1     
UTAH SMALL BUSINESS JOBS ACT AMENDMENTS

2     
2016 GENERAL SESSION

3     
STATE OF UTAH

4     
Chief Sponsor: Curtis S. Bramble

5     
House Sponsor: ____________

6     

7     LONG TITLE
8     General Description:
9          This bill modifies provisions of the Utah Small Business Jobs Act.
10     Highlighted Provisions:
11          This bill:
12          ▸     defines terms;
13          ▸     modifies provisions related to qualified equity investments issued before January 1,
14     2016, and on or after January 1, 2016;
15          ▸     modifies the date when applications for a qualified equity investment tax credit
16     under the Utah Small Business Jobs Act may be accepted by the Governor's Office
17     of Economic Development (GOED);
18          ▸     modifies the dollar amount of qualified equity investments that GOED may certify;
19     and
20          ▸     makes technical and conforming changes.
21     Money Appropriated in this Bill:
22          None
23     Other Special Clauses:
24          None
25     Utah Code Sections Affected:
26     AMENDS:
27          63N-2-602, as renumbered and amended by Laws of Utah 2015, Chapter 283
28          63N-2-603, as renumbered and amended by Laws of Utah 2015, Chapter 283
29          63N-2-604, as renumbered and amended by Laws of Utah 2015, Chapter 283
30          63N-2-606, as renumbered and amended by Laws of Utah 2015, Chapter 283
31          63N-2-607, as renumbered and amended by Laws of Utah 2015, Chapter 283
32          63N-2-611, as renumbered and amended by Laws of Utah 2015, Chapter 283
33     

34     Be it enacted by the Legislature of the state of Utah:
35          Section 1. Section 63N-2-602 is amended to read:
36          63N-2-602. Definitions.
37          As used in this part:
38          (1) "Affiliate" means an entity that directly, or indirectly through one or more
39     intermediaries, controls, or is controlled by, or is under common control with, the entity
40     specified.
41          (2) "Applicable percentage" means:
42          [(a) 0% for the first two credit allowance dates;]
43          [(b) 12% for the next three credit allowance dates; and]
44          [(c) 11% for the next two credit allowance dates.]
45          (a) with respect to a qualified equity investment issued before January 1, 2016:
46          (i) 0% for the first two credit allowance dates;
47          (ii) 12% for the next three credit allowance dates; and
48          (iii) 11% for the next two credit allowance dates; and
49          (b) with respect to a qualified equity investment issued on or after January 1, 2016:
50          (i) 0% for the first six credit allowance dates;
51          (ii) 12% for the next three credit allowance dates; and
52          (iii) 11% for the next two credit allowance dates.
53          (3) "Community Development Financial Institutions Fund" means the fund created in
54     12 U.S.C. Sec. 4703.
55          (4) "Credit allowance date" means with respect to a qualified equity investment:
56          (a) the date on which the qualified equity investment is initially made; and
57          (b) (i) each of the first six anniversary dates of the date described in Subsection
58     (4)(a)[.] with respect to a qualified equity investment issued before January 1, 2016; or
59          (ii) each of the first 10 anniversary dates of the date described in Subsection (4)(a) with
60     respect to a qualified equity investment issued on or after January 1, 2016.
61          (5) "Federal New Markets Tax Credit Program" means the program created under
62     Section 45D, Internal Revenue Code.
63          (6) "Long-term debt security" means a debt instrument issued by a qualified
64     community development entity:
65          (a) with an original maturity date of at least seven years from the date of its issuance;
66     and
67          (b) with no repayment, amortization, or prepayment features before its original
68     maturity date.
69          (7) "Purchase price" means the amount paid to the qualified community development
70     entity that issues a qualified equity investment for the qualified equity investment that may not
71     exceed the amount of qualified equity investment authority certified pursuant to Section
72     63N-2-603.
73          [(8) (a) "Qualified active low-income community business" is as defined in Section
74     45D, Internal Revenue Code, and 26 C.F.R. Sec. 1.45D-1, but is limited to those businesses
75     meeting the United States Small Business Administration size eligibility standards established
76     in 13 C.F.R. Sec. 121.101-201 at the time the qualified low-income community investment is
77     made.]
78          (8) (a) "Qualified active low-income community business" means a business with
79     fewer than 250 employees and less than $10,000,000 in net income for the preceding taxable
80     year at the time of the qualified low-income community investment and:
81          (i) with respect to a qualified equity investment issued before January 1, 2016, a
82     business that meets the definition of a qualified active low-income community business in
83     Section 45D, Internal Revenue Code, and 26 C.F.R. Sec. 1.45D-1; or
84          (ii) with respect to a qualified equity investment issued on or after January 1, 2016, if
85     located in Utah, Salt Lake, Davis, or Weber county, a business that meets the definition of a
86     qualified active low-income community business in Section 45D, Internal Revenue Code, and
87     26 C.F.R. Sec. 1.46D-1.
88          (b) Notwithstanding Subsection (8)(a), "qualified active low-income community
89     business" does not include a business that derives or projects to derive 15% or more of its
90     annual revenue from the rental or sale of real estate, unless the business is controlled by or
91     under common control with another business if the second business:
92          (i) does not derive or project to derive 15% or more of its annual revenue from the
93     rental or sale of real estate; and
94          (ii) is the primary tenant of the real estate leased from the initial business.
95          (c) A business is considered a qualified active low-income community business for the
96     duration of the qualified community development entity's investment in, or loan to, the
97     business if the qualified community development entity reasonably expects, at the time it
98     makes the investment or loan, that the business will continue to satisfy the requirements for
99     being a qualified active low-income community business[, other than the United States Small
100     Business Administration size standards,] throughout the entire period of the investment or loan.
101          (9) (a) "Qualified community development entity" is as defined in Section 45D,
102     Internal Revenue Code, if the entity has entered into an allocation agreement with the
103     Community Development Financial Institutions Fund of the United States Treasury
104     Department with respect to credits authorized by Section 45D, Internal Revenue Code, that
105     includes Utah within the service area set forth in the allocation agreement.
106          (b) An entity may not be considered to be controlled by another entity solely as a result
107     of the entity having made a direct or indirect equity investment in the other entity that earns tax
108     credits under Section 45D, Internal Revenue Code, or in a similar state program.
109          (c) "Qualified community development entity" includes a subsidiary community
110     development entity of a qualified community development entity.
111          (10) (a) "Qualified equity investment" means an equity investment in, or long-term
112     debt security issued by, a qualified community development entity that:
113          (i) is acquired on or after September 2, 2014, at its original issuance solely in exchange
114     for cash;
115          [(ii) has at least 85% of its cash purchase price used by the qualified community
116     development entity to make qualified low-income community investments in qualified active
117     low-income community businesses located in this state by the first anniversary of the initial
118     credit allowance date; and]
119          [(iii)] (ii) is designated by the qualified community development entity as a qualified
120     equity investment and is certified by the office pursuant to Section 63N-2-603[.];
121          (iii) (A) for a qualified equity investment issued before January 1, 2016, has at least
122     85% of its cash purchase price used by the qualified community development entity to make
123     qualified low-income community investments in qualified active low-income community
124     businesses located in the state within one year of the initial credit allowance date; or
125          (B) for a qualified equity investment issued on or after January 1, 2016, has at least
126     100% of its cash purchase price used by the qualified community development entity to make
127     qualified low-income community investments in qualified active low-income community
128     businesses located in the state within one year of the initial credit allowance date; and
129          (iv) for a qualified equity investment issued on or after January 1, 2016, is:
130          (A) designated by a qualified community development entity as a federal qualified
131     equity investment under Section 45D, Internal Revenue Code; or
132          (B) issued by a qualified community development entity or an affiliate of a qualified
133     community development entity that has issued a qualified equity investment under this part
134     before January 1, 2016.
135          (b) Notwithstanding Subsection (10)(a), "qualified equity investment" includes a
136     qualified equity investment that does not meet the provisions of Subsection (10)(a) if the
137     investment was a qualified equity investment [in the hands of] held by a prior holder.
138          (11) (a) "Qualified low-income community investment" means a capital or equity
139     investment in, or a loan to, a qualified active low-income community business, except, with
140     respect to any one qualified active low-income community business, the maximum amount of
141     qualified low-income community investments made in such business, on a collective basis with
142     all of the business's affiliates, with the proceeds of qualified equity investments certified under
143     Section 63N-2-603 shall be $4,000,000, exclusive of qualified low-income community
144     investments made with repaid or redeemed qualified low-income community investments or
145     interest or profits realized on the repaid or redeemed qualified low-income community
146     investments.
147          (b) With respect to a qualified equity investment issued on or after January 1, 2016, a
148     secured loan or the provision of a revolving line of credit to a qualified active low-income
149     community business will only qualify as a qualified low-income community investment if,
150     before the investment, the qualified community development entity obtains an affidavit from
151     the president or similar officer of the qualified active low-income community business attesting
152     that the qualified active low-income community business sought and was denied similar
153     financing from a commercial bank.
154          (12) "Tax credit certificate" is a certificate issued by the office under Subsection
155     63N-2-603(11) to an entity eligible for a tax credit under Section 59-9-107 that:
156          (a) lists the name of the entity eligible for a tax credit;
157          (b) lists the entity's taxpayer identification number;
158          (c) lists the amount of tax credit that the office determines the entity is eligible for the
159     calendar year; and
160          (d) may include other information as determined by the office.
161          Section 2. Section 63N-2-603 is amended to read:
162          63N-2-603. Certification of qualified equity investments -- Issuance of tax credit
163     related certificates.
164          (1) (a) A qualified community development entity that seeks to have an equity
165     investment or long-term debt security certified as a qualified equity investment and [as] eligible
166     for tax credits under Section 59-9-107 shall apply to the office.
167          (b) The office shall begin accepting applications:
168          (i) on September 2, 2014[.], for an equity investment issued before January 1, 2016;
169     and
170          (ii) on September 2, 2016, for an equity investment issued on or after January 1, 2016.
171          (c) The qualified community development entity shall include the following in the
172     qualified community development entity's application:
173          (i) evidence of the applicant's certification as a qualified community development
174     entity, including evidence of the service area of the applicant that includes this state;
175          (ii) a copy of an allocation agreement executed by the applicant, or its controlling
176     entity, and the Community Development Financial Institutions Fund;
177          (iii) a certificate executed by an executive officer of the applicant attesting that:
178          (A) the applicant or its controlling entity has received more than one allocation of
179     qualified equity investment authority under the Federal New Markets Tax Credit Program; and
180          (B) the allocation agreement submitted with the application remains in effect and has
181     not been revoked or cancelled by the Community Development Financial Institutions Fund;
182          (iv) with respect to a qualified equity investment issued before January 1, 2016, a
183     description of the proposed amount, structure, and purchaser of the qualified equity investment;
184          (v) examples of the types of qualified active low-income businesses in which the
185     applicant, its controlling entity, or affiliates of its controlling entity have invested under the
186     Federal New Markets Tax Credit Program, except that when submitting an application an
187     applicant is not required to identify qualified active low-income community businesses in
188     which the applicant will invest;
189          (vi) the amount of qualified equity investment authority the applicant agrees to
190     designate as a federal qualified equity investment under Section 45D, Internal Revenue Code,
191     including a copy of the screen shot from the Community Development Financial Institutions
192     Fund's Allocation Tracking System of the applicant's remaining federal qualified equity
193     investment authority;
194          (vii) if applicable, the refundable performance deposit required by Subsection
195     63N-2-606(1);
196          (viii) a copy of a certificate of qualified equity investment authority under another
197     state's new markets tax credit program; and
198          (ix) evidence that the applicant, its controlling entity, and subsidiary qualified
199     community development entities of the controlling entity have collectively made at least
200     $40,000,000 in qualified low-income community investments under the Federal New Markets
201     Tax Credit Program and other state's new markets tax credit programs with a maximum
202     qualified low-income community investment size of $4,000,000 per business.
203          (2) (a) Within 30 days after receipt of a completed application containing the
204     information set forth in Subsection (1), including, if applicable, the refundable performance
205     deposit, the office shall grant or deny the application in full or in part.
206          (b) (i) If the office denies any part of the application, the office shall inform the
207     applicant of the grounds for the denial.
208          (ii) If the applicant provides additional information required by the office or otherwise
209     completes its application within 15 days of the notice of denial, the application shall be
210     considered completed as of the original date of submission.
211          (c) If the applicant fails to provide the information or complete its application within
212     the 15-day period:
213          (i) the application is denied;
214          (ii) the applicant [shall] may resubmit an application in full with a new submission
215     date; and
216          (iii) the office shall return any refundable performance deposit required by Subsection
217     63N-2-606(1).
218          (3) (a) If the application is complete, the office shall certify the proposed equity
219     investment or long-term debt security as a qualified equity investment, subject to the limitation
220     contained in Subsection (6).
221          (b) The office shall provide written notice of the certification to the qualified
222     community development entity.
223          (4) (a) The office shall certify qualified equity investments in the order applications are
224     received by the office.
225          (b) Applications received on the same day are considered to have been received
226     simultaneously.
227          (5) For applications that are complete and received on the same day, the office shall
228     certify, consistent with remaining qualified equity investment capacity, qualified equity
229     investments of applicants as follows:
230          (a) with respect to a qualified equity investment issued before January 1, 2016:
231          [(a)] (i) first, the office shall certify applications by applicants that agree to designate
232     qualified equity investments as federal qualified equity investments in accordance with
233     Subsection (1)(c)(vi) in proportionate percentages based upon the ratio of the amount of
234     qualified equity investments requested in an application to be designated as federal qualified
235     equity investments to the total amount of qualified equity investments to be designated as
236     federal qualified equity investments requested in all applications received on the same day[.];
237     and
238          [(b)] (ii) after complying with Subsection (5)(a)(i), the office shall certify the qualified
239     equity investments of all other applicants, including the remaining qualified equity investment
240     authority requested by applicants not designated as federal qualified equity investments in
241     accordance with Subsection (1)(c)(vi), in proportionate percentages based upon the ratio of the
242     amount of qualified equity investments requested in the applications to the total amount of
243     qualified equity investments requested in all applications received on the same day[.]; and
244          (b) with respect to a qualified equity investment issued on or after January 1, 2016, the
245     office shall certify qualified equity investments in proportionate percentages based upon the
246     ratio of the requested amount of qualified equity investments in the applications to the total
247     amount of requested qualified equity investments in all applications received on the same day.
248          (6) (a) (i) The office shall certify [$50,000,000] $100,000,000 in qualified equity
249     investments pursuant to this section.
250          (ii) If a pending request cannot be fully certified due to this limit, the office shall
251     certify the portion that may be certified unless the qualified community development entity
252     elects to withdraw its request rather than receive partial certification.
253          (b) If a qualified community development entity withdraws its request pursuant to
254     Subsection (6)(a), the office shall return any refundable performance deposit required by
255     Subsection 63N-2-606(1).
256          (c) A partial certification does not decrease the amount of the refundable performance
257     deposit required under Subsection 63N-2-606(1).
258          (7) An approved applicant may transfer all or a portion of its certified qualified equity
259     investment authority to its controlling entity or a subsidiary qualified community development
260     entity of the controlling entity, provided that the applicant and the transferee notify the office of
261     the transfer with the notice set forth in Subsection (8) and include with the notice the
262     information required in the application with respect to the transferee.
263          (8) (a) Within 45 days of the applicant receiving notice of certification, the qualified
264     community development entity or any transferee under Subsection (7) shall:
265          (i) issue the qualified equity investment;
266          (ii) receive cash in the amount of the certified amount; and
267          (iii) if applicable, designate the required amount of qualified equity investment
268     authority as federal qualified equity investments.
269          (b) The qualified community development entity or transferee under Subsection (7)
270     shall provide the office with evidence of the receipt of the cash investment and designation of
271     the qualified equity investment as a federal qualified equity investment, if applicable, within 50
272     days of the applicant receiving notice of certification.
273          (c) The certification under this section lapses and the qualified community
274     development entity may not issue the qualified equity investment without reapplying to the
275     office for certification if, within 45 days following receipt of the certification notice, the
276     qualified community development entity or any transferee under Subsection (7) does not:
277          (i) receive the cash investment;
278          (ii) issue the qualified equity investment; and
279          (iii) if applicable, designate the required amount of qualified equity investment
280     authority as federal qualified equity investments.
281          (d) A lapsed certification under this Subsection (8) reverts back to the office and shall
282     be reissued as follows:
283          [(i) first, pro rata to applicants whose qualified equity investment allocations were
284     reduced under Subsection (5)(a), if applicable;]
285          [(ii) second, pro rata to applicants whose qualified equity investment allocations were
286     reduced under Subsection (5)(b); and]
287          (i) with respect to qualified equity investments issued before January 1, 2016:
288          (A) first, pro rata to applicants whose qualified equity investment allocations were
289     reduced under Subsection (5)(a)(i), if applicable; and
290          (B) second, pro rata to applicants whose qualified equity investment allocations were
291     reduced under Subsection (5)(a)(ii);
292          (ii) with respect to qualified equity investments issued on or after January 1, 2016, pro
293     rata to applicants whose qualified equity investment allocations were reduced under Subsection
294     (5)(b); and
295          (iii) after complying with Subsections (8)(d)(i) and (ii), in accordance with the
296     application process.
297          (e) (i) The office shall:
298          (A) calculate an annual fee to be paid by each applicant certified pursuant to
299     Subsection (3)(a), regardless of the number of transferees under Subsection (7), by dividing
300     $100,000 by the number of applications certified pursuant to Subsection (3)(a); and
301          (B) notify each successful applicant of the amount of the annual fee.
302          (ii) (A) The initial annual fee shall be due and payable to the office with the evidence
303     of receipt of cash investment set forth in Subsection (8)(b).
304          (B) After the initial annual fee, an annual fee shall be due and payable to the office
305     with each report submitted pursuant to Section 63N-2-610.
306          (iii) An annual fee may not be required once a qualified community development entity
307     together with all transferees under Subsection (7) have decertified all qualified equity
308     investments in accordance with Subsection 63N-2-607(2).
309          (iv) To maintain an aggregate annual fee of $100,000 for all qualified community
310     development entities, the office shall recalculate the annual fee as needed upon:
311          (A) the lapse of any certification under Subsection (8)(c);
312          (B) the recapture of tax credits pursuant to Section 63N-2-604; or
313          (C) the decertification of qualified equity investments pursuant to Subsection
314     63N-2-607(2).
315          (v) An annual fee collected under this Subsection (8)(e) shall be deposited into the
316     General Fund as a dedicated credit for use by the office to implement this part.
317          (9) (a) A qualified community development entity that issues a debt instrument
318     described in Subsection 63N-2-602(6) may not make cash interest payments on the debt
319     instrument during the period beginning on the date of issuance and ending on the [final]
320     seventh credit allowance date in an amount that exceeds the cumulative operating income, as
321     defined by regulations adopted under Section 45D, Internal Revenue Code, of the qualified
322     community development entity for that period before giving effect to the interest expense of the
323     long-term debt security.
324          (b) This Subsection (9) does not limit the holder of the debt instrument's ability to
325     accelerate payments on the debt instrument in situations when the qualified community
326     development entity has defaulted on covenants designed to ensure compliance with this part or
327     Section 45D, Internal Revenue Code.
328          (10) (a) A qualified community development entity that issues qualified equity
329     investments shall notify the office of the names of the entities that are eligible to use tax credits
330     under this section and Section 59-9-107:
331          (i) pursuant to an allocation of tax credits;
332          (ii) pursuant to a change in allocation of tax credits; or
333          (iii) due to a transfer of a qualified equity investment.
334          (b) The office may by rule, made in accordance with Title 63G, Chapter 3, Utah
335     Administrative Rulemaking Act, provide for the form and content of the notice required under
336     this Subsection (10).
337          (11) (a) An entity may claim a tax credit under Section 59-9-107 against tax liability
338     under Title 59, Chapter 9, Taxation of Admitted Insurers, if the entity:
339          (i) makes a qualified equity investment; and
340          (ii) obtains a tax credit certificate in accordance with Subsection (11)(b).
341          (b) [For] (i) With respect to qualified equity investments issued before January 1,
342     2016, for each calendar year, beginning with calendar year 2016, an entity is eligible for a tax
343     credit under this section and Section 59-9-107, the office shall issue to the entity a tax credit
344     certificate for use after January 1, 2017, and provide the State Tax Commission a copy of the
345     tax credit certificate.
346          (ii) With respect to qualified equity investments issued on or after January 1, 2016, for
347     each calendar year beginning with calendar year 2022 an entity is eligible for a tax credit under
348     this section and Section 59-9-107, the office shall issue to the entity a tax credit certificate for
349     use after January 1, 2023, and provide the State Tax Commission a copy of the tax credit
350     certificate.
351          (c) On each credit allowance date of the qualified equity investment, the entity that
352     made the qualified equity investment, or the subsequent holder of the qualified equity
353     investment, may claim a portion of the tax credit during the calendar year that includes the
354     credit allowance date.
355          (d) The office shall calculate the tax credit amount and the tax credit amount shall be
356     equal to the applicable percentage for the credit allowance date multiplied by the purchase
357     price paid to the qualified community development entity for the qualified equity investment.
358          (e) A tax credit allowed to a partnership, limited liability company, or S-corporation
359     shall be allocated to the partners, members, or shareholders of the partnership, limited liability
360     company, or S-corporation for the partners', members', or shareholders' direct use in accordance
361     with the provisions of any agreement among the partners, members, or shareholders.
362          (f) An entity may not sell a tax credit allowed under this section on the open market.
363          (12) (a) An entity that claims a tax credit under Section 59-9-107 and this section shall
364     provide the office with a document that expressly directs and authorizes the State Tax
365     Commission to disclose to the office the entity's tax returns and other information concerning
366     the entity that are required by the office and that would otherwise be subject to confidentiality
367     under Section 59-1-403 or Section 6103, Internal Revenue Code.
368          (b) The office shall submit the document described in Subsection (12)(a) to the State
369     Tax Commission.
370          (c) Upon receipt of the document described in Subsection (12)(a), the State Tax
371     Commission shall provide the office with the information requested by the office that the entity
372     authorized the State Tax Commission to provide to the office in the document described in
373     Subsection (12)(a).
374          Section 3. Section 63N-2-604 is amended to read:
375          63N-2-604. Recapture.
376          (1) [The] Under the following conditions, the office may recapture a tax credit from an
377     entity that claimed the tax credit allowed under Section 59-9-107 on a return[, if any of the
378     following occur] if:
379          (a) [If] any amount of a federal tax credit available with respect to a qualified equity
380     investment that is eligible for a tax credit under this part is recaptured under Section 45D,
381     Internal Revenue Code, the office may recapture the tax credit in an amount that is
382     proportionate to the federal recapture with respect to the qualified equity investment[.];
383          (b) [If] the qualified community development entity redeems or makes principal
384     repayment with respect to a qualified equity investment before the seventh anniversary of the
385     issuance of the qualified equity investment, the office may recapture an amount proportionate
386     to the amount of the redemption or repayment with respect to the qualified equity
387     investment[.];
388          (c) (i) [If] with respect to qualified equity investments issued before January 1, 2016,
389     the qualified community development entity fails to invest an amount equal to 85% of the
390     purchase price of the qualified equity investment in qualified low-income community
391     investments in Utah within 12 months of the issuance of the qualified equity investment and
392     maintains at least 85% of the level of investment in qualified low-income community
393     investments in Utah until the last credit allowance date for the qualified equity investment[, the
394     office may recapture the tax credit.]; or
395          (ii) with respect to qualified equity investments issued on or after January 1, 2016,
396     unless any of the requirements of this Subsection (1)(c)(ii) are waived by the office, the
397     qualified community development entity fails:
398          (A) to invest an amount equal to 100% of the purchase price of the qualified equity
399     investment in qualified low-income community investments in Utah within 12 months of the
400     issuance of the qualified equity investment with no more than 50% of those investments made
401     in qualified active low-income community businesses located in Salt Lake County;
402          (B) to invest an amount equal to 25% of the purchase price of the qualified equity
403     investment in qualified active low-income community businesses located outside Utah, Salt
404     Lake, Weber, and Davis counties;
405          (C) to invest, in addition to the amount described in Subsection (1)(c)(ii)(B), an
406     amount equal to 25% of the purchase price of the qualified equity investment in qualified
407     active low-income community businesses located outside Utah, Salt Lake, Weber, and Davis
408     counties or engaged in aerospace and defense, energy and natural resources, financial services,
409     life sciences, outdoor products, software development, or information technology industries; or
410          (D) to maintain an amount equal to 100% of the purchase price of the qualified equity
411     investment in qualified low-income community investments in the state until the seventh credit
412     allowance date of the qualified equity investment;
413          (d) a qualified community development entity makes a distribution or debt payment in
414     violation of Subsection 63N-2-607(1); or
415          (e) there is a violation of Section 63N-2-609.
416          [(ii)] (2) (a) For purposes of this part, an investment is considered held by a qualified
417     community development entity even if the investment has been sold or repaid if the qualified
418     community development entity reinvests an amount equal to the capital returned to or
419     recovered by the qualified community development entity from the original investment,
420     exclusive of any profits realized, in another qualified low-income community investment
421     within 12 months of the receipt of the capital.
422          [(iii)] (b) Periodic amounts received as repayment of principal pursuant to regularly
423     scheduled amortization payments on a loan that is a qualified low-income community
424     investment shall be treated as continuously invested in a qualified low-income community
425     investment if the amounts are reinvested in one or more qualified low-income community
426     investments by the end of the following calendar year.
427          [(iv)] (c) A qualified community development entity is not required to reinvest capital
428     returned from a qualified low-income community investment after the sixth anniversary of the
429     issuance of the qualified equity investment, and the qualified low-income community
430     investment shall be considered held by the qualified community development entity through
431     the seventh anniversary of the qualified equity investment's issuance.
432          [(d) If a qualified community development entity makes a distribution or debt payment
433     in violation of Subsection 63N-2-607(1), the office may recapture the tax credit.]
434          [(e) If there is a violation of Section 63N-2-609, the office may recapture the tax
435     credit.]
436          [(2)] (3) A recaptured tax credit under this section and the related qualified equity
437     investment authority revert back to the office and [shall] may be reissued[:] in accordance with
438     the application process described in Section 63N-2-603.
439          [(a) first, pro rata to applicants whose qualified equity investment allocations were
440     reduced under Subsection 63N-2-603(5)(a);]
441          [(b) second, pro rata to applicants whose qualified equity investment allocations were
442     reduced under Subsection 63N-2-603(5)(b); and]
443          [(c) after complying with Subsections (2)(a) and (b), in accordance with the application
444     process.]
445          Section 4. Section 63N-2-606 is amended to read:
446          63N-2-606. Refundable performance deposit -- Small Business Jobs Performance
447     Guarantee Account.
448          (1) (a) A qualified community development entity that seeks to have an equity
449     investment or long-term debt security certified as a qualified equity investment and as eligible
450     for tax credits under Section 59-9-107 shall pay a deposit in the amount of .5% of the amount
451     of the equity investment or long-term debt security requested in an application to be certified as
452     a qualified equity investment to the office for deposit into the Small Business Jobs
453     Performance Guarantee Account.
454          (b) (i) There is created in the General Fund a restricted account known as the "Small
455     Business Jobs Performance Guarantee Account" that consists of deposits made under
456     Subsection (1)(a).
457          (ii) The Small Business Jobs Performance Guarantee Account does not earn interest.
458          (iii) At the end of a fiscal year, any amount in the Small Business Jobs Performance
459     Guarantee Account that a qualified community development entity forfeits under this section is
460     to be transferred to the General Fund.
461          (iv) The office shall work with the Division of Finance to ensure that money in the
462     Small Business Jobs Performance Guarantee Account is properly accounted for at the end of
463     each fiscal year.
464          (c) A qualified community development entity shall forfeit the deposit required under
465     Subsection (1)(a) in its entirety if:
466          (i) the qualified community development entity and its subsidiary qualified community
467     development entities fail to issue the total amount of qualified equity investments certified by
468     the office and receive cash in the total amount certified under Section 63N-2-603; or
469          (ii) the qualified community development entity or any subsidiary qualified community
470     development entity that issues a qualified equity investment certified under this part fails to
471     make qualified low-income community investments before the second credit allowance date of
472     such qualified equity investment in qualified active low-income community businesses in Utah
473     equal to at least:
474          (A) 85% of the purchase price of the qualified equity investment [by the second credit
475     allowance date of such qualified equity investment.] with respect to qualified equity
476     investments made before January 1, 2016; or
477          (B) 100% of the purchase price of the qualified equity investment with respect to
478     qualified equity investments made on or after January 1, 2016.
479          (d) The six-month cure period established under Section 63N-2-605 is not applicable to
480     the forfeiture of a deposit under Subsection (1)(c).
481          (2) (a) A deposit required under Subsection (1) shall be paid to the office and held in
482     the Small Business Jobs Performance Guarantee Account until such time as compliance with
483     this Subsection (2) is established.
484          (b) A qualified community development entity may request a refund of the deposit
485     from the office no sooner than 30 days after the qualified community development entity and
486     all transferees under Subsection 63N-2-603(7) have invested 85% of the purchase price of the
487     qualified equity investment authority certified by the office pursuant to Subsection
488     63N-2-603(3).
489          (c) The office has 30 days to comply with the request for a refund or give notice of
490     noncompliance.
491          Section 5. Section 63N-2-607 is amended to read:
492          63N-2-607. 150% and 175% investment requirement -- Ceasing of certification.
493          (1) (a) Once certified under Section 63N-2-603, a qualified equity investment shall
494     remain certified until all of the requirements of Subsection (2) have been met.
495          (b) Until such time as the qualified equity investments issued by a qualified community
496     development entity are no longer certified, the qualified community development entity may
497     not distribute to its equity holders or make cash payments on long-term debt securities that
498     have been certified as qualified equity investments in an amount that exceeds the sum of:
499          (i) the cumulative operating income, as defined by regulations adopted under Section
500     45D, Internal Revenue Code, earned by the qualified community development entity since
501     issuance of the qualified equity investment, before giving effect to any interest expense from
502     long-term debt securities certified as qualified equity investments; and
503          (ii) 50% of the purchase price of the qualified equity investments issued by the
504     qualified community development entity.
505          (2) Subject to the other provisions of this section, a qualified equity investment ceases
506     to be certified when:
507          (a) it is beyond its seventh credit allowance date;
508          (b) the qualified community development entity issuing the qualified equity investment
509     has been in compliance with Section 63N-2-604 through its seventh credit allowance date,
510     including any cures under Section 63N-2-605;
511          (c) the qualified community development entity issuing such qualified equity
512     investment has used the cash purchase of such qualified equity investment, together with
513     capital returned, repaid, or redeemed or profits realized with qualified low-income community
514     investments, to invest in qualified active low-income community businesses such that the total
515     qualified low-income community investments made, cumulatively including reinvestments[,]:
516          (i) exceeds 150% of the qualified equity investment with respect to qualified equity
517     investments issued before January 1, 2016; or
518          (ii) exceeds 175% of the qualified equity investment with respect to qualified equity
519     investments issued on or after January 1, 2016; and
520          (d) the qualified community development complies with Subsection (4).
521          (3) For purposes of making the calculation under Subsection (2)(c), qualified
522     low-income community investments to any one qualified active low-income community
523     business, on a collective basis with its affiliates, in excess of $4,000,000 may not be included,
524     unless such investments are made with capital returned or repaid from qualified low-income
525     community investments made by the qualified community development entity in other
526     qualified active low-income community businesses or interest earned on or profits realized
527     from any qualified low-income community investments.
528          (4) (a) A qualified community development entity shall file a request for ceasing
529     certification of a qualified equity investment in a form, provided by the office, that establishes
530     that the qualified community development entity has met the requirements of Subsection (2)
531     along with evidence supporting the request for ceasing certification.
532          (b) Subsection (2)(b) shall be considered to be met if no recapture action has been
533     commenced by the office as of the seventh credit allowance date.
534          (5) (a) A request for ceasing certification may not be unreasonably denied and the
535     office shall respond to the request within 30 days of the office receiving the request.
536          (b) Upon grant of a request for ceasing certification, the qualified community
537     development entity is no longer subject to Section 63N-2-610.
538          (c) If the request is denied for any reason, the office has the burden of proof in any
539     administrative or legal proceeding that follows.
540          Section 6. Section 63N-2-611 is amended to read:
541          63N-2-611. Revenue impact assessment.
542          (1) [Before] With respect to qualified equity investments made before January 1, 2016:
543          (a) before making a qualified low-income community investment, a qualified
544     community development entity shall submit to the office a revenue impact assessment prepared
545     using a nationally recognized economic development model that demonstrates that the
546     qualified low-income community investment will have a revenue positive impact on the state
547     over 10 years against the 58% tax credit utilization over the same 10-year period[.]; and
548          [(2) The] (b) the office shall notify the qualified community development entity within
549     five business days if the qualified low-income community investment does not have a revenue
550     positive impact on the state over 10 years against the 58% tax credit utilization over the same
551     10-year period using the revenue impact assessment submitted.
552          (2) With respect to qualified equity investments made on or after January 1, 2016:
553          (a) before making a qualified low-income community investment, a qualified
554     community development entity shall submit to the office a revenue impact assessment prepared
555     using a nationally recognized economic development model that demonstrates that the
556     qualified low-income community investment will have a revenue positive impact on the state
557     over 11 years against the 58% tax credit utilization over the same 11-year period; and
558          (b) the office shall notify the qualified community development entity within five
559     business days if the qualified low-income community investment does not have a revenue
560     positive impact on the state over 11 years against the 58% tax credit utilization over the same
561     11-year period using the revenue impact assessment submitted.
562          (3) If the office determines that the revenue impact assessment does not reflect a
563     revenue positive qualified low-income community investment, the office may waive the
564     requirement under this section if the office determines that the proposed qualified low-income
565     community investment will further economic development.




Legislative Review Note
Office of Legislative Research and General Counsel