September 10, 2008, Introduced by Reps. Bieda, Robert Jones, Hood, Sak, Constan, Condino, Ward, Meltzer, Tobocman, Bauer and Rocca and referred to the Committee on Tax Policy.
A bill to amend 1967 PA 281, entitled
"Income tax act of 1967,"
(MCL 206.1 to 206.532) by adding section 279.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 279. (1) Subject to the limitation provided under
subsection (7), for the 2010 tax year and each tax year thereafter,
a qualified taxpayer that holds a qualified equity investment on a
credit allowance date of that qualified equity investment earns a
vested right to and may claim a credit against the tax imposed by
this act, the Michigan business tax act, 2007 PA 36, MCL 208.1101
to 208.1601, or section 476a of the insurance code of 1956, 1956 PA
218, MCL 500.476a, equal to the applicable percentage of the
purchase price paid to the qualified community development entity
for the qualified equity investment. The credit allowed under this
section shall not exceed the tax liability of the taxpayer for the
tax year. If the amount of the credit allowed under this section
and any unused carryforward of the credit allowed by this section
exceed the tax liability of the qualified taxpayer for the tax
year, that portion that exceeds the tax liability shall not be
refunded or transferred, except as provided in subsection (4), but
may be carried forward to offset tax liability in subsequent tax
years.
(2) A qualified community development entity that seeks to
have an equity investment or long-term debt security designated as
a qualified equity investment and eligible for tax credits shall
apply to the department for certification. A qualified taxpayer
shall not claim a credit under this section unless the qualified
community development entity has submitted an application for
certification and the department has issued a certificate to the
qualified community development entity. The taxpayer shall attach
the certificate to the annual return filed under this act, the
Michigan business tax act, 2007 PA 36, MCL 208.1101 to 208.1601, or
section 476a of the insurance code of 1956, 1956 PA 218, MCL
500.476a, on which a credit under this section is claimed.
(3) The certificate required under this section shall state
all of the following:
(a) The applicant is a qualified community development entity.
(b) The equity investment or long-term debt security is a
qualified equity investment.
(c) The proposed dollar amount of the qualified equity
investment.
(d) The department shall certify qualified equity investments
in the order applications are received by the department.
Applications received on the same day shall be deemed to have been
received simultaneously. For applications received on the same day
and deemed complete, the department shall certify qualified equity
investments and, in the event there is insufficient remaining tax
credit capacity, reduce the amount of certified qualified equity
investment in proportionate percentages based upon the ratio of the
amount of qualified equity investments requested in an application
to the total amount of qualified equity investments requested in
all applications received on the same day.
(e) Within 30 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 department with evidence of receipt of the cash
investment within 10 business days after receipt. If the qualified
community development entity does not receive the cash investment
and issue the qualified equity investment within 30 days following
receipt of the certification notice, the certification shall lapse
and the entity may not issue the qualified equity investment
without reapplying to the department for certification. A
certification that lapses reverts back to the department and may be
reissued in accordance with the application process outlined in
this section.
(4) Tax credits earned by a partnership, limited liability
company, or subchapter S corporation may be allocated to its
partners, members, or shareholders of that entity for their direct
use in accordance with the provisions of any agreement among the
partners, members, or shareholders. A credit amount allocated under
this subsection may be claimed against the partner's, member's, or
shareholder's tax liability under this act, the Michigan business
tax act, 2007 PA 36, MCL 208.1101 to 208.1601, or section 476a of
the insurance code of 1956, 1956 PA 218, MCL 500.476a. A credit
allocation under this subsection shall be made on a form prescribed
by the department. The entity and allocatees shall send a copy of
the completed allocation form to the department in the tax year in
which the allocation is made and attach a copy of the completed
allocation form to the annual return required to be filed under
this act for that tax year.
(5) The department shall recapture, as provided under this
subsection, from the qualified taxpayer that claimed the credit on
a return, the tax credit allowed under this section under any of
the following circumstances:
(a) 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 of 1986. In that case, the department's
recapture shall be proportionate to the federal recapture with
respect to that qualified equity investment.
(b) If the issuer redeems or makes principal repayment with
respect to a qualified equity investment prior to the seventh
anniversary of the issuance of the qualified equity investment. In
that case, the department's recapture shall be proportionate to the
amount of the redemption or repayment with respect to the qualified
equity investment.
(c) If the issuer fails to invest at least 85% of the cash
purchase price of the qualified low-income community investments in
this state within 12 months of the issuance of the qualified equity
investment and maintain such level of investment in qualified low-
income community investments in this state until the last credit
allowance date for that qualified equity investment.
(6) For purposes of this section, a qualified equity
investment shall be considered held by a qualified community
development entity even if the investment has been sold or repaid,
provided that the qualified community development entity reinvests
an amount equal to the capital returned to or recovered by the
qualified community development entity from the original
investment, exclusive of any profits realized, in another qualified
low-income community investment in this state within 12 months
after the receipt of that capital. A qualified community
development entity is not required to reinvest capital returned
from qualified low-income community investments after the sixth
anniversary of the issuance of the qualified equity investment, the
proceeds of which were used to make the 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 anniversary of the qualified
equity investment's issuance. The department shall provide notice
to the qualified taxpayer and the qualified community development
entity of any proposed recapture of tax credits pursuant to this
section. The qualified taxpayer or the qualified community
development entity shall have 90 days to cure any deficiency
indicated in the department's original recapture notice and avoid
such recapture. If the qualified taxpayer or the qualified
community development entity fails or is unable to cure such
deficiency within the 90-day period, the department shall provide
the qualified taxpayer and the qualified community development
entity from whom the credit is to be recaptured with a final order
of recapture. Any tax credit for which a final recapture order has
been issued shall be recaptured by the department from the
qualified taxpayer who claimed the tax credit on a tax return.
(7) The total amount of all credits that may be approved under
this section, section 465 of the Michigan business tax act, 2007 PA
36, MCL 208.1465, and section 476a of the insurance code of 1956,
1956 PA 218, MCL 500.476a, shall not exceed $20,000,000.00 not
including any carried-forward amounts from credits approved in a
previous calendar year.
(8) The department may promulgate rules to implement this
section.
(9) As used in this section:
(a) "Applicable percentage" means 0% for each of the first 2
credit allowance dates, 7% for the third credit allowance date, and
8% for the next 4 credit allowance dates.
(b) "Credit allowance date" means the date on which the
qualified equity investment is initially made and each of the 6
anniversary dates of that date thereafter.
(c) "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 7 years from
the date of its issuance, with no acceleration of repayment,
amortization, or prepayment features prior to its original maturity
date and with no distribution, payment, or interest features
related to the profitability of the qualified community development
entity or the performance of the qualified community development
entity investment portfolio. This definition in no way limits the
holder's ability to accelerate payments on the debt instrument in
situations where the qualified community development entity has
defaulted on covenants designed to ensure compliance with this act
or section 45D of the internal revenue code of 1986.
(d) "Purchase price" means the amount paid to the qualified
community development entity for the qualified equity investment.
(e) "Qualified active low-income community business" has the
meaning given to that term in section 45D of the internal revenue
code of 1986, except that any business that derives or projects to
derive 15% or more of its annual revenue from the rental or sale of
real estate is not considered to be a qualified active low-income
community business unless the business is controlled by, or under
common control with, another business that does not derive or
project to derive 15% 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 initial business. 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 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.
(f) "Qualified community development entity" has the meaning
given to that term in section 45D of the internal revenue code of
1986, provided that such entity has entered into, or is controlled
by a qualified community development entity that has 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 of 1986. The allocation agreement shall include the
state of Michigan within the service area set forth in that
allocation agreement.
(g) "Qualified equity investment" means any equity investment
in, or long-term debt security issued by, a qualified community
development entity that is acquired after the effective date of the
amendatory act that added this section at its original issuance
solely in exchange for cash, has at least 85% of its cash purchase
price used by the qualified community development entity to make
qualified low-income community investments in this state, and is
designated by the qualified community development entity as a
qualified equity investment under this section and is certified by
the department as not exceeding the limitation contained in
subsection (7). Qualified equity investment includes any qualified
equity investment that is not acquired after the effective date of
the amendatory act that added this section at its original issuance
solely in exchange for cash if the investment was a qualified
equity investment in the hands of a prior holder.
(h) "Qualified low-income community investment" means any
capital or equity investment in, or loan to, any qualified active
low-income community business made after the effective date of the
amendatory act that added this section. With respect to any 1
qualified active low-income community business, the maximum amount
of qualified low-income community investments made in that
business, on a collective basis with all of its affiliates that may
be counted towards the satisfaction of the minimum 85% cash purpose
price used by the issuer to make qualified low-income community
investments in this state, shall be $10,000,000.00 whether issued
to 1 or several qualified community development entities.
(i) "Qualified taxpayer" means a taxpayer that is liable under
this act, the Michigan business tax act, 2007 PA 36, MCL 208.1101
to 208.1601, or section 476a of the insurance code of 1956, 1956 PA
218, MCL 500.476a.