22VAC40-41 Neighborhood Assistance Tax Credit Program

REGULATIONS

Vol. 32 Iss. 6 - November 16, 2015

TITLE 22. SOCIAL SERVICES

STATE BOARD OF SOCIAL SERVICES

Chapter 41

Fast-Track Regulation

Title of Regulation: 22VAC40-41. Neighborhood Assistance Tax Credit Program (amending 22VAC40-41-10, 22VAC40-41-20, 22VAC40-41-50, 22VAC40-41-55).

Statutory Authority: §§ 58.1-439.20 and 63.2-217 of the Code of Virginia.

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: December 16, 2015.

Effective Date: December 31, 2015.

Agency Contact: Wanda Stevenson, Neighborhood Assistance Program Technician, Department of Social Services, 801 East Main Street, Richmond, VA 23219, telephone [phone], or email [e-mail].

Basis: Chapters 56 and 153 of the 2015 Acts of Assembly and Chapter 851 of the 2009 Acts of Assembly require the State Board of Social Services to adopt regulations for the administration of the Neighborhood Assistance Program (NAP) in accordance with § 58.1-439.20 of the Code of Virginia.

Purpose: The proposed changes are necessary to conform to legislation passed by the General Assembly. The changes allow NAP organizations more flexibility to attract donations to improve and protect the health and well-being of the Commonwealth's most vulnerable citizens. The changes will allow NAP organizations to fully utilize assigned tax credits, which have not always been fully used in the past. The changes expand the opportunities to attract and maximize the use of physician specialists for medically fragile patients. The changes also help to clarify NAP definitions to provide more consistent program interpretation for staff and the public.

Rationale for Using Fast-Track Process: There is no indication that any of the proposed changes will be controversial. Proposed changes will provide increased flexibility for NAP organizations. NAP organizations will be able to provide NAP credits to physician specialists who need to meet off site with fragile patients. NAP organizations will have the ability to develop individualized donor valuation agreements with individuals and businesses. Additional definitions will help assist with the administration of the Neighborhood Assistance Program.

Substance: The proposed changes (i) allow physician specialists to be eligible for tax credits when donating specialty medical services to patients who are referred from an approved organization; (ii) provide that an individual or business making a qualified donation may accept a tax credit of less than 65% of the donated value from an approved neighborhood organization; (iii) establish actions of the Department of Social Services relating to the review of the neighborhood organization proposals and provide that the allocation of tax credits will be exempt from the provisions of the Administrative Process Act and that decisions of the Department of Social Services will be final and not subject to review or appeal; and (iv) add definitions for "affiliate" and "poverty guidelines."

Issues: These changes pose no disadvantages to the public, the Commonwealth or government officials, or the regulated community. Advantages include (i) increased flexibility for NAP organizations; (ii) ability to have physician specialists meet off site with fragile patients; (iii) development of individualized donor valuation agreements by NAP organizations; and (iv) clearer definitions, which will assist with the administration of the Neighborhood Assistance Program.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The State Board of Social Services proposes to amend its neighborhood assistance tax credit program (NAP) regulation to harmonize it with legislative changes that were passed in 2009 (Chapter 851 of the 2009 Act of the Assembly) and 2015 (Chapters 56 and 153 of the 2015 Acts of the Assembly). Specifically, the Board proposes to 1) update definitions, 2) allow physician specialists to be eligible for tax credits for donated specialty medical services, 3) remove the list of information needed on a certification form and instead cite the Code of Virginia sections where the list of necessary information can be found and 4) remove language that allowed NAP applicants to appeal adverse decisions to the Commissioner of the Department of Social Services.

Result of Analysis. Since all proposed changes to this regulation are already the law in Virginia, the benefits of harmonizing this regulation with the Code of Virginia likely exceed the costs of doing so.

Estimated Economic Impact. In 1981, the General Assembly passed legislation that authorized the Board's neighborhood assistance program (NAP) to, "…encourage businesses, trusts and individuals to make donations to approved 501(c) (3) organizations for the benefit of low-income persons. In return for their contributions, businesses, trusts and individuals may receive tax credits equal to 65 percent of the donation that may be applied against their state income tax liability."¹ The Board now proposes to amend its regulation for this program to account for legislative changes that occurred in 2009 and 2015.

The Board proposes to add two definitions, for "affiliate" and "poverty guidelines," as well as substitute Code of Virginia (COV) references for finding information required on certification forms in the code for an obsolete list of required information that is currently in the regulation. These changes likely have no costs attached but will provide the benefit of clarity for readers of the regulation.

The Board also proposes to harmonize this regulation with the COV by allowing physician specialists to get NAP credits for donating specialty medical services. This change to the COV that is mirrored in this regulation may increase the hours of specialty medical services donated as the donating physicians will likely be able to deduct a large portion of the value of those services from their state taxes. No entities are likely to incur net costs on account of this change. Physicians who donate their services, the non-profits that they donate them to and the patients who will receive those services will all likely benefit from this change.

Currently, this regulation has provision for any affected non-profit that disagrees with any decision on an application for NAP credits to appeal that decision to the Commissioner of the Department of Social Services. Legislation in 2009, however, made all decisions on the disposition of such applications final and non-appealable. To eliminate confusion over the rules for all affected parties, the Board now proposes to eliminate the regulatory language that deals with appeals. Since COV language has precedence and no appeals have been allowable since 2009, no entity will be adversely affected by removing the appeal process from this regulation. Interested parties will benefit from confusing language that contradicts the prevailing rules in the COV being removed from the regulation.

Businesses and Entities Affected. These proposed changes mirror legislative changes in 2009 and 2015 which affected all individuals, businesses and trusts that donate to the non-profit organizations that participate in the NAP as well as the 257 non-profits that receive those donations.

Localities Particularly Affected. This proposed change will not particularly affect any locality in the Commonwealth.

Projected Impact on Employment. This proposed change will likely not affect employment in the Commonwealth.

Effects on the Use and Value of Private Property. Allowing medical specialists to receive credits for donating their time and medical services to qualifying non-profits may increase the number of hours spent providing donated medical care which may slightly decrease the number of hours spent providing medical services for revenue for any affected medical professional.

Real Estate Development Costs. This proposed change will likely not affect real estate development costs.

Small Businesses:

Definition. Pursuant to § 2.2-4007.04 of the Code of Virginia, small business is defined as "a business entity, including its affiliates, that (i) is independently owned and operated and (ii) employs fewer than 500 full-time employees or has gross annual sales of less than $6 million."

Costs and Other Effects. No small businesses will incur costs on account of this regulatory change.

Alternative Method that Minimizes Adverse Impact. No small businesses will incur costs on account of this regulatory change.

Adverse Impacts:

Businesses: This proposed change is unlikely to adversely impact any business in the Commonwealth.

Localities: This proposed change is unlikely to adversely impact localities.

Other Entities: This proposed change is unlikely to adversely impact any other entities in the Commonwealth.

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¹Description taken from the Department of Social Services' NAP website at http://www.dss.virginia.gov/community/nap.cgi.

Agency's Response to Economic Impact Analysis: The Department of Social Services reviewed the economic impact analysis prepared by the Department of Planning and Budget and concurs.

Summary:

The amendments (i) allow physician specialists to be eligible for tax credits when donating specialty medical services to patients who are referred from an approved organization; (ii) provide that an individual or business making a qualified donation may accept a tax credit of less than the 65% of the donated value; (iii) establish that actions of the Department of Social Services shall be exempt from the provisions of the Administrative Process Act; and (iv) add definitions for "affiliate" and "poverty guidelines."

22VAC40-41-10. Definitions.

The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:

"Affiliate" means with respect to any person, any other person directly or indirectly controlling, controlled by, or under common control with such person. For purposes of this definition, "control" (including controlled by and under common control with) means the power, directly or indirectly, to direct or cause the direction of the management and policies of such person whether through ownership or voting securities or by contract or otherwise.

"Approved organization" means a neighborhood organization that has been found eligible to participate in the Neighborhood Assistance Program.

"Audit" means any audit required under the federal Office of Management and Budget's Circular A-133, or, if a neighborhood organization is not required to file an audit under Circular A-133, a detailed financial statement prepared by an outside independent certified public accountant.

"Business firm" means any corporation, partnership, electing small business (Subchapter S) corporation, limited liability company, or sole proprietorship authorized to do business in this Commonwealth subject to tax imposed by Articles 2 (§ 58.1-320 et seq.) and 10 (§ 58.1-400 et seq.) of Chapter 3, Chapter 12 (§ 58.1-1200 et seq.), Article 1 (§ 58.1-2500 et seq.) of Chapter 25, or Article 2 (§ 58.1-2620 et seq.) of Chapter 26 of Title 58.1 of the Code of Virginia. "Business firm" also means any trust or fiduciary for a trust subject to tax imposed by Article 6 (§ 58.1-360 et seq.) of Chapter 3 of Title 58.1 of the Code of Virginia.

"Commissioner" means the Commissioner of the Department of Social Services, his designee or authorized representative.

"Community services" means any type of counseling and advice, emergency assistance, medical care, provision of basic necessities, or services designed to minimize the effects of poverty, furnished primarily to low-income persons.

"Contracting services" means the provision, by a business firm licensed by the Commonwealth of Virginia as a contractor under Chapter 11 (§ 54.1-1100 et seq.) of Title 54.1 of the Code of Virginia, of labor or technical advice to aid in the development, construction, renovation, or repair of (i) homes of low-income persons or (ii) buildings used by neighborhood organizations.

"Education" means any type of scholastic instruction or scholastic assistance to a low-income person or eligible student with a disability.

"Eligible student with a disability" means a student (i) for whom an individualized educational program has been written and finalized in accordance with the federal Individuals with Disabilities Education Act (IDEA), regulations promulgated pursuant to IDEA, and regulations of the Board of Education and (ii) whose family's annual household income is not in excess of 400% of the current poverty guidelines.

"Housing assistance" means furnishing financial assistance, labor, material, or technical advice to aid the physical improvement of the homes of low-income persons.

"Job training" means any type of instruction to an individual who is a low-income person that enables him to acquire vocational skills so that he can become employable or able to seek a higher grade of employment.

"Low-income person" means an individual whose family's annual household income is not in excess of 300% of the current poverty guidelines.

"Neighborhood assistance" means providing community services, education, housing assistance, or job training.

"Neighborhood organization" means any local, regional or statewide organization whose primary function is providing neighborhood assistance and holding a ruling from the Internal Revenue Service of the United States U.S. Department of the Treasury that the organization is exempt from income taxation under the provisions of § 501(c)(3) or § 501(c)(4) of the Internal Revenue Code of 1986, as amended from time to time, or any organization defined as a community action agency in the Economic Opportunity Act of 1964 (42 USC § 2701 et seq.), or any housing authority as defined in § 36-3 of the Code of Virginia.

"Poverty guidelines" means the poverty guidelines for the 48 contiguous states and the District of Columbia updated annually in the Federal Register by the U.S. Department of Health and Human Services under the authority of § 673(2) of the Omnibus Budget Reconciliation Act of 1981.

"Professional services" means any type of personal service to the public which requires as a condition precedent to the rendering of such service the obtaining of a license or other legal authorization and shall include, but not be limited to, the personal services rendered by medical doctors, dentists, architects, professional engineers, certified public accountants, attorneys-at-law, and veterinarians.

"Scholastic assistance" means (i) counseling or supportive services to elementary school, middle school, secondary school, or postsecondary school students or their parents in developing a postsecondary academic or vocational education plan, including college financial options for such students or their parents, or (ii) scholarships.

22VAC40-41-20. Purpose; procedure for becoming an approved organization; eligibility criteria; termination of approved organization; appeal procedure.

A. The purpose of the Neighborhood Assistance Program is to encourage business firms and individuals to make donations to neighborhood organizations for the benefit of low-income persons.

B. Neighborhood organizations that do not provide education services and that wish to become an approved organization must submit an application to the commissioner. Neighborhood organizations that provide education services must submit an application to the Superintendent of Public Instruction. The application submitted to the Superintendent of Public Instruction must comply with regulations or guidelines adopted by the Board of Education. The application submitted to the commissioner must contain the following information:

1. A description of eligibility as a neighborhood organization, the programs being conducted, the low-income persons assisted, the estimated amount that will be donated to the programs, and plans for implementing the programs.

2. Proof of the neighborhood organization's current exemption from income taxation under the provisions of § 501(c)(3) or § 501(c)(4) of the Internal Revenue Code, or the organization's eligibility as a community action agency as defined in the Economic Opportunity Act of 1964 (42 USC § 2701 et seq.) or housing authority as defined in § 36-3 of the Code of Virginia.

3. For neighborhood organizations with total revenues (including the value of all donations) (i) in excess of $100,000 for the organization's most recent year ended, an audit or review for such year performed by an independent certified public accountant or (ii) of $100,000 or less for the organization's most recent year ended, a compilation for such year performed by an independent certified public accountant; a copy of the organization's current federal form 990; a current brochure describing the organization's programs; and a copy of the annual report filed with the Department of Agriculture and Consumer Services' Division of Consumer Protection.

4. A statement of objective and measurable outcomes that are expected to occur and the method the organization will use to evaluate the program's effectiveness.

C. To be eligible for participation in the Neighborhood Assistance Program, the applicant and any of its affiliates must meet the following criteria:

1. Applicants must have been in operation as a viable entity, providing neighborhood assistance for low-income people, for at least 12 months.

2. Applicants must be able to demonstrate that at least 50% of the total people served and at least 50% of the total expenditures were for low-income persons or eligible students with disabilities.

3. Applicant's audit must not contain any significant findings or areas of concern for the ongoing operation of the neighborhood organization.

4. Applicants must demonstrate that at least 75% of total revenue received is expended to support their ongoing programs each year.

D. The application period will start no later than March 15 of each year. All applications must be received by the Department of Social Services no later than the first business day of May. An application filed without the required audit, review, or compilation will be considered timely filed provided that the audit, review, or compilation is filed within 30 days immediately following the deadline.

E. Those applicants submitting all required information and reports and meeting the eligibility criteria described in this section will be determined an approved organization. The program year will run from July 1 through June 30 of the following year.

F. The commissioner may terminate an approved organization's eligibility based on a finding of program abuse involving illegal activities or fraudulent reporting on contributions.

G. Any neighborhood organization that disagrees with the disposition of its application, or its termination as an approved organization, may appeal to the commissioner in writing for a reconsideration. Such requests must be made within 30 days of the denial or termination. The commissioner will act on the request and render a final decision within 30 days of the request for reconsideration.

22VAC40-41-50. Donations by businesses and health care professionals.

A. As provided by § 58.1-439.21 of the Code of Virginia, a business firm shall be eligible for a tax credit based on the value of the money, property, professional services, and contracting services donated by the business firm during its taxable year to an approved organization.

B. No tax credit shall be granted to any business firm for donations to an approved organization providing job training or education for individuals employed by the business firm.

C. Health care professionals that meet certain conditions, as specified in § 58.1-439.22 C of the Code of Virginia, shall be eligible for a tax credit based on the time spent in providing health care services for such clinic.

D. Mediators that meet certain conditions, as specified in § 58.1-439.22 C of the Code of Virginia, shall be eligible for a tax credit based on the time spent in providing mediation services at the direction of an approved organization regardless of where the service is delivered.

E. Physician specialists shall be eligible for tax credits when donating specialty medical services to patients referred from an approved organization, as specified in § 58.1-439.22 D of the Code of Virginia.

E. F. All donations must be made directly to the approved organization without any conditions or expectation of monetary benefit. Discounted donations and bargain sales are not allowable donations for the Neighborhood Assistance Program.

F. G. Granting of tax credits shall conform to the minimum and maximum amounts prescribed in § 58.1-439.21 of the Code of Virginia.

G. H. Credits granted to a partnership, electing small business (Subchapter S) corporation, or limited liability company shall be allocated to their individual partners, shareholders, or members, respectively, in proportion to their ownership or interest in such business entities.

H. I. The approved organization and donor shall complete a certification on a form prescribed by the Department of Social Services, as specified in § 58.1-439.21 C of the Code of Virginia. The certification shall identify the date, type, and value of the donation.

I. J. All certifications must be submitted to the Department of Social Services within four years of the date of donation.

J. K. Upon receipt and approval of the certification, the commissioner shall issue a tax credit certificate to the business.

22VAC40-41-55. Donations by individuals.

A. As provided in § 58.1-439.24 of the Code of Virginia, an individual shall be eligible for a tax credit for a cash donation or a donation of marketable securities to an approved organization.

B. Such donations are subject to the minimum and maximum amounts and other provisions set forth in § 58.1-439.24 of the Code of Virginia.

C. The approved organization and the individual shall complete a certification on a form prescribed by the Department of Social Services, as specified in § 58.1-439.24 E of the Code of Virginia. The certification shall identify the date and amount of the donation.

D. All certifications must be submitted to the Department of Social Services within four years of the date of donation.

E. Upon receipt and approval of the certification, the commissioner shall issue a tax credit certificate to the individual.

VA.R. Doc. No. R16-4350; Filed October 26, 2015, 11:05 a.m.