Rural Main Street Investment Credit Act of 2016

Summary: Rural Main Street Investment Credit Act of 2016  This bill amends the Internal Revenue Code to allow a business-related tax credit for 35% of new investment in a rural microbusiness. There is a limit on such credit, for any rural microbusiness or any taxpayer, of $10,000 in a taxable year reduced by the amount allowed as a credit for all preceding taxable years. A &quot;rural microbusiness&quot; is a trade or business that employs not more than five full-time employees in a taxable year and that is carried on, and physically located,&nbsp;in a distressed rural area. A "distressed rural area" as an area that has lost at least 5% of its population over the last 10 years or 10% of its population over the last 20 years, that has a median family income below 85 % of the national median family income, that has a poverty rate that exceeds 12.5%, or where average unemployment in the preceding year exceeds 120% of the national average.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Rural Main Street Investment Credit 
Act of 2016''.

SEC. 2. RURAL MICROBUSINESS INVESTMENT CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to business related 
credits) is amended by adding at the end the following new section:

``SEC. 45S. RURAL MICROBUSINESS INVESTMENT CREDIT.

    ``(a) In General.--For purposes of section 38, the amount of the 
rural microbusiness investment credit determined under this section for 
any taxable year with respect to a rural microbusiness is equal to 35 
percent of the qualified new investments in the rural microbusiness for 
the taxable year.
    ``(b) Limitations.--
            ``(1) Per business limitations.--The amount allowed as a 
        credit under subsection (a) with respect to any rural 
        microbusiness for a taxable year shall not exceed--
                    ``(A) $10,000, reduced (but not below zero) by
                    ``(B) the amount allowed under subsection (a) to 
                the rural microbusiness for all preceding taxable 
                years.
            ``(2) Per taxpayer limitations.--The amount allowed as a 
        credit under subsection (a) with respect to any taxpayer with 
        respect to all rural microbusinesses of the taxpayer for a 
        taxable year shall not exceed--
                    ``(A) $10,000, reduced (but not below zero) by
                    ``(B) the amount allowed under subsection (a) to 
                the taxpayer with respect to rural microbusinesses for 
                all preceding taxable years.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Qualified new investment.--The term `qualified new 
        investment' means the excess of--
                    ``(A) qualified expenditures paid or incurred for 
                the taxable year, over
                    ``(B) the greater of--
                            ``(i) qualified expenditures paid or 
                        incurred for the preceding taxable year, or
                            ``(ii) the average annual qualified 
                        expenditures paid or incurred over the 
                        preceding three taxable years.
        If the rural microbusiness was not in existence for the entire 
        3-year period referred to in clause (ii) of subparagraph (B), 
        subparagraph (B) shall be applied without regard to so much of 
        such subparagraph as precedes such clause (ii) and any taxable 
        years during such 3-year period for which the rural 
        microbusiness was not in existence shall be taken into account 
        as taxable years during which there were no qualified 
        expenditures.
            ``(2) Qualified expenditures.--
                    ``(A) In general.--The term `qualified 
                expenditures' means any amount which is paid or 
                incurred with respect to a rural microbusiness. Such 
                term includes costs for capital plant and equipment, 
                inventory expenses, and wages.
                    ``(B) Exception.--Such term does not include--
                            ``(i) any interest cost,
                            ``(ii) the cost of any vehicle which is not 
                        a qualified nonpersonal use vehicle (as defined 
                        in section 274(i)), and
                            ``(iii) the cost of any compensation or 
                        benefits to the taxpayer claiming the credit, 
                        including the taxpayer's spouse and dependents.
            ``(3) Rural microbusiness.--
                    ``(A) In general.--The term `rural microbusiness' 
                means any trade or business if--
                            ``(i) such trade or business is operated as 
                        a proprietorship, partnership, trust (to the 
                        extent that the trust is a pass-thru entity), S 
                        corporation, or other pass-thru entity,
                            ``(ii) each of the owners of such trade or 
                        business, with respect to the taxable year for 
                        which the credit is claimed--
                                    ``(I) materially participates (as 
                                determined under rules similar to the 
                                rules of section 469(h)) in such trade 
                                or business, and
                                    ``(II) in the case of any trade or 
                                business substantially all of the 
                                activity of which is in agricultural 
                                production, is a first-time farmer (as 
                                defined in section 147(c)(2)(C)),
                            ``(iii) such trade or business is carried 
                        on, and physically located, in a distressed 
                        rural area during the taxable year for which 
                        the credit is claimed,
                            ``(iv) such trade or business employs not 
                        more than 5 full-time (or full-time equivalent) 
                        employees during the taxable year for which the 
                        credit is claimed, and
                            ``(v) which meets the gross revenue test 
                        under subparagraph (D) for the first taxable 
                        year in which the credit under subsection (a) 
                        is allowable with respect to the trade or 
                        business.
                    ``(B) Exceptions.--Such term shall not include--
                            ``(i) any trade or business which includes, 
                        in whole or in part, any private or commercial 
                        golf course, country club, massage parlor, hot 
                        tub facility, suntan facility, racetrack or 
                        other facility used for gambling, or any store 
                        the principal business of which is the sale of 
                        alcoholic beverages for consumption off 
                        premises, or
                            ``(ii) any trade or business with respect 
                        to which records are required under section 
                        2257 of title 18, United States Code, to be 
                        maintained with respect to any performer.
                    ``(C) Gross revenue test.--
                            ``(i) In general.--A trade or business 
                        meets the gross revenue test of this 
                        subparagraph for any taxable year if the 
                        average annual gross revenue of the trade or 
                        business for the 3-taxable year period ending 
                        with the taxable year does not exceed 
                        $1,000,000.
                            ``(ii) Aggregation rules.--All persons 
                        treated as a single employer under subsection 
                        (a) or (b) or section 52 or subsection (m) or 
                        (o) of section 414 shall be treated as a trade 
                        or business for purposes of clause (i).
                            ``(iii) Special rules for entities not in 
                        existence for entire 3-year period, etc.--Rules 
                        similar to the rules of subparagraphs (A), (B), 
                        and (D) of section 448(c)(3) shall apply for 
                        purposes of this subparagraph.
                    ``(D) Self-employed individuals.--For purposes of 
                this paragraph, if, with respect to a trade or 
                business, an individual is treated as an employee under 
                section 401(c), such individual shall be treated as an 
                employee of such trade or business for purposes of the 
                preceding sentence.
                    ``(E) Full-time equivalent employee.--For purposes 
                of this paragraph--
                            ``(i) In general.--The term `full-time 
                        equivalent employee' means a number of 
                        employees equal to the number determined by 
                        dividing--
                                    ``(I) the total number of hours of 
                                service for which wages were paid by 
                                the employer to employees during the 
                                taxable year, by
                                    ``(II) 2,080.
                        Such number shall be rounded to the next lowest 
                        whole number if not otherwise a whole number.
                            ``(ii) Excess hours not counted.--If an 
                        employee works in excess of 2,080 hours of 
                        service during any taxable year, such excess 
                        shall not be taken into account under clause 
                        (i).
                            ``(iii) Hours of service.--The Secretary, 
                        in consultation with the Secretary of Labor, 
                        shall prescribe such regulations, rules, and 
                        guidance as may be necessary to determine the 
                        hours of service of an employee, including 
                        rules for the application of this paragraph to 
                        employees who are not compensated on an hourly 
                        basis.
            ``(4) Distressed rural area.--
                    ``(A) In general.--The term `distressed rural area' 
                means any qualified area in the United States--
                            ``(i) that has lost at least 5 percent of 
                        its population over the last 10 years,
                            ``(ii) that lost at least 10 percent of its 
                        population over the last 20 years,
                            ``(iii) that has median family income below 
                        85 percent of the national median family 
                        income,
                            ``(iv) that has a poverty rate that exceeds 
                        12.5 percent, or
                            ``(v) where average unemployment in the 
                        preceding year exceeds 120 percent of the 
                        national average.
                    ``(B) Qualified area.--For purposes of subparagraph 
                (A), the term `qualified area' means--
                            ``(i) any area other than--
                                    ``(I) a city or town that has a 
                                population of greater than 50,000 
                                inhabitants, and
                                    ``(II) any urbanized area 
                                contiguous and adjacent to a city or 
                                town described in subclause (I), and
                            ``(ii) any county in which--
                                    ``(I) there is no city or town that 
                                has a population of greater than 
                                100,000 inhabitants, and
                                    ``(II) there are no urbanized areas 
                                contiguous and adjacent to a city or 
                                town described in subclause (I).
                    ``(C) Relevant sources of information.--In 
                determining whether an area is a distressed rural area 
                under this paragraph, such determination shall be made 
                in accordance with the most recent information from the 
                Bureau of the Census, the Bureau of Labor Statistics, 
                or other government entity with relevant information.
            ``(5) Related persons.--A person shall be treated as 
        related to another person if the relationship between such 
        persons would result in the disallowance of losses under 
        section 267 or 707(b) (but, in applying section 267(b) and (c) 
        for purposes of this section, paragraph (4) of section 267(c) 
        shall be treated as providing that the family of an individual 
        shall include only his spouse, ancestors, and lineal 
        descendants).
    ``(d) Denial of Double Benefit.--No deduction or credit shall be 
allowed under any other provision of this chapter for any amount taken 
into account in determining the credit under this section.
    ``(e) Other Rules.--
            ``(1) Married couple must file joint return.--Rules similar 
        to the rules of paragraphs (2), (3), and (4) of section 21(e) 
        shall apply for purposes of this section.
            ``(2) Denial of credit to dependents.--No credit shall be 
        allowed under this section to any individual with respect to 
        whom a deduction is allowed under section 151 is allowable to 
        another taxpayer for a taxable year beginning in the calendar 
        year in which such individual's calendar year begins.''.
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) of such Code (defining current year business credit) is amended 
by striking ``plus'' at the end of paragraph (35), by striking the 
period at the end of paragraph (36) and inserting ``, plus'', and by 
adding at the end the following new paragraph:
            ``(37) the rural microbusiness investment credit determined 
        under section 45S(a).''.
    (c) Carryover of Unused Credit.--Subsection (a) of section 39 of 
such Code is amended by adding at the end the following new paragraph:
            ``(5) 5-year carryback for rural microbusiness investment 
        credit.--Notwithstanding subsection (d), in the case of the 
        rural microbusiness investment credit--
                    ``(A) this section shall be applied separately from 
                the business credit and the marginal oil and gas well 
                production credit (other than the rural microbusiness 
                investment credit),
                    ``(B) paragraph (1) shall be applied by 
                substituting `each of the 5 taxable years' for `the 
                taxable year' in subparagraph (A) thereof, and
                    ``(C) paragraph (2) shall be applied--
                            ``(i) by substituting `25 taxable years' 
                        for `21 taxable years' in subparagraph (A) 
                        thereof, and
                            ``(ii) by substituting `24 taxable years' 
                        for `20 taxable years' in subparagraph (B) 
                        thereof.''.
    (d) Conforming Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of such Code is amended by adding 
at the end the following new item:

``Sec. 45S. Rural microbusiness investment credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to expenditures made in taxable years beginning after the date of 
the enactment of this Act.