HOUSE BILL ANALYSIS

                HB 1931   

  Title:  An act relating to community development financial institutions.

Brief Description:  Providing tax incentives for community development financial institutions.

Sponsors:  Representatives Santos, Veloria, Reardon, Eickmeyer, Murray, Ogden, Schual‑Berke, Wolfe, Lovick, Kessler, Ruderman and Lantz.

HOUSE COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE

Meeting Date: Tuesday, February 23, 1999

Bill Analysis Prepared by: Anntonette Alberti (786-7117)

Background:  Washington=s major business tax is the business and occupation (B&O) tax.  This tax is imposed on the gross receipts of business activities conducted within the state, without any deductions for the cost of doing business.  Businesses are taxable according to the activities they engage in and therefor may be subject to more than one tax rate.  The business and occupation tax will have 10 different rates.  The major tax rates are:

C0.471% Retailing;

C0.484% Manufacturing and wholesaling; and

C1.50%   Real estate brokers and services.

The state imposes an insurance premiums tax on authorized insurers.  The insurance premiums tax is in lieu of a business and occupation tax.  The tax is based on 2 percent of the net premiums received by authorized insurers, except title insurers and fraternal benefit societies, after deduction of premiums that are returned to policyholders.

Summary of Bill: A credit is provided against the business and occupation (B&O) tax or the insurance premiums tax that is equal to 20 percent of a qualified deposit made by a business to a community development financial institution.  A qualified deposit is a deposit that does not earn interest, or an equity investment, that is equal to or greater than $50,000 and is made for a minimum duration of 60 months. 

The business must obtain approval from the Department of Financial Institutions prior to claiming the tax credit.  The businesses= request must include information on the proposed deposit that contains a description of terms and conditions of the deposit or equity investment.  Only qualified deposits made after July 1, 1999 are eligible for the tax credit.

The amount of tax credit available to a business is limited to the amount of their tax liability.  That means that if a business earns a credit that is greater than the amount it owes in taxes, the state does not have to pay the difference back to the business. However, any such unused tax credits can be carried forward a maximum of two years. 

The total tax credits available on a statewide basis cannot exceed $5 million per calendar year.  The tax credits will be awarded on a first come, first served basis.

Penalty provisions for early withdrawal of part or all of the qualified deposit are as follows: (1) A business is liable for the entire amount of the tax credit if the qualified deposit is either totally withdrawn or reduced below $50,000 before the agreed upon period; and (2) If the amount withdrawn does not reduce the deposit below $50,000 then the business is required to pay the amount of the tax credit associated with amounts that are withdrawn.  All tax liability that is due as a result of withdrawals by the business must be paid within 30 days of the withdrawal.

This act expires July 1, 2004.

ACommunity development financial institution@ means a private financial institution located in the state of Washington that is certified by the Department of Financial Institutions, that has community development as its primary mission, and lends in a designated area.  A community development financial institution may include a community development bank, a community development loan fund, a community development credit union, a microenterprise fund, a community development corporation-based lender, and a community development venture fund.

ADesignated area@ means: (1) a designated community empowerment zone; (2) a distressed area; or (3) a rural natural resources impact area.

Appropriation: None.

Fiscal Note: Requested.

Effective Date: This act contains an Emergency Clause and goes into effect on July 1, 1999.

Rulemaking Authority: None granted.