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 theannual 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 an 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 credits awarded on the allocation certificate.          (b)  The amount of annual credit awarded in connection with a   qualified development overallowed 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 ofover 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 ofover 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 aeach   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 aeach   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) Any   taxable entity entitled to a credit under this subchapter shall   claim its portion of the annual credit in equal installmentsfor   each yearduring 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.