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New York Tax Law Section 11 - Certified Capital Companies.Legal Research Home > New York Lawyer > Tax > New York Tax Law Section 11 - Certified Capital Companies. Sponsored Links
§ 11. Certified capital companies. (a) Definitions. For the purpose of
this section the following terms shall mean:
(1) "Certification date" - the date on which a certified capital
company is so designated by the department for a specific certified
capital company program.
(2) "Certified capital" - an investment of cash by a certified
investor in a certified capital company which fully funds the purchase
price of either or both its equity interest in the certified capital
company or a qualified debt instrument issued by the certified capital
company. Any such investment shall be subject to the provisions of
article fourteen of the insurance law.
(3) "Certified capital company" - a partnership, corporation, trust or
limited liability company, organized on a for-profit basis that is
located, headquartered and licensed or registered to conduct business in
New York, that has as its primary business activity the investment of
cash in qualified businesses and that is certified by the department as
meeting the criteria set forth in subdivision (b) of this section.
(4) "Certified investor" - any insurance company that contributes
certified capital.
(5) "Department" - the department of insurance.
(6) "Net profits on certified investments" - the amount of money
returned to the certified capital company in repayment of or exchange
for the certified capital company's qualified investment or investments
in the qualified business in excess of the amount of such qualified
investment or investments. Such number shall aggregate all of the
certified capital company's qualified investments where gains on
qualified investments are netted against losses on qualified
investments.
(7) "Qualified business" - an independently owned and operated
business that meets all of the following conditions as of the time of
the first investment in the business:
(A) It is headquartered in New York state, and its principal business
operations are located in New York state, and the qualified investment
it receives is used solely to support its business operations in the
state, except for advertising, promotions and sales purposes. In cases
where the qualified investment is made in a start-up company such
capital must be used solely to establish and support its business
operations in New York state, except for advertising, promotions and
sales purposes.
(B) It has either (i) no more than one hundred employees, at least
eighty percent of whom are employed in New York state or, (ii) no more
than two hundred employees, at least eighty percent of whom are employed
in this state, and during the fiscal year immediately preceding the
qualified investment it had, together with its affiliates, gross
revenues of no more than five million dollars, on a consolidated basis
as determined in accordance with generally accepted accounting
principles, except that, with respect to certified capital company
program three and certified capital company program four and certified
capital company program five, in the case of a company located in an
empire zone established pursuant to article eighteen-B of the general
municipal law such gross revenues shall not exceed eight million
dollars.
(C) It is involved in commerce for the purpose of developing and
manufacturing products and systems, including but not limited to high
technology products and systems such as computers, computer software,
medical equipment, biotechnology, telecommunications equipment and
products, processing or assembling all types of products, conducting
research and development on all types of products or providing services,
but excluding real estate, real estate development, insurance and
businesses predominantly engaged in professional services provided by
accountants, lawyers or physicians.
(D) The business was not organized by a certified capital company or
an affiliate of a certified capital company, but this paragraph shall
not prohibit a certified capital company from providing financial,
technical or similar advice to a business before making an investment in
such business.
(E) The business does not have a financial relationship, such as an
ownership interest, investment interest, or compensation agreement, with
a certified capital company or any affiliate of a certified capital
company before the date on which a certified capital company makes its
first investment in the business, but this paragraph shall not prohibit
a certified capital company from providing financial, technical or
similar advice to a business before making an investment in such
business.
(F) For purposes of this paragraph, the term "independently owned and
operated business" means (i) in the case of a corporation or limited
liability company, a corporation where no more than fifty percent of the
voting stock of the corporation or limited liability company is owned or
controlled, directly or indirectly, by a single corporation, a single
partnership or a single limited liability company, and (ii) in the case
of a partnership, association, or other entity, a partnership,
association or other entity where no more than fifty percent of the
capital, profits or other beneficial interest in such partnership,
association or other entity is owned or controlled, directly or
indirectly, by a single corporation, a single partnership or a single
limited liability company; provided, however, that the term shall
include, as a single "independently owned and operated business," parent
and subsidiary or affiliated corporations or limited liability companies
(i) that are engaged in an integrated for-profit business enterprise,
and (ii) in which at least eighty percent of the voting stock or
membership interests of all of the corporations or limited liability
companies is owned or controlled, directly or indirectly, by a common
group of shareholders or members, and no more than fifty percent of the
voting stock or membership interests of all of the corporations or
limited liability companies is owned or controlled, directly or
indirectly, by a single corporation, single partnership, or single
limited liability company that is not part of such group or parent
company or affiliated corporations or limited liability companies.
(8) "Qualified debt instrument" - a debt instrument issued by a
certified capital company, at par value or a premium, with an original
maturity date of at least five years from date of issuance, a repayment
schedule which is not faster than a level principal amortization, and
interest, distribution or payment features which are not related to the
profitability of the certified capital company or the performance of the
certified capital company's investment portfolio.
(9) "Qualified distribution" - any distribution or payment by a
certified capital company in connection with the following:
(A) Reasonable costs and expenses of such equity holders incurred by
such equity holders in connection with forming, syndicating, managing
and operating the certified capital company, including (i) an annual
management fee in an amount that does not exceed two and one-half
percent of the certified capital of the certified capital company with
respect to a particular certified capital company program; (ii) the
reasonable and necessary fees paid for professional services (such as
legal and accounting services) related to the operation of the certified
capital company; (iii) with respect to program four and any subsequent
program, all payments by the certified capital company in satisfaction
of its indebtedness to its certified investors, provided that no more
than thirty-five percent of such certified capital company's certified
capital may be used to purchase U.S. treasury securities, other
investment-grade securities, a guaranty, indemnity, bond, insurance
policy or other payment undertaking, or any combination thereof; and
provided further, that nothing in this provision shall be construed to
limit a certified capital company from expending non-certified capital
in satisfaction of such indebtedness; and (iv) with respect to program
four and any subsequent program, the reasonable costs and expenses of
forming, syndicating, or organizing the certified capital company,
separate from the costs of insuring or defeasing the obligations of the
certified capital company, provided, however, that such costs and
expenses shall not exceed five percent of the certified capital
company's certified capital; and
(B) Any increase or projected increase in federal or state taxes,
including penalties and interest related to state and federal income
taxes, of the equity owners of a certified capital company resulting
from the earnings or other tax liability of the certified capital
company to the extent that the increase is related to the ownership,
management or operation of a certified capital company.
(10) "Qualified investment" - the investment of cash by a certified
capital company in a qualified business for the purchase of any debt,
equity or hybrid security, of any nature and description whatever,
including a debt instrument or security which has the characteristics of
debt but which provides for conversion into equity or equity
participation instruments such as options or warrants, provided however,
in the case of certified capital programs three, four and five, that any
such debt instrument have a maturity of at least twenty-four months from
the date such debt is incurred; and further provided that a certified
capital company, after the investment and assuming full conversion and
exercise of any equity participation instruments, shall not own more
than fifty percent of the voting equity of the qualified business,
except in the case of a follow-on investment where a specific exemption
is granted by the department under subparagraph (D) of paragraph one of
subdivision (c) of this section. Furthermore, except in the case of a
follow-on investment, if a certified capital company owns more than
fifteen percent of the equity in a company or has a seat on the board of
directors of such company, then a certified capital company cannot
invest in such company unless the following conditions are met: (i) at
least one other investor who is not an affiliate of the certified
capital company participates in the same round of investment on the same
terms and conditions as the certified capital company; and (ii) the
certified capital company and its affiliates invest no more than fifty
percent of the total investment made in that round of investment.
(11) "Early stage business" - a qualified business which is involved,
at the time of investment, in activities related to the development of
initial product or service offerings, such as prototype development or
establishment of initial production or service processes, or, which is
less than two years old and during the fiscal year immediately preceding
the qualified investment had, together with its affiliates, gross
revenues of no more than two million dollars, on a consolidated basis as
determined in accordance with generally accepted accounting principles.
(12) "Superintendent" - the superintendent of insurance.
(13) "Certified capital company program" - a calendar year or years
for which taxpayers may be allocated and allowed credits pursuant to
this section and subdivision (k) of section fifteen hundred eleven of
this chapter and delineated as a separate program by this section.
(14) "Starting date" - the date on which a certified capital company
is allocated certified capital for a specific certified capital company
program pursuant to subdivision (b) of this section.
(15) "Underserved area" - a county, including a county wholly within a
city, in which, as of January first, two thousand, less than twenty-five
percent of the qualified investments in qualified businesses were made
by certified capital companies under certified capital company program
one. The superintendent shall prepare a list of such counties by July
first, two thousand.
(16) "Start-up business" - a qualified business which is involved, at
the time of investment, in activities related to the development of
initial product or service offerings, such as prototype development or
establishment of initial production or service processes, or, which is
less than two years old and during the fiscal year immediately preceding
the qualified investment had, together with its affiliates, gross
revenues of no more than two million dollars, on a consolidated basis as
determined in accordance with generally accepted accounting principles
and has fewer than twenty employees at the time of the investment; and,
in addition, which has emerged within the year prior to the date of
investment or is emerging from, or utilizes a technology transferred
from, a university or college research facility located in New York
state, a not-for-profit research facility located in New York state, or
an industrial research facility located in New York state, or which is
conducting research in conjunction with or in the research facilities of
a university or college located in New York state, or which is located
in or has emerged within the year prior to the date of investment or is
emerging from an incubator facility located in New York state.
(b) Certification. (1) The superintendent shall establish by rule or
regulation the procedures for making an application to become a
certified capital company. The applicant shall pay a non-refundable
application fee of five hundred dollars at the time of filing the
application with the department.
(2) The superintendent may certify partnerships, corporations, trusts
or limited liability companies, organized on a for profit basis, which
submit an application to be designated as a certified capital company if
such applicant is located, headquartered and licensed or registered to
conduct business in New York, has as its primary business activity the
investment of cash in qualified businesses and meets the other criteria
set forth in this subdivision.
(3) A certified capital company's initial capitalization, at the time
of seeking certification, must be five hundred thousand dollars or more.
(4) The superintendent shall review the organizational documents of
each applicant for certification and the business history of the
applicant, determine that the applicant's cash, marketable securities
and other liquid assets are at least five hundred thousand dollars, and
determine that the officers and the board of directors, general
partners, trustees, managers, or members are trustworthy and are
thoroughly acquainted with the requirements of this subdivision.
(5) The superintendent shall verify that at least two principals of
the certified capital company or any manager of the certified capital
company each have no less than five years of experience in the venture
capital or a venture capital-related industry.
(6) Any offering material involving the sale of securities of the
certified capital company shall include the following statement:
"Authorizing the formation of a Certified Capital Company does not
constitute the endorsement of the state of New York as to either the
quality of management or the potential for earnings of such company and
the state of New York is not liable for damages or losses to a Certified
Investor in the company. Use of the word 'certified' in an offering does
not constitute a recommendation or endorsement of the investment by the
state of New York.
Investments in a prospective Certified Capital Company prior to the
time such company is certified with respect to a certified capital
company program are not eligible for tax credits. In the event certain
statutory provisions (as specified in section 11 of the Tax Law) are
violated, the state of New York may require forfeiture of unused tax
credits and repayment of used tax credits."
(7) Within sixty days of application, the superintendent shall issue
the certification or shall refuse the certification and communicate in
detail to the applicant the grounds for the refusal, including
suggestions for the removal of those grounds.
(8) The superintendent may certify any previously certified capital
company which has remained in compliance with the requirements of this
section upon the application of such company to be designated a
certified capital company for a certified capital company program for
which it is not so designated. Such new certification shall be
considered a separate certification from any other such certification
under this section and investments in and by such company shall be
considered separately for purposes of subdivisions (c) and (d) of this
section.
(9) The superintendent shall start accepting applications to become a
certified capital company in certified capital company program two by
November first, nineteen hundred ninety-nine, and shall start accepting
applications to become a certified capital company in certified capital
company program three by August first, two thousand, and shall begin
accepting applications to become a certified capital company in
certified capital company program four by the later of August first, two
thousand four or not more than sixty days after the effective date of
section one of part D of chapter fifty-nine of the laws of two thousand
four and shall begin accepting applications to become a certified
capital company in certified capital company program five by the later
of July first, two thousand five or not more than sixty days after the
effective date of the chapter of the laws of two thousand five which
amended this paragraph.
(10) A certified capital company may obtain a guaranty, indemnity,
bond, insurance policy and/or other payment undertaking for the benefit
of its certified investors from any entity; provided, however, that, in
no case shall more than one certified investor of such certified capital
company or affiliates of such certified investor be entitled to provide
such guaranty, indemnity, bond, insurance policy and/or other payment
undertaking in favor of the certified investors of the certified capital
company and its affiliates in this state.
(c) Requirements for continuance of certification. (1) To continue to
be certified with respect to a particular certified capital company
program, a certified capital company must make qualified investments
according to the following schedule:
(A) Within two years after the starting date of a specific certified
capital company program of a certified capital company, at least
twenty-five percent of its certified capital allocable to such certified
capital company program must be placed in qualified investments.
(B) Within three years after the starting date of a specific certified
capital company program of a certified capital company, at least forty
percent of its certified capital allocable to such certified capital
company program must be placed in qualified investments.
(C) Within four years after the starting date of a specific certified
capital company program of a certified capital company, at least fifty
percent of its certified capital allocable to such certified capital
company program must be placed in qualified investments, at least fifty
percent of which must have been placed in early stage businesses, except
that in the case of program four and any subsequent program, at least
twenty-five percent of which must have been placed in early stage
businesses and an additional twenty-five percent of which must have been
placed in start-up businesses, and except that in the case of qualified
investments made in qualified businesses located in empire zones
established pursuant to article eighteen-B of the general municipal law
under the provisions of certified capital company program three, program
four and program five from allocations of certified capital made
specifically for such targeted investments in such zones, the
requirement for qualified investments in early stage and start-up
businesses shall not apply.
(D) A certified capital company, at least fifteen working days prior
to making a proposed investment in a specific business, shall certify in
writing to the superintendent that (i) the business in which it proposes
to invest meets the definition of a qualified business as set forth in
subdivision (a) of this section or, in the case of a follow-on
investment, that such business continues to meet the requirements set
forth in subparagraphs (A) and (C) of paragraph seven of subdivision (a)
of this section and, in either case, an explanation of its determination
that the business meets such requirements, and (ii) with respect to
certified capital company program three, program four and program five,
whether or not such business is located in an empire zone established
pursuant to article eighteen-B of the general municipal law or in an
underserved area outside an empire zone. The certification to the
superintendent shall include a sworn statement from the business in
which the certified capital company proposes to invest, which statement
shall evidence the intention of the business to maintain its
headquarters in New York and conduct its primary business operations in
the state of New York after its receipt of the investment by the
certified capital company. If the superintendent determines that the
business does not meet the definition of a qualified business, or, in
the case of a follow-on investment, that such business does not meet the
requirements set forth in subparagraphs (A) and (C) of paragraph seven
of subdivision (a) of this section, then it shall, within the fifteen
working day period prior to the making of the proposed investment,
notify the certified capital company of its determination and provide an
explanation thereof, provided, however, that the department may, upon
written request of a certified capital company and at the discretion of
the department, grant, in writing, an exemption to the percentage
limitations of paragraph ten of subdivision (a) of this section.
(E) All certified capital not placed in qualified investments by the
certified capital company may be held or invested in such manner as the
certified capital company, in its discretion, deems appropriate. The
proceeds of all certified capital returned to a certified capital
company after being originally placed in qualified investments may be
placed again in qualified investments and shall count toward any
requirement in this subdivision with respect to placing certified
capital in qualified investments.
(F) If within ten years after the starting date of certified capital
company program four or program five, and within twelve years after the
starting date of certified capital company programs one, two, and three,
one hundred percent of the certified capital allocable to a certified
capital company participating in such program has not been placed in
qualified investments, the specific certified capital company shall no
longer be permitted to receive management fees; provided that such
restriction shall not apply (i) with respect to certified capital
company programs one, two, and three, to any certified capital company
that has not, prior to October thirty-first, two thousand four,
received, as opposed to accrued, any management fees, or (ii) with
respect to any certified capital company program, to a certified capital
company in which at least fifty percent of the voting stock, capital,
membership interests, or other beneficial ownership interests, as the
case may be, are owned by an entity that is managed, directly or
indirectly, by a non-profit corporation.
(2) Any business which is classified as a qualified business at the
time of the first investment in said business by a certified capital
company shall remain classified as a qualified business and may receive
follow-on investments from any certified capital company, and such
follow-on investments shall be qualified investments even though such
business may not meet the definition of a qualified business at the time
of such follow-on investments, provided, however, that such business
continues to meet the requirements set forth in subparagraphs (A) and
(C) of paragraph seven of subdivision (a) of this section, and such
business reaffirms its intention to maintain its headquarters in New
York and conduct its primary business operations in the state of New
York as required in subparagraph (D) of paragraph one of this
subdivision.
(3) No qualified investment may be made by a certified capital company
to the extent such investment would cause the company's total qualified
investment outstanding with respect to the qualified business receiving
such investment to exceed fifteen percent of the total certified capital
of the certified capital company at the time of such investment.
(4) Documents and other materials submitted by certified capital
companies or by businesses for purposes of the continuance of
certification shall not be public records if such records are determined
by the superintendent to be trade or business secrets and shall be
maintained in a confidential manner by the superintendent.
(5) The aggregate cumulative amount of all qualified investments made
by the certified capital company for a certified capital company program
from its starting date for such program will be considered in the
calculation of the percentage requirements under subparagraphs (A), (B)
and (C) of paragraph one of this subdivision, provided, however, that
any amounts received by a certified capital company from a qualified
business as (i) commitment fees, closing fees, or other similar fees
(excluding reimbursement of out-of-pocket expenses, including legal fees
and accounting fees) in excess of one percent of the certified capital
company's investment in the qualified business or (ii) license fees,
royalties, or similar charges shall not be considered in any of the
percentage calculations under this section.
(6) Each certified capital company shall report the following to the
superintendent:
(A) As soon as practicable after the receipt of certified capital or
an irrevocable funding commitment subject only to the receipt of an
allocation pursuant to subdivision (h) of this section, (i) the name of
each certified investor from which the certified capital was received,
including such certified investor's insurance tax identification number;
(ii) the amount of each certified investor's investment of certified
capital; and (iii) the date on which the certified capital was received.
Provided, however, that requests for allocation of tax credits with
respect to certified capital company program two by certified capital
companies on behalf of their certified investors which are received by
the superintendent on or before March first, two thousand shall be
treated as having been received on March first, two thousand for tax
credits to be utilized in two thousand one, and if satisfactory, shall
be given equal priority for allocation, and provided, however, that
requests for allocation of tax credits with respect to certified capital
company program three by certified capital companies on behalf of their
certified investors which are received by the superintendent on or
before December first, two thousand shall be treated as having been
received on December first, two thousand for tax credits to be utilized
in two thousand two, and if satisfactory, shall be given equal priority
for allocation, and provided, however, that requests for allocation of
tax credits with respect to certified capital company program four by
certified capital companies on behalf of their certified investors which
are received by the superintendent on or before December first, two
thousand four shall be treated as having been received on December
first, two thousand four for tax credits to be utilized in two thousand
six, and if satisfactory, shall be given equal priority for allocation,
and provided, however, that requests for allocation of tax credits with
respect to certified capital company program five by certified capital
companies on behalf of their certified investors which are received by
the superintendent on or before the later of (i) November first, two
thousand five and (ii) the one hundred twentieth day after the date on
which the superintendent began accepting applications for certification
in connection with certified capital company program five pursuant to
paragraph nine of subdivision (b) of this section shall be treated as
having been received on such later date for tax credits to be utilized
in two thousand seven, and if satisfactory, shall be given equal
priority for allocation.
(B) On an annual basis, on or before January thirty-first of each
year, (i) the amount of the certified capital company's certified
capital at the end of the immediately preceding year; (ii) whether or
not the certified capital company has invested more than fifteen percent
of its total certified capital in any one business; (iii) all qualified
investments that the certified capital company made during the previous
calendar year, including the number of employees of each qualified
business in which it has made investments at the time of such investment
and as of December first of the preceding calendar year. For any
qualified business where the certified capital company no longer has an
investment, the certified capital company shall provide employment
figures for such company as of the last day before the investment was
terminated. Such report shall provide a separate accounting by each
certified capital company program; and (iv) all qualified investments
made in empire zones and underserved areas outside such empire zones as
required under certified capital company program three, certified
capital company program four and certified capital company program five.
(C) Each certified capital company shall provide to the superintendent
annual audited financial statements, which shall include the opinion of
an independent certified public accountant, within ninety days of the
close of its fiscal year. The audit shall address whether the funds
received by the certified capital company have been invested as required
under subparagraphs (A), (B) and (C) of paragraph one of this
subdivision. Upon receiving notification and documentation by a
certified capital company that it has satisfied the requirements of
subparagraph (C) of paragraph one of this subdivision that it has
invested fifty percent of its certified capital, the department shall
have sixty days to notify such certified capital company that it has or
has not met such requirement, with a reason for such determination if it
has not, in the judgment of the department, met such requirement. If the
department does not provide such notification within sixty days, the
certified capital company shall then be deemed to have met such
requirement.
(D) On or before April first of each year, each certified capital
company shall pay an annual, non-refundable certification fee of five
hundred dollars to the superintendent; provided that no such fee shall
be required within six months of the initial certification date of a
certified capital company.
(E)(1) Within thirty days of the decision on an application for
certification pursuant to subdivision (b) of this section, the
superintendent shall submit a copy of such application and the related
decision to the department of taxation and finance. The superintendent
shall submit a copy of all filings of certifications pursuant to
subparagraph (D) of paragraph one of this subdivision and any
determination made thereon within fifteen days of such filing.
(2) The superintendent shall annually, by March first, submit to the
department of taxation and finance a list of persons who may claim the
tax credit for the previous taxable year and any other information
necessary to assist the department of taxation and finance to determine
eligibility for such tax credit.
(d) Distributions. (1) A certified capital company may make qualified
distributions at any time. In order for a certified capital company to
make a distribution other than a qualified distribution from a certified
capital company program, to its equity holders, either (A) the aggregate
cumulative amount of all qualified investments for such program must
equal or exceed one hundred percent of its certified capital allocable
to such certified capital company program, or (B) it must have received
written authorization to make such distribution from the superintendent.
In no event, however, shall any such distribution to its equity holders,
other than a qualified distribution, be made by a certified capital
company from a certified capital company program unless an amount equal
cumulatively to at least ninety percent of its certified capital of such
program is invested in companies that conduct their principal business
operations in New York state.
(2) In the event that a business in which a qualified investment is
made relocates its principal business operations to another state during
such investment, or within three months after the termination of such
investment, the cumulative amount of qualified investment shall be
reduced by the amount of such qualified investment, for the purposes of
this subdivision only, unless (A) the certified capital company invests
an amount at least equal to the investment of certified capital in the
relocated business in a qualified business located in New York state
within six months of the relocation or (B) unless the business
demonstrates that it has returned its principal business operations to
New York state within three months of such relocation. A business shall
be deemed to have relocated its principal business operations outside
New York state if the primary workplace of more than fifty percent of
the employees of such business within the state is relocated to another
state.
(3) In the event that a business in which a qualified investment is
made under certified capital company program three, certified capital
company program four or certified capital company program five,
relocates its principal business operation within the earlier of four
years after the date of such qualified investment or three months after
the termination of such investment, whereby the requirements of
paragraph three of subdivision (h) of this section to make qualified
investments in qualified businesses located in empire zones established
pursuant to article eighteen-B of the general municipal law or in
underserved areas outside such empire zones no longer are satisfied, the
cumulative amount of qualified investment shall be reduced by the amount
of such qualified investment, for the purposes of this subdivision only,
unless (A) the certified capital company invests an amount at least
equal to the investment of certified capital in the relocated business
in a qualified business located in either an empire zone or in an
underserved area outside an empire zone so that the requirements of
paragraph three of subdivision (h) of this section are again satisfied
within six months of such relocation, unless the certified capital
company certifies to the superintendent that a good faith effort was
made to make additional qualifying investments under the requirements of
paragraph three of subdivision (h) of this section, or (B) the business
demonstrates that it has returned its principal business operation to
New York state in either an empire zone or in an underserved area
outside an empire zone within three months of such relocation, or (C)
the business demonstrates that it had a valid business purpose for
relocating its principal business operation. A business shall be deemed
to have relocated its principal business operations outside of an empire
zone or an underserved area outside an empire zone if the primary
workplace of more than fifty percent of the employees of such business
within an empire zone or an underserved area outside an empire zone is
relocated to an area outside the state or outside an empire zone or an
underserved area outside an empire zone.
(4) Payments to debt holders of a certified capital company may be
made without restriction with respect to repayments of principal and
interest on indebtedness owed to them by a certified capital company,
including indebtedness of the certified capital company on which
certified investors earned tax credits. A debt holder that is also a
certified investor or equity holder of a certified capital company may
receive payments with respect to such debt without any restriction
whatsoever.
(5) A certified capital company that receives certified capital
investments under program four and any subsequent program shall pay to
the department for deposit in the general fund an amount equal to thirty
percent of the net profits on qualified investments. A certified capital
company shall make all payments required under this paragraph
concurrently with and pro rata to distributions of profits and gains to
its equity owners; however, nothing contained in this paragraph shall be
construed to affect qualified distributions.
(6) The amount of any payment required under paragraph five of this
subdivision shall be reduced to fifteen percent of such net profits on
qualified investments if, at the time of such net profits distribution,
such certified capital company irrevocably commits to both: (A)
re-invest the remaining fifteen percent of such net profits not being
paid to the general fund under paragraph five of this subdivision into
qualified businesses, and (B) invest an additional amount equal to at
least fifteen percent of such net profits distribution into qualified
businesses which additional amount shall come from a separate pool of
venture capital that is controlled by the certified capital company but
that does not contain certified capital. In making investments from
funds established under this paragraph, the certified capital company
shall follow the requirements set forth in subparagraph (D) of paragraph
one of subdivision (c) of this section pertaining to obtaining approval
of the investment being in a qualified business, except that
requirements pertaining to empire zones and underserved areas
requirements shall not apply. Once qualified investments in qualified
businesses have been made pursuant to this paragraph equal to thirty
percent of the net profits on qualified investments, then the
requirements under this subdivision shall have been satisfied and the
proceeds from such qualified businesses may be distributed without
restriction.
(e) Decertification. (1) The superintendent shall conduct an annual
review of each certified capital company to determine if the certified
capital company is abiding by the requirements of certification, to
advise the certified capital company as to the eligibility status of its
qualified investments, and to ensure that no investment has been made in
violation of this subdivision. The cost of the annual review shall be
paid by each certified capital company according to a reasonable fee
schedule adopted by the superintendent.
(2) Any material violation of subdivision (c) of this section with
respect to a particular certified capital company program shall be
grounds for decertification of the certified capital company with
respect to such program. If the superintendent determines that a
certified capital company is not in compliance with the requirements of
subdivision (c) of this section with respect to a particular certified
capital company program, it shall, by written notice, inform the
officers of the certified capital company that the certified capital
company will be subject to decertification with respect to such program
in one hundred twenty days from the date of mailing of the notice,
unless the deficiencies are corrected and the certified capital company
is again in compliance with all requirements for certification.
(3) At the end of the one hundred twenty day grace period, if the
certified capital company is still not in compliance with subdivision
(c) of this section with respect to a particular certified capital
company program, the superintendent shall send a notice of
decertification to the certified capital company with respect to such
program and to all other appropriate state agencies.
(4) Notwithstanding the provisions of paragraphs two and three of this
subdivision, if a certified capital company in certified capital company
programs three, four and five fails to satisfy the requirement in
subparagraph (B) of paragraph one of subdivision (c) of this section
because it has been unable to make a sufficient amount of qualified
investments in qualified businesses located either in empire zones
established pursuant to article eighteen-B of the general municipal law
or in underserved areas outside such empire zones, such certified
capital company shall not be subject to decertification at that time.
However, if such certified capital company fails to satisfy the
requirement in subparagraph (C) of paragraph one of subdivision (c) of
this section because it has been unable to make a sufficient amount of
qualified investments in qualified businesses located either in such
empire zones or in underserved areas outside such empire zones, but
certifies to the superintendent that it had made a good faith effort to
make such investments, such certified capital company shall be allowed
two additional years to satisfy the requirement in such subparagraph
(C). If, after the conclusion of such two year period, the certified
capital company still has not been able to satisfy the requirement to
make such investments, and such certified capital company certifies to
the superintendent that it had made a good faith effort to make such
investments, the requirement in paragraphs three, four and five of
subdivision (h) of this section to make qualified investments in
qualified businesses located in empire zones or in underserved areas
shall be waived. Such certified capital company shall then be allowed
one additional year to satisfy the requirement in such subparagraph (C),
and if, at the conclusion of that additional one year period, such
requirement is still not satisfied, such certified capital company shall
be subject to decertification and the provisions of paragraphs two and
three of this subdivision shall apply.
(5) Once a certified capital company has invested an amount
cumulatively equal to one hundred percent of its certified capital with
respect to a particular certified capital company program in qualified
investments and has met all other requirements under this subdivision,
the certified capital company shall no longer be subject to regulation
by the superintendent and shall no longer be subject to the requirements
of subdivision (c) of this section with respect to such program. Upon
receiving documented certification by a certified capital company that
it has invested an amount equal to one hundred percent of its certified
capital, the department shall have sixty days to notify such certified
capital company that it has or has not met such requirement with a
reason for such determination if it has not, in the judgment of the
department, met such requirement. If the department does not provide
such notification within sixty days, the certified capital company shall
then be deemed to have met such requirement.
(6) The superintendent shall send written notice of such
decertification to the address of each certified investor whose tax
credit has been subject to recapture or forfeiture, using the address
shown on the last filing submitted to the superintendent.
(f) Revocation of certification. The superintendent may revoke the
certification of a certified capital company, or, at the discretion of
the superintendent, the certification of a certified capital company
with respect to a particular certified capital company program only, if
any material representation to the superintendent in connection with the
application process proves to have been falsely made or if the
application materially violates any requirement established by the
superintendent pursuant to this subdivision. In addition, the
superintendent may revoke the certification of a certified capital
company if such certified capital company (i) falsely certified,
pursuant to paragraph three of subdivision (d) of this section that a
good faith effort was made to make additional qualifying investments
under the requirements of paragraph three of subdivision (h) of this
section, or (ii) falsely certified, pursuant to paragraph four of
subdivision (e) of this section, that it had made a good faith effort to
make a sufficient amount of qualifying investments in qualifying
businesses located in empire zones established pursuant to article
eighteen-B of the general municipal law or in underserved areas outside
such empire zones.
(g) Registration requirements. All investments for which tax credits
are allowable under the provisions of subdivision (k) of section fifteen
hundred eleven of this chapter shall satisfy the conditions of being
registered or specifically exempt from registration by provisions or
regulations under sections three hundred fifty-nine-e through three
hundred fifty-nine-ff of the general business law.
(h) Maximum permitted credits. (1) Certified capital company program
one. The aggregate amount of certified capital for which taxpayers may
be allocated and allowed tax credits pursuant to this paragraph and
subdivision (k) of section fifteen hundred eleven of this chapter may
not exceed fifty million dollars for calendar year nineteen hundred
ninety-nine, which certified capital may be invested in certified
capital companies beginning in calendar year nineteen hundred
ninety-eight. In calendar year two thousand or thereafter, tax credits
may be allowed pursuant to this paragraph and such subdivision (k) for
an additional fifty million dollars of certified capital, which
certified capital may be invested in certified capital companies
beginning in calendar year nineteen hundred ninety-nine, if not
allocated to calendar year nineteen hundred ninety-eight in accordance
with this paragraph. Therefore, the total amount of certified capital
for which tax credits may be allowed pursuant to this paragraph and such
subdivision (k) shall be one hundred million dollars.
During any calendar year in which the limitation described in this
paragraph will limit the amount of certified capital, certified capital
will be allocated in order of priority based upon the date of filing of
information described in subparagraph (A) of paragraph six of
subdivision (c) of this section. Certified capital limited in any
calendar year by the application of the provisions of this paragraph
shall be allowed and allocated in the immediately succeeding calendar
year in order of priority set forth in this paragraph. The
superintendent shall advise any certified capital company in writing
within fifteen days after receiving such filing, whether the limitations
of this paragraph then in effect will be applicable with respect to the
investments and credits described in such filing with the
superintendent.
Certified capital may be raised by each certified capital company with
respect to certified capital company program one at any time subsequent
to its certification date, and credits shall be allocated to and vested
in certified investors at the time of each such investment as provided
in this paragraph, although such credits shall not be first allowed or
incurred for state tax purposes, until, at the earliest, tax years
beginning in nineteen hundred ninety-nine with respect to the first
fifty million dollars of credits and tax years beginning in two thousand
with respect to the next such fifty million dollars of credits.
(2) Certified capital company program two. The aggregate amount of
certified capital for which taxpayers may be allocated and allowed tax
credits pursuant to this paragraph and subdivision (k) of section
fifteen hundred eleven of this chapter may not exceed thirty million
dollars for calendar year two thousand one, which certified capital may
be invested in certified capital companies beginning in calendar year
nineteen hundred ninety-nine.
During any calendar year in which the limitation described in this
paragraph will limit the amount of certified capital, certified capital
will be allocated in order of priority based upon the date of filing of
information described in subparagraph (A) of paragraph six of
subdivision (c) of this section. The superintendent shall advise any
certified capital company in writing, within fifteen days after
receiving such filing, whether the limitations of this paragraph then in
effect will be applicable with respect to the investments and credits
described in such filing with the superintendent.
Certified capital may be raised by each certified capital company with
respect to certified capital company program two at any time subsequent
to its certification date, and credits shall be allocated to and vested
in certified investors at the time of each such investment as provided
in this paragraph, although such credits shall not be first allowed or
incurred for state tax purposes, until, at the earliest, tax years
beginning in two thousand one.
(3) Certified capital company program three. The aggregate amount of
certified capital for which taxpayers may be allocated and allowed tax
credits pursuant to this paragraph and subdivision (k) of section
fifteen hundred eleven of this chapter may not exceed one hundred fifty
million dollars for calendar year two thousand two, which certified
capital may be invested in certified capital companies beginning in
calendar year two thousand.
During any calendar year in which the limitation described in this
paragraph will limit the amount of certified capital, certified capital
will be allocated in order of priority based upon the date of filing of
information described in subparagraph (A) of paragraph six of
subdivision (c) of this section. The superintendent shall advise any
certified capital company in writing, within fifteen days after
receiving such filing, whether the limitations of this paragraph then in
effect will be applicable with respect to the investments and credits
described in such filing with the superintendent.
Certified capital may be raised by each certified capital company with
respect to certified capital company program three at any time
subsequent to its certification date, and credits shall be allocated to
and vested in certified investors at the time of each such investment as
provided in this paragraph, although such credits shall not be first
allowed or incurred for state tax purposes, until, at the earliest, tax
years beginning in two thousand two. One-third of the certified capital
raised by each certified capital company with respect to certified
capital company program three shall be used to make qualified
investments in qualified businesses located in empire zones established
pursuant to article eighteen-B of the general municipal law, and
one-third of such certified capital shall be used to make qualified
investments in qualified businesses located in underserved areas outside
such empire zones.
(4) Certified capital company program four. The aggregate amount of
certified capital for which taxpayers may be allocated and allowed tax
credits pursuant to this paragraph and subdivision (k) of section
fifteen hundred eleven of this chapter may not exceed sixty million
dollars for calendar year two thousand six, which certified capital may
be invested in certified capital companies beginning in calendar year
two thousand four.
During any calendar year in which the limitation described in this
paragraph will limit the amount of certified capital, certified capital
will be allocated in order of priority based upon the date of filing of
information described in subparagraph (A) of paragraph six of
subdivision (c) of this section. The superintendent shall advise any
certified capital company in writing, within fifteen days after
receiving such filing, whether the limitations of this paragraph then in
effect will be applicable with respect to the investments and credits
described in such filing with the superintendent.
Certified capital may be raised by each certified capital company with
respect to certified capital company program four at any time subsequent
to its certification date, and credits shall be allocated to and vested
in certified investors at the time of each such investment as provided
in this paragraph, although such credits shall not be first allowed or
incurred for state tax purposes, until, at the earliest, tax years
beginning in two thousand six. One-third of the certified capital raised
by each certified capital company with respect to certified capital
company program four shall be used to make qualified investments in
qualified businesses located in empire zones established pursuant to
article eighteen-B of the general municipal law, and one-third of such
certified capital shall be used to make qualified investments in
qualified businesses located in underserved areas outside such empire
zones, provided, however, that in the case of an investment made by a
certified capital company in an empire zone located in an underserved
area, the certified capital company making such an investment may choose
to designate such investment as an investment in an underserved area but
not as an investment in an empire zone for the purpose of meeting the
requirements of this paragraph. Fifty percent of the total amount of
capital invested by a certified capital company at the time of one
hundred percent investment of funds shall be invested in qualified
businesses that are involved in commerce for the primary purpose of
developing and manufacturing products and systems covered by the
activities set forth in paragraph (b) of subdivision one of section
thirty-one hundred two-e of the public authorities law and have a ratio
of research and development expenditures to net sales which equals or
exceeds six percent during the fiscal year immediately preceding the
qualified investment.
(5) Certified capital company program five. The aggregate amount of
certified capital for which taxpayers may be allocated and allowed tax
credits pursuant to this paragraph and subdivision (k) of section
fifteen hundred eleven of this chapter may not exceed sixty million
dollars for calendar year two thousand seven, which certified capital
may be invested in certified capital companies beginning in calendar
year two thousand five.
During any calendar year in which the limitation described in this
paragraph will limit the amount of certified capital, certified capital
will be allocated in order of priority based upon the date of filing of
information described in subparagraph (A) of paragraph six of
subdivision (c) of this section. The superintendent shall advise any
certified capital company in writing, within fifteen days after
receiving such filing, whether the limitations of this paragraph then in
effect will be applicable with respect to the investments and credits
described in such filing with the superintendent.
Certified capital may be raised by each certified capital company with
respect to certified capital company program five at any time subsequent
to its certification date, and credits shall be allocated to and vested
in certified investors at the time of each such investment as provided
in this paragraph, although such credits shall not be first allowed or
incurred for state tax purposes, until, at the earliest, tax years
beginning in two thousand seven. One-third of the certified capital
raised by each certified capital company with respect to certified
capital company program five shall be used to make qualified investments
in qualified businesses located in empire zones established pursuant to
article eighteen-B of the general municipal law, and one-third of such
certified capital shall be used to make qualified investments in
qualified businesses located in underserved areas outside such empire
zones, provided, however, that in the case of an investment made by a
certified capital company in an empire zone located in an underserved
area, the certified capital company making such an investment may chose
to designate such investment as an investment in an underserved area but
not as an investment in an empire zone for the purpose of meeting the
requirements of this paragraph. Fifty percent of the total amount of
capital invested by a certified capital company at the time of one
hundred percent investment of funds shall be invested in qualified
businesses that are involved in commerce for the primary purpose of
developing and manufacturing products and systems covered by the
activities set forth in paragraph (b) of subdivision one of section
thirty-one hundred two-e of the public authorities law and have a ratio
of research and development expenditures to net sales which equals or
exceeds six percent during the fiscal year immediately preceding the
qualified investment.
(i) Maximum certified capital. The maximum amount of certified capital
per certified capital company program invested in one or more certified
capital companies allowed in any one year to any one certified investor
shall not exceed ten million dollars for certified capital company
programs one and three, and eight million dollars for certified capital
company programs two, four and five for such year, provided, however,
that if the aggregate amount of certified capital for such year, as set
forth in subdivision (h) of this section, has not been reached sixty
days prior to the end of the year to which such aggregate amount
applies, the provisions of this subdivision shall cease to apply for the
remainder of such year. In addition, the aggregate amount of tax credits
allowed in any taxable year to any affiliated group of taxpayers in
relation to certified capital may not exceed such maximum amount,
whether or not such taxpayers file a combined return pursuant to
subdivision (f) of section fifteen hundred fifteen of this chapter. For
purposes of the preceding sentence, the term "affiliated group" shall
have the same meaning as described in section 1504 of the internal
revenue code, except that the references to "at least eighty percent" in
such section 1504 shall be read as "more than fifty percent".
(j) Reports. The superintendent shall report to the governor, the
temporary president of the senate, and the speaker of the assembly, on
or before June first of each year beginning in the year two thousand,
the number of certified capital companies holding certified capital; the
amount of certified capital invested in each certified capital company;
the cumulative amount that each certified capital company has invested
as of January first of the year two thousand and the cumulative total
each year thereafter; the cumulative amount that the investments of each
certified capital company have leveraged in terms of capital invested by
other sources of capital in qualified businesses at the same time or
subsequent to investments made by a certified capital company in such
businesses; the total amount of tax credits granted under this section
each year that credits have been awarded under this section and
subdivision (k) of section fifteen hundred eleven of this chapter; the
performance of each certified capital company with regard to the
requirements for recertification set forth in subdivision (c) of this
section; the classification of companies in which each certified capital
company has invested according to industrial sector and size of company;
the total gross number of jobs created by investments made by each
certified capital company using certified capital and the number of jobs
retained; the location of companies in which each certified capital
company has invested in a manner to indicate if the requirements for
qualified investments in qualified businesses located in empire zones
established pursuant to article eighteen-B of the general municipal law
set forth for programs three, four and five and in underserved areas
outside such empire zones have been met; the total gross number of jobs
created in empire zones established pursuant to article eighteen-B of
the general municipal law and in underserved areas outside such empire
zones made by each certified capital company using certified capital in
certified capital company programs three, four and five, reported by
geographic location of each empire zone and underserved area and the
number of jobs retained; and those certified capital companies that have
been decertified, or have had their certifications revoked, including
the reasons for decertification or revocation.
(k) Rules and regulations. The superintendent, in consultation with
the department of taxation and finance, shall prescribe such rules and
regulations as he or she shall deem necessary in order to implement the
provisions of this section within one hundred twenty days of the
effective date of this section.
(l) For the purposes of this section, the term "empire zone" shall
also include, in relation to investments made by a certified capital
company in which at least fifty percent of the voting stock, capital,
and membership interests, as the case may be, are owned by an entity
that is managed directly or indirectly, by a non-profit corporation, the
liberty zone as defined in section one of part AA of chapter three
hundred eighty-three of the laws of two thousand one, the resurgence
zone as defined in section one of part A of chapter three hundred
eighty-three of the laws of two thousand one and a federal empowerment
zone designated pursuant to section 1391 of the internal revenue code.
Last modified: September 7, 2006 |