Current through Register Vol. 49, No. 9, September, 2024
I.
Introduction
Overview
The New Markets Jobs Act of 2013, Act 1474 of 2013,
§
15-4-3601 et seq., creates a state New Market Tax Credit program to be
administered by the Arkansas Economic Development Commission (AEDC). New Market
Tax Credits, against state premium tax liability, may be earned by
corporations, limited liability companies, associations, partnerships, or other
business entities (hereafter referred to as entities) that make qualified
equity investments in qualified community development entities (QCDEs) that
invest capital and equity in eligible qualified active low-income community
businesses. The AEDC shall begin accepting applications requesting
certification of equity investments or long-term debt securities for New Market
Tax Credits on July 15, 2013.
Process
1.
A QCDE submits a completed application and requisite fees to the AEDC seeking
certification of an equity investment or long-term debt security for New Market
Tax Credits.
2. Within thirty (30)
days after receipt of a completed application, the AEDC grants or denies the
application in full or in part.
A. If any part
of the application is denied, the AEDC informs the applicant of the grounds for
denial.
B.
(i) If the application is denied as
incomplete, and the applicant provides the additional information or
documentation required by the AEDC, or otherwise completes its application
within fifteen (15) days of the notice of denial, the application shall be
considered completed as of the original date of submission.
(ii) If the applicant fails to provide the
requested information or complete its application within the fifteen (15) day
period, the application remains denied and must be resubmitted in full with a
new submission date.
3. If the AEDC determines that the
application is complete and meets all application requirements, the AEDC
provides written notice to the applicant certifying that the proposed equity
investment or long-term debt security is eligible for a New Market Tax Credit
subject to any limitations in §
15-4-3605(d).
4. Within thirty (30) days of receiving the
AEDC notice of certification, the QCDE or any transferee issues the qualified
equity investment and receives cash in the amount certified by the AEDC.
A. The QCDE provides the AEDC with:
(i) Evidence of the receipt of the cash
investment within ten (10) business days after receipt.
(ii) Identifying information for each entity
that will utilize the tax credits earned.
(iii) The allocation agreement between the
QCDE and the equity investors setting out each investor's allocated share of
total credits earned.
B.
If the QCDE or any transferee does not receive the cash investment and issue
the qualified equity investment within thirty (30) days following receipt of
the certification notice, the certification shall lapse, and qualified equity
investments may not be issued without reapplying to the AEDC for
certification.
5. For
each qualified low-income community investment, and reinvestments whenever job
creation and retention projections with respect to the initial investments were
not met; the QCDE submits to the AEDC an information summary sheet. The AEDC
will review the information summary sheet and issue a non-binding conditional
Letter to Proceed to the QCDE acknowledging that the business meets the
criteria established under these rules as set out in Eligible Business
Definition section, and the project is eligible to generate a stated dollar
value amount of tax credits, subject to all the restrictions, terms and
conditions set out herein. The conditional Letter to Proceed will not be an
approval of the project, and will contain provisions that expressly exclude any
legal opinion by AEDC as to SBA size criteria or US Treasury or IRS rules and
qualifications.
6. The QCDE will
submit to AEDC requisite documentation, including a project closing date and a
revenue impact assessment, prepared by a nationally-recognized, third-party
independent economic forecasting firm, demonstrating that the qualified
low-income community investment will have a revenue positive impact on the
state over ten (10) years against the aggregate tax credit utilized over the
same time period.
7. Within ten
(10) business days from the receipt of a revenue impact assessment, the AEDC
reviews the assessment and notifies the QCDE of its review. Investments shall
be deemed revenue positive if the AEDC does not notify a QCDE of its review
within ten (10) business days of receipt of a revenue impact
assessment.
8. The QCDE makes
investments in corporations, limited liability companies, associations,
partnerships or other business entities meeting the definitions of "qualified
active low-income community business" and "eligible businesses" as defined
herein.
9. Once the AEDC has
received:
a) confirmation of closing,
including documents evidencing that the project has been funded and that the 85
percent test has been met; and,
b)
designation of the tax credit recipient(s) (i.e., the equity investor(s), use
Federal IRS Form 8874) from the QCDE/Sub-QCDE, the AEDC will issue a premium
tax credit certificate on paper for the appropriate amount in the name(s) that
are assigned by the QCDE/Sub-QCDE. The tax credit will have identifying numbers
to reflect the QCDE and Sub-QCDE, if applicable, and project identifier. The
AEDC will send the original certificate to the QCDE and copies to the Arkansas
Department of Finance and Administration and the Arkansas Insurance
Department.
10. A QCDE
that issues a qualified equity investment under §
15-4-3601 et seq.,
submits a report to the AEDC within five (5) business days after the first
anniversary of the initial credit allowance date and subsequent annual reports
within five (5) business days after each of the next six anniversaries of the
credit allowance date thereafter.
Tax Credit* Allowances
|
Credit Allowance Date |
Applicable Percentage |
|
Date of Initial Qualified Equity Investment |
0% |
|
1st Anniversary Date of Equity
Investment |
0% |
|
2nd Anniversary Date of Equity
Investment |
12% |
|
3rd Anniversary Date of Equity
Investment |
12% |
|
4th Anniversary Date of Equity
Investment |
12% |
|
5th Anniversary Date of Equity
Investment |
11% |
|
6th Anniversary Date of Equity
Investment |
11% |
|
Total Credits (Percentage) |
58% |
*The tax credit amount shall be equal to the applicable
percentage for the credit allowance date multiplied by the purchase price paid
to the issuer of the qualified equity investment, not to exceed the state
premium tax liability owed by the taxpayer for the tax year in which the tax
credit is claimed.
Unused credits may be carried forward for nine (9) consecutive
tax years and shall not be refundable or saleable on the open market.
Rulemaking Authority
The AEDC has authority, at §
15-4-3614, to promulgate rules
to implement the New Markets Jobs Act of 2013.
II.
Definitions
1. "Applicable percentage" means:
A. Zero percent (0%) for the first two (2)
credit allowance dates;
B. Twelve
percent (12%) for the third, fourth, and fifth credit allowance dates;
and
C. Eleven percent (11%) for the
sixth and seventh credit allowance dates;
2. "Commission" means the Arkansas Economic
Development Commission (AEDC);
3.
"Credit allowance date" means, with respect to a qualified equity investment:
A. The date on which the qualified equity
investment is initially made; and
B. Each of the subsequent six (6) anniversary
dates of the date on which the qualified equity investment was initially
made;
4. "Cure period"
means the six-(6) month period prior to enforcement of recapture provisions
under §
15-4-3607 in which qualified community development entities may
correct noncompliance issues identified in writing by AEDC. The cure period
commences on the date of the AEDC notice of noncompliance;
5. "Eligible businesses" means non-retail
businesses engaged in commerce for profit which are classified in one of the
categories listed in categories A. through I. below. Businesses not classified
in any of the following categories are deemed ineligible.
A.
(i)
Manufacturers classified in sectors 31-33 in the North American Industrial
Classification System (NAICS), as in effect January 1, 2007.
(ii) Manufacturers classified in sectors
20-39 according to the Standard Industrial Classification (SIC) standards but
which are classified under NAICS in another sector;
B. Businesses primarily engaged in the design
and development of prepackaged software, digital content production and
preservation, computer processing and data preparation services, or information
retrieval services;
C. Businesses
primarily engaged in motion picture productions;
D. A distribution center or intermodal
facility;
E. An office sector
business;
F. A national or regional
corporate headquarters, North American Industrial Classification System (NAICS)
Code 551114, as in effect January 1, 2007;
G. Firms primarily engaged in commercial,
physical and biological research as classified in the North American Industrial
Classification System (NAICS) code 541710, as in effect January 1,
2007;
H. Scientific and technical
services business;
I. A non-retail
business may be classified as an eligible business by the AEDC if the AEDC
Executive Director determines that the proposed qualified low-income community
investment will have a positive impact on the community;
6. "Letter ruling" means a written
interpretation of law to a specific set of facts provided by an applicant
requesting the written interpretation from the Arkansas Economic
Development Commission;
7.
"Long-term debt security" means a debt instrument issued by a qualified
community development entity, at par value or a premium, with an original
maturity date of at least seven (7) years from the date of its issuance without
acceleration of repayment, amortization, or prepayment features before its
original maturity date;
8. "New
full-time permanent employee" means:
A.
(i) A job or position that was created
pursuant to the qualified low-income community investment and that is filled by
one (1) or more employees who:
(a) Are or will
be Arkansas taxpayers; and
(b)
(1) Work at the qualified active low-income
community business premises,
(2)
New employees who do not work at the premises may be counted as new full-time
permanent employees if they:
(a) Otherwise
meet the definition of "new full-time permanent employee"; and
(b) Are subject to the Arkansas Income Tax
Withholding Act, Ark. Code Ann. §
26-51-901 et seq.; and
(ii) The
position or job held by the employee or employees shall have been filled for at
least twenty-six (26) consecutive weeks with an average of at least thirty (30)
hours per week each tax year during the duration of the investment;
and
(iii) Retained jobs or
positions may not be considered new full-time permanent employees unless they
meet the definition of "retained job or position" herein.
B. A contractual employee may qualify as a
new full-time permanent employee only when offered a benefits package
comparable to a direct employee of the business;
C. Self-employed contractors hired by
qualified active low-income community businesses to provide professional
services may qualify as full-time permanent employees if they were Arkansas
taxpayers during the year in which the tax credits were earned and worked a
minimum of 1040 hours for the qualified active low-income community business in
the tax year in which the tax credits were earned;
9. "New Markets Performance Guarantee Fund"
means a miscellaneous fund on the books of the Treasurer of State, the Auditor
of State, and the Chief Fiscal Officer of the State consisting of fees paid
under §
15-4-3609; grants made by a person, organization, or federal or
state government agency; and, any other funds provided by law to be used by
AEDC to guarantee qualified community development entities' performance under
§
15-4-3601 et seq.;
10.
"Purchase price" means the amount paid to the issuer of a qualified equity
investment for a qualified equity investment;
11.
A.
"Qualified active low-income community business" means the same as defined in
26 U.S.C. §
45D and 26 C.F.R. 1.45D-1, as they existed on January 1, 2013,
if:
(i) At the time of the qualified community
development entity's investment in or loan to the corporation, limited
liability company, association, partnership, or other business entity, the
corporation, limited liability company, association, partnership, or other
business entity meets the United States Small Business Administration size
eligibility standards established in 13 C.F.R. 121.101-201, as it existed on
January 1, 2013; and
(ii) The
corporation, limited liability company, association, partnership, or other
business entity agrees to retain or create jobs that pay an average wage of at
least one hundred fifteen percent (115%) of the federal poverty income
guidelines for a family of four (4). The AEDC may waive this requirement if it
determines that an investment in the proposed qualified active low-income
community business will have a positive impact on the community.
B. A corporation, limited
liability company, association, partnership, or other business entity will 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
corporation, limited liability company, association, partnership, or other
business entity if the relevant qualified community development entity
reasonably expects, at the time it makes an investment or loan, that the
corporation, limited liability company, association, partnership, or other
business entity will continue to satisfy the requirements for being a qualified
active low-income community business other than the requirements stated in
§
15-4-3602(6)(A)(i) throughout the entire period of the investment or
loan.
C. Qualified active
low-income community business does not include the following:
(i) A corporation, limited liability company,
association, partnership, or other business entity that is the beneficiary of
an incentive under §
15-4-2705, §
15-4-2706(b), or §
15-4-2706(c)(2). The AEDC may waive this requirement if it determines that an
investment in the proposed active qualified low-income community business will
have a positive impact on the community;
(ii) Any industry excluded under a rule of
the AEDC. The AEDC may waive this requirement if it determines that an
investment in the proposed active qualified low-income community business will
have a positive impact on the community; or,
(iii)
(a) A
corporation, limited liability company, association, partnership, or other
business entity that derives or projects to derive at least fifteen percent
(15%) of its annual revenue from the rental or sale of real estate.
(b) However, this restriction does not apply
to a corporation, limited liability company, association, partnership, or other
business entity that is controlled by or under common control with another
corporation, limited liability company, association, partnership, or other
business entity that:
(1) Does not derive or
project to derive at least fifteen percent (15%) of its annual revenue from the
rental or sale of real estate; and
(2) Is the primary tenant of the real estate
leased from the corporation, limited liability company, association,
partnership, or other business entity;
12.
A. "Qualified community development entity"
means the same as defined in 26 U.S.C. §
45D, as it existed on January 1,
2013, if the corporation, limited liability company, association, partnership,
or other business entity has entered into, for the current year or any prior
year, an allocation agreement with the Community Development Financial
Institutions Fund of the United States Department of the Treasury with respect
to credits authorized under 26 U.S.C. §
45D that includes Arkansas within
the service area stated in the allocation agreement.
B. Qualified community development entity
includes a qualified community development entity that is controlled by or
under common control with a qualified community development entity;
13.
A. "Qualified equity investment" means an
equity investment in or a long- term debt security issued by a qualified
community development entity that:
(i) Is
acquired after the effective date of §
15-4-3601 et seq., at its original
issue solely in exchange for cash;
(ii) Has at least eighty-five percent (85%)
of its cash purchase price used by the issuer to make qualified low-income
community investments in qualified active low-income community businesses
located in Arkansas by the first anniversary of the initial credit allowance
date; and
(iii) Is designated by
the issuer as a qualified equity investment under this definition and is
certified by the AEDC as not exceeding the limitation stated in §
15-4-3605(d).
B.
Qualified equity investment includes an investment that was not acquired after
the effective date of §
15-4-3601 et seq., at its original issue solely in
exchange for cash if the investment was a qualified equity investment in the
hands of a previous holder;
14. "Qualified low-income community
investment" means a capital or equity investment in or loan to a qualified
active low-income community business;
15. "Retained job or position" means:
A. An employee hired by qualified active
low-income community businesses prior to receiving capital or equity
investments from qualified community development entities certified by AEDC
that their proposed equity investment is eligible for a New Market Tax Credit
subject to any limitations defined by §
15-4-3605(d).
B. For the purpose of revenue impact
assessments and reviews, a retained job or position may be counted as a new
full-time permanent employee only if:
(i) The
retained job or position is within a business that has been in existence in
Arkansas for at least two (2) years, and
(a)
Has sustained a net loss during the one (1) or two (2) year period prior to the
qualified investment of at least twenty percent (20%) of the business' net
worth; or
(b) Has violated primary
commercial bank loan covenants and has been notified that continued access to
credit from such bank has or will be discontinued, or
(ii) The retained job or position would have
been transferred out-of-state, as evidenced by a written offer and acceptance
of relocation assistance from an economic development agency from another
state; or
(iii) The AEDC Executive
Director determines that the potential job loss will significantly affect the
local economy, as documented by any additional data requested by the AEDC
Executive Director to supplement the revenue impact assessment.
C. Retained jobs or positions may
account for no more than fifty percent (50%) of all jobs in any revenue impact
assessment; however, the AEDC may waive this requirement if it determines that
an investment in the proposed active qualified low-income community business
will have a positive impact on the community;
16. "Revenue impact assessment" means:
A. An economic analysis prepared by a
nationally-recognized, third-party independent economic forecasting firm,
utilizing the Regional Economics Model, Inc. or MIG, Inc. model that
demonstrates that, over a ten-year period, the qualified low-income community
investment will have a revenue positive impact on the state given aggregate
utilization of New Market Tax Credits.
B. Revenue impact assessments shall not
include any retained job or position that does not meet the definition of
"retained job or position" defined herein.
C. Revenue impact assessments shall be
prepared for all initial qualified low-income community investments made by a
QCDE.
D. Revenue impact assessments
shall only be prepared for reinvestments whenever initial job creation and
retention projections were not met as reported on the QCDE's
immediately-preceding annual report or a report containing substitute
information and certified by an executive officer of the QCDE;
17. "State premium tax liability"
means:
A. Tax liability incurred by a
corporation, limited liability company, association, partnership, or other
business entity under §§
23-63-102 and 26-57-601 - 26-57-605,
excluding any liability for taxes on a health insurance premium; or
B. If the state premium tax liability
identified above is eliminated or reduced, any tax liability imposed on an
insurance company or other person that had premium tax liability under the laws
of the state.
III.
Eligibility for Tax Credit
New Market Tax Credits, against state premium tax liabilities
under §§
23-63-102 and 26-57-601 - 26-57-605, excluding any liability
for taxes on health insurance premiums, are earned by entities making qualified
equity investments, as certified by the AEDC, in QCDEs.
IV.
Application for Tax Credit
QCDEs seeking to have equity investments or long-term debt
securities designated as qualified equity investments eligible for New Market
Tax Credits shall submit a completed AEDC-approved application containing all
required documentation, signed affidavits and certifications, containing the
following documentation:
1. Evidence
of the applicant's certification as a QCDE, including evidence that the service
area of the applicant includes Arkansas;
2. A copy of the allocation agreement
executed by the applicant or its controlling entity and the Community
Development Financial Institutions Fund;
3. A certificate executed by an executive
officer of the applicant attesting that the allocation agreement remains in
effect and stating the cumulative amount of allocations awarded to the
applicant by the Community Development Financial Institutions Fund;
4. A description of the proposed amount,
structure, and purchaser of the qualified equity investment;
5. If known at the time of application,
identifying information for each entity that will utilize the tax credits
earned from the issuance of the qualified equity investment;
6. Examples, if any, of types of investments
made by the applicant, its controlling entity or affiliates, under the Federal
New Market Tax Credit Program with qualified active low-income
businesses;
7. A nonrefundable
application fee of five thousand dollars ($5,000) and a refundable performance
fee in the amount of one-half of one percent (0.5%) of the amount of the equity
investment or long-term debt security requested to be designated by AEDC as a
qualified equity investment. Once the QCDE's allocation amount has been
certified, the difference between the one-half of one percent of the
application amount and one-half of one percent of the actual allocation amount
will be refunded to the QCDE;
8. A
description of the QCDE's intended typical structure for investment in a
qualified active low-income community business in Arkansas, to include targeted
types of business, industry sector, amount and type of investment, fee
structure, expected rate of return and benefits to the qualified low-income
business and community;
9. An
affidavit executed by the Chief Executive Officer of the QCDE (the applicant)
acknowledging a complete and full understanding that the AEDC, at this time,
has no appropriation, and therefore no authority or mechanism to refund any of
the refundable application fee required to accompany the application;
10. The current balance sheet and last
full-year annual report of the QCDE or its controlling entity if the QCDE has
no historical operations; and
11.
Completed and executed declarations for all of the principals of the QCDE
(applicant), or the principals of the parent company, if a subsidiary.
If the QCDE seeks to have a long-term debt security designated as
a qualified equity investment under §
15-4-3605, the QCDE shall not make
cash interest payments on the long-term debt security during the period
beginning on the date of issuance and ending on the final credit allowance date
in an amount that exceeds the cumulative operating income, as determined under
26 C.F.R. §
1.45D-1, as it existed on January 1, 2013, of the QCDE for that
period before giving effect to interest expense on the long-term debt
security.
However, the holder's ability to accelerate payments on the
long-term debt security instrument in situations which the issuer has defaulted
on covenants designed to ensure compliance with §
15-4-3601 et seq., or 26 U.S.C. §
45D, as it existed on January 1, 2013, shall not be affected by
§
15-4-3601 et seq.
V.
AEDC Application Review and
Certification of Qualified Equity Investments
The AEDC shall begin accepting applications on July 15,
2013.
The application process:
1. A QCDE submits an application, and
requisite fees, to AEDC seeking certification of the proposed equity investment
or long-term debt security as a qualified equity investment.
2. Within thirty (30) days after receipt of a
completed application, the AEDC grants or denies the application in full or in
part.
A. If any part of the application is
denied, the AEDC informs the applicant of the grounds for denial.
B.
(i) If
the application is denied as incomplete, and the applicant provides the
additional information or documentation required by the AEDC, or otherwise
completes its application within fifteen (15) days of the notice of denial, the
application shall be considered completed as of the original date of
submission.
(ii) If the applicant
fails to provide the requested information or complete its application within
the fifteen (15) day period, the application remains denied and must be
resubmitted in full with a new submission date.
The certification process:
1. If the AEDC determines that the
application is complete and meets all application requirements, the AEDC
provides written notice to the applicant certifying that the proposed equity
investment or long-term debt security - including the names, if known, of each
entity that will earn the tax credit and their respective tax credit amounts is
eligible for a New Market Tax Credit subject to any limitations in
§
15-4-3605(d). If a pending request cannot be fully certified because of
this limitation, the AEDC shall certify the portion that may be certified
unless the QCDE elects to withdraw its request rather than receive partial
certification.
Any changes to the names of these entities as the result of a
transfer of a qualified equity investment or an allocation under
§
15-4-3604(b) shall be communicated to the AEDC by the QCDE.
2. The AEDC shall certify
qualified equity investments in the order the applications are received by the
AEDC. Applications received on the same day shall be deemed to have been
received simultaneously.
3. For
applications that are complete and meet the requirements of §
15-4-3601 et
seq., and are received on the same day, the AEDC shall certify, consistent with
the remaining qualified equity investment capacity, the qualified equity
investments in proportionate percentages based on 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.
In accordance with §
15-4-3605(d), the AEDC shall certify up
to one hundred sixty-six million dollars ($166,000,000) in qualified equity
investments.
VI.
Investments in Qualified Community
Development Entities
Within thirty (30) days of receiving the AEDC notice of
certification, the QCDE or any transferee shall issue the qualified equity
investment and receive cash in the amount of the certified amount.
The QCDE or any transferee must provide AEDC with evidence of the
receipt of the cash investment within ten (10) business days after
receipt.
If the QCDE or any transferee does not receive the cash
investment and issue the qualified equity investment within thirty (30) days
following receipt of the certification notice, the certification shall lapse,
and the qualified equity investment cannot be issued without reapplying to AEDC
for certification. Lapsed certifications revert back to the AEDC and are
reissued:
1. First, pro rata to any
other applicants whose qualified equity investment allocations were reduced
under §
15-4-3605(d); and
2.
Second, in accordance with the application process.
VII.
Investments in Qualified Active
Low-Income Community Businesses
QCDEs must invest in corporations, limited liability companies,
associations, partnerships or other business entities meeting the definition of
"Qualified Active Low-Income Community Business" as defined in 26 U.S.C. §
45D and 26 C.F.R. 1.45D-1, as they existed on January 1, 2013, if:
1. At the time of the QCDE's investment, or
loan, the qualified active low-income community business meets the US Small
Business Administration size eligibility standards established in 13 C.F.R.
121.101-201 as it existed on January 1, 2013; and,
2. The qualified active low-income community
business agrees to retain or create jobs that pay an average wage of at least
one hundred and fifteen percent (115%) of the federal poverty income guidelines
for a family of four (4) in Arkansas.
Qualified active low-income community business does not
include:
1. Entities receiving
incentives under §
15-4-2705, §
15-4-2706(b), or §
15-4-2706(c)(2),
unless waived by the AEDC;
2. Any
industry excluded under a rule of the AEDC, unless waived by the
AEDC;
3. Entities that derive or
project to derive at least fifteen percent (15%) of its annual revenue from the
rental or sale or real estate. This restriction does not apply when the entity
is controlled by or under common control with another corporation, limited
liability company, association, partnership, or other business entity that does
not derive or project to derive at least fifteen percent (15%) of its annual
revenue from the rental or sale of real estate and is the primary tenant of the
real estate leased from the entity.
VIII.
Utilization of Tax Credit
New Market Tax Credits may be utilized as follows:
1. On each credit allowance date, the holder
of the qualified equity investment may utilize a portion of the tax credit
during the taxable year that includes the credit allowance date;
2. The tax credit amount shall be equal to
the applicable percentage for the credit allowance date multiplied by the
purchase price paid to the issuer of the qualified equity investment;
3. The amount of the tax credit claimed shall
not exceed the state premium tax liability owed by the taxpayer that files the
premium tax report for the tax year for which the tax credit is
claimed;
4. The tax credit is
payable only from the general revenues derived from the non-allocated portion
of the state premium tax liability funds as described in §
26-57-611;
and
5. Unused credits may be
carried forward for nine (9) consecutive tax years but are not refundable or
saleable on the open market. However, tax credits earned by entities may be
allocated to the partners, members, or shareholders of the entity for their
direct use in accordance with any agreement among the partners, members, or
shareholders. Those tax credits may be further allocated through "pass through"
entities in accordance with any agreement among the partners, members, or
shareholders for direct use.
IX.
Letter Rulings
Applicants may request letter rulings from the AEDC regarding New
Market Tax Credits. Letter rulings bind all state agencies, including the AEDC,
its agents and successors, until the QCDE or its shareholders, members, or
partners claim all of the applicable New Market Tax Credits on an Arkansas tax
return or report.
The AEDC shall respond to letter ruling requests within sixty
(60) days of such receipt of request. In rendering letter rulings under
§
15-4-3601 et seq., the AEDC shall look for guidance to 26 U.S.C. §
45D and 26 C.F.R. 1.45D-1, as they existed on January 1, 2013, and to the
extent they are applicable.
The AEDC may deny a letter ruling request for good cause by
listing reasons which include, without limitation, the following:
1. The applicant requests the AEDC to
determine whether a statute is constitutional or a regulation is
lawful;
2. The request involves a
hypothetical situation or alternative plans;
3. 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; and
4. The issue is currently being considered in
a rulemaking procedure, contested case, or other agency or judicial proceeding
that may resolve the issue.
An applicant may provide a draft letter ruling for AEDC's
consideration and may withdraw a request for a letter ruling, in writing,
before the issuance of the letter ruling. A letter ruling issued under this
section applies only to the applicant that requested the letter ruling.
However, a taxpayer identified in a letter ruling may rely on the letter ruling
to the extent the letter ruling applies to the taxpayer.
X.
Recapture of Tax
Credits
The AEDC shall recapture the tax credit allowed under
§
15-4-3601 et seq., from the taxpayer that claimed the tax credit
if:
1.
A. Any amount of a federal tax credit
available with respect to a qualified equity investment that is eligible for a
tax credit under §
15-4-3601 et seq., is recaptured under 26 U.S.C. §
45D, as it existed on January 1, 2013.
B. If a recapture occurs under
§
15-4-3607(1)(A), the AEDC's recapture shall be proportionate to the
federal recapture with respect to the qualified equity investment;
2.
A. The issuer redeems or makes principal
repayment with respect to a qualified equity investment before the seventh
anniversary of the issuance of the qualified equity investment.
B. If a recapture occurs under
§
15-4-3607(2)(A), the AEDC's recapture shall be proportionate to the
amount of the redemption or repayment with respect to the qualified equity
investment;
3.
A. The issuer fails to:
(i) Invest an amount equal to eighty-five
percent (85%) of the purchase price of the qualified equity investment in
qualified low-income community investments in Arkansas within twelve (12)
months of the issuance of the qualified equity investment; and
(ii) Maintain the minimum investment level
required under §
15-4-3607(3)(A)(i) until the last credit allowance date
for the qualified equity investment.
B.
(i) A
qualified low-income community investment shall be considered held by an issuer
even if a qualified low-income community investment has been sold or repaid if
the issuer reinvests an amount equal to the capital returned to or recovered by
the issuer from the original qualified low-income community investment,
exclusive of any profits realized, in another qualified low-income community
investment within twelve (12) months of the receipt of such returned
capital.
(ii) 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 one (1) or more qualified low-income community investments by the
end of the following year.
C. An issuer shall not be required to
reinvest capital returned from a 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 after the earlier of:
(i) The sixth
anniversary of the credit allowance date of the qualified equity investment,
the proceeds of which were used to make the qualified low-income community
investment; or
(ii) The date by
which a qualified community development entity has made qualified low-income
community investments with the proceeds of such qualified equity investment on
a cumulative basis equal to at least one hundred fifty percent (150%) of such
proceeds; or
4. At any time before the final credit
allowance date of a qualified equity investment, the issuer uses the cash
proceeds of the qualified equity investment to make qualified low-income
community investments in any one (1) or more qualified active low-income
community businesses, including without limitation affiliated qualified active
low-income community businesses and excluding reinvestments of capital returned
or repaid with respect to earlier qualified equity investments in the qualified
active low-income community business and its affiliates in excess of
twenty-five percent (25%) of the cash proceeds of all qualified equity
investments issued by the issuer under this section.
Enforcement of each of the recapture provisions under §
15-4-3607 is subject to a six-month cure period. Recapture shall not occur
until the AEDC has given the QCDE written notice of its noncompliance and has
afforded the QCDE six (6) months from the date of the notice to cure the
noncompliance.
XI.
Refundable Performance Fees
QCDEs applying for certification of equity investments or
long-term debt securities shall submit to the AEDC a refundable performance fee
in the amount one-half of one percent (0.5%) of the amount of the equity
investment or long-term debt security for deposit into the New Markets
Performance Guarantee Fund, §
19-5-1254. The QCDE shall forfeit the
refundable performance fee if it fails to issue the total amount of qualified
equity investments certified by the AEDC and receive cash in the total amount
certified under and within the time period stated in §
15-4-3605 or if it
fails to meet the investment requirement under §
15-4-3607(3) by the
second credit allowance date of the qualified equity investment. Forfeiture of
the fee under §
15-4-3609(b)(2)(A) shall be subject to the six-month cure
period established under §
15-4-3608.
The refundable performance fee shall be held in the New Markets
Performance Guarantee Fund until compliance with the requirements of
§
15-4-3609 is established.
A QCDE may request a refund* of the performance fee from the AEDC
no sooner than thirty (30) days after having met all the requirements of
§
15-4-3609. The Treasurer of State shall comply with the refund request or
give notice of noncompliance within thirty (30) days of receiving the
request.
*Note: At the time of New Markets Jobs Act of 2013
Rules and Regulations development, an appropriation for the New Markets
Performance Guarantee Fund did not exist. Therefore, until legislative
appropriation is authorized, funds deposited into this account, that is
one-half of one percent of the actual allocation amount, will not be available
for refund in accordance with §
15-4-3609. Requests for refunds shall not
be considered received prior to the date of appropriation
authorization.
XII.
Retaliatory Tax
An entity claiming a New Market Tax Credit under §
15-4-3601,
et seq., is not required to pay any additional retaliatory tax levied under
§
23-63-102 nor any additional tax that may arise as a result of claiming
New Market Tax Credits.
XIII.
Decertification
1.
A.
Qualified equity investments certified under §
15-4-3605 shall not be
decertified unless the requirements of §
15-4-3611(b) are met.
B. Until all qualified equity investments
issued by a QCDE are decertified under §
15-4-3611, the QCDE shall not
distribute to its equity holders or make cash payments on long-term debt
securities that have been designated as qualified equity investments in an
amount that exceeds the sum of:
(i) The
cumulative operating income, as determined under 26 C.F.R. §
1.45D-1, as
it existed on January 1, 2013, earned by the QCDE since issuance of the
qualified equity investment, before giving effect to any expense from interest
on long-term debt securities designated as qualified equity investments;
and
(ii) Fifty percent (50%) of the
purchase price of the qualified equity investments issued by the
QCDE.
2. To
be decertified, a qualified equity investment shall:
A. Be beyond its seventh credit allowance
date;
B. Have been in compliance
with §
15-4-3607 up through its seventh credit allowance date, including
any cures under §
15-4-3608. This requirement is satisfied if no recapture
action has been commenced by the AEDC as of the seventh credit allowance date;
and
C. Have invested its proceeds
in qualified active low-income community investments such that the total
qualified low-income community investments made, cumulatively including
reinvestments, exceeds one hundred fifty percent (150%) of all qualified equity
investments issued by the issuer.
3.
A. A
QCDE that seeks to have a qualified equity investment decertified shall send
notice to the AEDC of its request for decertification along with evidence
supporting the request.
B.
(i) A request for decertification shall not
be unreasonably denied and shall be responded to within thirty (30) days of
receiving the request.
(ii) If the
request is denied for any reason, the burden of proof shall be on the AEDC in
any administrative or legal proceeding that follows to establish that the
request was not unreasonably denied.
XIV.
Reports
A QCDE that issues a qualified equity investment under
§
15-4-3601 et seq., shall submit an initial report to the AEDC within five
(5) business days after the first anniversary of the initial credit allowance
date. This report shall provide evidence:
1. That at least eighty-five percent (85%) of
the cash purchase price for each qualified equity investment was used to make
qualified low-income community investments in qualified active low-income
community businesses located in Arkansas;
2. Of each qualified low-income community
investment by providing a bank statement for the QCDE that includes the
qualified low-income community investment; and
3. That each business was a qualified
low-income community business at the time the qualified low-income community
investment was made and shall state the name, location, and industry code of
each qualified low-income community business receiving a qualified low-income
community investment.
Subsequent to the initial report, a QCDE shall submit an annual
report, in electronic form and as a hard copy, to the AEDC within five (5)
business days after each anniversary of the credit allowance date.
The report shall include, without limitation, the
following:
1. The number of employment
positions created and retained as the result of each qualified low-income
community investment;
2. The
average annual salary of the positions reported above;
3. Any other information required by AEDC;
and
4. Any other information
submitted by the QCDE to demonstrate the effectiveness of the qualified
low-income community investment.
A QCDE shall not include in any report a qualified low-income
community investment that has been redeemed or repaid.
XV.
Revenue
Impact Assessment
Prior to making a qualified low-income community investment, or
reinvestment whenever initial job creation and retention projections were not
met, a QCDE shall submit to the AEDC for review an information summary sheet
and a revenue impact assessment prepared by a nationally-recognized third-party
independent economic forecasting firm utilizing the Regional Economics Model,
Inc. or MIG, Inc. model that demonstrates that the qualified low-income
community investment, or reinvestment, will have a revenue positive impact on
the state over ten (10) years against the aggregate tax credit utilization over
the same ten-year period. The aggregate tax credit is equal to the amount of
the qualified low-income community investment multiplied by fifty-eight percent
(58%). Only jobs created and/or retained that meet the definitions of "new
full-time permanent employee" for new jobs and "retained job or position" for
retained jobs by eligible businesses shall be considered in the
assessment.
The information summary sheet will provide a summary of the
revenue impact assessment and include the following data:
1. Name of project;
2. Name of nationally-recognized, third-party
independent economic forecasting firm preparing the revenue impact
assessment;
3. Number of retained
jobs and new jobs (reported separately) to be created as a result of the
project;
4. Average hourly wage of
retained and new jobs to be created as a result of the project;
5. NAICS classification code of the business
receiving the investment;
6. Amount
of investment in construction, equipment, existing buildings, land and working
capital;
7. Estimated ten-year
revenue positive impact to the state as a result of the project.
The AEDC shall review each revenue impact assessment by analyzing
the methodology and assumptions modeled for each project in accordance with
standard AEDC fiscal review practices to confirm that the revenue impact
assessment demonstrates that the qualified low-income community investment will
have a revenue positive impact on the state over ten (10) years against the
aggregate tax credit utilization over the same ten-year period. Investment
resulting from the qualified low-income community investment and jobs created
and/or retained that meet the definitions of "new full-time permanent employee"
for new jobs and "retained job or position" for retained jobs by eligible
businesses will be considered in the AEDC analyses.
If the AEDC determines, after review, that the revenue impact
assessment does not reflect a revenue positive impact, the AEDC will notify the
QCDE and suspend the time frame for such review until sufficient information is
provided to generate a revenue positive impact.
The AEDC will complete its review and notify the QCDE of the
results of AEDC analyses of revenue impact assessments within ten (10) business
days from the receipt of a revenue impact assessment. The AEDC may waive the
requirement for a revenue positive impact if it determines that the proposed
qualified low-income community investment, or reinvestment, will further
economic development.
A proposed qualified low-income community investment shall be
deemed revenue positive if the commission does not notify a QCDE of its review
with ten (10) business days of receipt of a revenue impact assessment.
XVI.
New Market
Performance Guarantee Fund
There is created on the books of the Treasurer of State, the
Auditor of State, and the Chief Fiscal Officer of the State a miscellaneous
fund to be known as the "New Markets Performance Guarantee Fund" consisting of
fees paid under §
15-4-3609; grants made by a person, organization, or
federal or state government agency; and any other funds provided by law. The
fund shall be used by the AEDC to guarantee QCDEs' performance under the New
Markets Jobs Act of 2013, §
15-4-3601 et seq.
