Alvarado Tax Credit Bill Saves First $5M For Past Applicants

The text as introduced · 3,444 words

By: Alvarado
S.B. No. 2814

AN ACT

relating to a franchise or insurance premium tax credit for certain

housing developments.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Chapter 171, Tax Code, is amended by adding

Subchapter K to read as follows:

SUBCHAPTER K. TAX CREDIT FOR CERTAIN HOUSING DEVELOPMENTS

Sec. 171.551. DEFINITIONS. In this subchapter:

(1) "Allocation certificate" means a statement issued

by the department certifying that a qualified development qualifies

for credits under this subchapter and Chapter 233, Insurance Code,

specifying the total amount of the credits awarded in connection

with the qualified development for the credit period, and

specifying the annual amount of credit that may be claimed each year

during the credit period for each building that is part of the

qualified development.

(2) "Credit" means the low-income housing development

tax credit authorized by this subchapter.

(3) "Credit period" means, with respect to a building

that is part of a qualified development, the period of 10 tax years

beginning with the tax year in which the building is placed in

service.

(4) "Department" means the Texas Department of Housing

and Community Affairs.

(5) "Development" has the meaning assigned by Section

2306.6702, Government Code.

(6) "Federal tax credit" means the federal low-income

housing credit created by Section 42, Internal Revenue Code.

(7) "Qualified basis" means the qualified basis of a

qualified development, as determined under Section 42, Internal

Revenue Code.

(8) "Qualified development" means a development in

this state:

(A) for which the department awards or allocates

a federal tax credit through the issuance of a carryover allocation

agreement or determination notice;

(B) that has not had an allocation of federal tax

credits terminated by or at the direction of the department;

(C) that is the subject of a recorded restrictive

covenant requiring the development to be maintained and operated as

a qualified development that has not been terminated and is not

subject to termination through any process other than the natural

expiration of the covenant's extended use period;

(D) that meets all applicable requirements of the

qualified allocation plan, as defined by Section 2306.6702,

Government Code; and

(E) for the duration of the extended use period

established in the land use restriction agreement, as defined by

Section 2306.6702(a)(9), Government Code, is in compliance with:

(i) all accessibility and adaptability

requirements for a federal tax credit; and

(ii) Title VIII of the Civil Rights Act of

1968 (42 U.S.C. Section 3601 et seq.).

(9) "State housing credit ceiling" means $25 million

of annual credits each award year.

Sec. 171.552. ENTITLEMENT TO CREDIT. A taxable entity is

entitled to a n annual credit against the taxes imposed under this

chapter in the amount and under the limitations provided by this

subchapter if the taxable entity owns a direct or indirect interest

in a qualified development.

Sec. 171.553. APPLICATION FOR AND ISSUANCE OF ALLOCATION

CERTIFICATE. (a) A taxable entity or an entity subject to state

premium tax liability as defined by Section 233.0001, Insurance

Code, must apply to the department for an allocation certificate in

connection with a development in which the taxable entity or other

entity owns an interest. The application must be submitted to the

department along with the application for an allocation of federal

tax credits in a manner prescribed by the department.

(b) The department shall issue an allocation certificate

if:

(1) the department approves the application submitted

under Subsection (a);

(2) the development meets the requirements to be a

qualified development; and

(3) the department awards an amount of credit to the

development under Section 171.554.

Sec. 171.554. AMOUNT OF CREDITS; METHOD OF AWARD. (a) The

department shall in the manner provided by this section determine

the total amount of annual credits under this subchapter and

Chapter 233, Insurance Code, awarded for each year of the credit

period in connection with a qualified development and indicate the

amount of the annual credit s awarded on the allocation certificate.

(b) The amount of annual credit awarded in connection with a

qualified development over allowed each year of the credit period

must be the minimum amount necessary for the financial feasibility

of the qualified development, subject to the limitations of this

section.

(c) The amount of annual credits awarded in connection with

a qualified development allowed each year of over the credit period

may not exceed the total amount of the annual federal tax credit

awarded to the owner or owners of the qualified development allowed

each year of over the 10-year federal tax credit period.

(d) The manner in which the department awards the amount of

credits must be consistent with criteria established by the

department.

(e) The total amount of annual credits awarded for a each

award year in connection with all qualified developments financed

through tax exempt bonds may not exceed the sum of:

(1) 50 percent of the state housing credit ceiling for

the year;

(2) any portion of the state housing credit ceiling

for the preceding year that could have been awarded for qualified

developments financed through tax exempt bonds but was not awarded;

and

(3) any credits recaptured or otherwise returned to

the department in the year that were originally awarded in

connection with a qualified development financed through tax exempt

bonds.

(f) The total amount of annual credits awarded for a each

award year in connection with all qualified developments not

financed through tax exempt bonds may not exceed the sum of:

(1) 50 percent of the state housing credit ceiling for

the year;

(2) any portion of the state housing credit ceiling

for the preceding year that could have been awarded for qualified

developments not financed through tax exempt bonds but was not

awarded; and

(3) any credits recaptured or otherwise returned to

the department in the year that were originally awarded in

connection with a qualified development not financed through tax

exempt bonds.

(g) The department shall, in the qualified allocation plan,

determine the priorities and criteria for awarding annual credits

during award years in which the amount of credits applied for

exceeds the maximum amount that may be awarded under this section.

Sec. 171.555. APPORTIONMENT OF CREDIT. The direct or

indirect owners of a qualified development who intend to claim a

credit under this subchapter or Chapter 233, Insurance Code, may by

agreement determine the portion of the total amount of credits

awarded under Section 171.554 annual credit that each owner is

entitled to claim for any year during the credit period . If the

owners do not agree, the department shall determine the portion

each owner is entitled to claim based on each owner's ownership

interest in the qualified development.

Sec. 171.556. LENGTH OF CREDIT; LIMITATION. (a) A ny

taxable entity entitled to a credit under this subchapter shall

claim its portion of the annual credit in equal installments for

each year during each year of the credit period.

(b) The total credit claimed under this subchapter for a

report, including any carry forward or backward under Section

171.557, may not exceed the amount of tax due for the report after

any other applicable credit.

Sec. 171.557. CARRY FORWARD OR BACKWARD. (a) If a taxable

entity is eligible for a credit that exceeds the limitations under

Section 171.556, the taxable entity may carry the unused credit

back for not more than three tax years or forward for not more than

10 consecutive reports following the tax year in which the

allocation certificate was issued. A credit carryforward from a

previous report is considered to be used before the current year

installment. A credit carried back to a previous report is

considered to be used after any other franchise tax credit is

applied to that report.

(b) A credit that is not used may not be refunded.

(c) The allocation of a credit in accordance with Section

171.559 does not extend the period for which a credit may be carried

forward and does not increase the total amount of the credit that

may be claimed.

(d) An entity may not carry back a credit under this

subchapter to a tax year for which the report was originally due

before January 1, 2026.

Sec. 171.558. RECAPTURE. (a) If a qualified development is

subject to the recapture of a portion of the federal tax credit

awarded or allocated to the development, then each taxable entity

or entity subject to state premium tax liability as defined by

Section 233.0001, Insurance Code, that has claimed or is entitled

to claim a portion of the credit under this subchapter is also

subject to the recapture of a portion of the credit under this

subchapter.

(b) The amount of credit under this subchapter that is

subject to recapture under this section is the same percentage of

the amount originally awarded or allocated as the percentage of the

amount of the federal tax credit originally awarded or allocated

that is subject to recapture under federal law. The recapture of a

credit under this section is not subject to a statute of limitations

provided by Chapter 111.

(c) The owners of a qualified development that is awarded or

allocated a credit under this subchapter or a representative of

those owners shall identify each taxable entity and each entity

subject to state premium tax liability as defined by Section

233.0001, Insurance Code, that is subject to recapture of the

credit under this section.

(d) Not later than the 30th day after the date any owner of a

qualified development receives notice that a federal tax credit

awarded or allocated to the development is subject to recapture,

the owners of the development or a representative of those owners

shall report to the comptroller:

(1) the amount of federal tax credit originally

awarded or allocated to the development;

(2) the amount of federal tax credit that is subject to

recapture and the percentage of the amount originally awarded or

allocated which that amount represents; and

(3) each entity identified under Subsection (c).

Sec. 171.559. ALLOCATION OF CREDIT. (a) If a taxable

entity receiving a credit under this subchapter is a partnership,

limited liability company, S corporation, or similar pass-through

entity, the taxable entity may allocate the credit to its partners,

shareholders, members, or other constituent taxable entities in any

manner agreed to by those entities, regardless of the size of the

person's ownership interest. This section does not prohibit a

partner, member, or shareholder from holding an investment

consisting only of a credit awarded under this subchapter or a

federal tax credit.

(b) A taxable entity that makes an allocation under this

section shall certify to the comptroller the amount of credit

allocated to each constituent taxable entity or shall notify the

comptroller that it has delegated the duty of certification to one

constituent taxable entity that shall provide the notification to

the comptroller. Each constituent taxable entity is entitled to

claim the allocated amount subject to any restrictions prescribed

by this subchapter.

(c) An allocation under this section is not a transfer for

purposes of state law.

Sec. 171.560. FILING REQUIREMENTS AFTER ALLOCATION. A

taxable entity that allocates a portion of the credit under Section

171.559, and each taxable entity to which a portion was allocated,

shall file with the taxable entity's report a copy of the

certification or notice required by Section 171.559(b).

Sec. 171.561. APPLICATION FOR CREDIT. (a) A taxable entity

must apply for a credit under this subchapter on or with the tax

report for which the credit is claimed and submit with the

application a copy of the allocation certificate issued in

connection with the qualified development and any other information

required by the comptroller.

(b) The comptroller shall adopt a form for the application

for the credit. A taxable entity must use the form to apply for the

credit.

Sec. 171.562. RULES; PROCEDURES. The department and

comptroller, in consultation with each other, shall adopt rules and

procedures to implement, administer, and enforce this subchapter.

Sec. 171.563. COMPLIANCE MONITORING. (a) The department

shall monitor compliance with this subchapter in the same manner as

the department monitors compliance with the federal tax credit

program.

(b) The department shall report any instances of

noncompliance with this subchapter to the comptroller.

Sec. 171.564. INCLUSION OF INFORMATION IN LOW INCOME

HOUSING PLAN. The department shall include in the low income

housing plan under Section 2306.0721, Government Code, information

relating to the performance of the credit during the previous

calendar year. The information must:

(1) specify the number of qualified developments for

which allocation certificates were issued during the year and the

total number of units supported by the developments;

(2) describe each qualified development for which an

allocation certificate was issued during the year, including:

(A) location;

(B) household type;

(C) available demographic information for the

residents intended to be served by the development;

(D) the income levels intended to be served by

the development; and

(E) the rents or set-asides authorized for the

development;

(3) include housing market and demographic

information to demonstrate how the qualified developments,

supported by the tax credits under this subchapter and Chapter 233,

Insurance Code, are addressing the need for affordable housing in

their communities; and

(4) analyze any remaining disparities in the

affordability of housing within those communities.

Sec. 171.565. EXPIRATION OF AUTHORITY TO ALLOCATE CREDITS.

(a) After December 31, 2029, the department may not:

(1) reserve an amount of credit under this subchapter

for a qualified development for the purpose of issuing an

allocation certificate for the development at a later date; or

(2) issue an allocation certificate for a qualified

development unless, on or before December 31, 2029, the department

reserved an amount of credit under this subchapter for the

development for the purpose of issuing an allocation certificate at

a later date if the requirements for issuance of the certificate are

met.

(b) On or after January 1, 2030:

(1) the department may issue an allocation certificate

for which an amount of credit was reserved under Subsection (a)(2);

and

(2) an entity may claim a credit on a tax report as

provided by this subchapter or Chapter 233, Insurance Code, in

connection with a qualified development for which the department

issued an allocation certificate or reserved an amount of credit

before January 1, 2030.

Sec. 171.566. PRIORITY ALLOCATION FOR CERTAIN QUALIFIED

DEVELOPMENTS. (a) This section applies only to a qualified

development:

(1) that received an allocation of federal tax credits

under the qualified allocation plan issued by the department for

2021 or 2022;

(2) the owners or developers of which have owned the

land necessary for the development since at least December 31,

2022;

(3) that is not financed through tax exempt bonds; and

(4) that the department determines requires an

allocation of credit under this subchapter to secure the financial

feasibility of the qualified development after considering any

federal tax credit.

(b) Notwithstanding Sections 171.554(e) and (f) and subject

to Subsection (e) of this section, for the first year the department

issues allocation certificates or reserves credit amounts for the

purpose of issuing allocation certificates, the department shall

use $5 million of the state housing credit ceiling to award credits

to qualified developments to which this section applies.

(c) The owners of a qualified development to which this

section applies who intend to apply for an allocation of credit

under this section, or a representative of those owners, must

notify the department of that intent before the deadline for the

qualified development to be placed in service. If the owners or

their representative provide the notice required by this

subsection, the deadline for the qualified development to be placed

in service is extended until:

(1) the deadline set by the department for submitting

an application for an allocation under this section; or

(2) if an application for an allocation under this

section is submitted before the deadline set by the department, the

date the department issues a decision on the application.

(d) An applicant for an allocation of credit under this

section must submit to the department:

(1) documents proving that the owners or developers of

the qualified development meet the land ownership requirement under

Subsection (a)(2);

(2) a financial analysis demonstrating that the

allocation is necessary to secure the financial feasibility of the

development as required by Subsection (a)(4); and

(3) any other documentation required by the department

to demonstrate that the qualified development meets the

requirements provided by Subsection (a).

(e) If the amount of state credits reserved under this

section is not fully allocated to qualified developments to which

this section applies, the department shall allocate the remaining

portion to qualified developments to which this section does not

apply.

(f) The department shall, in the qualified allocation plan,

determine the priorities and criteria for awarding credits under

this section if the amount of credits applied for exceeds the

maximum amount that may be awarded under this section.

SECTION 2. Subtitle B, Title 3, Insurance Code, is amended

by adding Chapter 233 to read as follows:

CHAPTER 233. CREDIT AGAINST CERTAIN TAXES FOR CERTAIN HOUSING

DEVELOPMENTS

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 233.0001. DEFINITIONS. In this chapter:

(1) "Allocation certificate," "credit," and

"qualified development" have the meanings assigned by Section

171.551, Tax Code.

(2) "State premium tax liability" means any tax

liability incurred by an entity under Chapter 221, 222, 223, or 224.

SUBCHAPTER B. CREDIT

Sec. 233.0051. CREDIT. (a) An entity is eligible for a

credit against the entity's state premium tax liability in the

amount and under the limitations provided by this chapter if the

entity owns a direct or indirect interest in a qualified

development.

(b) An entity that claims a credit under this chapter is not

required to pay any additional retaliatory tax under Chapter 281 as

a result of claiming the credit.

Sec. 233.0052. LENGTH OF CREDIT; LIMITATIONS. (a) The

entity shall claim the annual credit in the manner provided by

Section 171.556, Tax Code.

(b) The total credit claimed under this chapter for a

report, including any carry forward or backward described by

Subsection (c), may not exceed the amount of the entity's state

premium tax liability due for the report after any other applicable

credit.

(c) The entity may carry a surplus credit forward or

backward as provided by Section 171.557, Tax Code.

Sec. 233.0053. APPLICATION FOR CREDIT. (a) An entity must

apply for a credit under this chapter on or with the tax report for

the tax year for which the credit is claimed and submit with the

application a copy of the allocation certificate issued in

connection with the qualified development and any other information

required by Subchapter K, Chapter 171, Tax Code.

(b) The comptroller shall adopt a form for the application

for the credit. An entity must use this form in applying for the

credit.

Sec. 233.0054. RULES; PROCEDURES. The comptroller and the

Texas Department of Housing and Community Affairs, in consultation

with each other, shall adopt rules and procedures to implement,

administer, and enforce this chapter.

Sec. 233.0055. APPLICABLE PROVISIONS. The provisions of

Subchapter K, Chapter 171, Tax Code, relating to recapture,

allocation of credit, apportionment of credit, length of credit,

filing requirements after allocation, and compliance monitoring

apply to the credit authorized by this chapter.

SUBCHAPTER C. EXPIRATION OF AUTHORITY TO ALLOCATE CREDITS

Sec. 233.0101. EXPIRATION OF ALLOCATION AUTHORITY; USE OF

ALLOCATED CREDITS. (a) The authority of the Texas Department of

Housing and Community Affairs to reserve credit amounts and issue

allocation certificates for purposes of Subchapter K, Chapter 171,

Tax Code, and this chapter expires as provided by Section

171.565(a), Tax Code.

(b) An entity may claim a credit under this chapter on a tax

report as provided by Section 171.565(b), Tax Code.

SECTION 3. (a) The Texas Department of Housing and

Community Affairs may begin reserving credit amounts for the

purpose of issuing allocation certificates under Subchapter K,

Chapter 171, Tax Code, as added by this Act, in an open cycle

beginning on January 1, 2024.

(b) Except as provided by Subsection (c) of this section,

Subchapter K, Chapter 171, Tax Code, as added by this Act, and

Chapter 233, Insurance Code, as added by this Act, apply only to a

tax report originally due on or after January 1, 2026, and before

January 1, 2036.

(c) The expiration of the authority to allocate credits

under Subchapter K, Chapter 171, Tax Code, as added by this Act, in

accordance with Section 171.565, Tax Code, as added by this Act,

does not affect the carryforward of a credit under:

(1) Section 171.557, Tax Code, as added by this Act; or

(2) Section 233.0052(c), Insurance Code, as added by

this Act.

SECTION 4. This Act takes effect January 1, 2026.