SENATE CORPORATIONS AND TRANSPORTATION COMMITTEE SUBSTITUTE FOR

SENATE BILL 373

51st legislature - STATE OF NEW MEXICO - first session, 2013

AN ACT

RELATING TO TAXATION; PROVIDING FOR A NEW MARKET PREMIUM TAX CREDIT; PROHIBITING THE IMPOSITION OF ANY ADDITIONAL TAX PURSUANT TO SECTION 59A-5-33 NMSA 1978 (BEING LAWS 1984, CHAPTER 127, SECTION 100) WITH RESPECT TO ANY NEW MARKET PREMIUM TAX CREDIT ALLOWED.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

     SECTION 1. A new section of the Economic Development Department Act is enacted to read:

     "[NEW MATERIAL] NEW MARKET PERFORMANCE GUARANTEE FUND.--The "new market performance guarantee fund" is created in the state treasury. The fund consists of performance fees held pursuant to Section 3 of this 2013 act. The department shall administer the fund, and money in the fund is appropriated to the department to make refunds of performance fees pursuant to Section 3 of this 2013 act. Interest earned on balances in the fund shall be credited to the fund. Only performance fees that are forfeited and interest earned on those fees shall revert to the general fund. All other balances remaining in the fund at the end of a fiscal year shall not revert to the general fund. Disbursements from the fund shall be made by warrant of the secretary of finance and administration pursuant to vouchers signed by the secretary of economic development."

     SECTION 2. Section 59A-5-33 NMSA 1978 (being Laws 1984, Chapter 127, Section 100) is amended to read:

     "59A-5-33. RECIPROCITY PROVISION.--

          A. When by or pursuant to the laws of any other state or foreign country or province, any taxes, licenses and other fees, in the aggregate, and any fines, penalties, deposit requirements or other material requirements, obligations, prohibitions or restrictions are or would be imposed upon New Mexico insurers doing business or that might seek to do business in such state, country or province, or upon the agents or representatives of such insurers or upon brokers or adjusters, which are in excess of such taxes, licenses and other fees, in the aggregate, or which are in excess of the fines, penalties, deposit or other requirements, obligations, prohibitions or restrictions directly imposed upon similar insurers, or upon the agents or representatives of such insurers, or upon brokers, or upon adjusters, of such other state, country or province under the statutes of this state, so long as such laws of such other state, country or province continue in force or are so applied, the same taxes, licenses and other fees, in the aggregate, or fines, penalties or deposit requirements or other material requirements, obligations, prohibitions or restrictions of whatever kind may be imposed by the superintendent upon the insurers, or upon the agents or representatives of such insurers, or upon brokers of such other state, country or province, doing business or seeking to do business in New Mexico. Any tax, license or other fee or obligation imposed by any city, county or other political subdivision or agency of such other state, country or province on New Mexico insurers or their agents, representatives, brokers or adjusters shall be deemed to be imposed by such state, country or province within the meaning of this section.

          B. A person to whom a premium tax credit is allowed pursuant to the Insurance Code shall not be required to pay any additional amount pursuant to Subsection A of this section, with respect to the amount of that credit allowed.

          [B.] C. This section does not apply as to:

                (1) personal income taxes; [or]

                (2) ad valorem taxes on real or personal property; or

                (3) special purpose obligations or assessments, or assessments under insurance guaranty fund laws, imposed by another state in connection with particular kinds of insurance, except that assessment of insurers for financing of public safety, health and protection purposes is not exempt under this subsection. Except, that deductions from premium taxes or other taxes otherwise payable, allowed on account of real or personal property taxes paid, shall be taken into consideration by the superintendent in determining propriety and extent of reciprocity action under this section.

          [C.] D. For purposes of this section domicile of an alien insurer, other than Canadian insurer, shall be that state designated by the insurer in writing filed with the superintendent at time of authorization in this state or within six [(6)] months after the effective date of the Insurance Code, whichever date is the later, and may be any one of the following states:

                (1) that in which the insurer was first authorized to transact insurance; [or]

                (2) that in which is located the insurer's principal place of business in the United States; or

                (3) that in which is held the largest deposit of trusteed assets of the insurer for protection of its policyholders in the United States.

     If the insurer makes no such designation, its domicile shall be deemed to be that state in which is located its principal place of business in the United States.

          [D.] E. The domicile of a Canadian insurer shall be Canada and the province of Canada in which its head office is located."

     SECTION 3. A new section of the New Mexico Insurance Code is enacted to read:

     "[NEW MATERIAL] NEW MARKET PREMIUM TAX CREDIT.--

          A. A taxpayer who makes a qualified equity investment in a qualified community development entity on or after July 1, 2013 and prior to January 1, 2017 may claim and the division may allow a tax credit against the taxpayer's premium tax liability in an amount equal to fifty-eight percent of the qualified equity investment applied in the corresponding seven consecutive calendar years as specified pursuant to Subsection B of this section. The tax credit provided in this section may be referred to as the "new market premium tax credit". A taxpayer earns a new market premium tax credit and that credit is vested at the time the taxpayer makes a qualified equity investment in accordance with the provisions of this section.

          B. A taxpayer may claim a new market premium tax credit in an amount equal to:

                (1) zero percent of the qualified equity investment in calendar years in which the first and second credit allowance date occurs;

                (2) twelve percent of the qualified equity investment in calendar years in which the third, fourth and fifth credit allowance date occurs; and

                (3) eleven percent of the qualified equity investment in calender years in which the sixth and seventh credit allowance date occurs.

          C. The purpose of the new market premium tax credit is to attract affordable capital to small businesses in low-income communities, to create private-sector jobs and to expand businesses.

          D. The maximum aggregate amount of qualified equity investments that may be made on or after July 1, 2013 and prior to January 1, 2017 for the purposes of obtaining a new market premium tax credit provided by this section shall be one hundred twenty-five million dollars ($125,000,000). The maximum aggregate amount of total new market premium tax credits that may be allowed for total qualified equity investments made on or after July 1, 2013 and prior to January 1, 2017 shall be seventy-two million five hundred thousand dollars ($72,500,000). The division may allow a maximum aggregate of fifteen million dollars ($15,000,000) for total new market premium tax credits provided by this section in one calendar year, exclusive of any amounts carried forward pursuant to Subsection E of this section. The economic development department shall ensure that the application process, as provided pursuant to Subsection H of this section, shall not allow the maximum aggregate amount of qualified equity investments made on or after July 1, 2013 and prior to January 1, 2017 for the purposes of obtaining a new market premium tax credit to be exceeded.

          E. The new market premium tax credit shall only be applied to a taxpayer's premium tax liability. That portion of the new market premium tax credit approved by the division that exceeds the taxpayer's premium tax liability in the calendar year in which the credit is claimed shall not be refunded to the taxpayer. The credit may be carried forward for five consecutive years. The credit shall not be transferred to any other taxpayer.

          F. A taxpayer that is a partnership, limited liability company, S corporation or other entity that may allocate tax credits to the partners, members or shareholders of that entity for their direct use on a tax return may allocate the new market premium tax credit to that entity's partners, members or shareholders in accordance with the provisions of a written agreement entered into by the partners, members or shareholders of that entity. The allocation provided pursuant to this subsection shall not be construed as a transfer to another taxpayer. The total credit claimed by all partners, members or shareholders shall not exceed the allowable credit amount provided pursuant to Subsections A and B of this section.

          G. To be eligible for the new market premium tax credit, the taxpayer shall submit an application on or after July 1, 2013 to the economic development department on a form prescribed by the economic development department. A taxpayer shall submit an application prior to making a qualified equity investment in a qualified community development entity for a determination of eligibility. In connection with the application, a taxpayer shall provide:

                (1) the name, address, tax identification number and certification as a federally qualified community development entity, including evidence that the service area of the qualified community development entity in which the taxpayer made a qualified equity investment includes New Mexico;

                (2) a copy of the allocation agreement executed by the qualified community development entity and the federal community development financial institutions fund;

                (3) a certificate executed by an officer of the qualified community development entity:

                     (a) attesting that the allocation agreement remains in effect and has not been revoked or canceled by the federal community development financial institutions fund; and

                     (b) stating the cumulative amount of allocations awarded to the taxpayer by the federal community development financial institutions fund;

                (4) a description of the amount and structure of the qualified equity investment;

                (5) a nonrefundable application fee of five thousand dollars ($5,000), which shall be paid to the economic development department and required of each application submitted;

                (6) the refundable performance fee of five hundred thousand dollars ($500,000) provided by the qualified community development entity pursuant to Subsection O of this section;

                (7) examples of the types of qualified low-income community investments made by the qualified community development entity or its controlling entity with its federal allocation; provided that the taxpayer shall not be required to identify qualified low-income community investments that will be made by the qualified community development entity; and

                (8) any other information or documentation required by the economic development department to determine the taxpayer's eligibility for a new market premium tax credit.

          H. The economic development department shall grant or deny the application within thirty days after receiving a completed application containing the information, payment of the application fee and the refundable performance fee required pursuant to this section. If any part of the application is incomplete, the economic development department shall inform the taxpayer and qualified community development entity of the deficiency or grounds upon which a denial may be based. The economic development department shall provide the taxpayer fifteen days to submit the required additional information. If the taxpayer provides the economic development department with a completed application or otherwise cures the deficiency within fifteen days of the notice of deficiency, the application shall be considered completed as of the original date of submission. If the taxpayer fails to provide a completed application or cure the deficiency within fifteen days of the notice of deficiency, the application shall be denied. A taxpayer whose application is denied may resubmit an application; provided that a new submission date shall be given to the application.

          I. If the taxpayer and qualified community development entity meet the requirements of this section, the economic development department shall certify the proposed taxpayer's investment in the qualified community development entity as a qualified equity investment that is eligible for new market premium tax credits. The economic development department shall issue a dated certificate of eligibility containing the taxpayer's identifying information, the amount of the qualified equity investment, the identifying information of the qualified community development entity, the amount of credit the taxpayer is eligible for, the corresponding year following the calendar year in which the qualified equity investment was made and any other information that the economic development department may require. All certificates of eligibility issued pursuant to this subsection shall be sequentially numbered, and an account of all certificates issued or destroyed shall be maintained by the economic development department. The state auditor shall audit the records of the new market premium tax credit maintained by the economic development department and the division on a periodic basis to ensure effective administration of the new market premium tax credit and compliance with this section.

          J. If the name of a taxpayer that is eligible to use the new market premium tax credit changes due to a transfer of a qualified equity investment or an allocation pursuant to Subsection F of this section, the qualified community development entity shall notify the economic development department of such change or allocation, and the economic development department shall notify the division.

          K. A taxpayer may make a qualified equity investment in one or more qualified community development entities other than the qualified community development entity identified in its application, provided that:

                (1) the qualified community development entity is the controlling entity of the qualified community development entity identified in the application or is a subsidiary community development entity of the controlling entity; and

                (2) the taxpayer provides the information required in the application with respect to the different qualified community development entity and the applicant notifies the economic development department of the transfer with the evidence of the receipt of cash set forth in Subsection M of this section.

          L. A taxpayer may transfer all or a portion of its allocated certified qualified equity investment authority allocated to it to one or more affiliate taxpayers provided that the taxpayer provides the information required in the application with respect to such affiliate taxpayer and the affiliate taxpayer notifies the economic development department of such transfer with the evidence of the receipt of cash set forth in Subsection M of this section.

          M. Within thirty days of the taxpayer receiving notice of certification, the taxpayer or any transferee pursuant to Subsection L of this section shall make the qualified equity investment. The qualified community development entity or transferee shall receive an amount of cash equal to the certified amount. The qualified community development entity or transferee shall provide the economic development department with evidence of the receipt of the cash investment within five business days after receipt. If the qualified community development entity or any transferee does not receive the cash investment and issue the qualified equity investment within thirty days following receipt of the certification notice, the certification shall lapse and the entity shall not issue the qualified equity investment without the taxpayer reapplying to the economic development department for certification. Lapsed certifications shall revert to the economic development department and shall be reissued, first, pro rata to other taxpayers whose proposed qualified equity investments were reduced in the application process.

          N. The economic development department shall certify qualified equity investments in the order applications are received by the department. Applications received on the same day shall be deemed to have been received simultaneously. If applications received on the same day would result in the maximum aggregate of qualified equity investments pursuant to Subsection D of this section being exceeded, the economic development department shall certify the qualified equity investments in proportionate percentages based upon the ratio of the amount of qualified equity investment requested in an application to the total amount of qualified equity investments requested in all applications received on the same day.

          O. To claim a new market premium tax credit, the taxpayer shall provide to the division the certificate of eligibility issued by the economic development department pursuant to this section to the taxpayer for the calendar year for which a tax credit is allowed. If the requirements of this section have been complied with, the division shall approve the claim for the credit.

          P. A qualified community development entity that receives a qualified equity investment shall provide, within one year from the initial credit allowance date, the economic development department with:

                (1) sufficiently detailed records with respect to qualified low-income community investments made with the proceeds of qualified equity investments in qualified active low-income community businesses in New Mexico; and

                (2) information about each qualified active low-income community business, including a description of:

                     (a) the type of business that received the qualified low-income community investment;

                     (b) the location of the business that received the qualified low-income community investment;

                     (c) the physical infrastructure that was created or preserved;

                     (d) the number of new jobs created;

                     (e) the number of New Mexico residents employed by the qualified active low-income community business and the aggregate wages paid to residents;

                     (f) the number of nonresidents employed by the qualified active low-income community business and the aggregate wages paid to nonresidents; and

                     (g) any other information required by the economic development department to assess objectively the effectiveness of the new market premium tax credit.

          Q. After the initial submission of the information required pursuant to Subsection P of this section, the qualified community development entity shall continue to submit that information to the economic development department on December 31 of each year for seven consecutive years after the initial credit allowance date. The qualified community development entity shall not be required to provide that annual report for qualified low-income community investments that have been redeemed or repaid to the qualified community development entity by a qualified active low-income community business.

          R. The division shall recapture a new market premium tax credit allowed from a taxpayer if:

                (1) any amount of a federal tax credit available with respect to a qualified equity investment is recaptured under Section 45D of the Internal Revenue Code; provided that the recapture amount shall be proportionate to the federal recapture with respect to that qualified equity investment;

                (2) the qualified community development entity redeems or makes principal repayment of a qualified equity investment prior to the seventh calendar year following the calendar year in which the investment is made; provided that the recapture amount shall be proportionate to the amount of the redemption or repayment of that qualified equity investment;

                (3) the qualified community development entity:

                     (a) fails to invest an amount equal to at least eighty-five percent of the cash purchase price of the qualified equity investment in qualified low-income community investments in New Mexico within twelve months of the date that the qualified equity investment is made; or

                     (b) fails to maintain an amount equal to at least eighty-five percent of the qualified equity investment in qualified low-income community investments in New Mexico through the seventh calendar year following the calendar year in which the qualified equity investment is made; provided that: 1) a qualified equity investment shall be deemed held by a qualified community development entity, even if that investment is sold or repaid, if an amount equal to the capital returned or recovered from the original investment, exclusive of any profits realized, is invested in another qualified low-income community investment within twelve months of the receipt of that capital; and 2) periodic amounts received during a calendar year as repayment of principal on a loan that is a qualified low-income community investment shall be treated as continuously invested in a qualified low-income community investment if the amounts are reinvested in another qualified low-income community investment by the end of the following calendar year; and provided further that a qualified 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 issuer through the seventh anniversary of the qualified equity investment's issuance; or

                (4) at any time prior to the seventh calendar year following the calendar year in which the qualified equity investment is made, uses the qualified equity investment to make qualified low-income community investments in any one qualified active low-income community business, including affiliated qualified active low-income community businesses, exclusive of reinvestments of capital returned or repaid with respect to earlier investments in that qualified active low-income community business and its affiliates, in excess of twenty-five percent of the cash proceeds of all such qualified equity investments.

          S. The division shall not recapture a new market premium tax credit from a taxpayer pursuant to Subsection R of this section until it provides the taxpayer with a notice of noncompliance and an opportunity to cure that noncompliance for a period of six months from the date of the notice.

          T. A qualified community development entity that proposes to receive a qualified equity investment from a taxpayer with respect to an application made pursuant to Subsection G of this section shall pay a performance fee in the amount of five hundred thousand dollars ($500,000) to the economic development department for deposit in the new market performance guarantee fund. A qualified community development entity, its controlling entity and any subsidiary qualified community development entities of the controlling entity are not required to collectively pay a performance fee of more than five hundred thousand dollars ($500,000). The performance fee shall be held in the new market performance guarantee fund until all qualified community development entities with the same controlling entity comply with the provisions of this section as determined by the economic development department. The qualified community development entity may request a refund of the performance fee thirty days after the economic development department determines that the qualified community development entity has complied with the requirements of this section. The qualified community development entity shall forfeit the performance fee, in its entirety, if the qualified community development entity or any other qualified community development entity with the same controlling entity fails to:

                (1) issue the total amount of qualified equity investments certified by the economic development department pursuant to Subsection I of this section; or

                (2) meet the investment requirement pursuant to Subparagraph (b) of Paragraph (3) of Subsection R of this section by the second credit allowance date.

          U. Forfeiture of the performance fee pursuant to Paragraph (2) of Subsection T of this section may be reversed by curing the noncompliance resulting in the forfeiture within the six-month period specified in Subsection S of this section.

          V. A qualified community development entity that receives a qualified equity investment shall not distribute any of the cash proceeds of its qualified equity investment or proceeds of its qualified low-income community investments until the qualified equity investment:

                (1) is beyond the seventh credit allowance date;

                (2) has been in compliance with the provisions of Subsection Q of this section through the seventh credit allowance date; and

                (3) has been invested in qualified active low-income community investments so that the total qualified active low-income community investments, cumulatively including reinvestments, equal or exceed one hundred twenty-five percent of the qualified equity investment.

          W. Before a qualified community development entity may distribute any of the cash proceeds of its qualified equity investment or proceeds of its qualified low-income community investments, the economic development department shall approve that distribution. The qualified community development entity shall send a request for approval to the economic development department along with any information or documentation required by the economic development department to determine that the qualified community development entity has complied with the provisions of Subsection V of this section. The provisions of Paragraph (2) of Subsection V of this section shall be deemed to be met if the division fails to take action to recapture a tax credit by the seventh credit allowance date. The economic development department shall not unreasonably deny a request for approval pursuant to this subsection and shall provide a response to the requestor within thirty days of receipt of the request.

          X. The division, with the cooperation of the economic development department, shall issue a letter ruling to a question regarding the new market premium tax credit provided pursuant to this section to a taxpayer within sixty days of the taxpayer's request. A taxpayer may provide a draft letter ruling for the consideration of the division. The taxpayer may withdraw the request for a letter ruling, in writing, prior to the issuance of the letter ruling. The division may refuse to issue a letter ruling for good cause, but must list the specific reasons for refusing to issue the letter ruling. A letter ruling shall bind the division until that taxpayer claims the new market premium tax credit with the division. A letter ruling shall apply only to the taxpayer that requested that letter ruling. To the extent applicable, the division shall take into consideration Section 45D of the Internal Revenue Code, and the resulting rules and regulations when issuing a letter ruling or making a determination pursuant to this section.

          Y. A qualified community development entity shall not earn or collect a fee in connection with any activity related to a new market premium tax credit prior to the eighth anniversary of the initial credit allowance date; provided that

a qualified community development entity may earn a fee equal to not more than five-tenths percent of the amount of the qualified equity investment upon the initial closing and not more than twenty-five hundredths percent of the amount of the qualified equity investment each calendar year for not more than six calendar years.

          Z. The economic development department and the division shall create an annual report that provides an objective assessment of the effectiveness of the new market premium tax credit for annual presentation to the revenue stabilization and tax policy committee and any other appropriate legislative committees. For the purpose of assessing the effectiveness of the new market premium tax credit, the inability of the division to aggregate data due to sample size shall not relieve the economic development department of the requirement to report all relevant data to the legislature. The economic development department shall provide notice to taxpayers and qualified community development entities that receive qualified equity investments that information provided to the economic development department may be revealed in reports to the legislature.

          AA. As used in this section:

                (1) "affiliate" means a business entity that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with another business entity;

                (2) "credit allowance date" means the date:

                     (a) on which a qualified equity investment is made to a qualified community development entity; and

                     (b) of each of the six anniversary dates of the date on which a qualified equity investment is made to a qualified community development entity;

                (3) "good cause" includes refusing to issue a letter ruling because:

                     (a) a taxpayer requests a letter ruling to determine whether a statute is constitutional or a rule is lawful;

                     (b) a letter ruling request involves a hypothetical situation or alternative plans;

                     (c) the facts or issues presented in the request are unclear, overbroad, insufficient or otherwise inappropriate as a basis upon which to issue a letter ruling; or

                     (d) the issue is currently being considered in a rulemaking procedure, contested case or other agency or judicial proceeding that may definitely resolve the issue;

                (4) "Internal Revenue Code" means the Internal Revenue Code of 1986, as that code may be amended or its sections renumbered;

                (5) "letter ruling" means a written interpretation of law to a specific set of facts provided by the taxpayer requesting a letter ruling;

                (6) "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, without cash interest payments on the debt instrument during the period beginning on the date of issuance and ending on the seventh year after issuance in an amount that exceeds the cumulative operating income, as defined by regulations adopted under Section 45D of the Internal Revenue Code, of the qualified community development entity for that period prior to giving effect to the expense of such cash interest payments; provided, however, that the holder of the debt instrument may accelerate payments on the debt instrument in situations where the qualified community development entity has defaulted on covenants designed to ensure compliance with this section or Section 45D of the Internal Revenue Code;

                (7) "low-income community" means "low-income community" as defined in Section 45D of the Internal Revenue Code and the resulting promulgated rules and regulations;

                (8) "premium tax" means the premium tax and the premium surtax imposed pursuant to Section 59A-6-2 NMSA 1978;

                (9) "qualified active low-income community business" means "qualified active low-income community business" as defined in Section 45D of the Internal Revenue Code and the resulting promulgated rules and regulations, except that any business that derives or projects to derive fifteen percent or more of its annual revenue from the rental or sale of real estate shall not be considered a qualified active low-income community business; but the exclusion does not apply to a business that is controlled by, or under the common control with, another business if the second business does not derive or project to derive fifteen percent or more of its annual revenue from the rental or sale of real estate and is the primary tenant of the real estate leased from the first business; provided that a business shall be considered a qualified active low-income community business for the duration of the qualified community development entity's investment in, or loan to, the business if the qualified community development entity reasonably expects, at the time it makes the investment or loan, that the business will continue to satisfy the requirements for being a qualified active low-income community business throughout the entire period of the investment or loan;

                (10) "qualified community development entity" means "qualified community development entity" as defined in Section 45D of the Internal Revenue Code and resulting promulgated rules and regulations; provided that the qualified community development entity has entered into an allocation agreement with the community development financial institutions fund of the United States department of treasury, with respect to credits authorized by Section 45D of the Internal Revenue Code, that includes New Mexico within the service areas set forth in the allocation agreement and includes a subordinate community development entity that also is a qualified community development entity under Section 45D of the Internal Revenue Code and is controlled by or under the common control with the qualified community development entity;

                (11) "qualified equity investment" means any equity investment in, or long-term debt security issued by, a qualified community development entity that:

                     (a) is acquired on or after July 1, 2013 and prior to January 1, 2017, at its original issuance, solely in exchange for cash or that was constituted a qualified equity investment in the hands of a prior holder;

                     (b) has at least eighty-five percent of the investment used by the qualified community development entity to make qualified low-income community investments in qualified active low-income community businesses located in New Mexico by the second credit allowance date; and

                     (c) is designated by the qualified community development entity as a qualified equity investment pursuant to this section and is certified by the economic development department as not exceeding the limitations on the aggregate amounts of the qualified equity investments that may be certified pursuant to this section;

                (12) "qualified low-income community investment" means any capital or equity investment in, or loan to, any qualified active low-income community business by the qualified community development entity; and

                (13) "taxpayer" means a person or entity liable for payment of the premium tax."

     SECTION 4. EFFECTIVE DATE.--The effective date of the provisions of this act is July 1, 2013.

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