SB1301 - 502R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Title 20, chapter 2, article 1, Arizona Revised Statutes, is amended by adding section 20-224.08, to read:

START_STATUTE20-224.08. Premium tax credit for qualified equity investments

A. A credit is allowed against the premium tax liability imposed pursuant to section 20‑224, 20‑837, 20‑1010, 20‑1060 or 20‑1097.07 for a qualified community development entity that makes a qualified equity investment. The amount of the credit is the amount determined and certified by the Arizona commerce authority as provided by section 41‑1509.

B. To claim the credit under this section, the qualified community development entity shall provide the department a copy of the Arizona commerce authority certification provided pursuant to section 41‑1509. No credit is allowed under this section unless the taxpayer provides the certification.

C. If the allowable tax credit exceeds the state premium tax liability, the amount of the claim not used as an offset against the state premium tax liability may be carried forward as a tax credit against subsequent years' state premium tax liability for a period not exceeding five taxable years.

D. An insurer that claims a tax credit against state premium tax liability is not required to pay any additional retaliatory tax imposed pursuant to section 20‑230 as a result of claiming that tax credit.

E. A tax credit under this section is subject to recovery under section 41‑1509, subsection G.

F. The department may adopt rules necessary for the administration of this section. END_STATUTE

Sec. 2. Title 41, chapter 10, article 1, Arizona Revised Statutes, is amended by adding section 41-1509, to read:

START_STATUTE41-1509. Qualified community development entities; tax credits for qualified equity investments; qualifications; definitions

A. A qualified community development entity is eligible for income tax credits under section 43‑1074.03 or 43‑1174 or an insurance premium tax credit under section 20‑224.08 for making a qualified equity investment.

B. The amount of the credit shall be equal to the applicable percentage for the credit allowance date multiplied by the purchase price paid to the issuer of the qualified equity investment. On each credit allowance date of the qualified equity investment, the taxpayer or subsequent holder of the qualified equity INVESTMENT is entitled to use a portion of the tax credit during the taxable year, including the credit allowance date.

C. To claim a tax credit, the qualified community development entity shall file an application with the authority, on a form prescribed by the authority, that includes:

1. Evidence of the entity's certification as a qualified community development entity, including evidence that the service area is within this state.

2. A copy of the allocation agreement that is executed by the entity, or its controlling entity, and the community development financial institutions fund.

3. A certificate executed by an executive officer of the entity attesting that the allocation agreement remains effective and has not been revoked or cancelled by the community development financial institutions fund.

4. A description of the proposed amount, structure and purchaser of the equity investment of long-term debt security.

5. Identifying information for any taxpayer eligible to use tax credits earned as a result of the issuance of the qualified equity investment.

6. Any Information regarding the proposed use of proceeds from the issuance of the qualified equity investment.

7. An application fee of five thousand dollars. The fee shall be deposited, pursuant to sections 35-146 and 35-147, in the Arizona commerce authority fund established by section 41-1506.

8. Other information required by the authority.

D. Within ninety days after the effective date of this section, The authority shall begin accepting applications under this section. The authority shall review and make a determination with respect to each application within thirty days after receiving the application. The authority may request additional information from the applicant in order to make an informed decision regarding the eligibility of the qualified community development entity. The authority shall grant or deny the application in full or in part. If the authority denies any part of the application, the authority 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 AUTHORITY or otherwise completes its application within fifteen days of the notice of denial, the application shall be 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 fifteen day period, the application remains denied and must be resubmitted in full with a new submission date.

E. If the application is deemed complete and subject to subsection F of this section, the authority shall certify the proposed equity investment or long-term debt security as a qualified equity investment that is eligible for tax credits under this section. The authority shall provide written notice of the certification to the qualified community development entity. The notice shall include the names of the taxpayers who are eligible to use the credits and the respective credit amounts.

F. The authority shall not certify tax credits under this section exceeding twenty million dollars in any fiscal year. If qualifying applications exceed twenty million dollars in a fiscal year, the authority shall authorize credits in the order of the date and time that the applications are received by the authority, as evidenced by the time and date stamped on the application when received by the authority. All applications shall be filed in person at the Arizona commerce authority. If an application is received that, if authorized, would require the authority to exceed the twenty million dollar limit, the authority shall only grant the applicant the remaining amount of tax credits that would not exceed the twenty million dollar limit for that fiscal year. After the authority authorizes twenty million dollars in tax credits in the fiscal year, the authority shall deny any subsequent applications that are received. The authority shall certify to the qualified community development entity and to the department of revenue the amount of the tax credit that is authorized for purposes of sections 20-224.08, 43-1074.03 and 43-1174.

G. WITHIN thirty DAYS AFTER RECEIVING NOTICE OF CERTIFICATION, THE QUALIFIED COMMUNITY DEVELOPMENT ENTITY SHALL ISSUE THE QUALIFIED EQUITY INVESTMENT AND RECEIVE CASH IN THE AMOUNT OF THE CERTIFIED AMOUNT. THE QUALIFIED COMMUNITY DEVELOPMENT ENTITY MUST PROVIDE THE AUTHORITY WITH EVIDENCE OF THE RECEIPT OF THE CASH INVESTMENT WITHIN ten BUSINESS DAYS AFTER RECEIPT. IF THE QUALIFIED COMMUNITY DEVELOPMENT ENTITY DOES NOT RECEIVE THE CASH INVESTMENT AND ISSUE THE QUALIFIED EQUITY INVESTMENT WITHIN thirty DAYS FOLLOWING the RECEIPT OF THE CERTIFICATION NOTICE, THE CERTIFICATION LAPSEs, AND THE ENTITY MAY NOT ISSUE THE QUALIFIED EQUITY INVESTMENT WITHOUT REAPPLYING TO THE authority FOR CERTIFICATION. A CERTIFICATION THAT LAPSES REVERTS BACK TO THE DEPARTMENT of revenue AND MAY BE REISSUED pursuant to this section.

H. The issuer of the qualified equity investment shall certify to the authority the anticipated dollar amount of those investments to be made in this state during the first twelve-month period following the initial credit allowance date. If, on the second credit allowance date, the actual dollar amount of those investments is different than the amount estimated, the authority shall adjust the credits for the second allowance date to account for that difference.

I. Provided that the proceeds of a qualified equity investment are invested completely in qualified community investments in this state, the purchase price, for the purpose of calculating the credit under this section, shall equal one hundred per cent of the qualified equity investment, regardless of the location of investments made with the proceeds of other qualified equity investments that are issued by the same community development entity.

J. To the extent that a portion of a qualified equity investment is not invested in this state, the purchase price shall be reduced by the same ratio, independently of the location of investments made with proceeds of other qualified equity investments that are issued by the same community development entity. In this case, the burden is on the community development entity to establish the extent to which the qualified equity investments are fully invested in this state, either by establishing that the community development entity itself invests exclusively in this state, or otherwise establishing, through direct tracing, the portion of a qualified equity investment that is invested solely in this state.

K. The qualified community development entity is subject to recovery of the amount of tax credits allowed if either of the following apply:

1. The 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. In this case, the department's recovery shall be proportionate to the federal recapture with respect to the qualified equity investment.

2. The issuer redeems or makes principal repayment with respect to a qualified equity investment before the seventh anniversary of the issuance of the qualified equity investment. In this case, the recovery shall be proportionate to the amount of the redemption or repayment with respect to the qualified equity investment.

L. Notwithstanding subsection K of this section, an investment shall be considered held by an issuer even if the investment has been sold or repaid if the issuer reinvests an amount equal to the capital returned to or recovered by the issuer from the original investment, exclusive of any profits realized, in another qualified community investment within twelve months of the receipt of the capital. An issuer shall not be required to reinvest capital returned from qualified community investments after the sixth anniversary of the issuance of the qualified equity investment where the proceeds of capital were used to make the qualified community investment, and the qualified community investment shall be considered held by the issuer through the seventh anniversary of the qualified equity investment's issuance.

M. The Enforcement of the twelve-month period under subsection H of this section and the recovery provisions under subsection K of this section are subject to a six-month cure period. No adjustment under subsection H of this section or recovery under subsection K of this section shall occur until the qualified community development entity is given notice of noncompliance and given six months from the date of the notice to cure the noncompliance.

N. The chief executive officer shall issue letter rulings regarding tax credits under this section. The chief executive officer shall respond to a request for a letter ruling within sixty days of receiving the request. The applicant may provide a draft letter ruling for the chief executive officer's consideration. The applicant may withdraw the request for a letter ruling, in writing, before the issuance of the letter ruling. The chief executive officer may deny issuing a letter ruling for good cause by indicating the specific reasons for refusing to issue the letter ruling. Letter rulings shall bind the chief executive officer and the officer's agents and any successors until all of the tax credits are claimed under this section on income tax returns. Subject to rules adopted under this section, the letter ruling shall apply only to the applicant. When issuing letter rulings and making other determinations under this subsection, the AUTHORITY and the department of revenue, to the extent applicable, shall seek guidance from section 45D of the internal revenue code of 1986 and any CORRESPONDING rules and regulations. Good cause reasons under this subsection for the chief executive officer to deny issuing a letter ruling include any of the following:

1. The applicant requests that the chief executive officer determine whether a statute is constitutional or a regulation is lawful.

2. The request involves a hypothetical situation or alternative plans.

3. The facts or issues that are presented in the request are unclear, overbroad, insufficient or otherwise inappropriate as a basis to issue a letter ruling.

4. The issue is currently being considered in a rule making procedure, contested case or other agency or judicial proceeding that may definitely resolve the issue.

O. Within ninety days after the effective date of this section, the authority shall adopt rules to administer this section.

P. For the purposes of this section:

1. "Applicable percentage" means zero per cent for the first two credit allowance dates, seven per cent for the third credit allowance date and eight per cent for the next four credit allowance dates.

2. "Credit allowance date" means either:

(a) The initial date that a qualified equity investment is made.

(b) Any of the six subsequent anniversary dates after the initial date that a qualified equity investment is made.

3. "Letter ruling" means a written interpretation of law to a specific set of facts as provided by the applicant who requests a letter ruling.

4. "Long-term debt security" means any debt instrument that is 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 before its original maturity date. The qualified community development entity that issues the debt instrument may not make cash interest payments on the debt instrument during the period beginning on the date of issuance and ending on the final credit allowance date in an amount that exceeds the cumulative operating income, as defined in regulations adopted pursuant to section 45D of the internal revenue code, of the qualified community development entity for that period before giving effect to the expense of such cash interest payments. This paragraph does not limit the holder's ability to accelerate payments on the debt instrument in situations where the issuer has defaulted on covenants designed to ensure compliance with this section or section 45D of the internal revenue code.

5. "Purchase price" means the amount that is paid to the issuer of a qualified equity investment for the qualified equity investment.

6. "Qualified Active Community Business" has the same meaning prescribed by section 45D of the internal revenue code and 26 Code of Federal Regulations section 1.45D-1. A business is considered a qualified active community business for the duration of the qualified community development entity's investment in, or loan to, the business if the entity reasonably expects, at the time it makes the investment or loan, that the business will continue to satisfy the requirements for being a qualified active community business throughout the entire period of the investment or loan. Qualified active community business does not include any business that derives or projects to derive fifteen per cent or more of its annual revenue from the rental or sale of real estate unless the business is controlled by, or under common control with, another business if both of the following apply to the second business:

(a) The second business does not derive or project to derive fifteen per cent or more of its annual revenue from the rental or sale of real estate.

(b) The second business is the primary tenant of the real estate leased from the first business.

7. "Qualified community development entity" has the same meaning prescribed by section 45D of the internal revenue code provided that the entity has entered into an allocation agreement with the community development financial institutions fund of the United States treasury department with respect to credits under section 45D of the internal revenue code, including this state within the service area established in the allocation agreement. Qualified community development entity includes affiliated entities and subordinate community development entities of any such qualified community development entity.

8. "Qualified community investment" means any capital or equity investment in, or loan to, any qualified active community business. With respect to any single qualified active community business, the maximum amount of qualified community investments made in such business, on a collective basis with all of its affiliates, shall be ten million dollars whether issued to one or several qualified community development entities.

9. "Qualified equity investment":

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

(i) is acquired after the effective date of this section at its original issuance solely in exchange for cash.

(ii) Has at least eighty-five per cent of its cash purchase price used by the issuer to make qualified community investments in qualified active community businesses located in this state by the first anniversary of the initial credit allowance date.

(iii) Is designated by the issuer as a qualified equity investment under this subdivision and is certified by the authority.

(b) Includes any qualified equity investment that does not meet the requirements of paragraph 9, subdivision (a) of this subsection if the investment was a qualified equity investment in the hands of a prior holder. END_STATUTE

Sec. 3. Section 43-222, Arizona Revised Statutes, is amended to read:

START_STATUTE43-222. Income tax credit review schedule

The joint legislative income tax credit review committee shall review the following income tax credits:

1. For years ending in 0 and 5, sections 43‑1075, 43‑1075.01, 43‑1079.01, 43‑1087, 43‑1088, 43‑1090.01, 43‑1163, 43‑1163.01, 43‑1167.01, 43‑1175 and 43‑1182.

2. For years ending in 1 and 6, sections 43‑1074.02, 43‑1083, 43‑1083.02, 43‑1085.01, 43‑1164.02, 43-1164.03 and 43‑1183.

3. For years ending in 2 and 7, sections 43‑1073, 43-1074.03, 43‑1079, 43‑1080, 43‑1085, 43‑1086, 43‑1089, 43‑1089.01, 43‑1089.02, 43‑1090, 43-1164, 43‑1167, 43‑1169, 43-1174, 43‑1176 and 43‑1181.

4. For years ending in 3 and 8, sections 43‑1074.01, 43‑1081, 43‑1168, 43‑1170 and 43‑1178.

5. For years ending in 4 and 9, sections 43‑1076, 43‑1081.01, 43‑1083.01, 43‑1084, 43‑1162, 43‑1164.01, 43‑1170.01 and 43-1184. END_STATUTE

Sec. 4. Title 43, chapter 10, article 5, Arizona Revised Statutes, is amended by adding section 43-1074.03, to read:

START_STATUTE43-1074.03. Credit for qualified equity investments

A. A credit is allowed against the taxes imposed by this title for a qualified community development entity that makes a qualified equity investment. The amount of the credit is the amount determined and certified by the Arizona commerce authority as provided by section 41‑1509.

B. To claim the credit under this section, the taxpayer shall attach to its tax return a copy of the Arizona commerce authority certification provided pursuant to section 41‑1509. No credit is allowed under this section unless the taxpayer provides the certification.

C. If the allowable tax credit exceeds the taxes due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used to offset the taxes under this title may be carried forward to the next three consecutive taxable years as a credit against subsequent years' income tax liability.

D. Individuals who are co‑owners of a business, including partners in a partnership and shareholders of an S corporation as defined in section 1361 of the internal revenue code, may each claim only their individual pro rata share of the credit allowed under this section based on their ownership interests. The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

E. A tax credit under this section is subject to recovery under section 41-1509, subsection K.END_STATUTE

Sec. 5. Title 43, chapter 11, article 6, Arizona Revised Statutes, is amended by adding section 43-1174, to read:

START_STATUTE43-1174. Credit for qualified equity investments

A. A credit is allowed against the taxes imposed by this title for a qualified community development entity that makes a qualified equity investment. The amount of the credit is the amount determined and authorized by the Arizona commerce authority as provided by section 41‑1509.

D. Co‑owners of a business, including partners in a partnership, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest. The total of the credits allowed all such owners of the business may not exceed the amount that would have been allowed for a sole owner of the business.

e. A tax credit under this section is subject to recovery under section 41-1509, subsection K. END_STATUTE

Sec. 6. Purpose

Pursuant to section 43-223, Arizona Revised Statutes, the purpose of sections 43-1074.03 and 43-1174, Arizona Revised Statutes, as added by this act, is to encourage taxpayers to make qualified equity investments in this state.