BILL REQ. #:  S-4462.1 

Read first time 01/23/08.   Referred to Committee on Economic Development, Trade & Management.

     AN ACT Relating to providing new market development tax credits; amending RCW 82.32.010; reenacting and amending RCW 82.32.590 and 82.32.600; adding new sections to chapter 48.14 RCW; adding a new section to chapter 82.32 RCW; adding a new chapter to Title 82 RCW; and providing an expiration date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Applicable percentage" means zero percent for each of the first two credit allowance dates, twelve percent for the third and fourth credit allowance dates, and fifteen percent for the fifth credit allowance date.
     (2) "Credit allowance date" means with respect to any qualified equity investment:
     (a) The date on which the investment is initially made; and
     (b) Each of the six anniversary dates of such date thereafter.
     (3) "Department" means the department of revenue.
     (4) "Direct tracing" means the tracking, by generally accepted accounting principals, of the proceeds of qualified equity investments into qualified low-income community investments.
     (5) "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, 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's investment portfolio. The holder of a long-term debt security shall not be limited in the ability to accelerate payments on the debt instrument in situations where the issuer has defaulted on covenants designed to ensure compliance with this act or section 45D of the internal revenue code of 1986, as amended.
     (6) "Person" has the meaning given in RCW 82.04.030.
     (7) "Purchase price" means the amount paid to the issuer of a qualified equity investment for the qualified equity investment.
     (8) "Qualified active low-income community business" has the same meaning as provided in section 45D of the internal revenue code of 1986, as amended, but any business that derives or projects to derive fifteen percent or more of its annual revenue from the rental or sale of real estate is not a qualified active low-income community business.
     (9) "Qualified community development entity" has the same meaning as provided in section 45D of the internal revenue code of 1986, as amended. The entity must have 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, as amended. The allocation agreement must include the state of Washington within the defined service area.
     (10) "Qualified equity investment" means any equity investment in, or long-term debt security issued by, a qualified community development entity that:
     (a) Is acquired after the effective date of this section as an original issuance solely in exchange for cash;
     (b) Has at least eighty-five percent of its cash purchase price used by the issuer to make qualified low-income community investments; and
(c) Is designated by the issuer as a qualified equity investment under this subsection and is certified by the department as meeting the specifications contained in subsection (5) of this section.
     "Qualified equity investment" includes any otherwise qualified equity investment that does not qualify under (a) of this subsection if such an investment was a qualified equity investment in the hands of a prior holder.
     (11) "Qualified low-income community investment" means any capital or equity investment in, or loan to, any qualified active low-income community business. With respect to any one 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, is five million dollars whether issued to one or several qualified community development entities.
     (12) "Recipient" means a person receiving a tax credit under this chapter.

NEW SECTION.  Sec. 2   (1) Subject to the limitations in this chapter, a person making a qualified equity investment is allowed a credit against the tax due under chapter 82.04 RCW during the taxable year including the credit allowance date.
     (2) The credit is equal to the applicable percentage multiplied by the purchase price paid to the issuer of the qualified equity investment.
     (3) The amount of the credit allowed may not exceed the amount of the recipient's state tax liability for the tax year for which the tax credit is claimed.

NEW SECTION.  Sec. 3   A credit claimed under this section is not refundable or saleable on the open market. Credits earned by a partnership, limited liability company, S-corporation, or other pass-through entity may be allocated to the partners, members, or shareholders of such an entity for their direct use in accordance with any agreement among the partners, members, or shareholders. Any amount of credit that a recipient is prohibited from claiming in a taxable year may be carried forward for five subsequent taxable years.

NEW SECTION.  Sec. 4   The department shall limit the monetary amount of qualified equity investments permitted under this chapter to a level necessary to limit tax credit utilization at no more than seven million five hundred thousand dollars of tax credits in any fiscal year. This limitation on qualified equity investments is based on the anticipated utilization of credits without regard to the potential for recipients to carry forward credits to later tax years.

NEW SECTION.  Sec. 5   The issuer of a qualified equity investment shall certify to the department the anticipated dollar amount of the 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 the investments is different than the amount estimated, the department shall adjust the credits arising on the second allowance date to account for such a difference.

NEW SECTION.  Sec. 6   (1) When the proceeds of a qualified equity investment are invested completely in qualified low-income community investments in Washington state, the purchase price, for the purpose of calculating the credit created by this chapter, is one hundred percent of the qualified equity investment, regardless of the location of investments made with the proceeds of other qualified equity investments issued by the same community development entity.
     (2) To the extent a portion of a qualified equity investment is not invested in Washington state, the purchase price must be reduced by the same ratio without regard to the location of investments made with proceeds of other qualified equity investments issued by the same community development entity. The burden is on the community development entity to establish the extent to which the qualified equity investments are fully invested in Washington state, either by establishing that the community development entity itself invests exclusively in Washington state, or otherwise establishing, through direct tracing, the portion of a qualified equity investment invested solely in Washington state.

NEW SECTION.  Sec. 7   The department shall recapture the credit allowed under this section when:
     (1) 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, as amended. In such a case, the department's recapture shall be proportionate to the federal recapture with respect to such a qualified equity investment; or
     (2) Except under section 8 of this act, 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 such a case, the department's recapture shall be proportionate to the amount of the redemption or repayment with respect to such a qualified equity investment.

NEW SECTION.  Sec. 8   Notwithstanding section 7(2) of this act, an investment is considered held by an issuer even when 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 low-income community investment within twelve months of the receipt of the capital. An issuer 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 is considered held by the issuer through the seventh anniversary of the qualified equity investment's issuance.

NEW SECTION.  Sec. 9   The department may adopt rules to implement this chapter and to administer the allocation of tax credits issued for qualified equity investments, which the department shall allocate on a first-come, first-serve basis.

NEW SECTION.  Sec. 10   This chapter does preclude a taxpayer who makes a qualified equity investment prior to the expiration of authority to make qualified equity investments from claiming tax credits relating to such a qualified equity investment for each applicable credit allowance date.

NEW SECTION.  Sec. 11   A new section is added to chapter 48.14 RCW to read as follows:
     (1) A qualified investor who is an insurer as defined under RCW 48.01.050 with tax liabilities in Washington state under RCW 48.14.020 may claim a credit against the investor's state premium tax liability for qualified equity investments, subject to chapter 82.-- RCW (sections 1 through 10 of this act) and this chapter.
     (2) The definitions in section 1 of this act apply to this section and sections 12 through 14 of this act.
     (3) A qualified investor taking the state premium tax credit under this section is subject to all the requirements of chapter 82.32 RCW. The state premium tax credit, which may be applied against state premium tax liability in any one tax year, may not exceed the state premium tax liability of the qualified investor for that tax year. All unused state premium tax credits against state premium tax liability may be carried forward indefinitely and used in any subsequent year until the state premium tax credits are utilized in full. The investment made by a qualified investor under this section is subject to chapters 48.12 and 48.13 RCW.
     (4) A qualified investor claiming a state premium tax credit against state premium tax liability earned through a qualified equity investment is not required to pay any additional retaliatory tax levied under RCW 48.14.040 as a result of claiming that state premium tax credit.
     (5) A qualified investor is not required to reduce the amount of tax subject to the state premium tax liability included by the qualified investor in connection with rate making for any insurance contract written in Washington because of a reduction in the qualified investor's tax liability based on the state premium tax credit allowed under this section.
     (6) A qualified investor, or a subsequent transferee, may only transfer tax credits earned under this section to an affiliate, unless the state premium tax liability of the qualified investor in the year immediately preceding the proposed transfer is less than seventy-five percent of the qualified investor's state premium tax liability for the tax year in which it earned the vested premium tax credit. No qualified investor may make more than one transfer in any calendar year. Any transfer or sale does not affect the time schedule for claiming the state premium tax credits. Any state premium tax credits recaptured under this section are the liability of the qualified investor that actually claimed the state premium tax credits. All transfers of state premium tax credits must be tracked and reported, using a form approved by the commissioner, to ensure the proper collection of state premium taxes.
     (7) If the taxes paid by a qualified investor with respect to its state premium tax liability constitute a credit against any other tax which is imposed by Washington state, the qualified investor's credit against the other tax is to be reduced by virtue of the reduction in the qualified investor's tax liability based on the state premium tax credit allowed under this section.

NEW SECTION.  Sec. 12   A new section is added to chapter 48.14 RCW to read as follows:
     An insurance company or affiliate of an insurance company may not, directly or indirectly:
     (1) Beneficially own, whether through rights, options, convertible interests, or otherwise, fifteen percent or more of the voting securities or other voting ownership interest of a qualified community development entity through which it makes a qualified low-income community investment;
     (2) Manage a qualified community development entity through which it makes a qualified low-income community investment; or
     (3) Control the direction of investments for an investment made through a qualified community development entity.

NEW SECTION.  Sec. 13   A new section is added to chapter 48.14 RCW to read as follows:
     The commissioner shall limit the monetary amount of qualified equity investments permitted under this chapter to a level necessary to limit premium tax credit utilization at no more than seven million five hundred thousand dollars of tax credits in any fiscal year. This limitation on qualified equity investments is based on the anticipated utilization of credits without regard to the potential for recipients to carry forward credits to later tax years.

NEW SECTION.  Sec. 14   A new section is added to chapter 48.14 RCW to read as follows:
     The commissioner may adopt rules to implement this chapter and to administer the allocation of premium tax credits issued for qualified equity investments, which the commissioner shall allocate on a first-come, first-serve basis.

Sec. 15   RCW 82.32.010 and 1998 c 304 s 12 are each amended to read as follows:
     The provisions of this chapter shall apply with respect to the taxes imposed under chapters 82.04 through 82.14 RCW, under RCW 82.14B.030(3), under chapters 82.16 through 82.29A RCW ((of this title)), under chapter 84.33 RCW, under chapter 82.-- RCW (sections 1 through 10 of this act), under sections 11 through 14 of this act, and under other titles, chapters, and sections in such manner and to such extent as indicated in each such title, chapter, or section.

NEW SECTION.  Sec. 16   A new section is added to chapter 82.32 RCW to read as follows:
     (1) An investor who claims an exemption under chapter 82.-- RCW (sections 1 through 10 of this act) or sections 11 through 14 of this act shall make an annual report to the department detailing employment, wages, and employer-provided health and retirement benefits per job building or buildings. The report must not include names of employees. The report must also detail employment by the total number of full-time, part-time, and temporary positions. The first report filed under this section must include employment, wage, and benefit information for the twelve-month period immediately before the first use of the tax exemption. The report is due by March 31st following any year in which the tax exemption is taken. This information is not subject to the confidentiality provisions of RCW 82.32.330 and may be disclosed to the public upon request.
     (2) When an investor fails to submit an annual report under subsection (1) of this section, the department shall declare the amount of taxes exempted for that year immediately due and payable. Excise taxes payable under this subsection are subject to interest under this chapter. Information concerning a failure to report under this subsection is exempt from the confidentiality provisions of RCW 82.32.330 and may be disclosed upon request.

Sec. 17   RCW 82.32.590 and 2006 c 354 s 17, 2006 c 300 s 10, 2006 c 177 s 8, 2006 c 112 s 7, and 2006 c 84 s 7 are each reenacted and amended to read as follows:
     (1) If the department finds that the failure of a taxpayer to file an annual survey or annual report under RCW 82.04.4452, 82.32.5351, 82.32.650, 82.32.635, 82.32.640, 82.32.630, 82.32.610, ((or)) 82.74.040, or section 16 of this act by the due date was the result of circumstances beyond the control of the taxpayer, the department shall extend the time for filing the survey or report. Such extension shall be for a period of thirty days from the date the department issues its written notification to the taxpayer that it qualifies for an extension under this section. The department may grant additional extensions as it deems proper.
     (2) In making a determination whether the failure of a taxpayer to file an annual survey or annual report by the due date was the result of circumstances beyond the control of the taxpayer, the department shall be guided by rules adopted by the department for the waiver or cancellation of penalties when the underpayment or untimely payment of any tax was due to circumstances beyond the control of the taxpayer.

Sec. 18   RCW 82.32.600 and 2007 c 54 s 23 and 2007 c 54 s 22 are each reenacted and amended to read as follows:
     (1) Persons required to file annual surveys or annual reports under RCW 82.04.4452 ((or)), 82.32.5351, 82.32.610, 82.32.630, 82.32.635, 82.32.640, ((or)) 82.74.040, or section 16 of this act must electronically file with the department all surveys, reports, returns, and any other forms or information the department requires in an electronic format as provided or approved by the department. As used in this section, "returns" has the same meaning as "return" in RCW 82.32.050.
     (2) Any survey, report, return, or any other form or information required to be filed in an electronic format under subsection (1) of this section is not filed until received by the department in an electronic format.
     (3) The department may waive the electronic filing requirement in subsection (1) of this section for good cause shown.

NEW SECTION.  Sec. 19   Sections 1 through 10 of this act constitute a new chapter in Title 82 RCW.

NEW SECTION.  Sec. 20   This act expires July 1, 2012.