A BILL TO BE ENTITLED
AN ACT to create a State New Market tax credit to complement the federal tax Credit.
The General Assembly of North Carolina enacts:
SECTION 1.  Chapter 105 of the General Statutes is amended by adding a new Article to read:
"Article 3K.
"New Market Development Program.
"§ 105‑129.95.  Definitions.
The following definitions apply in this Article:
(1)	Adjusted purchase price. – The product of the following:
a.	The amount paid to the issuer of a qualified equity investment for the qualified equity investment.
b.	A fraction, the numerator of which is the dollar amount of qualified low‑income community investments held by the issuer of the qualified equity investments in this State as of the credit allowance date during the applicable tax year and the denominator of which is the total dollar amount of qualified low‑income community investments held by the issuer as of the credit allowance date during the applicable tax year. With respect to any one qualified active low‑income community business, on a collective basis with all of its affiliates, the maximum amount of investment that any qualified community development entity, on an aggregate basis with all of its affiliates, may use for the calculation of the numerator is ten million dollars ($10,000,000). For purposes of calculating the amount of qualified low‑income community investments held by an issuer, an investment is considered held by an issuer even if the 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 investment, exclusive of any profits realized, in another qualified low‑income community investment within 12 months of the receipt of the capital. An issuer is not required to reinvest capital returned from qualified low‑income community investments after the sixth anniversary of the issuance of the qualified equity investment, the proceeds of which were used to make the qualified low‑income community investment, and the qualified low‑income community investment is considered held by the issuer through the seventh anniversary of the qualified equity investment's issuance.
(2)	Applicable percentage. – Zero percent (0%) for each of the first two credit allowance dates, seven percent (7%) for the third credit allowance date, and eight percent (8%) for each of the next four credit allowance dates.
(3)	Credit allowance date. – The date with respect to any qualified equity investment on which the investment is initially made and each of the first six anniversary dates of that date.
(4)	Qualified community development entity. – Defined in section 45D of the Code; provided that the entity has entered into an Allocation Agreement with the Community Development Financial Institutions Fund of the US Treasury Department with respect to credits authorized by section 45D of the Code.
(5)	Long-term debt security. – Any debt instrument issued by a qualified community development entity, at par value or a premium, with an original maturity date of at least seven years from the date of its issuance, with no acceleration of repayment, amortization, or prepayment features prior to its original maturity date other than as described in this subdivision, and with no distribution, payment, or interest features related to the profitability of the qualified community development entity or the performance of the qualified community development entity's investment portfolio. A long‑term debt security may contain provisions allowing the holder to accelerate payments on the debt instrument in situations where the issuer has defaulted on covenants designed to ensure compliance with this section or section 45D of the Code.
(6)	Qualified active low‑income community business. – Defined in section 45D of the Code except that the term does not include any business that derives or projects to derive fifteen percent (15%) or more of its annual revenue from the rental or sale of real estate.
(7)	Qualified equity investment. – Any equity investment in, or long‑term debt security issued by, a qualified community development entity that satisfies all of the conditions of this subdivision. The term also includes an investment that fails to satisfy the conditions of sub‑subdivision a. of this subdivision if the investment satisfied all of the conditions of this subdivision in the hands of a previous holder.
a.	It was acquired at its original issuance solely in exchange for cash.
b.	At least eighty‑five percent (85%) of its cash purchase price was used by the issuer to make qualified low‑income community investments.
c.	It is designated by the issuer as a qualified equity investment pursuant to the provisions of this section, regardless of whether it also has been designated as a qualified equity investment under section 45D of the Code.
(8)	Qualified low‑income community investment. – Any capital or equity investment in, or loan to, any qualified active low‑income community business. 
"§ 105‑129.96.  New market tax credit.
A taxpayer that holds a qualified equity investment, for which a credit has been allocated under G.S. 105‑129.100, on a credit allowance date of the qualified equity investment is allowed a tax credit during the taxable year that includes the credit allowance date. The amount of the tax credit is equal to the applicable percentage of the adjusted purchase price paid to the issuer of the qualified equity investment.
"§ 105‑129.97.  Taxes credited; carryforward.
(a)	Taxes Credited. – The credit allowed under this Article may be claimed against the franchise tax imposed by Article 3 of this Chapter, the income taxes imposed by Article 4 of this Chapter, or the gross premiums tax imposed by Article 8B of this Chapter. The taxpayer may take the credit allowed by this Article against only one of the taxes against which it is allowed.  The taxpayer must elect the tax against which a credit will be claimed when filing the return on which it is claimed. This election is binding. Any carryforwards of the credit must be claimed against the same tax.
(b)	Carryforward. – A credit allowed under this Article may not exceed the amount of the tax against which it is claimed for the taxable year reduced by the sum of all credits allowed, except payment of tax made by or on behalf of the taxpayer. Any unused portion of the credit may be carried forward for the succeeding five years.
"§ 105‑129.98.  Allocation for pass‑through entities.
Notwithstanding the provisions of G.S. 105‑131.8 and G.S. 105‑269.15, a pass‑through entity that qualifies for the credit provided in this Article may allocate the credit among any of its owners in its discretion as long as an owner's adjusted basis in the pass‑through entity, as determined under the Code, at the end of the taxable year in which the qualified equity investment was made, is at least forty percent (40%) of the amount of credit allocated to that owner. Owners to whom a credit is allocated are allowed the credit as if they had qualified for the credit directly. A pass‑through entity and its owners must include with their tax returns for every taxable year in which an allocated credit is claimed a statement of the allocation made by the pass‑through entity and the allocation that would have been required under G.S. 105‑131.8 or G.S. 105‑269.15.
"§ 105‑129.99.  Forfeiture.
(a)	In General. – A taxpayer forfeits a credit allowed under this Article with respect to a qualified equity investment if either of the following occurs:
(1)	Any amount of the federal tax credit available with respect to the qualified equity investment that is eligible for a tax credit under this Article is recaptured under section 45D of the Code.
(2)	The issuer redeems or makes any principal repayment with respect to a qualified equity investment prior to the seventh anniversary of the issuance of the qualified equity investment.
(b)	Forfeiture for Change in Ownership of a Pass‑Through Entity. – If an owner of a pass‑through entity that has qualified for the credit allowed under this Article disposes of all or a portion of the owner's interest in the pass‑through entity within seven years from the date the qualified equity investment was made and the owner's interest in the pass‑through entity is reduced to less than two‑thirds of the owner's interest in the pass‑through entity at the time the qualified equity investment was made, the owner forfeits a portion of the credit equal to the reduction in ownership. Forfeiture as provided in this subsection is not required if the change in ownership is the result of any of the following:
(1)	The death of the owner.
(2)	A merger, consolidation, or similar transaction requiring approval by the shareholders, partners, or members of the taxpayer under applicable State law, to the extent the taxpayer does not receive cash or tangible property in the merger, consolidation, or other similar transaction.
(c)	Liability From Forfeiture. – A taxpayer or an owner of a pass‑through entity that forfeits a credit under this section is liable for all past taxes avoided as a result of the credit plus interest at the rate established under G.S. 105‑241.1(i), computed from the date the taxes would have been due if the credit had not been allowed. The past taxes and interest are due 30 days after the date the credit is forfeited. A taxpayer or owner of a pass‑through entity that fails to pay the taxes and interest by the due date is subject to the penalties provided in G.S. 105‑236.
"§ 105‑129.100.  Ceiling and application.
(a)	Application. – The issuer of the qualified equity investment must make an application to the Department in which the issuer certifies the anticipated dollar amount of investments to be made in this State during the first 12‑month period following the initial credit allowance date. The amounts certified by issuers under this section shall serve as the basis for allocations of credits under this Article. If on the second credit allowance date, the actual dollar amount of the investments is less than the amount estimated, the Department must adjust the credits arising on the third allowance date to account for the difference.
(b)	Ceiling. – The total amount of all tax credits allowed to taxpayers under this Article for investments made in a calendar year may not exceed ten million dollars ($10,000,000). The Secretary of Revenue shall calculate the total amount of tax credits anticipated from the applications filed pursuant to subsection (a) of this section. If the total amount of tax credits anticipated for investments made in a calendar year exceeds this maximum amount, the Secretary shall allow a portion of the credits claimed by allocating the maximum amount in tax credits in proportion to the size of the credit claimed by each taxpayer.
(c)	Notification. – If a credit claimed under this Article is reduced as provided in this section, the Secretary shall notify the taxpayer of the amount of the reduction of the credit on or before December 31 of the year following the calendar year in which the investment was made. The Secretary's allocations based on applications filed pursuant to subsection (a) of this section are final and shall not be adjusted to account for credits applied for but not claimed.
"§ 105‑129.101.  Reports.
The Department of Revenue must publish by May 1 of each year the following information for the 12‑month period ending the preceding December 31:
(1)	The number of taxpayers that took the credit allowed in this Article.
(2)	The amount of qualified low‑income community investments.
(3)	The locations with respect to which qualified low‑income community investments were made.
(4)	The total cost to the General Fund of the credits taken.
"§ 105‑129.102.  Sunset.
This Article is repealed for qualified equity investments made on or after January 1, 2011."
SECTION 2.  This act is effective for taxable years beginning on or after January 1, 2007, and applies to qualified equity investments made on or after that date.