HB2590 - 532R

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 rural growth investment; definitions

A. For taxable years beginning from and after December 31, 2018, a credit is allowed against the premium tax liability imposed pursuant to section 20‑224, 20-230, 20‑837, 20‑1010, 20‑1060 or 20‑1097.07 for credit‑eligible capital contributions to a rural growth fund as certified by the Arizona commerce authority pursuant to section 41-1509, except that a credit is not allowed against the portion of the tax payable to:

1. The fire fighter's relief and pension fund pursuant to section 20‑224.

2. The public safety personnel retirement system pursuant to section 20‑224.01.

B. The aggregate amount of the credit is the amount of the taxpayer's credit‑eligible capital contribution to the rural growth fund as specified in the tax credit certificate issued by the Arizona commerce authority pursuant to section 41-1509. The taxpayer may claim and apply up to twenty-five percent of the aggregate amount of the credit for each taxable year that includes the third through sixth anniversaries of the closing date stated on the certificate, exclusive of any amount carried forward from preceding taxable years pursuant to subsection C of this section. To claim the credit, the taxpayer must submit a copy of the tax credit certificate with each year's premium tax report.

C. If the amount of the allowable credit for a taxable year exceeds the amount of tax due, the amount of the claim not used to offset the tax may be carried forward for not more than ten consecutive taxable years as a credit against subsequent years' tax liability.

D. If the Arizona commerce authority revokes the taxpayer's tax credit certificate pursuant to section 41-1509, subsection L, the department shall disallow any further credits claimed by that taxpayer.

E. The taxpayer to whom the tax credit certificate was issued may transfer the certificate and any carryforward amount under subsection C of this section to an affiliate of the taxpayer, and the affiliate may apply any remaining amount of the credit and carryforward against the affiliate's premium tax liability, subject to the following:

1. The transfer is limited to a single affiliate, and the affiliate may not, in turn, transfer the credit to any other taxpayer.

2. Both the transferor and transferee must submit a written notice of the transfer to the department of insurance and the Arizona commerce authority within thirty days after the transfer. If the transferee is subject to income tax rather than premium tax, the arizona commerce authority shall immediately notify the department of revenue of the transfer. Each notice from the transferor and transferee shall include:

(a) The serial number of the tax credit certificate assigned by the Arizona commerce authority.

(b) The name and tax identifier of both the transferor and transferee.

(d) The balance of unused credit installments.

3. The transfer of the credit does not extend the time in which the credit may be used.

4. If the Arizona commerce authority revokes the tax credit certificate for any reason under section 41-1509, the department of insurance shall disallow any further credit claimed by the transferee. Any recourse by the transferee is against the transferor.

5. In the case of any failure to comply with this subsection, the department of insurance shall disallow the tax credit until the taxpayer is in full compliance.

F. For the purposes of this section:

1. "Affiliate" means an entity that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with another entity.

2. "Control" means directly or indirectly holding the majority voting or ownership interest or control of the day‑to‑day operations by contract or by law. 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. Rural growth investments; rural growth funds; tax incentives; reporting requirements; definitions

A. Beginning from and after August 31, 2018, the Arizona commerce authority shall establish and administer a procedure for accepting and evaluating applications for approval of tax-advantaged rural growth investments as provided by this section and shall accept applications on or before October 1, 2018.

B. A qualified investment company, as described in paragraph 1 of this subsection, may apply to the authority for approval as a rural growth fund for the purposes of this section. The application must be accompanied by a fee in an amount prescribed by the authority. The application must be in a form prescribed by the authority and include all of the following:

1. A copy of the applicant's, or an affiliate of the applicant's, license as either:

(a) A rural business investment company under 7 United States Code section 2009cc.

(b) A small business investment company under 15 United States Code section 681.

2. Evidence that as of the application date the applicant or affiliates of the applicant have invested at least twenty-five million dollars in nonpublic companies located in nonmetropolitan counties as defined by the United States office of management and budget on the basis of county or county-like equivalents.

3. The total amount of the rural growth fund investment authority sought by the applicant.

4. A business plan that includes:

(a) An estimate of the number of full-time employment positions that will be created or retained in this state as a result of the applicant's rural growth investments.

(b) A projection of state and local tax revenue to be generated by the applicant's proposed rural growth investments prepared by a nationally recognized third-party independent economic forecasting firm using a dynamic economic forecasting model that analyzes the results of the applicant's business plan over the ten years following the application date.

5. A signed affidavit from each investor stating the amount of credit‑eligible capital contributions the investor commits to make. The amount of credit‑eligible capital contributions may not total more than sixty percent of the total rural growth fund investment authority sought by the applicant.

C. For the purposes of this section:

1. The authority may not approve more than fifty million dollars in investment authority and may not approve more than thirty million dollars in credit‑eligible capital contributions. If applications for investment authority exceed that amount, the authority shall proportionally reduce the investment authority for each approved application as necessary to stay within the limit.

2. The authority may not approve more than twenty million dollars of investment authority for any individual rural growth fund.

3. The amount of credit-eligible capital contributions may not exceed sixty percent of the amount of investment authority either under any rural growth fund application or under the aggregate amounts approved by the authority under paragraph 1 of this subsection.

D. Within thirty days after receiving a complete and correct application, the authority shall determine whether to approve or deny the application. An approval shall include the amount of the approved investment authority. The authority may deny an application only for one or more of the following reasons:

1. The application is incomplete.

2. The applicant fails to meet either of the criteria prescribed by subsection B, paragraph 1 or 2 of this section.

3. The projected state and local tax revenue under the applicant's business plan does not demonstrate a positive revenue flow that would exceed, over a ten-year period, the cumulative amount of tax credits that would be issued to the applicant's investors under sections 20-224.08, 43‑1075 and 43-1163, as applicable.

4. The amount of credit-eligible capital contributions described in the application exceeds sixty percent of the total amount of investment authority sought under the application.

5. The authority has already approved the maximum amount of investment authority and credit-eligible capital contributions allowed under subsection C of this section.

E. If the authority denies an application, the applicant, within fifteen days after receiving notice of denial, by mail or electronically, may provide additional information to complete, clarify or cure defects in the application identified by the authority and submit the application for reconsideration. Within thirty days after resubmission, the authority shall review and reconsider the application before any other pending application received after the original submission date of the reconsidered application.

F. Within sixty days after receiving approval of its application, a rural growth fund must collect the credit‑eligible capital contributions from each investor and one or more investments of cash that, when added to the credit-eligible capital contributions, equal the rural growth fund's investment authority. The investments must be in the form of an equity interest in the rural growth fund or a debt instrument issued by the rural growth fund, at par or premium, that has a maturity date at least five years after the closing date. An amount equal to at least five percent of the rural growth fund's investment authority must be equity investments by affiliates of the rural growth fund, including employees, officers and directors of affiliates.

G. Within sixty-five days after receiving approval of its application, a rural growth fund must send to the authority, by mail or electronically, documentary evidence that the amounts described in subsection F of this section have been collected.

H. After the requirements of subsection G of this section are satisfied, the authority shall provide a tax credit certificate to each investor whose affidavit was included in the application, specifying a unique identifying serial number, the amount of the investor's credit‑eligible capital contribution and the closing date on which the rural growth fund has collected all of the amount prescribed by subsection F of this section. To claim the tax credit, the investor must submit a copy of the certificate to the department of insurance with the investor's insurance premium tax report as required by section 20‑224.08 or to the department of revenue with the investor's income tax return as required by section 43-1075 or 43‑1163, as applicable.

I. If the rural growth fund fails to fully comply with the requirements of subsections F and G of this section, the rural growth fund's approval lapses and the corresponding investment authority and credit-eligible capital contributions under this section do not count toward the program limits prescribed by subsection C of this section. The authority shall first award lapsed investment authority pro rata to each rural growth fund that was awarded less than the requested investment authority, which the rural growth fund may allocate to its investors in its discretion. Any remaining investment authority capacity may be awarded to new applicants.

J. A rural growth fund may not assess or collect a management fee.

K. To maintain its status under this section as a rural growth fund and maintain the validity of the tax credit certificates issued to its investors, the rural growth fund must invest one hundred percent of its investment authority, within twenty-four months after its closing date, in rural business concerns as described by this subsection. At least twenty percent of the rural growth fund's investment authority must be invested in eligible rural businesses with fewer than fifty employees. Before making an investment, the rural growth fund may request a written opinion from the authority whether the business in which it proposes to invest constitutes a rural business concern for the purposes of this subsection. The authority shall respond to the request within fifteen business days after receiving the request. If the authority fails timely to respond, the business in which the rural growth fund proposes to invest is considered to be a rural business concern. For the purposes of this subsection, a rural business concern, at the time of the initial investment, must meet all of the following requirements:

1. Have fewer than one hundred fifty employees and not more than ten million dollars in net income for the preceding taxable year.

2. Have its principal business operations in one or more rural areas in this state. For the purposes of this paragraph, "principal business operations" means the location where at least sixty percent of a rural business concern's full‑time employees work or where employees who are paid at least sixty percent of a rural business concern's payroll work. An out‑of-state business that agrees to relocate employees using the proceeds of a rural growth investment to establish its business in a rural area in this state is considered to have its principal business operations in the new location if it satisfies this description within one hundred eighty days after receiving the investment, unless the authority agrees to a later date not to exceed an additional one hundred eighty days, or the investment deadline prescribed in subsection L, paragraph 1 of this section, whichever is earlier.

3. Be engaged in an industry related to manufacturing, agribusiness or technology, or services related to manufacturing, agribusiness or technology, or in any other commercial activity, excluding real estate, retail and marijuana enterprises, requested by the rural growth fund in which the authority determines that investment will be highly beneficial to the economic interests of this state.

L. The authority shall revoke any tax credit certificates issued to investors in the rural growth fund and notify the department of insurance and the department of revenue of the revocation, by mail or electronically, if any of the following occurs with respect to a rural growth fund that has not exited the program under subsection O of this section:

1. The rural growth fund fails to invest one hundred percent of its investment authority in rural growth investments in this state within two years after its closing date.

2. After investing one hundred percent of its investment authority in rural growth investments in this state, the rural growth fund fails to maintain one hundred percent of its investment authority in rural growth investments in this state through the sixth anniversary of its closing date. For the purposes of this paragraph, an investment is maintained even if the investment is sold or repaid if the fund reinvests an amount equal to the capital returned or recovered by the fund from the original investment, exclusive of any profits realized, in other rural growth investments in this state within twelve months after receiving that returned capital. Amounts received periodically by a rural growth fund are considered to be continually invested in rural growth investments if the amounts are reinvested in one or more rural growth investments by the end of the following calendar year. A rural growth fund is not required to reinvest capital returned from rural growth investments after the fifth anniversary of the closing date, and those investments are considered to be held continuously by the fund through the sixth anniversary of the closing date.

3. The rural growth fund makes a distribution or payment that results in the fund having less than one hundred percent of its investment authority invested in rural growth investment in this state or available for investment in rural growth investments and held in cash or other marketable securities.

4. The rural growth fund invests more than the greater of five million dollars or twenty percent of its investment authority in a single rural business concern, including amounts invested in affiliates of the rural business concern.

5. The rural growth fund makes a rural growth investment in a rural business concern that directly, or indirectly through an affiliate, owns, has the right to acquire an ownership interest in, makes a loan to or makes an investment in the rural growth fund, an affiliate of the rural growth fund or an investor in the rural growth fund. This paragraph does not apply to investments in publicly traded securities by a rural business concern or an owner or affiliate of a rural business concern. For the purposes of this paragraph, a rural growth fund is not considered to be an affiliate of a rural business concern solely as a result of its rural growth investment.

M. Before revoking any tax credit certificate under subsection L of this section, the authority shall notify the rural growth fund, by certified mail, return receipt requested, of the reason or reasons for the pending revocation. The rural growth fund may correct the violation Within ninety days after the notice of revocation was sent and avoid revocation of the tax credit certificate.

N. If a tax credit certificate is revoked, the associated investment authority and unused credit‑eligible capital contributions do not count toward the limit on total investment authority and credit‑eligible capital contributions prescribed by subsection C of this section. The authority shall first award reverted authority pro rata among rural growth funds that were awarded less than their requested investment authority and any remaining investment authority to new applicants.

O. On or after the sixth anniversary of the closing date, a rural growth fund may apply to the authority to exit the program and no longer be subject to regulation under this section. The authority shall respond to the application within thirty days after receiving the application, by mail or electronically. In evaluating the application, the fact that no tax credit certificates have been revoked and that the rural growth fund has not received a notice of revocation that has not been corrected pursuant to subsection M of this section is sufficient evidence that the fund is eligible for exit. The authority may not unreasonably deny an application for exit. If the application is denied, the notice shall include the reasons for denial. The authority may not revoke a tax credit certificate after the rural growth fund associated with the certificate has exited the program.

P. On or before the fifth business day after the second anniversary of the closing date, the rural growth fund shall submit a report to the authority, by mail or electronically, that includes:

1. A bank statement showing each rural growth investment.

2. The name, address and industry of each business receiving a rural growth investment, including either the written opinion issued under subsection K of this section or evidence that the business qualified as a rural business concern at the time the investment was made.

3. The number of full‑time employment positions created or retained at each business as of December 31 of the previous calendar year as a result of the fund's investment.

4. Any other information required by the authority.

Q. On or before the last day of February of each year following the report required by subsection P of this section, the rural growth fund shall submit a report to the authority, by mail or electronically, that includes:

1. The number of full‑time employment positions created or retained at each business as of December 31 of the previous calendar year as a result of the fund's investment.

2. The average annual wages or salary of the positions described in paragraph 1 of this subsection.

3. Any other information required by the authority.

R. On or before august 31 of each year following the report required by subsection Q of this section, the authority shall submit a report to the governor, the president of the senate and the speaker of the house of representatives compiling information received pursuant to subsection Q of this section, other than proprietary information, for all currently approved and participating rural growth funds. The authority shall provide a copy of this report to the secretary of state.

S. For the purposes of this section:

1. "Affiliate" means an entity that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with another entity.

2. "Closing date" means the date on which a rural growth fund has collected all of the amount prescribed by subsection F of this section.

3. "control" means directly or indirectly holding the majority voting or ownership interest or control of the day‑to‑day operations by contract or by law.

4. "Credit‑eligible capital contribution" means an investment of cash by a person that is subject to insurance premium tax or individual or corporate income tax to purchase an interest in a rural growth fund or to purchase a debt instrument issued by the fund as provided by this section.

5. "Investment authority" means the dollar amount that a rural growth fund is authorized to invest for the purposes of this section.

6. "Rural area" means any area located outside of the planning boundaries of a metropolitan planning organization or council of governments organized in the two most populous counties in this state.

7. "Rural growth fund" means an investment fund created by private investors and certified by the authority for the purposes of this section.

8. "Rural growth investment" means any capital or equity investment in a rural business concern or any loan to a rural business concern with a stated maturity at least one year after the date of issuance. 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 43‑1079.01, 43‑1087, 43‑1088, 43-1089.04, 43‑1167.01 and 43‑1175.

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

3. For years ending in 2 and 7, sections 43‑1073, 43‑1080, 43‑1085, 43‑1086, 43‑1089, 43‑1089.01, 43‑1089.02, 43-1089.03, 43‑1164, 43‑1169 and 43‑1181.

4. For years ending in 3 and 8, sections 43‑1074.01, 43-1075, 43‑1081, 43-1163, 43‑1168, 43‑1170 and 43‑1178.

5. For years ending in 4 and 9, sections 43‑1076, 43‑1081.01, 43‑1083.04, 43‑1084, 43‑1162, 43‑1164.05, 43‑1170.01 and 43-1184 and, beginning in 2019, sections 43‑1083.03 and 43‑1164.04. END_STATUTE

Sec. 4. Title 43, chapter 10, article 5, Arizona Revised Statutes, is amended by adding section 43-1075, to read:

START_STATUTE43-1075. Credit for rural growth investment; definitions

A. For taxable years beginning from and after December 31, 2018, a credit is allowed against the tax liability imposed pursuant to this chapter for credit-eligible capital contributions to a rural growth fund as certified by the Arizona commerce authority pursuant to section 41‑1509.

B. The aggregate amount of the credit is the amount of the taxpayer's credit‑eligible capital contribution to the rural growth fund as specified in the tax credit certificate issued by the Arizona commerce authority. The taxpayer may claim and apply up to twenty-five percent of the aggregate amount of the credit for each taxable year that includes the third through sixth anniversaries of the closing date stated on the certificate, exclusive of any amount carried forward from preceding taxable years pursuant to subsection C of this section. To claim the credit, the taxpayer must submit a copy of the tax credit certificate with each year's tax return.

1. The transfer is limited to a single affiliate, and the affiliate may not, in turn, transfer the credit to any other taxpayer.

2. Both the transferor and transferee must submit a written notice of the transfer to the department of revenue and the Arizona commerce authority within thirty days after the transfer. If the transferee is subject to premium tax rather than income tax, the Arizona commerce authority shall immediately notify the department of insurance of the transfer. Each notice from the transferor and transferee shall include:

(a) The serial number of the certificate assigned by the Arizona commerce authority.

(b) The name and tax identification number of both the transferor and transferee.

(d) The balance of unused credit installments.

3. The transfer of the credit does not extend the time in which the credit may be used.

4. If the Arizona commerce authority revokes the tax credit certificate for any reason under section 41-1509, the department shall disallow any further credit claimed by the transferee. Any recourse by the transferee is against the transferor.

5. In the case of any failure to comply with this subsection, the department shall disallow the tax credit until the taxpayer is in full compliance.

F. For the purposes of this section:

1. "Affiliate" means an entity that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with another entity.

2. "Control" means directly or indirectly holding the majority voting or ownership interest or control of the day‑to‑day operations by contract or by law. END_STATUTE

Sec. 5. Title 43, chapter 11, article 6, Arizona Revised Statutes, is amended by adding section 43-1163, to read:

START_STATUTE43-1163. Credit for rural growth investment; definitions

B. The aggregate amount of the credit is the amount of the taxpayer's credit‑eligible capital contribution to the rural growth fund as specified in the tax credit certificate issued by the Arizona commerce authority. The taxpayer may claim and apply up to twenty‑five percent of the aggregate amount of the credit for each taxable year that includes the third through sixth anniversaries of the closing date stated on the certificate, exclusive of any amount carried forward from preceding taxable years pursuant to subsection C of this section. To claim the credit, the taxpayer must submit a copy of the tax credit certificate with each year's tax return.

1. The transfer is limited to a single affiliate, and the affiliate may not, in turn, transfer the credit to any other taxpayer.

(a) The serial number of the certificate assigned by the Arizona commerce authority.

(b) The name and tax identification number of both the transferor and transferee.

(d) The balance of unused credit installments.

3. The transfer of the credit does not extend the time in which the credit may be used.

5. In the case of any failure to comply with this subsection, the department shall disallow the tax credit until the taxpayer is in full compliance.

F. For the purposes of this section:

1. "Affiliate" means an entity that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with another entity.

2. "Control" means directly or indirectly holding the majority voting or ownership interest or control of the day-to-day operations by contract or by law. END_STATUTE

Sec. 6. Purpose

Pursuant to section 43-223, Arizona Revised Statutes, the legislature enacts sections 43-1075 and 43-1163, Arizona Revised Statutes, as added by this act, to attract capital investments to grow the economy of rural areas in this state by attracting new business, stimulating the growth of existing business and creating jobs for rural citizens.