No. 38943 (New Rule): Rule R357-10. Small Business Jobs Act

(New Rule)

DAR File No.: 38943
Filed: 11/08/2014 07:44:24 PM

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.

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:

12/31/2014

This rule may become effective on:

01/08/2015

Authorized by:

Val Hale, Executive Director

RULE TEXT

R357. Governor, Economic Development.

R357-10. Small Business Jobs Act.

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 Small Business Jobs Act.

 

R357-10-2. Authority.

(1) Rulemaking authority is provided in Utah Code Section 63M-1-3503(10)(2014).

 

R357-10-3. Definitions.

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

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

 

R357-10-4. Calculation of Time.

(1) For the purposes of this Act and these Rules, time will be calculated beginning the business day after the initial or triggering event, and includes weekends and holidays, unless otherwise indicated.

(2) 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) 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.

(5) 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 (3).

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

(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 (3).

(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 (3).

(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. Thus, all statutory and administrative deadlines will start anew for each additional amounts received under this section.

(i) If the applicant receiving additional certified allocation amount chooses to have the additional amount aggregated with its original certified allocation amount for purposes of timelines, it may do so by:

(A) making such a request on official letter head;

(B) stating in the request, applicant waives the independent timeline of the additional certified allocation amount and is subjecting the additional certified allocation amount to the timeline of the original certified allocation amount; and

(C) having an authorized agent of the applicant sign the letter.

(ii) Aggregation of an original certified allocation amount with an additional certified allocation amount may only occur if the two timelines can actually converge without violating the statute or this rule.

(iii) Aggregation of the annual report timelines shall be done by combining the additional certified allocation amount's report with the original certified allocation amount's report and shall be subject to the deadline of the latter.

(6) 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 (5) 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. Refundable Deposit and Annual Fees.

(1) An Annual Fee will be calculated no later than October 2 of each year for which an Annual fee is assessed.

(2) Each successful applicant will be notified of the Annual Fee it owes within the electronic mail notice of certification amount set forth in 10-5(4).

(3) Recalculations: Each applicant will be notified of any recalculation of the fees at least 10 days before each annual reporting date.

(4) 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 63M-1-3510.

 

R357-10-7. Designation of Qualified Equity Investment and Decertification.

(1) No later than 50 days after receiving a notice of certification, the qualified Community Development Entity or transferee shall provide OFFICE with the following information:

(a) A Notice of Receipt of Cash Investment and designation of QEI: Notice of receipt of cash investment and designation of qualified equity investment shall be provided on a notice form supplied by the Office. The Notice Form shall also include at least the following attachments:

(i) Documentation 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;

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

(C) The federal qualified equity investment shall match or exceed the amount allocated by the State pursuant to the process set forth in Section 3503(5).

(2) The qualified community development entity shall notify the Office of a transfer of a qualified equity investment to its controlling entity or a subsidiary qualified community development entity within 30 days after the date of the transfer.

(a) The notice shall occur on official letterhead and be signed by an authorized agent of the qualified community development entity initiating the transfer.

(b) The 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 certify an investment within 45 days of notice of certification, the Office shall notify the applicant that its certification has lapsed.

(a) The Applicant will have 10 business days to challenge a Notice of Agency Action for Lapsed Certification.

(i) Any challenge to a Lapsed Certification shall provide documentation that the requirements of Section 63M-1-3503(8) were met within 45 days of notice of certification.

(b) If an applicant challenges a Notice of Agency Action for Lapsed Certification, the challenge shall be submitted to the Executive Director of the Office for final determination.

(i) The Executive Director shall issue a final determination within 5 business days of receipt of a challenge.

(c) If an applicant's certification lapses, a notice of reissue will be sent to the other applicants notifying them of the additional certifications as set forth in Utah Code Section 63M-1-3503(8).

 

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 report required in Section 63M-1-3503(8)(b) may notify the Office 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 "notification of change in allocation" 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 by the CDE with respect to the entity claiming a tax credit.

(d) Each notice shall be accompanied by the release of information required in Section 63M-1-3503(12).

(e) Each notice shall be accompanied by the 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.

(g) Only entities that make a qualified equity investment in a qualified community development entity may claim a tax credit. The tax credit may not be sold on the open market.

(2) Each entity receiving a tax credit shall certify that:

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

(b) It will not sell the tax credit on the open market.

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

(3) All tax credits issued by the Office will be subject to the following conditions or limitations:

(a) The tax credit is subject to the applicable percentages set forth in Utah Code 63M-1-3502(2);

(b) The tax credit is subject to recapture as set forth in Section 63M-1-3504.

 

R357-10-9. Revenue Impact Assessments.

(1) Qualified community development entities shall use the REMI (Regional Economic Models, inc.) Model in order to submit its revenue impact assessment as required by Utah Code Section 63M-1-3511.

(a) A qualified community development entity may submit a request to use a different revenue impact assessment. The executive director or its designee shall approve or deny the request within 5 business days.

(2) If the qualified community economic development entity is notified that the qualified low-income business investment does not have a revenue positive impact as required by the statute, the qualified community economic development entity will have 5 business days to submit a request for waiver of this 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 for the waiver;

(ii) documentation supporting the reason for why a waiver should be granted;

(iii) documentation showing the positive economic impacts that will be derived from the investment in which the waiver is sought for;

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

(b) The Office shall either request additional information, approve, or deny the application for waiver within 10 days.

(i) If additional information is requested, the application shall be approved or denied within 10 days of receipt of all additional information.

(3) A qualified community development entity shall not issue a qualified low-income community investment unless the revenue impact model is accepted or there is a waiver pursuant to (2).

 

R357-10-10. Reporting.

(1) In addition to the reporting requirements of 63M-1-3510 the following reporting requirements shall supplement the annual report:

(a) Reporting of Transaction Costs: A qualified community development entity shall report on the transactional costs of all qualified low income 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.

(b) 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 63M-1-354(1)(c):

(i) The reinvestment of the capital returned or recovered into another qualified low income investment in Utah.

 

R357-10-11. Recapture.

(1) A qualified CDE shall ensure through its contract with tax credit recipients that the State shall have the ability to recapture funding from the tax credit recipients.

(2) Tax credit recipients will be required to acknowledge and accept the recapture provisions in writing as a condition of issuance of a tax credit.

(3) Should any of the conditions for recapture exist, the Office shall issue a Provisional Notice of Agency Action for Recapture to both the Qualified Community Development Entity and the recipient of the tax credit. Such Notice shall be delivered by electronic mail, with a copy also sent via certified mail, to the Qualified Community Development Entity.

(a) Each Provisional Notice of Agency Action shall state under which provision of Section 63M-1-3504 the recapture is sought.

(4) The six-month cure period begins on the day following receipt of the Notice of Agency Action.

(a) During the six month cure period, the parties shall meet (either in person or by electronic means) and confer regarding progress towards compliance on a monthly basis.

(b) 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.

(5) 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 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) For all investments, the 85% shall be calculated exclusive of administrative costs and transaction fees, and only includes investments into qualified low income community investments located in Utah.

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

(2) A qualified certified 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 met if the following documentation is provided:

(a) If more than $4,000,000 was invested in a single qualified low-income community business in Utah, reasonable satisfactory documentation that documents that the amount in excess of $4,000,000 was made with capital returned or repaid from other qualified low income investments made by the qualified community development entity in other qualified low income community businesses in Utah, along with tax returns or other documentation, such as bank statements, that demonstrates that the excess of $4,000,000 was made with interest earned or profits realized from other qualified low income community investments in the State of Utah.

(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.

(a) The costs of hiring an Administrative Law Judge to rule on the informal administrative hearing shall be born 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(1)

 

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