to January 1, 2017, at its original issuance, solely in exchange for cash, or that was constituted a qualified equity investment in the hands of a prior holder;

(b) has at least eighty-five percent of the investment used by the qualified community development entity to make qualified low-income community investments in qualified active low-income community businesses located in New Mexico; and

(c) is designated by the economic development department as a qualified equity investment pursuant to this section and is certified by the economic development department as not exceeding the limitations on the aggregate amounts of the qualified equity investments that may be certified pursuant to this section or the Corporate Income and Franchise Tax Act; and

(7) "qualified low-income community investment" means any capital or equity investment in, or loan to, any qualified active low-income community business by the qualified community development entity."

SECTION 2. A new section of the Corporate Income and Franchise Tax Act is enacted to read:

"[NEW MATERIAL] NEW MARKET CORPORATE INCOME TAX CREDIT.--

A. A taxpayer that files a New Mexico corporate income tax return and that makes a qualified equity investment in a qualified community development entity on or after January 1, 2014 and prior to January 1, 2017 may claim and the department may allow a tax credit against the taxpayer's corporate income tax liability in an amount equal to fifty-eight percent of the qualified equity investment applied in the corresponding seven consecutive taxable years as specified pursuant to Subsection B of this section. The tax credit provided in this section may be referred to as the "new market corporate income tax credit".

B. A taxpayer may claim a new market corporate income tax credit in an amount equal to:

(2) twelve percent of the qualified equity investment in the third, fourth and fifth taxable years following the taxable year in which the investment is made; and

(3) eleven percent of the qualified equity investment in the sixth and seventh taxable years following the taxable year in which the investment is made.

C. The purpose of the new market corporate income tax credit is to attract affordable capital to small businesses in low-income communities to create private sector jobs and to expand businesses.

D. The maximum aggregate of qualified equity investments that may be made on or after January 1, 2014 and prior to January 1, 2017 for the purposes of obtaining a new market corporate income tax credit provided by this section or new market income tax credit provided by the Income Tax Act shall be one hundred twenty-five million dollars ($125,000,000). The maximum aggregate of new market corporate income tax credits provided by this section and new market income tax credits provided pursuant to the Income Tax Act that may be allowed shall be seventy-two million five hundred thousand dollars ($72,500,000).

E. The department may allow a maximum aggregate of ten million dollars ($10,000,000) for total new market corporate income tax credits provided by this section and new market income tax credits provided pursuant to the Income Tax Act in one fiscal year. A taxpayer that submits a claim for a tax credit that is unable to receive the tax credit because the claims for the fiscal year exceed the limitation in this subsection shall be placed for the subsequent fiscal year at the front of a queue of new market corporate income tax credit and new market income tax credit claimants submitting claims in the subsequent fiscal year in the order of the date on which the credit is claimed.

G. A taxpayer shall apply for the credit within one year following the end of the calendar year in which the qualified equity investment was made; provided that a claim for the credit shall not be made or allowed with respect to any investment made after December 31, 2016. The new market corporate income tax credit shall only be applied to the taxpayer's corporate income tax liability. That portion of the new market corporate income tax credit approved by the department that exceeds the taxpayer's corporate income tax liability in the taxable year in which the credit is claimed shall not be refunded to the taxpayer. The credit may be carried forward for five consecutive years. The credit shall not be transferred to another taxpayer.

H. To be eligible for the new market corporate income tax credit, the taxpayer shall submit an application to the economic development department on a form prescribed by the economic development department. A taxpayer may submit an application prior to making a qualified equity investment in a qualified community development entity for a determination of eligibility. In connection with the application, a taxpayer shall provide:

(2) a copy of the allocation agreement executed by the taxpayer;

(3) a certificate executed by the taxpayer and the qualified community development entity:

(a) attesting that the allocation agreement remains in effect and has not been revoked or cancelled by the federal community development financial institutions fund; and

(b) stating the cumulative amount of allocations awarded to the taxpayer by the federal community development financial institutions fund;

(4) a description of the amount and structure of the qualified equity investment;

(5) a nonrefundable application fee of five thousand dollars ($5,000), which shall be paid to the economic development department and required of each application submitted; and

(6) any other information or documentation required by the economic development department to determine the taxpayer's eligibility for a new market corporate income tax credit.

I. The economic development department shall promulgate rules establishing procedures to certify a taxpayer for purposes of obtaining a new market corporate income tax credit. The rules shall ensure that the maximum aggregate of qualified equity investments is not exceeded and an equitable process to inform taxpayers that the maximum aggregate of qualified equity investments has been reached. The economic development department shall issue a dated certificate of eligibility containing the taxpayer's identifying information, the amount of the qualified equity investment, the identifying information of the qualified community development entity, the amount of credit the taxpayer is eligible for, the corresponding year following the taxable year in which the qualified equity investment was made and any other information the taxation and revenue department may require. All certificates of eligibility issued pursuant to this subsection shall be sequentially numbered, and an account of all certificates issued or destroyed shall be maintained by the economic development department. The taxation and revenue department shall audit the records of the new market corporate income tax credit maintained by the economic development department on a periodic basis to ensure effective administration of the new market corporate income tax credit and compliance with the Tax Administration Act and this section.

J. To claim a new market corporate income tax credit, the taxpayer shall provide to the taxation and revenue department the certificate of eligibility issued by the economic development department pursuant to this section to the taxpayer for the taxable year for which a tax credit is allowed corresponding to the taxable year following the taxable year in which the qualified equity investment was made.

K. A qualified community development entity that receives a qualified equity investment shall provide the economic development department with:

(2) information about each qualified active low-income community business, including a description of:

(a) the type of business that received the qualified equity investment;

(b) the location of the business that received the qualified equity investment;

(d) the number of new jobs created;

(e) the number of New Mexico residents employed by the qualified active low-income community business and the aggregate wages paid to residents;

(f) the number of nonresidents employed by the qualified active low-income community business and the aggregate wages paid to nonresidents; and

(g) any other information required by the economic development department to assess objectively the effectiveness of the new market corporate income tax credit.

L. The economic development department shall not issue a certificate of eligibility and the taxation and revenue department shall recapture a tax credit allowed from a taxpayer if:

(3) the qualified community development entity fails to:

(4) at any time prior to the seventh taxable year following the taxable year in which the qualified equity investment is made, the qualified community development entity uses the qualified equity investment to make qualified low- income community investments in any one qualified active low-income community business, including affiliated qualified active low-income community businesses, exclusive of reinvestments of capital returned or repaid with respect to earlier investments in that qualified active low-income community business and its affiliates, in excess of twenty-five percent of the qualified equity investment.

M. A qualified community development entity shall not be required to reinvest capital returned from a qualified low-income community investment and the qualified low-income community investment shall be considered held by the qualified community development entity through the seventh taxable year following the taxable year in which the qualified equity investment is made after the earlier of:

N. The economic development department shall create an annual report that provides an objective assessment of the effectiveness of the new market corporate income tax credit for annual presentation to the revenue stabilization and tax policy committee and any other appropriate legislative committees. For the purpose of assessing the effectiveness of the new market corporate income tax credit, the inability of the department to aggregate data due to sample size shall not relieve the economic development department of the requirement to report all relevant data to the legislature. The economic development department shall provide notice to qualified community development entities that receive qualified equity investments that information provided to the department may be revealed by the economic development department in reports to the legislature.

O. As used in this section:

(1) "direct tracing" means the tracking, by accepted accounting methods, of the proceeds of a qualified equity investment into qualified low-income community investments;

(2) "long-term debt security" means any debt instrument issued by a qualified community development entity, at par value or a premium, 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, without cash interest payments on the debt instrument during the period beginning on the date of issuance and ending on the seventh year after issuance in an amount that exceeds the cumulative operating income, as defined by regulations adopted under Section 45D of the Internal Revenue Code, of the qualified community development entity for that period prior to giving effect to the expense of such cash interest payments; provided, however, that the holder of the debt instrument may accelerate payments on the debt instrument in situations where the qualified community development entity has defaulted on covenants designed to ensure compliance with this section or Section 45D of the Internal Revenue Code;

(3) "low-income community" means "low-income community" as defined in Section 45D of the Internal Revenue Code;

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

SECTION 3. APPLICABILITY.--The provisions of this act apply to taxable years beginning on or after January 1, 2014.

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