No. 39346 (New Rule): Rule R357-10. Small Business Jobs Act or Utah New Market Tax Credit

(New Rule)

DAR File No.: 39346
Filed: 05/06/2015 09:14:27 AM

RULE ANALYSIS

Purpose of the rule or reason for the change:

The purpose of this rule is to define and clarify the standards required to apply for and receive a non-refundable tax credit under the Small Business Jobs Act.

Summary of the rule or change:

The purpose of this rule is to define and clarify the standards required to apply for and receive a non-refundable tax credit under the Small Business Jobs Act, including how to apply and qualify for the tax credit, calculation of time, designation of a qualified equity investment, what constitutes a lapse, how tax credits are recaptured in the event of a lapse, and additional explanations on how to decertify.

State statutory or constitutional authorization for this rule:

• Subsection 63M-1-3503(10)

Anticipated cost or savings to:

the state budget:

This rule will not create any additional costs or savings to the state because any cost is already handled through legislation via a dedicated credit funded by the qualified community development entities. The rule does not add or take away from that statutory requirement and would be implemented by administrative costs already being provided for by the state.

local governments:

This rule will not affect local governments because local governments are not eligible for tax credits. This rule does not create any responsibilities or programs that local governments would be allowed or required to take part in. Thus, there is no effect on local governments.

small businesses:

Small businesses will not be affected by this rule because it does not require already existing businesses to do anything nor does it prohibit any activity. This rule will affect potential new businesses looking for alternative sources of funding to be invested in their operations. However, this rule does not affect those businesses ability to receive or not receive such funding. All requirements for the small businesses that may receive this funding are delineated by statute.

persons other than small businesses, businesses, or local governmental entities:

The qualified community development entities, as defined by statute, are the only persons affected by this rule. The summary of this rule lists all the areas where these entities will likely see an impact that will govern their ability to participate and how they must perform in the program.

Compliance costs for affected persons:

There is no compliance cost because this program is self-funded by fees as provided for in statute.

Comments by the department head on the fiscal impact the rule may have on businesses:

This rule will have no fiscal impact on businesses except to add an possible source of alternative funding.

Q. Val Hale, Executive Director

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Governor
Economic Development
60 E SOUTH TEMPLE 3RD FLR
SALT LAKE CITY, UT 84111

Direct questions regarding this rule to:

• Jeffrey Van Hulten at the above address, by phone at 801-538-8694, by FAX at 801-538-8888, or by Internet E-mail at [e-mail]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

07/01/2015

This rule may become effective on:

07/08/2015

Authorized by:

Val Hale, Executive Director

RULE TEXT

R357. Governor, Economic Development.

R357-10. Small Business Jobs Act or Utah New Market Tax Credit.

R357-10-1. Purpose.

(1) The purpose of this Rule is to define and clarify the standards required to apply for and receive a non-refundable tax credit under the Utah Small Business Jobs Act

 

R357-10-2. Authority.

(1) Rulemaking authority is provided in Utah Code Section 63M-1-3503(10).

 

R357-10-3. Definitions.

(1) All terms used in this rule shall be defined as provided for in Utah Code Section 63M-1-3502

(2) Any term defined differently in this rule or not provided for in Utah Code Section 63M-1-3502 shall be defined throughout this rule.

 

R357-10-4. Calculation of Time.

(1) For the purposes of the Utah Small Business Jobs Act and this Rule, time will be calculated beginning the business day after the initial or triggering event.

(2) If the time within which an act is to be performed is sixty (60) days or less, the calculation of time will include business days and will not include weekends and holidays, unless otherwise indicated.

(3) If the time which an act is to be performed is sixty-one (61) days or more, weekends or holidays are included.

(a) If the ending day or due date occurs on a weekend day or a Utah state or federal holiday, the due date shall be 11:59 pm on the next business day following the weekend day or holiday.

 

R357-10-5. Applications.

(1) Receipt of Applications: All applications received on or before 11:59 pm on September 2, 2014 shall be considered received on September 2, 2014.

(a) Receipt of Refundable Performance Deposit: The refundable performance deposit, provided for in 63M-1-3506, must be received before the application is considered complete.

(b) For the purposes of the evidence required to qualify under section 63M-1-3503(1)(i), applicant must show at least 10 individual qualified low-income community investments, of $4,000,000 or less, that collectively total $40,000,000 in qualified low-income community investments under the Federal New Market Tax Credit Program and/or any other states new market tax credit program.

(2) Denial of Application: All applications that are deemed incomplete or inadequate will be denied and given the statutory 15 day cure period that must be completed within or directly after the 30 day review period. If an application is cured after the 30 day review period but within the 15 day cure period, the application will be prioritized as it would have been with the other applications.

(3) Priority of Applications for Certification: For all applications received on the same day,

(a) Applications by applicants that agree to designate qualified equity investments as federal quality equity investments will be certified first, with the federal quality equity investments receiving priority on a pro rata basis as set forth in Utah Code Section 63M-1-3503(5)(a).

(b) If there is additional funding to certify after considering the priority applications, referenced in section (a) then those applications will be considered on a pro rata basis as set forth in Section 63M-1-3503(5)(b).

(c) If there is no additional funding to certify after considering the priority applications, then the applicants who were not considered priority applicants will be notified and their refundable deposits returned within 60 days.

(4) Non-Priority Applications: If there is no additional funding to certify after considering the priority applications set forth in Utah Code Section 63M-1-3503(5), then the applicants who were not considered priority applicants will be notified and their refundable deposits returned within sixty days.

(5) Notice of Certification Notice of Certification shall be delivered through electronic mail and be considered received at the time stamp within the electronic mail notice, not at the time it is read.

(6) Additional Allocation: If, after a certification is made, an applicant withdraws its request for certification, the amount that was certified to the withdrawing applicant will be redistributed to the other previously certified applicants, using the same priority as set forth in Utah Code Section 63M-1-3503(5).

(a) Certified applicants will be notified of an additional certification amount in writing. The applicant will have ten (10) days to either accept the additional certification or decline the additional certification. Failure to accept in writing will be deemed declination of additional allocation.

(b) If the additional certification is declined, the amount will be redistributed to the remaining previously certified applicants, using the same priority set forth in Utah Code Section 63M-1-3503(5).

(c) If all currently certified applicants decline the additional amount, any applicants who applied but did not receive any allocation will then be considered as set forth in Utah Code Section 63M-1-3503(5).

(d) If all applicants as set forth in (a), (b) and (c) decline the allocation, a new solicitation for the remaining and/or declined allocation may be pursued by the office and shall follow all procedures and processes as set forth in statute and this rule.

(e) Timing of issuance of additional certification: Any additional amounts received by applicants who have already received a certified allocation amount shall have a new independent timeline from the original certified allocation amount unless the qualified community development entity requests to aggregate the timelines as set forth below:

(i) An applicant receiving additional certified allocation may request to have the additional amount aggregated with the initial certified allocation by making such a request on official letter head to the office and by agreeing to waive the independent timeline of the additional certified allocation amount;

(ii) If aggregation of an original certified allocation amount with an additional certification amount may occur without violating the Utah Small Business Jobs Act or this Rule, the Office will approve the request to aggregate the allocations; and

(iii) If the allocations are aggregated, all allocation shall be subject to the deadline for the original certified allocation.

(7) Notification of Maximum Funding Allocation: Once the maximum amount of funding has been allocated, applicants will be notified that there is no other allocation amount available for the fiscal year unless or until: an applicant's certification lapses, an applicant withdraws its request, or if funding is recaptured.

(a) If the applicant has submitted a refundable deposit and elects to withdraw its application, the refundable deposit will be returned within 60 days.

(b) If the applicant withdraws and later applies for any remaining funds that have become available after following the procedures outlined in subsection (4) above, a new refundable deposit must be provided along with the application and follow all statutory requirements that the original application is subject to.

 

R357-10-6. Annual Fees.

(1) Recalculations: Each applicant will be notified of any recalculation of any annual fee at least ten (10) days before each annual reporting date. If no notice of recalculation is received, then the annual fee will be the same amount as it was the previous year and will be due along with the annual report as set forth in this rule and in Utah Code Section 63M-1-3510.

 

R357-10-7. Designation of Qualified Equity Investments.

(1) A notice of receipt of cash investment and designation of qualified equity investment pursuant toUtah Code Section 63M-1-3503(8)(b) shall be provided on a notice form supplied by the office. The form shall also include at least one of the following attachments to show that the qualified equity investment was issued, including:

(a) Bank statements, credit instruments, and all other supporting documentation to show qualified equity investment was issued; or

(b) A "screen shot" that shows that the required amount of qualified equity investment was designated as a federal qualified equity investment.

(2) A notice of transfer of a certified qualified equity investment made pursuant toUtah Code Section 63M-1-3503(8)(b) shall be made on official letterhead, indicate satisfaction of the federal match, and be signed by an authorized agent of the qualified community development entity initiating the transfer. Such notice may be sent as a PDF file via electronic mail to the office.

(3) If the qualified community development entity or transferee fails to issue a qualified equity investment within forty-five (45) days of notice of certification, the office shall notify the applicant that its certification has lapsed by issuing a Notice of Agency Action for Lapsed Certification.

(a) The applicant will have ten (10) business days to submit to the Executive Director a challenge to a Notice of Agency Action for Lapsed Certification.

(i) Any challenge to a Notice of Agency Action for Lapsed Certification shall provide documentation that the requirements of Utah Code Section 63M-1-3503(8) were met within forty-five (45) days of notice of certification.

(ii) The executive director shall issue a final determination within 5 business days of receipt of such challenge.

 

R357-10-8. Form and Notice for Tax Credits.

(1) A qualified community development entity (or transferee subsidiary or controlling entity) that has issued its qualified equity investments and has provided the evidence required in Utah Code Section 63M-1-3503(8)(b) shall notify the office annually of the entities that are eligible to use tax credits as follows:

(a) By submitting the form "Notification of Qualified Equity Investment for Small Business Jobs Act Tax Credits" to the office; or, if applicable,

(b) By submitting the form "Notification of Change in Allocation of Tax Credits" to the office.

(i) A form "Notification of Change in Allocation of Tax Credits" may only be used in cases where there has been a change or amendment to an agreement among the partners, shareholders or members of a partnership, limited liability company or S-Corporation.

(c) Each notice shall be accompanied by documentation of the qualified equity investment made in the qualified community development entity with respect to the entity claiming a tax credit.

(d) Each notice shall be accompanied by the documents required in Utah Code Section 63M-1-3503(12)(a).

(e) Each notice shall be accompanied by a completed "Acknowledgement and Acceptance of Tax Credit Recapture" form provided by the office.

(f) For tax credits allowed to a partnership, limited liability company or S-corporation, the notice shall be accompanied by any and all necessary documentation or agreements to demonstrate how the credits will be used by the partners, members or shareholders.

(2) Each tax credit certificate shall contain the following contingencies:

(a) A certification provision requiring the entity receiving the tax credit to certify:

(i) it is subject to the recapture provisions set forth in Section 63M-1-3504;

(ii) it will not sell the tax credit on the open market;

(iii) it will provide notice of any Federal recapture to the Office within 10 days of receiving notification of the recapture.

(b) Be available for use annually in accordance with the Applicable Percentages to the entity receiving the tax credit after receipt and acceptance of the qualified community development entity's annual report to the Office.

(i) Any event of recapture outlined by the Utah Small Business Jobs Act or this Rule shall prevent the use of an annual tax credit certificate to the entity receiving the tax credit.

 

R357-10-9. Revenue Impact Assessments.

(1) A REMI (Regional Economic Models, Inc.) or IMPLAN model shall qualify as "national recognized economic development model" for purposes of the revenue impact assessment required by Utah Code Section 63M-1-3511. A qualified community development entity may submit to the executive director a request to use a different revenue impact assessment, and the executive director or its designee shall approve or deny such request within 5 business days.

(2) If a qualified community economic development entity is notified pursuant to Utah Code Section 63M-1-3511(2) that a qualified low-income business investment does not have a revenue positive impact the qualified community development entity will have 5 business days to submit a request for waiver of such requirement.

(a) Any request for waiver shall demonstrate how the qualified low-income community investment will further economic development and shall include at least the following components:

(i) The reason the qualified community development entity is seeking the waiver;

(ii) Documentation supporting the reason the office should grant the waiver;

(iii) Documentation showing the positive economic impacts that will be derived from the qualified equity investment for which the waiver is sought; and

(iv) Documentation to demonstrate the anticipated economic development over a 7-year period.

(b) Within ten (10) days, the office shall provide notice to the requesting qualified community development entity of:

(i) An approval of the request for waiver;

(ii) A denial of the request for waiver; or

(iii) A request for additional information. If additional information is requested, the application shall be approved or denied within ten (10) days of receipt of all additional information.

(3) No investment shall meet the requirements of Utah Code Section 63M-1-3504(1)(c) unless, for such investment, (i) the revenue impact model has been accepted or (ii) the office has granted a waiver pursuant to subsection (2) above.

(4) In connection with any qualified low-income community investment other than those made in satisfaction of the requirement in Utah Code Section 63M-1-3504(1)(c)(i) with respect to investment of 85% of the purchase price of the qualified equity investment in qualified low-income community investments in Utah within 12 months of the issuance of the qualified equity investment, a qualified community development entity shall submit a new revenue impact model prior to making such qualified low-income community investment and such revenue impact model shall be deemed consistent with and include the revenue impact projected in the revenue impact model submitted with respect to the original qualified low-income community investment that was repaid or redeemed and triggered the reinvestment requirement.

 

R357-10-10. Reporting.

(1) The initial annual report required by Utah Code Section 63M-1-3510(1) shall include:

(a) Reporting of Transaction Costs: A qualified community development entity shall report on the transactional costs of all qualified low-income community investments made utilizing this program. The report shall contain the same information and be in the same format as required by the Transactional Level Report under the Federal New Market Tax Credit Program and shall contain the same information and format.

(2) Any report required by Utah Code Section 63M-1-3510 shall include, if applicable:

(a) Reinvestment Reporting: If an initial investment is sold or repaid, and the qualified community development entity reinvests an amount equal to the amount of capital returned or recovered by the qualified community development entity from the original investment, the qualified community development entity shall provide sufficient documentation such as bank statements and mapping to show it is in compliance with Utah Code Section 63M-1-3504(1)(c):

 

R357-10-11. Recapture.

(1) If the office determines recapture is necessary pursuant to Utah Code Section 63M-1-3504, the office shall issue a Provisional Notice of Agency Action for Recapture to both the qualified community development entity and the taxpayer that claimed the tax credit allowed under Utah Code Section 59-9-107. Such notice shall be delivered to the qualified community development entity by (i) electronic mail and (ii) certified mail, and shall state under which provision of Utah Code Section 63M-1-3504 the recapture is sought.

(2) The six-month cure period provided for in Utah Code Section 63M-1-3505 begins on the day following receipt of the Provisional Notice of Agency Action for Recapture. If the action or omission upon which the recapture is based is cured during the six month cure period, the office shall issue a notice of cure to the qualified community development entity. If the action or omission upon which the recapture is based is not cured within the six-month cure period, the office shall issue a final Notice of Agency Action for Recapture to the qualified community development entity, the taxpayer that claimed the tax credit, and the Utah Tax Commission.

(3) For the purposes of Recapture, the Office interprets the requirement to invest 85% of the purchase price of the qualified equity investment as follows:

(a) If the qualified community development entity does not transfer or assign any of its certification, then the qualified community development entity must invest and maintain invested an amount equal to 85% or more of the original amount of the qualified equity investment certified by the Office and for which cash was received within 45 days.

(b) If the qualified community development entity transfers all or a portion of its certified qualified equity investment authority to a controlling entity or subsidiary, then:

(i) The qualified community development entity (the transferor) must invest and maintain invested an amount equal to or greater than 85% of the portion of the certified qualified equity investment authority it retained, and for which it received cash investment within 45 days, AND

(ii) The controlling entity or subsidiary (the transferee) must invest and maintain invested and amount equal to or greater than 85% of the portion of the certified qualified equity investment authority it received, and for which it received cash investment within 45 days.

(c) The 85% investment requirement shall be defined in a manner consistent with the "Substantially-All" standard set forth in IRC Section 45D and the rules and regulations promulgated thereunder. The Department shall be notified of any ransaction fees paid by the qualified active low-income community business that are in excess of a total of $50,000 for the entire time period of the investment, up to seven years.

(i) Notice of transaction fees that are in excess of $50,000 to be paid by the qualified active low-income community business must be requested in writing within 15 days of closing the investment with the qualified active low-income community business and must include an explanation for the necessity of the excess fees including highlighting the impact to the state and how the fees and impact for the particular deal compares to the customary industry practice across both the Federal New Market Tax Credit program and other States' New Market Tax Credit programs.

(4) If after the six month cure period, the action or omission upon which the recapture is based is not cured, the Office shall issue a final notice of Agency Action for Recapture.

(a) The Final Notice of Agency Action for Recapture shall also be sent to the Utah Tax Commission.

 

R357-10-12. Decertification.

(1) Qualified equity investments shall be decertified upon proof of compliance with all provisions of Utah Code Section 63M-1-3507(2).

(2) A qualified community development entity shall file a "Request to Decertify a Qualified Equity Investment"

(3) For the purposes of this section, the requirement that reinvestments exceed 150 % of a qualified equity investment shall be considered provided:

(a) Investments made with the profits on returned or redeemed qualified low-income community investments shall count towards the 150% requirement; and

(b) Investments made with returned or redeemed qualified low-income community investments shall count towards the 150% requirement provided such qualified low-income community investment is made in a different qualified active low-income community business than the qualified active low-income community business that returned or redeemed the qualified low-income community investment and the qualified active low-income community business receiving the, to be counted toward the 150% requirement, is located in Utah.

(c) CDE shall provide documentation, such as bank statements and tax returns to demonstrate compliance with the 150% investment requirement.

(d)(i) Example 1: CDE invests $1,000,000 in QALICB A. QALICB A repays $1,000,000 plus $200,000 in interest. If CDE reinvested another $1,200,000 in QALICB A, only $1,200,000 would count towards 150% requirement ($1,000,000 initially invested plus $200,000 in profits).

(ii) Example 2: Same facts as Example 1 but CDE, instead, reinvests the $1,200,000 repaid by QALICB A into QALICB B. Then $2,200,000 would count towards 150% requirement. ($1,000,000 initial investment in QALICB A, plus $1,000,000 return of capital invested in QALICB B, plus $200,000 profit in QALICB B). Alternatively, CDE could also count $2,200,000 towards 150% requirement if $200,000 profit was reinvested in QALICB A and $1,000,000 was invested in QALICB B.

(4) Upon receipt of a Request to Decertify a Qualified Equity Investment, the Office shall issue a Decertification Certificate if all of the conditions for decertification are met.

(5) If the Office determines that the conditions for decertification have not been met, the Office shall issue a Notice of Agency Action, Failure to Decertify.

(a) Each Notice of Agency Action, Failure to Decertify shall identify which provision of Section 63M-1-3504 has not been met.

(b) Upon receipt of the Notice of Agency Action, the qualified community development entity may submit a request for reconsideration to the Executive Director of the Office within 10 days.

(i) The request for reconsideration shall contain all exhibits or evidence that the qualified community development entity wishes the Director to consider regarding compliance.

(c) The Executive Director of the Office shall have 30 days to consider and issue a decision on reconsideration.

(6) Further proceedings: If the issue of certification is not resolved by reconsideration, as set forth in Section 5, either party may request an informal administrative hearing, as set forth in the Utah Administrative Procedures Act.

(7) The costs of hiring an Administrative Law Judge to rule on the informal administrative hearing shall be borne by the losing party.

 

KEY: new market tax credit, Small Business Jobs Act, tax credit

Date of Enactment or Last Substantive Amendment: 2015

Authorizing, and Implemented or Interpreted Law: 63M-1-3503(10)

 

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