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COMMITTEE REPORT
February 28, 2018
S. 412
Introduced by Senators Campbell, Massey, J. Matthews, Shealy, Gambrell, Nicholson, Williams, Grooms, Allen, Talley, Rice and Turner
S. Printed 2/28/18--S.
Read the first time February 14, 2017.
To whom was referred a Bill (S. 412) to amend Section 12-6-3530, Code of Laws of South Carolina, 1976, relating to community development tax credits, so as to increase the tax credit for, etc., respectfully
That they have duly and carefully considered the same and recommend that the same do pass with amendment:
Amend the bill, as and if amended, by striking all after the enacting words and inserting:
/ SECTION 1. Section 12-6-3530(A), (B), (C), (D), (E), (F), and (L) of the 1976 Code is amended to read:
"(A) A taxpayer may claim as a credit against his state income tax, bank tax, or premium tax liability thirty-three percent of all amounts invested equity investments in a certified community development corporation or in a community development financial institution, as defined in Section 34-43-20(2) or (3). A taxpayer that makes a cash donation to a certified community development corporation or community development financial institution may claim a credit equal to fifty percent of the donation.
To qualify for this credit the taxpayer must obtain a certificate from the South Carolina Department of Commerce certifying that the entity into which the funds are invested is a community development corporation or a community development financial institution within the meaning of Section 34-43-20(2) or (3) and certifying that the credit taken or available to that taxpayer will not exceed the annual aggregate five million dollar limitation of all those credits as provided in subsection (B) when added to the credits previously taken or available to other taxpayers making similar investments. A taxpayer who invested in good faith in a certified corporation or institution may claim the credit provided in this section, notwithstanding the fact that the certification is later revoked or not renewed by the department.
(B) The total amount of credits allowed pursuant to this section may not exceed in the aggregate five million dollars for all taxpayers and all calendar years and one million dollars for all taxpayers in one calendar year.:
(1) one million dollars for all taxpayers in tax year 2018;
(2) two million dollars for all taxpayers in tax year 2019; and
(3) three million dollars for all taxpayers in all tax years after 2019.
(C) The Department of Commerce shall authorize the tax credits each year on a first-come, first-served basis. A single community development corporation or community development financial institution may not receive more than twenty-five percent of the total annual tax credits authorized pursuant to this section in any one calendar year. Twenty-five percent of annual tax credits must be held in a reserve account during the first three quarters of each tax year and made available exclusively to small, rural-based, community development corporations. During the first three quarters of any tax year, an individual community development corporation or a community development financial institution must not be authorized to receive more than fifteen percent of the statewide total annual credits. During the fourth quarter of each tax year, all remaining tax credits are available to all certified community development corporations or community development financial institutions.
(D) The department shall monitor the investments made by taxpayers in community development corporations and community development financial institutions as permitted by this section and shall perform the functions as provided in subsection subsections (A) and (C) above.
(E) If the amount of the credit determined, pursuant to subsection (A), exceeds the taxpayer's state tax liability for the applicable taxable year, the taxpayer may carry over the excess to the immediately succeeding taxable years. However, the credit carry-over may not be used for a taxable year that begins on or after ten three years from the date of the acquisition of stock or other equity interest that is the basis for a credit pursuant to this section. The amount of the credit carry-over from a taxable year must be reduced to the extent that the carry-over is used by the taxpayer to obtain a credit provided for in this section for a later taxable year.
(F) Notwithstanding the provisions of subsections (A), (B), (C), (D), and (E) above, if on April 1, 2001, or as soon after that as the department is able to determine, the total amount of tax credits which may be claimed by all taxpayers exceeds the total amount of tax credits authorized by this section, the credits must be determined on a pro rata basis. For purposes of this subsection, a community development corporation or community development financial institution for which an investment may be claimed as a tax credit pursuant to this section must report all investments made before April 1, 2001, to the department by April 1, 2001, which shall inform, as soon as reasonably possible, all community development corporations and community development financial institutions of the total of all investments in all institutions and corporations as of April 1, 2001 The department must not authorize any tax credits after the annual aggregate limitation set forth in subsection (B) has been reached.
(L) Banks and financial institutions chartered by the with tax liabilities in this State of South Carolina may invest in community development corporations and community development financial institutions incorporated pursuant to the laws of this State, up to a maximum of ten percent of a chartered bank or financial institution's total capital and surplus."
SECTION 2. Section 12-6-3530 of the 1976 Code is amended by adding an appropriately lettered subsection at the end to read:
"( ) Returns on investments in certified community development corporations and certified community development financial institutions, including the value of any tax credits authorized pursuant to this section, may not exceed the total amount of initial investment in certified community development corporations and community development financial institutions."
SECTION 3. Section 4 of Act 314 of 2000, as last amended by Act 46 of 2015, is further amended to read:
"SECTION 4. Unless reauthorized by the General Assembly, the provisions of this act shall terminate on June 30, 2020 2023, and this act and all other laws and regulations governing, authorizing, and otherwise dealing with community development corporations and community development financial institutions are deemed repealed on that date."
SECTION 4. This act takes effect January 1, 2018. /
Renumber sections to conform.
Amend title to conform.
HUGH K. LEATHERMAN, SR. for Committee.
Explanation of Fiscal Impact
Introduced on February 14, 2017
State Expenditure
The Department of Commerce indicates that any additional workload related to the department's certification, authorization, and monitoring process for administering tax credits is not expected to require additional staffing or incur additional costs, and would have no expenditure impact on the general fund, federal funds, or other funds.
State Revenue
Section 1. A community development corporation is a nonprofit corporation which is tax exempt and has a primary mission of developing and improving low-income communities and neighborhoods through economic and related development. A community development financial institution is an organization that has a primary mission of promoting community development by providing credit, capital, or development services to small businesses or home mortgage assistance to individuals. Currently, pursuant to Section 12-6-3530, a taxpayer is allowed a nonrefundable tax credit against South Carolina income tax, bank tax, or insurance premium tax equal to thirty-three percent of the investment in a community development corporation or community development financial institution. The total credit that may be claimed by all taxpayers is $1,000,000 in one calendar year and $5,000,000 for all calendar years. Any unused credit may be carried forward and must be used before the taxable year that begins on or after ten years from the date of the acquisition of stock or other equity interest that is the basis for the credit.
The table below describes the number of taxpayers and the amount of tax credits claimed against investments in community development corporations and community development financial institutions from tax year 2002 to tax year 2015, the latest year data is available. Over this period, 612 taxpayers have claimed $2,390,122 in nonrefundable tax credits.
This bill makes several changes to current statutes and may be summarized as follows:
The tax credit percentage is increased from the current thirty-three percent of all amounts invested in a certified community development corporation or in a community development financial institution to one hundred percent
Total credits may not exceed $5,000,000 for all taxpayers in any calendar year
The Department of Commerce must not authorize any tax credits after the annual $5,000,000 limitation has been met
The Department of Commerce shall authorize the tax credits each year on a first-come first-served basis
Twenty-five percent of annual tax credits must be held in a reserve account during the first three quarters of each tax year and made available exclusively to small, rural based community development corporations. During the first three quarters of any tax year, an individual community development corporation or a community development financial institution must not be authorized to receive more than fifteen percent of the statewide total annual credits. During the fourth quarter of each tax year, all remaining tax credits are available to all certified community development corporations or community development financial institutions.
As shown in the table above, the $5,000,000 limitation has never been achieved in any tax year during the existence of the community development tax credit program. This section would change the allocation method of how the Department of Commerce awards tax credits for investments in community development corporations and community development financial institutions, and increase the tax credit percentage from thirty-three percent of all amounts invested in a certified community development corporation or in a community development financial institution to one hundred percent.
Using the latest data from the table above, there were $554,508 in tax credits claimed by community development corporations and community development financial institutions in tax year 2015. Dividing $554,508 in tax credits claimed by the current tax rate of thirty-three percent yields total taxable income of $1,680,327 in tax year 2015. If the tax credit percentage was one hundred percent in taxable year 2015, an estimated $1,680,327 may have been claimed by taxpayers. This is an increase of more than $1,125,000 than was claimed in tax year 2015. Since more than one-third of all certified community development corporations and community development financial institutions are located in the Southeast, and market demand continues to be strong by serving areas where traditional financing is underrepresented, it is reasonable to expect that the amount of community development corporation and community development financial institution credits may double by FY2018-19. If total tax credits claimed double from $554,508 in tax year 2015 to $1,109,016 in tax year 2018, then taxable income would increase from $1,680,327 ($554,508 in tax credits divided by 0.33) in tax year 2015 to $3,360,655 ($1,109,016 in tax credits divided by 0.33) in tax year 2018. Tax credits claimed would increase from $554,508 in tax year 2015 to $3,360,655 ($3,360,655 multiplied by 1.0) in tax year 2018 after adjusting for the tax credit rate increase from thirty-three percent to one hundred percent. Total tax credits claimed would increase by $2,806,147 ($3,360,655 minus $554,504 = $2,806,147) over the three year period, or an estimated $935,382 ($2,806,147 divided by 3 tax years) per tax year. Under this scenario, the $5,000,000 tax credit limitation for all taxpayers will be reached by FY2020-21. Future growth in the usage of the tax credits will depend on the availability of high risk investment funds, the available housing stock, and the overall strength of the economy.
Section 2. This section would add unnumbered subitems to Section 12-6-3530 to allow taxpayers to claim nonrefundable tax credits against investments in an uncertified community development corporation and a community development financial institution. This section would allow the South Carolina Association for Community Economic Development to be recognized as a community development corporation, and the South Carolina Community Capital Alliance to be recognized as a community development financial institution. According to the Federal Reserve Bank of Richmond, Community Development Department, there are currently nineteen certified community development corporations and community development financial institutions in South Carolina. The addition of two relatively small uncertified development corporations would reduce general fund income, bank, or insurance premium tax revenues by an estimated $58,370 in FY2018-19, and each fiscal year thereafter. This amount would be part of the $5,000,000 annual limitation for all taxpayers in a calendar year.
Section 3. This section would extend the sunset date of this tax credit by an additional seven years to June 30, 2027, unless the provisions are reauthorized by the General Assembly before June 30, 2020. After this date, all laws and regulations dealing with community development corporations and community development financial institutions would be repealed.
Section 4. This act takes effect January 1, 2018.
Frank A. Rainwater, Executive Director
Revenue and Fiscal Affairs Office
TO AMEND SECTION 12-6-3530, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO COMMUNITY DEVELOPMENT TAX CREDITS, SO AS TO INCREASE THE TAX CREDIT FOR COMMUNITY DEVELOPMENT CORPORATIONS AND COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FROM THIRTY-THREE PERCENT OF AMOUNTS INVESTED TO ONE-HUNDRED PERCENT OF AMOUNTS INVESTED, TO DELETE AN AGGREGATE CREDIT PROVISION AND SET AN ANNUAL LIMIT OF TAX CREDITS AT FIVE MILLION DOLLARS, TO ESTABLISH TAX CREDIT RESERVE ACCOUNTS FOR THE FIRST THREE QUARTERS OF EACH TAX YEAR SO AS TO AVOID THE DEPLETION OF CREDITS BY AN INDIVIDUAL TAXPAYER; TO DELETE THE PRO-RATA DISTRIBUTION OF TAX CREDITS, TO ALLOW FINANCIAL INSTITUTIONS WITH TAX LIABILITIES IN THIS STATE TO INVEST IN CERTIFIED COMMUNITY DEVELOPMENT CORPORATIONS FOR THE PURPOSE OF RECEIVING A TAX CREDIT, TO PROVIDE THAT RETURNS ON INVESTMENTS IN CERTIFIED COMMUNITY DEVELOPMENT CORPORATIONS AND CERTIFIED COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS MAY NOT EXCEED THE TOTAL AMOUNT OF THE INITIAL INVESTMENT, TO QUALIFY THE SOUTH CAROLINA ASSOCIATION FOR COMMUNITY ECONOMIC DEVELOPMENT AS A COMMUNITY DEVELOPMENT CORPORATION AND TO QUALIFY THE SOUTH CAROLINA COMMUNITY CAPITAL ALLIANCE AS A COMMUNITY DEVELOPMENT FINANCIAL INSTITUTION; AND TO AMEND SECTION 4 OF ACT 314 OF 2000, AS AMENDED, RELATING TO COMMUNITY DEVELOPMENT CORPORATIONS AND FINANCIAL INSTITUTIONS, SO AS TO EXTEND THE PROVISIONS OF THE SOUTH CAROLINA COMMUNITY ECONOMIC DEVELOPMENT ACT UNTIL JUNE 30, 2027.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Section 12-6-3530(A), (B), (C), (D), (F), and (L) of the 1976 Code is amended to read:
"(A) A taxpayer may claim as a credit against his state income tax, bank tax, or premium tax liability thirty-three one hundred percent of all amounts invested in a certified community development corporation or in a community development financial institution, as defined in Section 34-43-20(2) or (3).
To qualify for this credit the taxpayer must obtain a certificate from the South Carolina Department of Commerce certifying that the entity into which the funds are invested is a community development corporation or a community development financial institution within the meaning of Section 34-43-20(2) or (3) and certifying that the credit taken or available to that taxpayer will not exceed the annual aggregate five million dollar limitation of all those credits as provided in subsection (B) when added to the credits previously taken or available to other taxpayers making similar investments. A taxpayer who invested in good faith in a certified corporation or institution may claim the credit provided in this section, notwithstanding the fact that the certification is later revoked or not renewed by the department.
(B) The total amount of credits allowed pursuant to this section may not exceed in the aggregate five million dollars for all taxpayers and all in any calendar years and one million dollars for all taxpayers in one calendar year.
(C) The Department of Commerce shall authorize the tax credits each year on a first-come, first-served basis. A single community development corporation or community development financial institution may not receive more than twenty-five percent of the total annual tax credits authorized pursuant to this section in any one calendar year. Twenty-five percent of annual tax credits must be held in a reserve account during the first three quarters of each tax year and made available exclusively to small, rural-based, community development corporations. During the first three quarters of any tax year, an individual community development corporation or a community development financial institution must not be authorized to receive more than fifteen percent of the statewide total annual credits. During the fourth quarter of each tax year, all remaining tax credits are available to all certified community development corporations or community development financial institutions.
(D) The department shall monitor the investments made by taxpayers in community development corporations and community development financial institutions as permitted by this section and shall perform the functions as provided in subsection subsections (A) and (C) above.
(F) Notwithstanding the provisions of subsections (A), (B), (C), (D), and (E) above, if on April 1, 2001, or as soon after that as the department is able to determine, the total amount of tax credits which may be claimed by all taxpayers exceeds the total amount of tax credits authorized by this section, the credits must be determined on a pro rata basis. For purposes of this subsection, a community development corporation or community development financial institution for which an investment may be claimed as a tax credit pursuant to this section must report all investments made before April 1, 2001, to the department by April 1, 2001, which shall inform, as soon as reasonably possible, all community development corporations and community development financial institutions of the total of all investments in all institutions and corporations as of April 1, 2001 The department must not authorize any tax credits after the annual five million dollar limitation set forth in subsection (B) has been reached.
(L) Banks and financial institutions chartered by the with tax liabilities in this State of South Carolina may invest in community development corporations and community development financial institutions incorporated pursuant to the laws of this State, up to a maximum of ten percent of a chartered bank or financial institution's total capital and surplus.
SECTION 2. Section 12-6-3530 of the 1976 Code is amended by adding appropriately lettered subsections at the end to read:
( ) Returns on investments in certified community development corporations and certified community development financial institutions, including the value of any tax credits authorized pursuant to this section, may not exceed the total amount of initial investment in certified community development corporations and community development financial institutions.
( ) Notwithstanding the requirements of Section 34-43-20(2) and (3), the South Carolina Association for Community Economic Development is a community development corporation, and the South Carolina Community Capital Alliance is a community development financial institution."
SECTION 3. Section 4 of Act 314 of 2000, as last amended by Act 46 of 2015, is further amended to read:
"SECTION 4. Unless reauthorized by the General Assembly, the provisions of this act shall terminate on June 30, 2020 2027, and this act and all other laws and regulations governing, authorizing, and otherwise dealing with community development corporations and community development financial institutions are deemed repealed on that date."
SECTION 4. This act takes effect January 1, 2018.
This web page was last updated on February 28, 2018 at 7:04 PM