Bill Text: CA SB1316 | 2009-2010 | Regular Session | Amended
Bill Title: Income taxes: property exchanges: investment credits.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2010-08-30 - Placed on inactive file on request of Senator Romero. [SB1316 Detail]
Download: California-2009-SB1316-Amended.html
BILL NUMBER: SB 1316 AMENDED
BILL TEXT
AMENDED IN SENATE AUGUST 17, 2010
AMENDED IN SENATE AUGUST 2, 2010
AMENDED IN SENATE JUNE 28, 2010
AMENDED IN SENATE JUNE 16, 2010
AMENDED IN SENATE APRIL 22, 2010
INTRODUCED BY Senator Romero
FEBRUARY 19, 2010
An act to add Sections 17053.9 and 23622.9 to, and to add and
repeal Sections 18036.8 and 24941.5 24941.6
of, the Revenue and Taxation Code, relating to taxation, and
making an appropriation therefor, to take effect immediately, tax
levy.
LEGISLATIVE COUNSEL'S DIGEST
SB 1316, as amended, Romero. Income taxes: property exchanges:
investment credits.
The Personal Income Tax Law and the Corporation Tax Law provide
that no gain or loss is recognized on the exchange of property held
for productive use in a trade or business or for investment, if that
property is exchanged solely for property of a like kind that is to
be held either for productive use in a trade or business or for
investment.
This bill would, for taxable years beginning on or after January
1, 2011, and before January 1, 2012, exclude from that
nonrecognition, any exchange in which out-of-state real property is
received in exchange for real property located in California.
The Personal Income Tax Law and the Corporation Tax Law authorize
various credits against the taxes imposed by those laws. Existing law
creates the California Tax Credit Allocation Committee, which has
specified duties in regard to low-income housing credits.
This bill would authorize a credit under both laws, for taxable
years beginning on or after January 1, 2011, and before January 1,
2012, in a specified amount for investments in low-income
communities, as provided. This bill would impose specified duties on
the California Tax Credit Allocation Committee with regard to the
application for, and allocation of, the credit. The bill would
require the committee to establish and impose reasonable fees upon
entities that apply for the allocation of the credit and use the
revenue to defray the cost of administering the program, as
specified, thereby making an appropriation. This bill would also
appropriate $150,000 from the Tax Credit Allocation Fee Account to
the committee for purposes of implementing the tax credit.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: yes. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) The granting of tax benefits for the purchase of real property
located beyond California's borders is of no direct benefit to the
people of the State of California, and does not advance any
legitimate local purpose.
(b) The revenue from disallowing these tax benefits, which are
currently obtained from the exchange of property for like kind
property, commonly known as a 1031 exchange, can instead be used to
foster greater economic development within California's borders, and
this development advances a legitimate local purpose.
(c) While this disallowance will remove a tax benefit in the form
of deferred capital gains taxes from investors who purchase
out-of-state properties, these funds amount to only 10 percent of
California's total 1031 exchanges. Furthermore, the lion's share of
the tax benefits for these investment purchases exists at the
federal, rather than the state level. For this reason, no substantial
decrease in out-of-state real estate investments is anticipated as a
result of this legislation.
(d) In the current economic climate, the acquisition of revenue to
stimulate in-state economic development cannot be achieved by any
nondiscriminatory alternative.
SEC. 2. Section 17053.9 is added to the Revenue and Taxation Code,
to read:
17053.9. There is hereby created the California New Markets Tax
Credit Program as provided in this section and Section 23622.9. The
purpose of this program is to stimulate economic development, and
hasten California's economic recovery, by granting tax credits for
investment in California, including, but not limited to, retail
businesses, real property, financial institutions, and schools. The
California Tax Credit Allocation Committee shall have responsibility
for the administration of this program as provided in this section
and Section 23622.9. The program shall be as follows:
(a) (1) For taxable years beginning on or after January 1, 2011,
and before January 1, 2012, there shall be allowed to a taxpayer that
holds a qualified equity investment on a credit allowance date of
the investment which occurs during the taxable year, as a credit
against the "net tax," as defined in Section 17039, an amount equal
to the applicable percentage described in paragraph (2).
(2) For purposes of paragraph (1), the applicable percentage shall
be 39 percent of the qualified equity investment.
(b) For purposes of this section:
(1) "Credit allowance date" means, with respect to any qualified
equity investment, the date on which the investment is initially
made.
(2) "Equity investment" means either of the following:
(A) Any stock, other than nonqualified preferred stock as defined
in Section 351(g)(2) of the Internal Revenue Code, in an entity which
is a corporation.
(B) Any capital interest in an entity which is a partnership.
(3) (A) "Low-income community" means a population census tract
where any of the following applies:
(i) The tract has a poverty rate of at least 20 percent.
(ii) The tract is not located within a metropolitan area and the
median family income does not exceed 80 percent of the statewide
median family income.
(iii) The tract is located within a metropolitan area and the
median family income does not exceed 80 percent of the greater
statewide median family income or the metropolitan area median family
income.
(iv) The tract is located within a high migration rural county and
the median income does not exceed 85 percent of the statewide median
family income. For purposes of this clause, "high migration rural
county" means a county which, during the 20-year period ending with
the year in which the most recent census was conducted, has a net out
migration of inhabitants from the county of at least 10 percent of
the population of the county at the beginning of that period.
(B) Where a community is in a location that is not tracted for
population census tracts, the equivalent county divisions shall be
used for purposes of determining poverty rates and median family
income.
(C) Where a community is in a population census tract with a
population of less than 2,000, the community shall be treated as a
low-income community if the tract is within an empowerment zone
designated under Section 1391 of the Internal Revenue Code and is
contiguous to one or more low-income communities, as determined under
this paragraph.
(4) (A) "Qualified active low-income community business" means,
with respect to any taxable year, a corporation, including a
nonprofit corporation, or partnership that, for that taxable year,
meets all of the following conditions:
(i) Derives at least 50 percent of its total gross income from the
active conduct of a qualified business in a low-income community in
California.
(ii) A substantial portion of the use of the tangible property of
the entity, whether owned or leased, is within a low-income community
in California. "Substantial portion" shall be defined as 40 percent
or more of the tangible property of the entity.
(iii) Less than 5 percent of the average of the aggregate
unadjusted base of the property of the entity is attributable to
collectibles, as defined in Section 408(m)(2) of the Internal Revenue
Code.
(iv) Less than 5 percent of the average of the aggregate
unadjusted base of the property of the entity is attributable to
nonqualified financial property, as defined in Section 1397C(e) of
the Internal Revenue Code.
(B) A "qualified active low-income community business" shall
include a business carried on by an individual as a proprietor if
that business meets the requirements of subparagraph (A) were it
incorporated or a trade or business which would qualify if that trade
or business were separately incorporated.
(5) "Qualified business" has the same meaning as that in Section
1397C(d) of the Internal Revenue Code except that:
(A) In lieu of applying subparagraph (B) of paragraph (2), the
rental to others of real property located in any low-income community
shall be treated as a qualified business if there are substantial
improvements located on that real property.
(B) Paragraph (3) of that section shall not apply.
(6) (A) "Qualified community development entity" means a domestic
corporation or partnership that meets all of the following
conditions:
(i) Has a primary mission of serving, or providing investment
capital for, low-income communities or low-income persons.
(ii) Maintains accountability to residents of low-income
communities through their representation on any governing board of
the entity or on any advisory board to the entity.
(iii) Is certified by the California Tax Credit Allocation
Committee for purposes of this section as being a qualified community
development entity.
(B) A domestic corporation or partnership shall be deemed a
"qualified community development entity" if it has entered into an
allocation agreement with the Community Development Financial
Institutions Fund of the United States Department of the Treasury
with respect to credits authorized by Section 45D of the Internal
Revenue Code of 1986, as amended, and if the allocation agreement
includes the state within its service area.
(7) (A) "Qualified equity investment" means any equity investment
in a qualified community development entity if all of the following
conditions are met:
(i) The investment is acquired by the taxpayer at its original
issue, directly or through an underwriter, solely in exchange for
cash.
(ii) Substantially all of the cash is used by the qualified
community development entity to make low-income community
investments. This requirement shall be deemed met if at least 85
percent of the aggregate gross assets of the qualified community
development entity are invested in qualified low-income community
investments in California.
(iii) The investment is designated for purposes of this section by
the qualified community development entity.
(B) "Qualified equity investment" does not include any equity
investment issued by a qualified community development entity more
than one year after the date that the entity receives an allocation
under subdivision (d).
(C) A "qualified equity investment" shall include any equity
investment which would, notwithstanding clause (i) of subparagraph
(A), be a qualified equity investment in the hands of the taxpayer if
the investment was a qualified equity investment in the hands of a
prior holder.
(D) Section 1202(c)(3) of the Internal Revenue Code, relating to
purchases by a corporation of its own stock, shall apply.
(8) "Qualified low-income community investment" means any of the
following:
(A) Any capital or equity investment in, or loan to, a qualified
low-income community business.
(B) Any capital or equity investment in, or loan to, a real estate
project in a low-income community.
(C) The purchase from another qualified community development
entity of any loan made by that entity which is a qualified
low-income community investment.
(D) Financial counseling and other services in support of business
activities to businesses located in, and residents of, low-income
communities.
(E) Any equity investment in, or loan to, a qualified community
development entity.
(c) The California Tax Credit Allocation Committee shall adopt
guidelines necessary or appropriate to carry out the purposes of this
section. The adoption of the guidelines shall not be subject to the
rulemaking provisions of the Administrative Procedure Act of Chapter
3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title
2 of the Government Code. The committee shall establish and impose
reasonable fees upon entities that apply for the allocation pursuant
to subdivision (d) and use the revenue to defray the cost of
administering the program. The committee shall establish the fees in
a manner that ensures that (1) the total amount collected equals the
amount reasonably necessary to defray the commission's costs in
performing its administrative duties under this section, and (2) the
amount paid by each entity reasonably corresponds with the value of
the services provided to the entity.
(d) (1) The aggregate amount of credit that may be allowed in any
calendar year pursuant to this section and Section 23622.9 shall be
an amount equal to the aggregate revenue increase attributable in
that same calendar year to Sections 18036.8 and 24941, as
amended 24941.6, as added by the act adding this
section, as estimated by the Franchise Tax Board, so as to achieve a
revenue neutral effect.
(2) The aggregate amount of credit specified under paragraph (1)
shall be allocated by the California Tax Credit Allocation Committee
among entities that apply for the allocation. The California Tax
Credit Allocation Committee shall give priority to applications that
either are submitted by an entity that has a record of successfully
providing capital or technical assistance to disadvantaged businesses
or communities or entities that intend to make qualified low-income
community investments in one or more businesses in which persons
unrelated to the entity hold the majority equity interest.
(e) Any credits used under subdivision (a) for a qualified equity
investment where a recapture event occurs at any time before the
close of the seventh taxable year after the qualified equity
investment shall be included in the income in the taxable year in
which the recapture event occurred. For purposes of this subdivision,
a "recapture event" shall include any of the following that occur
any time before the close of the seventh taxable year after the
qualified equity investment in a qualified community development
entity:
(1) The qualified community development entity ceases to be a
qualified community development entity.
(2) The proceeds of the investment cease to be used as required
under clause (ii) of subparagraph (A) of paragraph (7) of subdivision
(b).
(3) The investment is redeemed by a qualified community
development entity.
(f) An exception to the provisions of clause (ii) of subparagraph
(A) of paragraph (7) of subdivision (b) shall exist wherein an
investment shall be considered held by a community development entity
even if the investment has been sold or repaid, provided that the
community development entity reinvests an amount equal to the capital
returned to or recovered by the community development entity from
the original investment, exclusive of any profits realized, in
another qualified low-income community investment within 12 months of
the receipt of that capital. A community development entity shall
not be 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 community development entity through the seventh
anniversary of the qualified equity investment's issuance.
SEC. 3. Section 18036.8 is added to the Revenue and Taxation Code,
to read:
18036.8. (a) For taxable years beginning on or after January 1,
2011, and before January 1, 2012, the provisions of Section 1031 of
the Internal Revenue Code, relating to the exchange of property held
for productive use or investment, shall not apply to out-of-state
real property that is received in exchange for real property located
in California.
(b) This section shall remain in effect only until December 1,
2012, and as of that date is repealed.
SEC. 4. Section 23622.9 is added to the Revenue and Taxation Code,
to read:
23622.9. There is hereby created the California New Markets Tax
Credit Program as provided in this section and Section 17053.9. The
purpose of this program is to stimulate economic development, and
hasten California's economic recovery, by granting tax credits for
investment in California, including, but not limited to, retail
businesses, real property, financial institutions, and schools. The
California Tax Credit Allocation Committee shall have responsibility
for the administration of this program as provided in this section
and Section 17053.9. The program shall be as follows:
(a) (1) For taxable years beginning on or after January 1, 2011,
and before January 1, 2012, there shall be allowed to a taxpayer that
holds a qualified equity investment on a credit allowance date of
the investment which occurs during the taxable year, as a credit
against the "tax," as defined in Section 23036, an amount equal to
the applicable percentage described in paragraph (2).
(2) For purposes of paragraph (1), the applicable percentage shall
be 39 percent of the qualified equity investment.
(b) For purposes of this section:
(1) "Credit allowance date" means, with respect to any qualified
equity investment, the date on which the investment is initially
made.
(2) "Equity investment" means either of the following:
(A) Any stock, other than nonqualified preferred stock as defined
in Section 351(g)(2) of the Internal Revenue Code, in an entity which
is a corporation.
(B) Any capital interest in an entity which is a partnership.
(3) (A) "Low-income community" means a population census tract
where any of the following applies:
(i) The tract has a poverty rate of at least 20 percent.
(ii) The tract is not located within a metropolitan area and the
median family income does not exceed 80 percent of the statewide
median family income.
(iii) The tract is located within a metropolitan area and the
median family income does not exceed 80 percent of the greater
statewide median family income or the metropolitan area median family
income.
(iv) The tract is located within a high migration rural county and
the median income does not exceed 85 percent of the statewide median
family income. For purposes of this clause, "high migration rural
county" means a county which, during the 20-year period ending with
the year in which the most recent census was conducted, has a net out
migration of inhabitants from the county of at least 10 percent of
the population of the county at the beginning of that period.
(B) Where a community is in a location that is not tracted for
population census tracts, the equivalent county divisions shall be
used for purposes of determining poverty rates and median family
income.
(C) Where a community is in a population census tract with a
population of less than 2,000, the community shall be treated as a
low-income community if the tract is within an empowerment zone
designated under Section 1391 of the Internal Revenue Code and is
contiguous to one or more low-income communities, as determined under
this paragraph.
(4) (A) "Qualified active low-income community business" means,
with respect to any taxable year, a corporation, including a
nonprofit corporation, or partnership that, for that taxable year,
meets all of the following conditions:
(i) Derives at least 50 percent of its total gross income from the
active conduct of a qualified business in a low-income community in
California.
(ii) A substantial portion of the use of the tangible property of
the entity, whether owned or leased, is within a low-income community
in California. "Substantial portion" shall be defined as 40 percent
or more of the tangible property of the entity.
(iii) Less than 5 percent of the average of the aggregate
unadjusted base of the property of the entity is attributable to
collectibles, as defined in Section 408(m)(2) of the Internal Revenue
Code.
(iv) Less than 5 percent of the average of the aggregate
unadjusted base of the property of the entity is attributable to
nonqualified financial property, as defined in Section 1397C(e) of
the Internal Revenue Code.
(B) A "qualified active low-income community business" shall
include a business carried on by an individual as a proprietor if
that business meets the requirements of subparagraph (A) were it
incorporated or a trade or business which would qualify if that trade
or business were separately incorporated.
(5) "Qualified business" has the same meaning as that in Section
1397C(d) of the Internal Revenue Code except that:
(A) In lieu of applying subparagraph (B) of paragraph (2), the
rental to others of real property located in any low-income community
shall be treated as a qualified business if there are substantial
improvements located on that real property.
(B) Paragraph (3) of that section shall not apply.
(6) (A) "Qualified community development entity" means a domestic
corporation or partnership that meets all of the following
conditions:
(i) Has a primary mission of serving, or providing investment
capital for, low-income communities or low-income persons.
(ii) Maintains accountability to residents of low-income
communities through their representation on any governing board of
the entity or on any advisory board to the entity.
(iii) Is certified by the California Tax Credit Allocation
Committee for purposes of this section as being a qualified community
development entity.
(B) A domestic corporation or partnership shall be deemed a
"qualified community development entity" if it has entered into an
allocation agreement with the Community Development Financial
Institutions Fund of the United States Department of the Treasury
with respect to credits authorized by Section 45D of the Internal
Revenue Code of 1986, as amended, and if the allocation agreement
includes the state within its service area.
(7) (A) "Qualified equity investment" means any equity investment
in a qualified community development entity if all of the following
conditions are met:
(i) The investment is acquired by the taxpayer at its original
issue, directly or through an underwriter, solely in exchange for
cash.
(ii) Substantially all of the cash is used by the qualified
community development entity to make low-income community
investments. This requirement shall be deemed met if at least 85
percent of the aggregate gross assets of the qualified community
development entity are invested in qualified low-income community
investments in California.
(iii) The investment is designated for purposes of this section by
the qualified community development entity.
(B) "Qualified equity investment" does not include any equity
investment issued by a qualified community development entity more
than one year after the date that the entity receives an allocation
under subdivision (d).
(C) A "qualified equity investment" shall include any equity
investment which would, notwithstanding clause (i) of subparagraph
(A), be a qualified equity investment in the hands of the taxpayer if
the investment was a qualified equity investment in the hands of a
prior holder.
(D) Section 1202(c)(3) of the Internal Revenue Code, relating to
purchases by a corporation of its own stock, shall apply.
(8) "Qualified low-income community investment" means any of the
following:
(A) Any capital or equity investment in, or loan to, a qualified
low-income community business.
(B) Any capital or equity investment in, or loan to, a real estate
project in a low-income community.
(C) The purchase from another qualified community development
entity of any loan made by that entity which is a qualified
low-income community investment.
(D) Financial counseling and other services in support of business
activities to businesses located in, and residents of, low-income
communities.
(E) Any equity investment in, or loan to, a qualified community
development entity.
(c) The California Tax Credit Allocation Committee shall adopt
guidelines necessary or appropriate to carry out the purposes of this
section. The adoption of the guidelines shall not be subject to the
rulemaking provisions of the Administrative Procedure Act of Chapter
3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title
2 of the Government Code. The committee shall establish and impose
reasonable fees upon entities that apply for the allocation pursuant
to subdivision (d) and use the revenue to defray the cost of
administering the program. The committee shall establish the fees in
a manner that ensures that (1) the total amount collected equals the
amount reasonably necessary to defray the commission's costs in
performing its administrative duties under this section, and (2) the
amount paid by each entity reasonably corresponds with the value of
the services provided to the entity.
(d) (1) The aggregate amount of credit that may be allowed in any
calendar year pursuant to this section and Section 17053.9 shall be
an amount equal to the aggregate revenue increase attributable in
that same calendar year to Sections 18036.8 and 24941, as
amended 24941.6, as added by the act adding this
section, as estimated by the Franchise Tax Board, so as to achieve a
revenue neutral effect.
(2) The aggregate amount of credit specified under paragraph (1)
shall be allocated by the California Tax Credit Allocation Committee
among entities that apply for the allocation. The California Tax
Credit Allocation Committee shall give priority to applications that
either are submitted by an entity that has a record of successfully
providing capital or technical assistance to disadvantaged businesses
or communities or entities that intend to make qualified low-income
community investments in one or more businesses in which persons
unrelated to the entity hold the majority equity interest.
(e) Any credits used under subdivision (a) for a qualified equity
investment where a recapture event occurs at any time before the
close of the seventh taxable year after the qualified equity
investment shall be included in the income in the taxable year in
which the recapture event occurred. For purposes of this subdivision,
a "recapture event" shall include any of the following that occur
any time before the close of the seventh taxable year after the
qualified equity investment in a qualified community development
entity:
(1) The qualified community development entity ceases to be a
qualified community development entity.
(2) The proceeds of the investment cease to be used as required
under clause (ii) of subparagraph (A) of paragraph (7) of subdivision
(b).
(3) The investment is redeemed by a qualified community
development entity.
(f) An exception to the provisions of clause (ii) of subparagraph
(A) of paragraph (7) of subdivision (b) shall exist wherein an
investment shall be considered held by a community development entity
even if the investment has been sold or repaid, provided that the
community development entity reinvests an amount equal to the capital
returned to or recovered by the community development entity from
the original investment, exclusive of any profits realized, in
another qualified low-income community investment within 12 months of
the receipt of that capital. A community development entity shall
not be 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 community development entity through the seventh
anniversary of the qualified equity investment's issuance.
SEC. 5. Section 24941.5 24941.6 is
added to the Revenue and Taxation Code, to read:
24941.5. 24941.6. (a) For taxable
years beginning on or after January 1, 2011, and before January 1,
2012, the provisions of Section 1031 of the Internal Revenue Code,
relating to the exchange of property held for productive use or
investment, shall not apply to out-of-state real property that is
received in exchange for real property located in California.
(b) This section shall remain in effect only until December 1,
2012, and as of that date is repealed.
SEC. 6. Notwithstanding Section 50199.9 of the
Health and Safety Code, or any other law, the sum of one-hundred and
fifty thousand dollars ($150,000) is hereby appropriated from the Tax
Credit Allocation Fee Account to the California Tax Credit
Allocation Committee for purposes of implementing the California New
Markets Tax Credit Program as provided in Sections 17053.9 and
23622.9 of the Revenue and Taxation Code. The appropriated funds
shall remain in the Tax Credit Allocation Fee Account until such time
as the funds are required for purposes of implementing this new
program, and shall only be
available for expenditure until January 1, 2012. It is the intent of
the Legislature that these appropriated funds shall be reimbursed by
the application fees collected by the committee for this new program.
SEC. 6. SEC. 7. This act provides
for a tax levy within the meaning of Article IV of the Constitution
and shall go into immediate effect.
