Bill Text - SB58 (2011)

Adding qualified community development entities to the definition of "qualified investment company" under the business profits tax and the business enterprise tax.


Revision: May 12, 2011, midnight

SB 58-FN-A – AS AMENDED BY THE HOUSE

03/16/11 0686s

03/30/11 1181s

03/30/11 1276s

4May2011… 1580h

2011 SESSION

11-0999

09/03

SENATE BILL 58-FN-A

AN ACT adding qualified community development entities to the definition of “qualified investment company” under the business profits tax and the business enterprise tax.

SPONSORS: Sen. Odell, Dist 8

COMMITTEE: Ways and Means

AMENDED ANALYSIS

This bill adds qualified community development entities to the definition of “qualified investment company” under the business profits tax and the business enterprise tax. The bill clarifies that a New Hampshire resident investor in a qualified investment company is only taxable on his or her proportionate share of interest and dividend income earned by the qualified investment company.

The bill also adds a special rule to clarify tax treatment of capital gains earned by holders of ownership interests in qualified investment companies, mutual funds, and unit investment trusts.

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Explanation: Matter added to current law appears in bold italics.

Matter removed from current law appears [in brackets and struckthrough.]

Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

03/16/11 0686s

03/30/11 1181s

03/30/11 1276s

4May2011… 1580h

11-0999

09/03

STATE OF NEW HAMPSHIRE

In the Year of Our Lord Two Thousand Eleven

AN ACT adding qualified community development entities to the definition of “qualified investment company” under the business profits tax and the business enterprise tax.

Be it Enacted by the Senate and House of Representatives in General Court convened:

1 Purpose. The general court finds:

I. The New Hampshire business finance authority has been authorized by the United States Treasury Department to allocate federal New Markets Tax Credits to support economic development in certain eligible low-income areas of the state.

II. Under the federal New Markets Tax Credit Program, the business finance authority is required to establish certain “qualified community development entities” for purposes of facilitating investment by third parties to support economic development transactions.

III. This act ensures that “qualified community development entities" established by the business finance authority will not be subject to the business profits tax, the business enterprise tax, or the interest and dividends tax. The ultimate recipient of the investment funds, however, will continue to be subject to these taxes.

2 Business Profits Tax; Definitions; Qualified Investment Company. Amend RSA 77-A:1, XXI(a) to read as follows:

XXI.(a) “Qualified investment company” means:

(1) A regulated investment company as defined in section 851 of the United States Internal Revenue Code as defined in RSA 77-A:1, XX;

(2) An organization that is an investment company under the Investment Company Act of 1940 as amended; [or]

(3) An organization that would be an investment company under the Investment Company Act of 1940, as amended, but for the exception from investment company status provided by section 3(c)(1) or 3(c)(7) of said Investment Company Act[.]; or

(4) A qualified community development entity as defined in section 45D of the United States Internal Revenue Code, which entity is owned, controlled, or managed, directly or indirectly, by the business finance authority of the state of New Hampshire.

3 Business Enterprise Tax; Definitions; Qualified Investment Company. Amend RSA 77-E:1, XIV(a) to read as follows:

XIV.(a) “Qualified investment company” means:

(1) A regulated investment company as defined in section 851 of the United States Internal Revenue Code as defined in RSA 77-E:1, XVII;

(2) An organization that is an investment company under the Investment Company Act of 1940, as amended; [or]

(3) An organization that would be an investment company under the Investment Company Act of 1940, as amended, but for the exception from investment company status provided by section 3(c)(1) or 3(c)(7) of said Investment Company Act[.]; or

(4) A qualified community development entity as defined in section 45D of the United States Internal Revenue Code, which entity is owned, controlled, or managed, directly or indirectly, by the business finance authority of the state of New Hampshire.

4 Taxation of Income; What Taxable. RSA 77:4, V is repealed and reenacted to read as follows:

V. Amounts reported and taxed federally as dividends or interest to a holder of an ownership interest in a qualified investment company as defined in RSA 77-A:1, XXI, a mutual fund, or a unit investment trust.

5 Taxation of Income; Dividends Earned on Certain Mutual Funds and Distributions Received on Unit Investment Trusts Not Taxable. RSA 77:4-d is repealed and reenacted to read as follows:

77:4-d Special Rule for Qualified Investment Companies, Mutual Funds, and Unit Investment Trusts. Notwithstanding any other provision of RSA 77:4, the following income items shall not be treated as dividends or interest income taxable under this chapter:

I. Amounts accruing to the holder of an ownership interest in a qualified investment company, as defined in RSA 77-A:1, XXI, or a mutual fund or investment income earned or distributions received by the holder of an ownership interest in a unit investment trust, which qualified investment company, mutual fund, or unit investment trust invests solely in New Hampshire tax-exempt tax anticipation notes, bond anticipation notes, and other instruments exempt under New Hampshire law.

II. Amounts reported and taxed federally as capital gains to the holder of an ownership interest in a qualified investment company, as defined in RSA 77-A:1, XXI, a mutual fund, or a unit investment trust.

6 Applicability. Sections 1-3 of this act shall apply to taxable periods ending on or after December 31, 2010. Sections 4 and 5 of this act shall apply to taxable periods beginning on or after January 1, 2011.

7 Effective Date. This act shall take effect upon its passage.

LBAO

11-0999 Amended 05/11/11

SB 58 FISCAL NOTE

AN ACT adding qualified community development entities to the definition of “qualified investment company” under the business profits tax and the business enterprise tax.

FISCAL IMPACT:

    The Department of Revenue Administration states this bill, as amended by the House (Amendment #2011-1580h), may decrease state revenue by an indeterminable amount in FY 2011 and each year thereafter. This bill would have no fiscal impact on state, county, and local expenditures, or county and local revenues.

METHODOLOGY:

    The Department of Revenue Administration states sections 1 through 3 of this bill exempts qualified community development entities as defined in 26 U.S.C. Sec. 45D that are owned, controlled, or managed, directly or indirectly, by the Business Finance Authority (BFA) of the State of New Hampshire from taxation under the business profits tax (BPT), business enterprise tax (BET), and interest and dividends tax (I&D). The Department states it is not known if any current BFA entities filed business tax or I&D returns and would qualify as being tax exempt under the provisions of this bill. The Department does not have any data to identify who may be affected by this bill. Sections 4 and 5 of this bill would clarify tax treatment of capital gains earned by holders of ownership interest in qualified investment companies, mutual funds, and unit investment trust. The Department states it is not clear if some taxpayers have paid tax on this income in the past, as the Department does not have any data in that respect. The Department states portions of this bill would apply to taxable periods ending on or after December 31, 2010, and a portion would apply with respect to all taxable periods beginning on our after January 1, 2011. As a result this bill would have a retroactive application and apply to business activity already conducted in closed tax periods. The Department states this bill may allow certain businesses to file amended tax returns and receive refunds of their taxes paid, but are unable to determine the amount in refunds which would be requested or paid at this time.

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