INTRODUCTION

The bills would establish and authorize the Michigan State Housing Development Authority (MSHDA) to administer the State Low-income Housing Tax Credit Program (Program). Specifically, MSHDA would have to use its existing qualified allocation plan for the administration of the Federal low-income housing tax credit to administer the Program. Beginning January 2027, MSHDA could reserve an annual maximum tax credit amount of $100.0 million for project owners of qualified low-income housing projects (see BACKGROUND). The bills would require this amount to be annually adjusted by the consumer price index (CPI). A project owner could claim the proposed, nonrefundable State low-income housing tax credit against the owner's income tax in an amount equal to the amount of Federal low-income housing tax credit for which the owner was eligible or one sixth of the reserved credit amount stated in MSHDA's original notice, whichever was less. The bills would prescribe allocation and reporting requirements for the Program, require MSHDA to promulgate rules to administer the Program, and afford specific insurers a similar tax credit based on requirements of the Insurance Code.

The bills are tie-barred.

FISCAL IMPACT

The bills would reduce State General Fund and School Aid Fund (SAF) by an average of $100.0 million per year if MSHDA allocated the maximum credits authorized by the bills. Because the credits allowed under the bill would be nonrefundable but could be carried forward in some years the value of claimed credits could be less than or exceed $100.0 million, even if MSHDA awarded the maximum level of credits. How the revenue reduction would be spread between the General Fund and the SAF would depend on the specific characteristics of taxpayers that claimed the credits and the sections under which the credits were claimed. For insurance companies claiming the credit under Senate Bill 968, all the revenue reduction would lower General Fund revenue. Similarly, any credits claimed under Senate Bill 967 would reduce only General Fund revenue; however, credits claimed under Senate Bill 967 could reduce SAF revenue by up to almost 25% of the total revenue reduction.

The bills would have a fiscal impact on MSHDA with additional administrative costs to administer the Program, which would likely be greater than current operations and appropriations. The Authority is supported entirely with Restricted revenue, which should be sufficient to support the Program.

MCL 125.1422 et al. (S.B. 966) Legislative Analyst: Jessica Gebbie

Proposed MCL 206.279 et al. (S.B. 967) Fiscal Analyst: Nathan Leaman

MCL 500.476a & 500.476b (S.B. 968) Cory Savino, PhD; David Zin

CONTENT

Senate Bill 966 would amend the State Housing Development Authority Act to do the following:

-- Authorize MSHDA to establish the Program and reserve a State low-income housing tax credit for qualified entities.

-- Cap the aggregate amount of State tax credits reserved by MSHDA in a calendar year at $100.0 million, beginning with the 2027 calendar year, and require the cap to be adjusted by the CPI annually after.

-- Prescribe the process for reserving and awarding a credit under the bill.

-- Specify that the credit amount awarded under the bill would have to be the lesser of the Federal low-income housing tax credit issued to the recipient in that year or one sixth of the reserved credit amount stated in the notice that MSHDA issued upon reserving a credit.

-- Prescribe the allocation of a credit for specific types of recipients.

-- Prescribe reporting requirements for recipients of the tax credit.

Senate Bill 967 would amend the Income Tax Act to allow a qualified taxpayer to claim the State low-income housing tax credit proposed by Senate Bill 966 against the taxpayer's income tax in an amount equal to the amount allocated to the taxpayer for the tax year as provided on the eligibility certificate and reported on the allocation form, beginning on and after January 1, 2027.

Senate Bill 968 would amend the Insurance Code to allow an insurer to claim a credit against the deposit required by the Code in an amount equal to the State low-income housing tax credit for which the insurer was eligible to claim as a qualified taxpayer during the respective tax year, beginning January 1, 2027.

Senate Bill 966

MSHDA Authority

The State Housing Development Authority Act prescribes MSHDA's powers and duties, including the studying of housing needs in the State and the development of housing to meet those needs, among other things. The bill would amend the Act to authorize MSHDA to operate as the sole statewide public housing agency as that designation concerns Federal law.¹ Additionally, the bill would authorize MSHDA to establish, implement, and administer the Program proposed by the bill and described below. Administration would include the authority to promulgate rules in Accordance with the Administrative Procedures Act and in consultation with the Department of Treasury and the Department of Insurance and Financial Services (DIFS).

Program

Under the bill, upon allocating the Federal low-income housing tax credit under Section 22b and issuing a binding reservation or letter of eligibility under MSHDA's qualified allocation plan for a qualified low income building that was located in State and placed in service on or after January 1, 2027, MSHDA could reserve a State tax credit for the project owners so long as the amount of the credit reserved did not exceed the annual credit cap.²

"Project owner" would mean a person holding a fee simple interest or a leasehold interest pursuant to a ground lease in the land on which a qualified project is located. "Qualified project" would mean a qualified low-income building that is located in the State, is placed in service on or after January 1, 2027, and for which the authority reserved a state tax credit.

Reserved Credit Amount

Under the bill, MSHDA would have to send written notice of the reservation to each project owner. The notice would state the aggregate reserved credit amount for all years of the qualified project's credit period and stipulate that receipt of the credit is contingent upon issuance of an eligibility certificate and the filing of the information. Upon receipt of the reservation notice, the owner would provide the identity of the owner's designated reporter to the authority.

"Credit period" would mean, with respect to any building, the period of six taxable years beginning with either the taxable year in which the building is placed in service or, at the election of the taxpayer, the succeeding taxable year, but only if the building was a qualified low-income building as of the close of the first year of that period. The election to begin the credit period with the succeeding taxable year, once made, would be irrevocable.

Under the bill, MSHDA would have to determine the reserved credit amount for each qualified project and give preference to qualified projects for which the project owner certified that at least 50% of the cost of building components used in the construction or rehabilitation of any qualified low-income building that was a part of the qualified project was manufactured in the State. The reserved credit amount could not exceed the amount necessary, when combined with the Federal credit, to ensure the financial feasibility of the qualified project.

"Building components" would mean manufactured products and construction materials used in the construction or rehabilitation of a qualified project, including steel, iron, lumber, drywall, insulation, and heating, ventilation, and cooling systems. "Manufactured in this State" would mean the following: a) for iron or steel products, all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the State; b) for manufactured products, the final point of manufacture for the finished product is a facility physically located within the borders of the State, regardless of the origin of the subcomponents or raw materials used in the assembly or production of said product; c) for construction materials, all manufacturing processes for the construction material occurred in the State.

The bill would require MSHDA to reserve credits in a manner that ensured that a qualified project was creating additional housing units or preserving existing housing units. The bill also would allow MSHDA to assess application, processing, and reporting fees to cover the cost of administering the Program. The aggregate amount of State tax credits reserved by MSHDA in a calendar year could not exceed the sum of the following: a) beginning with the 2027 calendar year, $100.0 million, which would have to be adjusted by the CPI in the 2028 calendar year and each calendar year after; b) the amount, if any, by which the credit cap above for the preceding calendar year exceeded the State tax credits reserved by MSHDA in that year; c) the amount of State tax credits recaptured or otherwise disallowed in the preceding calendar year.

For the purpose of computing and determining compliance with the credit cap above, the State tax credit amount reserved for the project owners of a qualified project would be the full amount for all years of the qualified project's credit period.

Eligibility Certificates

Immediately after approving the final cost certification for a qualified project for which a State tax credit under the Program was reserved, or upon otherwise determining the qualified basis of the qualified project and the date it was placed into service as required federally, MSHDA would have to compute the annual credit amount and issue an eligibility certificate to each project owner.³ The Director would have to send copies of all eligibility certificates issued each calendar year to the Department of Treasury and the Department of Insurance and Financial Services. The annual credit amount authorized would have to be equal to the lesser of the following: a) the amount of the Federal credit that would be awarded to the project owners for the first year of the credit period if not for the adjustment required federally ⁴; or b) one sixth of the reserved credit amount stated in the notice issued.

"Annual credit amount" would mean the amount computed by MSHDA prior to issuing an eligibility certificate. "Eligibility certificate" would mean a certificate issued by the authority to each owner of a qualified project stating the amount of the state tax credit that could be claimed for each year of the credit period.

Under the bill, each eligibility certificate would have to state the annual credit amount, the years that comprise the credit period, the name, address, and taxpayer identification number of each project owner, each owner's designated reporter, the date the certificate was issued, a unique identifying number, and any additional information prescribed by rule. A project owner, if the project owner were a flow-through entity, would have to provide a copy of the eligibility certificate and any required information to each equity owner that had been allocated a credit upon request.

"Equity owner" would mean a person that has a direct indirect interest in a project owner, provided the project owner is a flow-through entity, as determined under applicable state law governing such an entity. "Flow-through entity" would mean an entity that for the applicable tax year is treated as a subchapter S corporation, a general partnership, a trust, a limited partnership, a limited liability partnership, or a limited liability company, that for the tax year was not taxed as a corporation for federal income tax purposes. The term would not include any entity disregarded or treated as a corporation under the Income Tax Act. "Person" would mean an individual, bank, financial institution, insurance company, association, corporation, flow-through entity, receiver, estate, trust, or any other group or combination of groups acting as a unit.

For each year of a qualified project's credit period, the project owner or an equity owner could claim a State tax credit against the applicable tax equal to all or a portion of the annual credit amount stated on the eligibility certificate. The credit would have to be claimed in the manner prescribed by the applicable tax. If the project owner were a flow-through entity, the annual credit amount for any year of a qualified project's credit period could be allocated by the project owner among one or more equity owners and could be applied by those equity owners against more than one applicable tax, but the total credits claimed in connection with that year of the qualified project's credit period by all project owners and equity owners against all taxes could not exceed the annual credit amount stated on the eligibility certificate. A project owner or equity owner could claim the credit authorized by the bill after the date the qualified project was placed into service but not before the Director of MSHDA issued the project owner an eligibility certificate and the applicable report was filed by the designated reporter. A project owner or equity owner that claimed a State tax credit under an applicable tax would have to submit a copy of the eligibility certificate with the project owner's or equity owner's annual tax return filed under the applicable tax.

Allocation of Credit

A project owner that was a pass-through entity could allocate the credit authorized by the bill to its equity owners in any manner agreed to by its members regardless of whether such equity owners were eligible for an allocation of the Federal credit, whether the allocation of the credit under the terms of the agreement had substantial economic effect, and whether any such person was deemed a partner of the project owner or equity owner for Federal income tax purposes as long as the equity owner acquired its ownership interest prior to claiming the credit. The allocation would be allowed without regard to any provision of the Internal Revenue Code or regulation promulgated under the Internal Revenue Code that could be interpreted as contrary to the allocation.

Under the bill, an equity owner could assign all or any part of its interest in a qualified project, including its interest in the State tax credits reserved under the bill, to one or more other equity owners, and each assignee could claim the State tax credit so long as the assignee's interest was acquired prior to the filing of its annual return or amended return under the applicable tax claiming the credit and the assignee's ownership interest was identified in the report. Nothing in the bill would allow the assignment or transfer of any carryforward of the State tax credit once the annual credit amount was claimed.

If any portion of the Federal credit allocated to a qualified project were recaptured under federal law or was otherwise disallowed, MSHDA could recapture a proportionate amount of the State tax credit claimed under the bill in connection with the same qualified project.⁵ If MSHDA determined to recapture such a State tax credit, MSHDA would have to certify the name of each project owner and the amount to be recaptured to the State Treasurer and to the Director of DIFS. The State Treasurer and the Director of DIFS would have to determine the taxpayer or taxpayers that claimed the credit, the tax against which the credit was claimed, and the amount to be recaptured and make an assessment against the taxpayer or taxpayers under the applicable tax for the amount of the State tax credit to be recaptured. The statute of limitations on assessments under the applicable tax acts would not bar an assessment.

Designated Reporter

For each calendar year, a designated reporter would have to provide the Department of Treasury, in the form prescribed by the State Treasurer in consultation with the Director of DIFS, all the following:

-- The name, address, and taxpayer identification number of each project owner and equity owner that had been allocated a portion of the annual credit awarded on the eligibility certificate for that year.

-- The amount of the annual credit allocated to each project owner and equity owner for the calendar year and the applicable tax against which the credit would be claimed.

-- The total of the amounts listed for each project owner and equity, demonstrating that the total did not exceed the amount listed on the eligibility certificate for that calendar year.

"Designated reporter" would mean the project owner or one of the project owner's equity owners.

A designated reporter would have to notify the Department of Treasury of any changes to the information reported in the time and manner prescribed by the Department of Treasury.

The Department of Treasury would have to provide a copy of the report, and any subsequent changes to the report, submitted by the designated reporter to the Director of DIFS in the time and manner agreed to by the State Treasurer and the Director of DIFS.

Senate Bill 967

State Low-income Housing Tax Credit Eligibility

The bill would amend the Income Tax Act to allow a qualified taxpayer to claim a State low-income housing tax credit against the tax imposed under the Act in an amount equal to the amount allocated to the taxpayer for the tax year as provided on the eligibility certificate and reported on the allocation form beginning on and after January 1, 2027, provided the taxpayer attached a copy of the allocation form for that calendar year to the annual return filed under the Act for the same tax year.

Recapture

Under the bill, if any portion of the Federal low-income housing tax credit allocated to a qualified project for which a State low-income housing credit were also claimed were recaptured or were otherwise disallowed, the Department of Treasury, in consultation with MSHDA, could recapture a proportionate amount of the tax credit claimed under the bill in connection with the same qualified project.⁶ If the Department of Treasury determined to recapture the tax credit, it and MSHDA could determine the taxpayer or taxpayers that claimed the credit, the tax against which the credit was claimed, and the amount to be recaptured from each respective taxpayer. They could have that recaptured amount added back to the tax liability of those taxpayers. The statute of limitations on assessments under the Act would not bar an assessment made under the bill.

Carryforward

The credit would have to be claimed after all other credits. If the bill's credit for the tax year and any unused carryforward of the credit allowed by the bill exceeded the qualified taxpayer's tax liability for the tax year, that portion that exceeded the tax liability for the tax year could not be refunded but could be carried forward to offset tax liability in subsequent tax years for 10 years or until used up, whichever occurred first. If a qualified taxpayer had an unused carryforward of a credit under the bill, the amount otherwise added to the qualified taxpayer's tax liability could instead be used to reduce the qualified taxpayer's carryforward.

Senate Bill 968

Among other things, the Insurance Code requires an insurer based outside of the State to make a like deposit with the State Treasurer for any tax required by law. The Act allows DIFS to revoke an insurer's certificate of authority upon refusing to make the like deposit.

[1] Generally, 42 USC 1437a defines "public housing agency" as the entity authorized to engage in the development of public housing in a state. Specifically, Federal law makes such an entity responsible for administering Federal housing assistance.

[2] Section 22b of the Act designates MSHDA as the housing credit agency under Federal law for purposes of allocating and administering the Federal low-income housing credit. Section 22b requires MSHDA to abide by its mandated qualified allocation plan in this administration.

This analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent.