80C68(2) DLF

 

CHAPTER 228. PREMIUM TAX CREDIT FOR CERTAIN INVESTMENTS

SUBCHAPTER A. GENERAL PROVISIONS

Revised Law

Sec. 228.001.  GENERAL DEFINITIONS.  In this chapter:

(1)  "Allocation date" means the date on which certified investors are allocated premium tax credits.

(2)  "Certified capital" means cash invested by a certified investor that fully funds the purchase price of an equity interest in a certified capital company or a qualified debt instrument issued by the company.

(3)  "Certified capital company" means a partnership, corporation, or trust or limited liability company, whether organized on a profit or nonprofit basis, that:

(A)  has as the company's primary business activity the investment of cash in qualified businesses; and

(B)  is certified as meeting the criteria of this chapter.

(4)  "Certified investor" means an insurer or other person that has state premium tax liability and that contributes certified capital pursuant to a premium tax credit allocation under this chapter.

(5)  "Early stage business" means a business described by Section 228.152.

(6)  "Person" means an individual or entity, including a corporation, general or limited partnership, or trust or limited liability company.

(7)  "Premium tax credit allocation claim" means a claim for allocation of premium tax credits.

(8)  "Qualified business" means a business described by Section 228.201.

(9)  "Qualified debt instrument" means a debt instrument issued by a certified capital company, at par value or a premium, that:

(A)  has an original maturity date that is a date on or after the fifth anniversary of the date of issuance;

(B)  has a repayment schedule that is not faster than a level principal amortization over five years; and

(C)  does not have interest, distribution, or payment features that are related to:

(i)  the profitability of the company; or

(ii)  the performance of the company's investment portfolio.

(10)  "Qualified investment" means the investment of cash by a certified capital company in a qualified business for the purchase of any debt, debt participation, equity, or hybrid security of any nature or description, including a debt instrument or security that has the characteristics of debt but that provides for conversion into equity or equity participation instruments such as options or warrants.

(11)  "State premium tax liability" means:

(A)  any liability incurred by any person under Chapter 221, 222, 223, or 224; or

(B)  if the tax liability imposed under Chapter 221, 222, 223, or 224 is eliminated or reduced, any tax liability imposed on an insurer or other person that had premium tax liability under Subchapter A, Chapter 4, or Article 9.59 as those laws existed on January 1, 2003.

(12)  "Strategic investment business" means a business described by Section 228.153(2). (V.T.I.C. Art. 4.51, Subdivs. (2), (3), (4), (5), (6) (part), (7), (8), (9) (part), (10), (12), (13), (15) (part).)

Source Law

Art. 4.51.  In this subchapter:

(2)  "Allocation date" means the date on which the certified investors of a certified capital company are allocated premium tax credits by the comptroller under this subchapter.

(3)  "Certified capital" means an investment of cash by a certified investor in a certified capital company that fully funds the purchase price of an equity interest in the company or a qualified debt instrument issued by the certified capital company.

(4)  "Certified capital company" means a partnership, corporation, or trust or limited liability company, whether organized on a profit or not-for-profit basis, that has as its primary business activity the investment of cash in qualified businesses and that is certified as meeting the criteria of this subchapter.

(5)  "Certified investor" means an insurance company or other person that has state premium tax liability and that contributes certified capital pursuant to an allocation of premium tax credits under this subchapter.

(6)  "Early stage business" means … .

(7)  "Person" means a natural person or entity, including a corporation, general or limited partnership, or trust or limited liability company.

(8)  "Premium tax credit allocation claim" means a claim for allocation of premium tax credits.

(9)  "Qualified business" means … .

(10)  "Qualified debt instrument" means a debt instrument issued by a certified capital company, at par value or a premium, that:

(A)  has an original maturity date of at least five years after the date of issuance;

(B)  has a repayment schedule that is not faster than a level principal amortization over five years; and

(C)  has no interest, distribution, or payment features that are related to the profitability of the certified capital company or the performance of the certified capital company's investment portfolio.

(12)  "Qualified investment" means the investment of cash by a certified capital company in a qualified business for the purchase of any debt, debt participation, equity, or hybrid security of any nature or description, including a debt instrument or security that has the characteristics of debt but that provides for conversion into equity or equity participation instruments such as options or warrants.

(13)  "State premium tax liability" means:

(A)  any liability incurred by any person under Chapter 221, 222, 223, or 224 of this code; or

(B)  if the tax liability imposed under Chapter 221, 222, 223, or 224 of this code is eliminated or reduced, any tax liability imposed on an insurance company or other person that had premium tax liability under Subchapter A of this chapter or Article 9.59 of this code as those laws existed on January 1, 2003.

(15)  "Strategic investment business" means … .

Revisor's Note

(1)  Subdivision (2), V.T.I.C. Article 4.51, provides that the allocation date is the date on which the certified investors of "a certified capital company" are allocated premium tax credits "by the comptroller under this subchapter." The revised law omits the quoted language as unnecessary because the language duplicates the provisions of Subchapter B, V.T.I.C. Chapter 4, that are revised as Subchapter F of this chapter and that govern the allocation of premium tax credits.  The revised law also omits "a certified capital company" as unnecessary because to be considered a certified investor a person must invest cash in a certified capital company.

(2)  Subdivisions (5) and (13), V.T.I.C. Article 4.51, refer to "an insurance company."  Throughout this chapter, the revised law substitutes "insurer" for "insurance company" because, in this context, the terms are synonymous and "insurer" is the term more consistently used in Subtitle B, Title 3, Insurance Code, with reference to insurance premium taxes.

(3)  Subdivision (7), V.T.I.C. Article 4.51, refers to a "natural person." The revised law substitutes "individual" for "natural person" for consistency with the terminology used in this code.

Revised Law

Sec. 228.002.  DEFINITION OF AFFILIATE.  In this chapter, "affiliate" of another person means:

(1)  a person that is an affiliate for purposes of Section 823.003;

(2)  a person that directly or indirectly:

(A)  beneficially owns 10 percent or more of the outstanding voting securities or other voting or management interests of the other person, whether through rights, options, convertible interests, or otherwise; or

(B)  controls or holds power to vote 10 percent or more of the outstanding voting securities or other voting or management interests of the other person;

(3)  a person 10 percent or more of the outstanding voting securities or other voting or management interests of which are directly or indirectly:

(A)  beneficially owned by the other person, whether through rights, options, convertible interests, or otherwise; or

(B)  controlled or held with power to vote by the other person;

(4)  a partnership in which the other person is a general partner;

(5)  an officer, director, employee, or agent of the other person; or

(6)  an immediate family member of an officer, director, employee, or agent described by Subdivision (5). (V.T.I.C. Art. 4.51, Subdiv. (1).)

Source Law

Art. 4.51.  In this subchapter:

(1)  "Affiliate" of another person means:

(A)  a person who is an affiliate for purposes of Section 2, Article 21.49-1 of this code;

(B)  a person who directly or indirectly:

(i)  beneficially owns 10 percent or more of the outstanding voting securities or other voting or management interests of the other person, whether through rights, options, convertible interests, or otherwise; or

(ii)  controls or holds power to vote 10 percent or more of the outstanding voting securities or other voting or management interests of the other person;

(C)  a person 10 percent or more of the outstanding voting securities or other voting or management interests of which are directly or indirectly:

(i)  beneficially owned by the other person, whether through rights, options, convertible interests, or otherwise; or

(ii)  controlled or held with power to vote by the other person;

(D)  a partnership in which the other person is a general partner; or

(E)  an officer, director, employee, or agent of the other person, or an immediate family member of the officer, director, employee, or agent.

[Sections 228.003-228.050 reserved for expansion]

SUBCHAPTER B. ADMINISTRATION AND PROMOTION

Revised Law

Sec. 228.051.  ADMINISTRATION BY COMPTROLLER.  The comptroller shall administer this chapter. (V.T.I.C. Art. 4.52 (part).)

Source Law

Art. 4.52.  The comptroller shall administer this subchapter and … .

Revised Law

Sec. 228.052.  RULES; FORMS.  The comptroller shall adopt rules and forms as necessary to implement this chapter, including rules that:

(1)  establish the application procedures for certified capital companies; and

(2)  facilitate the transfer or assignment of premium tax credits by certified investors.  (V.T.I.C. Art. 4.52 (part); Art. 4.53, Sec. (a); Art. 4.71, Sec. (a) (part).)

Source Law

Art. 4.52.  The comptroller … shall adopt rules and forms as necessary to implement this subchapter… .

Art. 4.53.  (a)  The comptroller by rule shall establish the application procedures for certified capital companies.

Art. 4.71.  (a)  The comptroller shall adopt rules to facilitate the transfer or assignment of premium tax credits by certified investors… .

Revisor's Note

V.T.I.C. Article 4.52 provides that certain actions must occur not later than a specified number of days after the enactment of rules under that article by the comptroller.  The revised law omits those portions of Article 4.52 as executed. The comptroller adopted the relevant rule, Rule 3.833, Title 34, Texas Administrative Code.  The rule became effective January 23, 2005, and the dates specified by Article 4.52 have passed.  The omitted law reads:

Art. 4.52… . The rules must provide that:

(1)  the comptroller shall begin accepting applications for certification as a certified capital company not later than the 30th day after the date the rules are adopted; and

(2)  the comptroller shall accept premium tax credit allocation claims on behalf of certified investors on a date not later than the 120th day after the date the rules are adopted.

Revised Law

Sec. 228.053.  REPORT TO LEGISLATURE.  (a)  The comptroller shall prepare a biennial report concerning the results of the implementation of this chapter.  The report must include:

(1)  the number of certified capital companies holding certified capital;

(2)  the amount of certified capital invested in each certified capital company;

(3)  the amount of certified capital the certified capital company invested in qualified businesses as of January 1, 2006, and the cumulative total for each subsequent year;

(4)  the total amount of tax credits granted under this chapter for each year that credits have been granted;

(5)  the performance of each certified capital company with respect to renewal and reporting requirements imposed under this chapter;

(6)  with respect to the qualified businesses in which certified capital companies have invested:

(A)  the classification of the qualified businesses according to the industrial sector and size of the business;

(B)  the total number of jobs created by the investment and the average wages paid for the jobs; and

(C)  the total number of jobs retained as a result of the investment and the average wages paid for the jobs; and

(7)  the certified capital companies that have been decertified or that have failed to renew the certification and the reason for any decertification.

(b)  The comptroller shall file the report with the governor, the lieutenant governor, and the speaker of the house of representatives not later than December 15 of each even-numbered year.  (V.T.I.C. Art. 4.73.)

Source Law

Art. 4.73.  (a)  The comptroller shall prepare a biennial report with respect to results of the implementation of this subchapter.  The report must include:

(1)  the number of certified capital companies holding certified capital;

(2)  the amount of certified capital invested in each certified capital company;

(3)  the amount of certified capital the certified capital company has invested in qualified businesses as of January 1, 2006, and the cumulative total for each subsequent year;

(4)  the total amount of tax credits granted under this subchapter for each year that credits have been granted;

(5)  the performance of each certified capital company with respect to renewal and reporting requirements imposed under this subchapter;

(6)  with respect to the qualified businesses in which certified capital companies have invested:

(A)  the classification of the qualified businesses according to the industrial sector and the size of the business;

(B)  the total number of jobs created by the investment and the average wages paid for the jobs; and

(C)  the total number of jobs retained as a result of the investment and the average wages paid for the jobs; and

(7)  the certified capital companies that have been decertified or that have failed to renew the certification and the reason for any decertification.

(b)  The comptroller shall file the report with the governor, the lieutenant governor, and the speaker of the house of representatives not later than December 15 of each even-numbered year.

Revised Law

Sec. 228.054.  PROMOTION OF PROGRAM.  The Texas Economic Development and Tourism Office shall promote the program established under this chapter in the Texas Business and Community Economic Development Clearinghouse.  (V.T.I.C. Art. 4.72.)

Source Law

Art. 4.72.  The Texas Department of Economic Development shall promote the program established under this subchapter in the Texas Business and Community Economic Development Clearinghouse.

Revisor's Note

V.T.I.C. Article 4.72 refers to the Texas Department of Economic Development.  The department was abolished effective September 1, 2003, and the functions of the department were transferred to the Texas Economic Development and Tourism Office.  Section 1.66, Chapter 814, Acts of the 78th Legislature, Regular Session, 2003, provides that a reference in law to the department means the office.  The revised law is drafted accordingly.

[Sections 228.055-228.100 reserved for expansion]

SUBCHAPTER C.  APPLICATION FOR AND GENERAL OPERATION OF CERTIFIED CAPITAL COMPANIES

Revised Law

Sec. 228.101.  APPLICATION FOR CERTIFICATION.  (a)  An applicant for certification must file the application in the form prescribed by the comptroller.  The application must be accompanied by a nonrefundable application fee of $7,500.

(b)  The application must include an audited balance sheet of the applicant, with an unqualified opinion from an independent certified public accountant, as of a date not more than 35 days before the date of the application.  (V.T.I.C. Art. 4.53, Sec. (b).)

Source Law

(b)  An applicant must file an application in the form prescribed by the comptroller accompanied by a nonrefundable application fee of $7,500.  The application must include an audited balance sheet of the applicant, with an unqualified opinion from an independent certified public accountant, as of a date not more than 35 days before the date of the application.

Revised Law

Sec. 228.102.  QUALIFICATION.  To qualify as a certified capital company:

(1)  the applicant must have, at the time of application for certification, an equity capitalization of at least $500,000 in unencumbered cash or cash equivalents;

(2)  at least two principals or persons employed to manage the funds of the applicant must have at least four years of experience in the venture capital industry; and

(3)  the applicant must satisfy any additional requirement imposed by the comptroller by rule.  (V.T.I.C. Art. 4.53, Sec. (c).)

Source Law

(c)  To qualify as a certified capital company:

(1)  the applicant must have, at the time of application for certification, an equity capitalization of at least $500,000 in the form of unencumbered cash or cash equivalents;

(2)  at least two principals or persons employed to manage the funds of the applicant must have at least four years of experience in the venture capital industry; and

(3)  the applicant must satisfy any additional requirement imposed by the comptroller by rule.

Revised Law

Sec. 228.103.  MANAGEMENT BY AND CERTAIN OWNERSHIP INTERESTS OF INSURANCE ENTITIES PROHIBITED.  (a)  An insurer, group of insurers, or other persons who may have state premium tax liability or the insurer's or person's affiliates may not directly or indirectly:

(1)  manage a certified capital company;

(2)  beneficially own, whether through rights, options, convertible interests, or otherwise, more than 10 percent of the outstanding voting securities of a certified capital company; or

(3)  control the direction of investments for a certified capital company.

(b)  Subsection (a) applies without regard to whether the insurer or other person or the affiliate of the insurer or other person is authorized by or engages in business in this state.

(c)  Subsections (a) and (b) do not preclude an insurer, certified investor, or any other party from exercising its legal rights and remedies, including interim management of a certified capital company, if authorized by law, with respect to a certified capital company that is in default of the company's statutory or contractual obligations to the insurer, certified investor, or other party.

(d)  This chapter does not limit an insurer's ownership of nonvoting equity interests in a certified capital company.  (V.T.I.C. Art. 4.54; Art. 4.56, Sec. (d).)

Source Law

Art. 4.54.  (a)  An insurance company, group of insurance companies, or other persons who may have state premium tax liability or the affiliates of the insurance companies or other persons may not, directly or indirectly:

(1)  manage a certified capital company;

(2)  beneficially own, whether through rights, options, convertible interests, or otherwise, more than 10 percent of the outstanding voting securities of a certified capital company; or

(3)  control the direction of investments for a certified capital company.

(b)  Subsection (a) of this article applies without regard to whether the insurance company or other person or the affiliate of the insurance company or other person is licensed by or transacts business in this state.

(c)  This article does not preclude a certified investor, insurance company, or any other party from exercising its legal rights and remedies, including interim management of a certified capital company, if authorized by law, with respect to a certified capital company that is in default of its statutory or contractual obligations to the certified investor, insurance company, or other party.

[Art. 4.56]

(d)  Nothing in this subchapter shall limit an insurance company's ownership of nonvoting equity interests in a certified capital company.

Revisor's Note

Section (b), V.T.I.C. Article 4.54, refers to an insurer or other person that is licensed by or transacting business in this state.  The revised law substitutes "authorized" for "licensed" for consistency of terminology throughout this code.

Revised Law

Sec. 228.104.  ACTION ON APPLICATION.  (a)  The comptroller shall:

(1)  review the application, organizational documents, and business history of each applicant; and

(2)  ensure that the applicant satisfies the requirements of this chapter.

(b)  Not later than the 30th day after the date an application is filed, the comptroller shall:

(1)  issue the certification; or

(2)  refuse to issue the certification and communicate in detail to the applicant the grounds for the refusal, including suggestions for the removal of those grounds.  (V.T.I.C. Art. 4.53, Secs. (d), (e).)

Source Law

(d)  The comptroller shall review the application, organizational documents, and business history of each applicant and shall ensure that the applicant satisfies the requirements of this subchapter.

(e)  Not later than the 30th day after the date an application is filed, the comptroller shall:

(1)  issue the certification; or

(2)  refuse to issue the certification and communicate in detail to the applicant the grounds for the refusal, including suggestions for the removal of those grounds.

Revised Law

Sec. 228.105.  CONTINUATION OF CERTIFICATION.  To continue to be certified, a certified capital company must make qualified investments according to the schedule established by Section 228.151.  (V.T.I.C. Art. 4.56, Sec. (a) (part).)

Source Law

Art. 4.56.  (a)  To continue to be certified, a certified capital company shall make qualified investments according to the following schedule:

…

Revised Law

Sec. 228.106.  REPORTS TO COMPTROLLER; AUDITED FINANCIAL STATEMENT.  (a)  Each certified capital company shall report to the comptroller as soon as practicable after the receipt of certified capital:

(1)  the name of each certified investor from whom the certified capital was received, including the certified investor's insurance premium tax identification number;

(2)  the amount of each certified investor's investment of certified capital and premium tax credits; and

(3)  the date on which the certified capital was received.

(b)  Not later than January 31 of each year, each certified capital company shall report to the comptroller:

(1)  the amount of the company's certified capital at the end of the preceding year;

(2)  whether or not the company has invested more than 15 percent of the company's total certified capital in a single business;

(3)  each qualified investment that the company made during the preceding year and, with respect to each qualified investment, the number of employees of the qualified business at the time the qualified investment was made; and

(4)  any other information required by the comptroller, including any information required by the comptroller to comply with Section 228.053.

(c)  Not later than April 1 of each year, each certified capital company shall provide to the comptroller an annual audited financial statement that includes the opinion of an independent certified public accountant.  The audit must address the methods of operation and conduct of the business of the company to determine whether:

(1)  the company is complying with this chapter and the rules adopted under this chapter;

(2)  the funds received by the company have been invested as required within the time provided by Section 228.151; and

(3)  the company has invested the funds in qualified businesses.  (V.T.I.C. Art. 4.58.)

Source Law

Art. 4.58.  (a)  Each certified capital company shall report to the comptroller as soon as practicable after the receipt of certified capital:

(1)  the name of each certified investor from whom the certified capital was received, including the certified investor's insurance premium tax identification number;

(2)  the amount of each certified investor's investment of certified capital and premium tax credits; and

(3)  the date on which the certified capital was received.

(b)  Not later than January 31 of each year, each certified capital company shall report to the comptroller:

(1)  the amount of the company's certified capital at the end of the preceding year;

(2)  whether or not the company has invested more than 15 percent of its total certified capital in any one business;

(3)  each qualified investment that the company made during the preceding year and, with respect to each qualified investment, the number of employees of the qualified business at the time the qualified investment was made; and

(4)  any other information required by the comptroller, including any information required by the comptroller to comply with Article 4.73 of this code.

(c)  Not later than April 1 of each year, the company shall provide to the comptroller an annual audited financial statement that includes the opinion of an independent certified public accountant.  The audit shall address the methods of operation and conduct of the business of the company to determine whether:

(1)  the company is complying with this subchapter and the rules adopted under this subchapter;

(2)  the funds received by the company have been invested as required within the time provided by Article 4.56(a) of this code; and

(3)  the company has invested the funds in qualified businesses.

Revised Law

Sec. 228.107.  RENEWAL FEE; LATE FEE; EXCEPTION.  (a)  Not later than January 31 of each year, each certified capital company shall pay a nonrefundable renewal fee of $5,000 to the comptroller.

(b)  If a certified capital company fails to pay the renewal fee on or before the date specified by Subsection (a), the company must pay, in addition to the renewal fee, a late fee of $5,000 to continue the company's certification.

(c)  A renewal fee is not required within six months of the date on which a certified capital company's initial certification is issued under Section 228.104(b). (V.T.I.C. Art. 4.59.)

Source Law

Art. 4.59.  (a)  Not later than January 31 of each year, each certified capital company shall pay a nonrefundable renewal fee of $5,000 to the comptroller.  If a certified capital company fails to pay its renewal fee on or before that date, the company must pay, in addition to the renewal fee, a late fee of $5,000 to continue its certification.

(b)  Notwithstanding Subsection (a) of this article, a renewal fee is not required within six months of the date on which the company's certification is issued under Article 4.53 of this code.

Revisor's Note

V.T.I.C. Article 4.59 refers to "the date on which the company's certification is issued under Article 4.53." The relevant provision of V.T.I.C. Article 4.53 is revised as Section 228.104(b), and the revised law is drafted accordingly.

Revised Law

Sec. 228.108.  OFFERING MATERIAL USED BY CERTIFIED CAPITAL COMPANY.  Any offering material involving the sale of securities of the certified capital company must include the following statement:

By authorizing the formation of a certified capital company, the State of Texas does not endorse the quality of management or the potential for earnings of the company and 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 comptroller of public accounts.  If applicable provisions of law are violated, the State of Texas may require forfeiture of unused premium tax credits and repayments of used premium tax credits. (V.T.I.C. Art. 4.55.)

Source Law

Art. 4.55.  Any offering material involving the sale of securities of the certified capital company must include the following statement:

By authorizing the formation of a certified capital company, the State of Texas does not endorse the quality of management or the potential for earnings of the company and 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 comptroller of public accounts.  If applicable provisions of law are violated, the State of Texas may require forfeiture of unused premium tax credits and repayments of used premium tax credits.

[Sections 228.109-228.150 reserved for expansion]

SUBCHAPTER D.  INVESTMENT BY CERTIFIED CAPITAL COMPANIES

Revised Law

Sec. 228.151.  SCHEDULE OF INVESTMENT.  (a)  Before the third anniversary of a certified capital company's allocation date, the company must make qualified investments in an amount cumulatively equal to at least 30 percent of the company's certified capital, subject to Section 228.153(b).

(b)  Before the fifth anniversary of a certified capital company's allocation date, the company must make qualified investments in an amount cumulatively equal to at least 50 percent of the company's certified capital, subject to Sections 228.152(b) and 228.153(b). (V.T.I.C. Art. 4.56, Sec. (a) (part).)

Source Law

(a)  [To continue to be certified, a certified capital company shall make qualified investments according to the following schedule:]

(1)  before the third anniversary of its allocation date, a company must have made qualified investments in an amount cumulatively equal to at least 30 percent of its certified capital; and

(2)  before the fifth anniversary of its allocation date, a company must have made qualified investments in an amount cumulatively equal to at least 50 percent of its certified capital, subject to Subsection (b) of this article.

Revisor's Note

Section (a)(1), V.T.I.C. Article 4.56, provides that a certified capital company must make certain investments.  That requirement is subject to the terms of the portion of Section (b), V.T.I.C.  Article 4.56, revised in this chapter as Section 228.153(b).  A reference to that section is added for accuracy and for the convenience of the reader.

Revised Law

Sec. 228.152.  INVESTMENT IN EARLY STAGE BUSINESS REQUIRED.  (a)  In this section, "early stage business" means a qualified business that:

(1)  is involved, at the time of a certified capital company's first 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;

(2)  was initially organized less than two years before the date of the certified capital company's first investment; or

(3)  during the fiscal year immediately preceding the year of the certified capital company's first investment had, on a consolidated basis with the business's affiliates, gross revenues of not more than $2 million as determined in accordance with generally accepted accounting principles.

(b)  A certified capital company must place at least 50 percent of the amount of qualified investments required by Section 228.151(b) in early stage businesses.  (V.T.I.C. Art. 4.51, Subdiv. (6); Art. 4.56, Sec. (b) (part).)

Source Law

Art. 4.51.  In this subchapter:

(6)  "Early stage business" means a qualified business that satisfies at least one of the following criteria:

(A)  is involved, at the time of a certified capital company's first 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;

(B)  was initially organized less than two years before the date of the certified capital company's first investment; or

(C)  during the fiscal year immediately preceding the year of the certified capital company's first investment had, on a consolidated basis with its affiliates, gross revenues of not more than $2 million as determined in accordance with generally accepted accounting principles.

[Art. 4.56]

(b)  At least 50 percent of the amount of qualified investments required by Subsection (a)(2) of this article must be placed in early stage businesses… .

Revised Law

Sec. 228.153.  INVESTMENT IN STRATEGIC INVESTMENT BUSINESS REQUIRED.  (a)  In this section:

(1)  "Strategic investment area" means an area of this state that qualifies as a strategic investment area under Subchapter O, Chapter 171, Tax Code, or, after the date that subchapter expires, an area that qualified as a strategic investment area under that subchapter immediately before that date.

(2)  "Strategic investment business" means a qualified business that:

(A)  has the business's principal business operations located in one or more strategic investment areas; and

(B)  intends to maintain business operations in the strategic investment areas after receipt of the investment by the certified capital company.

(b)  A certified capital company must place at least 30 percent of the amount of qualified investments required by Sections 228.151(a) and (b) in a strategic investment business.  (V.T.I.C. Art. 4.51, Subdivs. (14), (15); Art. 4.56, Sec. (b) (part).)

Source Law

Art. 4.51.  In this subchapter:

(14)  "Strategic investment area" means an area of this state that qualifies as a strategic investment area under Subchapter O, Chapter 171, Tax Code, or, after the expiration of that subchapter, an area that qualified as a strategic investment area under that subchapter immediately before its expiration.

(15)  "Strategic investment business" means a qualified business that has its principal business operations located in one or more strategic investment areas and intends to maintain business operations in the strategic investment areas after receipt of the investment by the certified capital company.

[Art. 4.56]

(b)  …  At least 30 percent of the amount of qualified investments required by Subsections (a)(1) and (2) of this article must be placed in a strategic investment business.

Revised Law

Sec. 228.154.  CERTIFIED CAPITAL NOT INVESTED IN QUALIFIED INVESTMENTS.  A certified capital company shall invest any certified capital not invested in qualified investments only in:

(1)  cash deposited with a federally insured financial institution;

(2)  certificates of deposit in a federally insured financial institution;

(3)  investment securities that are:

(A)  obligations of the United States or agencies or instrumentalities of the United States; or

(B)  obligations that are guaranteed fully as to principal and interest by the United States;

(4)  debt instruments rated at least "A" or the equivalent by a nationally recognized credit rating organization, or issued by, or guaranteed with respect to payment by, an entity whose unsecured indebtedness is rated at least "A" or the equivalent by a nationally recognized credit rating organization, and which indebtedness is not subordinated to other unsecured indebtedness of the issuer or the guarantor;

(5)  obligations of this state or a municipality or political subdivision of this state; or

(6)  any other investment approved in advance in writing by the comptroller. (V.T.I.C. Art. 4.56, Sec. (h).)

Source Law

(h)  A certified capital company shall invest any certified capital not invested in qualified investments only in the following:

(1)  cash deposited with a federally insured financial institution;

(2)  certificates of deposit in a federally insured financial institution;

(3)  investment securities that are obligations of the United States or its agencies or instrumentalities or obligations that are guaranteed fully as to principal and interest by the United States;

(4)  debt instruments rated at least "A" or its equivalent by a nationally recognized credit rating organization, or issued by, or guaranteed with respect to payment by, an entity whose unsecured indebtedness is rated at least "A" or its equivalent by a nationally recognized credit rating organization, and which indebtedness is not subordinated to other unsecured indebtedness of the issuer or the guarantor;

(5)  obligations of this state or any municipality or political subdivision of this state; or

(6)  any other investments approved in advance and in writing by the comptroller.

Revised Law

Sec. 228.155.  COMPUTATION OF AMOUNT OF INVESTMENTS.  (a)  The aggregate cumulative amount of all qualified investments made by a certified capital company after the company's allocation date shall be considered in the computation of the percentage requirements under this subchapter.

(b)  A certified capital company may invest proceeds received from a qualified investment in another qualified investment, and that investment counts toward any requirement of this chapter with respect to investments of certified capital. (V.T.I.C. Art. 4.56, Sec. (c).)

Source Law

(c)  The aggregate cumulative amount of all qualified investments made by the certified capital company after its allocation date shall be considered in the computation of the percentage requirements under this subchapter.  Any proceeds received from a qualified investment may be invested in another qualified investment and count toward any requirement in this subchapter with respect to investments of certified capital.

Revisor's Note

Section (c), V.T.I.C. Article 4.56, refers to "the percentage requirements under this subchapter," meaning Subchapter B, Chapter 4, Insurance Code, revised as this chapter.  The relevant percentage requirements are revised in this subchapter, and the revised law is drafted accordingly.

Revised Law

Sec. 228.156.  LIMIT ON QUALIFIED INVESTMENT.  A certified capital company may not make a qualified investment at a cost to the company that is greater than 15 percent of the company's total certified capital at the time of investment. (V.T.I.C. Art. 4.56, Sec. (f).)

Source Law

(f)  A qualified investment may not be made at a cost to a certified capital company greater than 15 percent of the total certified capital of the company at the time of investment.

Revised Law

Sec. 228.157.  DISTRIBUTIONS BY CERTIFIED CAPITAL COMPANY.  (a)  In this section, "qualified distribution" means any distribution or payment from certified capital by a certified capital company in connection with:

(1)  the reasonable costs and expenses of forming, syndicating, managing, and operating the company, provided that the distribution or payment is not made directly or indirectly to a certified investor, including:

(A)  reasonable and necessary fees paid for professional services, including legal and accounting services, related to the company's formation and operation; and

(B)  an annual management fee in an amount that does not exceed 2.5 percent of the company's certified capital; and

(2)  a projected increase in federal or state taxes, including penalties and interest related to state and federal income taxes, of the company's equity owners resulting from the earnings or other tax liability of the company to the extent that the increase is related to the ownership, management, or operation of the company.

(b)  A certified capital company may make a qualified distribution at any time.  To make a distribution or payment other than a qualified distribution, a company must have made qualified investments in an amount cumulatively equal to 100 percent of the company's certified capital.

(c)  If a business in which a qualified investment is made relocates the business's principal business operations to another state during the term of the certified capital company's investment in the business, the cumulative amount of qualified investments made by the certified capital company for purposes of satisfying the requirements of Subsection (b) only is reduced by the amount of the certified capital company's qualified investments in the business that has relocated.

(d)  Subsection (c) does not apply if the business demonstrates that the business has returned the business's principal business operations to this state not later than the 90th day after the date of the relocation. (V.T.I.C. Art. 4.51, Subdiv. (11); Art. 4.60, Secs. (a), (c).)

Source Law

Art. 4.51.  In this subchapter:

(11)  "Qualified distribution" means any distribution or payment from certified capital by a certified capital company in connection with:

(A)  the reasonable costs and expenses of forming, syndicating, managing, and operating the company, provided that the distribution or payment is not made directly or indirectly to a certified investor, including:

(i)  reasonable and necessary fees paid for professional services, including legal and accounting services, related to the formation and operation of the company; and

(ii)  an annual management fee in an amount that does not exceed two and one-half percent of the certified capital of the company; and

(B)  any projected increase in federal or state taxes, including penalties and interest related to state and federal income taxes, of the equity owners of the company resulting from the earnings or other tax liability of the company to the extent that the increase is related to the ownership, management, or operation of the company.

Art. 4.60.  (a)  A certified capital company may make a qualified distribution at any time.  To make a distribution or payment, other than a qualified distribution, a company must have made qualified investments in an amount cumulatively equal to 100 percent of its certified capital.

(c)  If a business in which a qualified investment is made relocates its principal business operations to another state during the term of the certified capital company's investment in the business, the cumulative amount of qualified investments made by the certified capital company for purposes of satisfying the requirements of Subsection (a) of this article only is reduced by the amount of the certified capital company's qualified investments in the business that has relocated.  This subsection does not apply if the business demonstrates that it has returned its principal business operations to this state not later than the 90th day after the date of its relocation.

Revised Law

Sec. 228.158.  REPAYMENT OF DEBT.  Notwithstanding Section 228.157(b), a certified capital company may make repayments of principal and interest on the company's indebtedness without any restriction, including repaying the company's indebtedness on which certified investors earned premium tax credits.  (V.T.I.C. Art. 4.60, Sec. (b).)

Source Law

(b)  Notwithstanding Subsection (a) of this article, a company may make repayments of principal and interest on its indebtedness without any restriction, including repayments of indebtedness of the company on which certified investors earned premium tax credits.

[Sections 228.159-228.200 reserved for expansion]

SUBCHAPTER E.  QUALIFIED BUSINESS

Revised Law

Sec. 228.201.  DEFINITION OF QUALIFIED BUSINESS.  (a)  In this chapter, "qualified business" means a business that complies with this section at the time of a certified capital company's first investment in the business.

(b)  A qualified business must:

(1)  be headquartered in this state and intend to remain in this state after receipt of the certified capital company's investment; and

(2)  have the business's principal business operations located in this state and intend to maintain business operations in this state after receipt of the certified capital company's investment.

(c)  A qualified business must agree to use the qualified investment primarily to:

(1)  support business operations in this state, other than advertising, promotion, and sales operations which may be conducted outside of this state; or

(2)  in the case of a start-up company, establish and support business operations in this state, other than advertising, promotion, and sales operations which may be conducted outside of this state.

(d)  A qualified business may not have more than 100 employees and must:

(1)  employ at least 80 percent of the business's employees in this state; or

(2)  pay 80 percent of the business's payroll to employees in this state.

(e)  A qualified business must be primarily engaged in:

(1)  manufacturing, processing, or assembling products;

(2)  conducting research and development; or

(3)  providing services.

(f)  A qualified business may not be primarily engaged in:

(1)  retail sales;

(2)  real estate development;

(3)  the business of insurance, banking, or lending; or

(4)  the provision of professional services provided by accountants, attorneys, or physicians.  (V.T.I.C. Art. 4.51, Subdiv. (9).)

Source Law

Art. 4.51.  In this subchapter:

(9)  "Qualified business" means a business that, at the time of a certified capital company's first investment in the business:

(A)  is headquartered in this state and intends to remain in this state after receipt of the investment by the certified capital company;

(B)  has its principal business operations located in this state and intends to maintain business operations in this state after receipt of the investment by the certified capital company;

(C)  has agreed to use the qualified investment primarily to:

(i)  support business operations in this state, other than advertising, promotion, and sales operations which may be conducted outside of this state; or

(ii)  in the case of a start-up company, establish and support business operations in this state, other than advertising, promotion, and sales operations which may be conducted outside of this state;

(D)  has not more than 100 employees and:

(i)  employs at least 80 percent of its employees in this state; or

(ii)  pays 80 percent of its payroll to employees in this state;

(E)  is primarily engaged in:

(i)  manufacturing, processing, or assembling products;

(ii)  conducting research and development; or

(iii)  providing services; and

(F)  is not primarily engaged in:

(i)  retail sales;

(ii)  real estate development;

(iii)  the business of insurance, banking, or lending; or

(iv)  the provision of professional services provided by accountants, attorneys, or physicians.

Revised Law

Sec. 228.202.  LOCATION OF PRINCIPAL BUSINESS OPERATIONS.  If, before the 90th day after the date a certified capital company makes an investment in a qualified business, the qualified business moves the business's principal business operations from this state, the investment may not be considered a qualified investment for purposes of the percentage requirements under this chapter.  (V.T.I.C. Art. 4.56, Sec. (g).)

Source Law

(g)  If, before the 90th day after the date that a certified capital company makes an investment in a qualified business, the qualified business moves its principal business operations from this state, the investment may not be considered a qualified investment for purposes of the percentage requirements under this subchapter.

Revised Law

Sec. 228.203.  EVALUATION OF BUSINESS BY COMPTROLLER.  (a)  A certified capital company may, before making an investment in a business, request a written opinion from the comptroller as to whether the business in which the company proposes to invest is a qualified business, an early stage business, or a strategic investment business.

(b)  Not later than the 15th business day after the date of the receipt of a request under Subsection (a), the comptroller shall:

(1)  determine whether the business meets the definition of a qualified business, an early stage business, or a strategic investment business, as applicable, and notify the certified capital company of the determination and provide an explanation of the determination; or

(2)  notify the company that an additional 15 days will be needed to review the request and make the determination.

(c)  If the comptroller fails to notify the certified capital company with respect to the proposed investment within the period specified by Subsection (b), the business in which the company proposes to invest is considered to be a qualified business, an early stage business, or a strategic investment business, as appropriate.  (V.T.I.C. Art. 4.57.)

Source Law

Art. 4.57.  (a)  A certified capital company may, before making an investment in a business, request from the comptroller a written opinion as to whether the business in which it proposes to invest is a qualified business, an early stage business, or a strategic investment business.

(b)  The comptroller shall, not later than the 15th business day after the date of the receipt of a request under Subsection (a) of this article, determine whether the business meets the definition of a qualified business, an early stage business, or a strategic investment business, as applicable, and notify the certified capital company of the determination and an explanation of its determination or notify the certified capital company that an additional 15 days will be needed to review and make the determination.

(c)  If the comptroller fails to notify the certified capital company with respect to the proposed investment within the period specified by Subsection (b) of this article, the business in which the company proposes to invest is considered to be a qualified business, early stage business, or a strategic investment business, as appropriate.

Revised Law

Sec. 228.204.  CONTINUATION OF CLASSIFICATION AS QUALIFIED BUSINESS; FOLLOW-ON INVESTMENTS AUTHORIZED.  (a)  A business that is classified as a qualified business at the time of the first investment in the business by a certified capital company:

(1)  remains classified as a qualified business; and

(2)  may receive follow-on investments from any certified capital company.

(b)  Except as provided by Subsection (c), a follow-on investment made under Subsection (a) is a qualified investment even though the business may not meet the definition of a qualified business at the time of the follow-on investment.

(c)  A follow-on investment does not qualify as a qualified investment if, at the time of the follow-on investment, the qualified business no longer has the business's principal business operations in this state.  (V.T.I.C. Art. 4.56, Sec. (e).)

Source Law

(e)  A business that is classified as a qualified business at the time of the first investment in the business by a certified capital company remains classified as a qualified business and may receive follow-on investments from any certified capital company.  Except as provided by this subsection, a follow-on investment made under this subsection is a qualified investment even though the business may not meet the definition of a qualified business at the time of the follow-on investment.  A follow-on investment does not qualify as a qualified investment if, at the time of the follow-on investment, the qualified business no longer has its principal business operations in this state.

[Sections 228.205-228.250 reserved for expansion]

SUBCHAPTER F.  PREMIUM TAX CREDIT

Revised Law

Sec. 228.251.  PREMIUM TAX CREDIT.  (a)  A certified investor who makes an investment of certified capital shall earn in the year of investment a vested credit against state premium tax liability equal to 100 percent of the certified investor's investment of certified capital, subject to the limits imposed by this chapter.

(b)  Beginning with the tax report due March 1, 2009, for the 2008 tax year, a certified investor may take up to 25 percent of the vested premium tax credit in any taxable year of the certified investor.  The credit may not be applied to estimated payments due in 2008.  (V.T.I.C. Art. 4.65, Sec. (a).)

Source Law

Art. 4.65.  (a)  A certified investor who makes an investment of certified capital shall in the year of investment earn a vested credit against state premium tax liability equal to 100 percent of the certified investor's investment of certified capital, subject to the limits imposed by this subchapter.  Beginning with the tax report due March 1, 2009, for the 2008 tax year, a certified investor may take up to 25 percent of the vested premium tax credit in any taxable year of the certified investor.  The credit may not be applied to estimated payments due in 2008.

Revised Law

Sec. 228.252.  LIMIT ON PREMIUM TAX CREDIT.  (a)  The credit to be applied against state premium tax liability of a certified investor in any one year may not exceed the state premium tax liability of the investor for the taxable year.

(b)  A certified investor may carry forward any unused credit against state premium tax liability indefinitely until the premium tax credits are used.  (V.T.I.C. Art. 4.65, Sec. (b).)

Source Law

(b)  The credit to be applied against state premium tax liability in any one year may not exceed the state premium tax liability of the certified investor for the taxable year.  Any unused credit against state premium tax liability may be carried forward indefinitely until the premium tax credits are used.

Revised Law

Sec. 228.253.  PREMIUM TAX CREDIT ALLOCATION CLAIM REQUIRED.  (a)  A certified investor must prepare and execute a premium tax credit allocation claim on a form provided by the comptroller.

(b)  The certified capital company must have filed the claim with the comptroller on the date on which the comptroller accepted premium tax credit allocation claims on behalf of certified investors under the comptroller's rules.

(c)  The premium tax credit allocation claim form must include an affidavit of the certified investor under which the certified investor becomes legally bound and irrevocably committed to make an investment of certified capital in a certified capital company in the amount allocated even if the amount allocated is less than the amount of the claim, subject only to the receipt of an allocation under Section 228.255.

(d)  A certified investor may not claim a premium tax credit under Section 228.251 for an investment that has not been funded, without regard to whether the certified investor has committed to fund the investment.  (V.T.I.C. Art. 4.66.)

Source Law

Art. 4.66.  (a)  A premium tax credit allocation claim must be prepared and executed by a certified investor on a form provided by the comptroller.  The certified capital company must file the claim with the comptroller on the date on which the comptroller accepts premium tax credit allocation claims on behalf of certified investors under rules adopted under Article 4.52(2) of this code.  The premium tax credit allocation claim form must include an affidavit of the certified investor under which the certified investor becomes legally bound and irrevocably committed to make an investment of certified capital in a certified capital company in the amount allocated even if the amount allocated is less than the amount of the claim, subject only to the receipt of an allocation under Article 4.68 of this code.

(b)  A certified investor may not claim a premium tax credit under Article 4.65 of this code for an investment that has not been funded, even if the certified investor has committed to fund the investment.

Revisor's Note

(1)  Section (a), V.T.I.C. Article 4.66, refers to "rules adopted under Article 4.52(2) of this code."  Subdivision (2), V.T.I.C. Article 4.52, required that the premium tax credit allocation claim forms be accepted on a date not later than the 120th day after the date the rules are adopted.  Section 3.833(g)(3) of those rules, effective January 23, 2005, provides that the "forms are due from each CAPCO not later than the 120th day after the date the CAPCO rule is adopted."  The revised law is drafted to reflect that the premium tax credit allocation claim form must already be filed to be effective.

(2)  Section (b), V.T.I.C. Article 4.66, refers to a claim for a premium tax credit under V.T.I.C. Article 4.65.  The relevant portion of that article is revised in this chapter as Section 228.251, and the revised law is drafted accordingly.

Revised Law

Sec. 228.254.  TOTAL LIMIT ON PREMIUM TAX CREDITS.  (a)  The total amount of certified capital for which premium tax credits may be allowed under this chapter for all years in which premium tax credits are allowed is $200 million.

(b)  The total amount of certified capital for which premium tax credits may be allowed for all certified investors under this chapter may not exceed the amount that would entitle all certified investors in certified capital companies to take total credits of $50 million in a year.

(c)  A certified capital company and the company's affiliates may not file premium tax credit allocation claims in excess of the maximum amount of certified capital for which premium tax credits may be allowed as provided by this section.  (V.T.I.C. Art. 4.67.)

Source Law

Art. 4.67.  (a)  The total amount of certified capital for which premium tax credits may be allowed under this subchapter for all years in which premium tax credits are allowed is $200 million.

(b)  The total amount of certified capital for which premium tax credits may be allowed for all certified investors under this subchapter may not exceed the amount that would entitle all certified investors in certified capital companies to take total credits of $50 million in a year.

(c)  A certified capital company and its affiliates may not file premium tax credit allocation claims in excess of the maximum amount of certified capital for which premium tax credits may be allowed as provided in this article.

Revised Law

Sec. 228.255.  ALLOCATION OF PREMIUM TAX CREDIT.  (a)  If the total premium tax credits claimed by all certified investors exceeds the total limits on premium tax credits established by Section 228.254(a), the comptroller shall allocate the total amount of premium tax credits allowed under this chapter to certified investors in certified capital companies on a pro rata basis in accordance with this section.

(b)  The pro rata allocation for each certified investor shall be the product of:

(1)  a fraction, the numerator of which is the amount of the premium tax credit allocation claim filed on behalf of the investor and the denominator of which is the total amount of all premium tax credit allocation claims filed on behalf of all certified investors; and

(2)  the total amount of certified capital for which premium tax credits may be allowed under this chapter.

(c)  The maximum amount of certified capital for which premium tax credit allocation may be allowed on behalf of a single certified investor and the investor's affiliates, whether by one or more certified capital companies, may not exceed the greater of:

(1)  $10 million; or

(2)  15 percent of the maximum aggregate amount available under Section 228.254(a).  (V.T.I.C. Art. 4.68, Secs. (a), (b), (e).)

Source Law

Art. 4.68.  (a)  If the total premium tax credits claimed by all certified investors exceeds the total limits on premium tax credits established by Article 4.67(a) of this code, the comptroller shall allocate the total amount of premium tax credits allowed under this subchapter to certified investors in certified capital companies on a pro rata basis in accordance with this article.

(b)  The pro rata allocation for each certified investor shall be the product of:

(1)  a fraction, the numerator of which is the amount of the premium tax credit allocation claim filed on behalf of the investor and the denominator of which is the total amount of all premium tax credit allocation claims filed on behalf of all certified investors; and

(2)  the total amount of certified capital for which premium tax credits may be allowed under this subchapter.

(e)  The maximum amount of certified capital for which premium tax credit allocation may be allowed on behalf of any one certified investor and its affiliates, whether by one or more certified capital companies, may not exceed the greater of:

(1)  $10 million; or

(2)  15 percent of the maximum aggregate amount available under Article 4.67(a) of this code.

Revisor's Note

Sections (c) and (d), V.T.I.C. Article 4.68, refer to certain actions that must occur within a specified period after the date on which the comptroller accepts premium allocation claims.  The revised law omits those provisions because, as noted in Revisor's Note (1) to Section 228.253, that date has passed and any action required under those provisions must have already taken place.  The omitted law reads:

(c)  Not later than the 15th day after the date on which the comptroller accepts premium tax credit allocation claims on behalf of certified investors under rules adopted under Article 4.52(2) of this code, the comptroller shall notify each certified capital company of the amount of tax credits allocated to each certified investor.  Each certified capital company shall notify each certified investor of their premium tax credit allocation.

(d)  If a certified capital company does not receive an investment of certified capital equaling the amount of premium tax credits allocated to a certified investor for which it filed a premium tax credit allocation claim before the end of the 10th business day after the date of receipt of notice of allocation, the company shall notify the comptroller by overnight common carrier delivery service and that portion of capital allocated to the certified investor shall be forfeited.  The comptroller shall reallocate the forfeited capital among the certified investors in the other certified capital companies that originally received an allocation so that the result after reallocation is the same as if the initial allocation under this article had been performed without considering the premium tax credit allocation claims that were subsequently forfeited.

Revised Law

Sec. 228.256.  TREATMENT OF CREDITS AND CAPITAL.  In any case under this code or another insurance law of this state in which the assets of a certified investor are examined or considered, the certified capital may be treated as an admitted asset,  subject to the applicable statutory valuation procedures.  (V.T.I.C. Art. 4.69.)

Source Law

Art. 4.69.  In any case under this code or another insurance law of this state in which the assets of a certified investor are examined or considered, the certified capital may be treated as an admitted asset, subject to the applicable statutory valuation procedures.

Revised Law

Sec. 228.257.  TRANSFERABILITY OF CREDIT.  (a)  A certified investor may transfer or assign premium tax credits only in compliance with the rules adopted under Section 228.052.

(b)  The transfer or assignment of a premium tax credit does not affect the schedule for taking the premium tax credit under this chapter.  (V.T.I.C. Art. 4.71, Secs. (a) (part), (b).)

Source Law

(a)  …  A certified investor may transfer or assign premium tax credits only in compliance with the rules adopted under this subsection.

(b)  The transfer or assignment of a premium tax credit does not affect the schedule for taking the premium tax credit under this subchapter.

Revised Law

Sec. 228.258.  IMPACT OF PREMIUM TAX CREDIT ON INSURANCE RATEMAKING.  A certified investor is not required to reduce the amount of premium tax included by the investor in connection with ratemaking for an insurance contract written in this state because of a reduction in the investor's premium tax derived from premium tax credits granted under this chapter.  (V.T.I.C. Art. 4.70.)

Source Law

Art. 4.70.  A certified investor is not required to reduce the amount of premium tax included by the investor in connection with ratemaking for any insurance contract written in this state because of a reduction in the investor's Texas premium tax derived from the credit granted under this subchapter.

Revised Law

Sec. 228.259.  RETALIATORY TAX.  A certified investor claiming a credit against state premium tax liability earned through an investment in a company is not required to pay any additional retaliatory tax levied under Chapter 281 as a result of claiming that credit.  (V.T.I.C. Art. 4.65, Sec. (c) (part).)

Source Law

(c)  A certified investor claiming a credit against state premium tax liability earned through an investment in a company is not required to pay any additional retaliatory tax levied under Article 21.46 of this code as a result of claiming that credit.  …

Revisor's Note

Section (c), V.T.I.C. Article 4.65, provides that certain investments are Texas investments for purposes of Subchapter A, Chapter 4, Insurance Code.  Former V.T.I.C. Article 4.11 is the only provision of Subchapter A, Chapter 4, that referred to Texas investments.  Effective April 1, 2005, that article was revised in this code as Chapter 222, but the reference to Texas investments in that article was omitted from Chapter 222 as executed because that reference was relevant only to provisions that prescribed the tax rates for 1989, 1990, 1991, 1992, 1993, and 1994, respectively. Accordingly, the revised law omits the reference to Texas investments.  The omitted law reads:

(c)  …  An investment made under this subchapter is a "Texas investment" for purposes of Subchapter A of this chapter.

[Sections 228.260-228.300 reserved for expansion]

SUBCHAPTER G.  ENFORCEMENT

Revised Law

Sec. 228.301.  ANNUAL REVIEW BY COMPTROLLER.  (a)  The comptroller shall conduct an annual review of each certified capital company to:

(1)  ensure that the company:

(A)  continues to satisfy the requirements of this chapter; and

(B)  has not made any investment in violation of this chapter; and

(2)  determine the eligibility status of the company's qualified investments.

(b)  Each certified capital company shall pay the cost of the annual review according to a reasonable fee schedule adopted by the comptroller.  (V.T.I.C. Art. 4.61, Secs. (a), (b).)

Source Law

Art. 4.61.  (a) The comptroller shall conduct an annual review of each certified capital company to:

(1)  ensure that the company continues to satisfy the requirements of this subchapter and that the company has not made any investment in violation of this subchapter; and

(2)  determine the eligibility status of its qualified investments.

(b)  The cost of the annual review shall be paid by each certified capital company according to a reasonable fee schedule adopted by the comptroller.

Revised Law

Sec. 228.302.  DECERTIFICATION OF CERTIFIED CAPITAL COMPANY.  (a)  A material violation of Section 228.105, 228.106, 228.107, 228.151, 228.152, 228.153, 228.154, 228.155, 228.156, 228.202, or 228.204 is grounds for decertification of a certified capital company.

(b)  If the comptroller determines that a certified capital company is not in compliance with a law listed in Subsection (a), the comptroller shall notify the company's officers in writing that the company may be subject to decertification after the 120th day after the date the notice is mailed unless the company:

(1)  corrects the deficiencies; and

(2)  returns to compliance with that law.

(c)  The comptroller may decertify a certified capital company, after opportunity for hearing, if the comptroller finds that the company is not in compliance with a law listed in Subsection (a) at the end of the period established by Subsection (b).

(d)  Decertification under this section is effective on receipt of notice of decertification by the certified capital company.

(e)  The comptroller shall notify any appropriate state agency of a decertification of a certified capital company.  (V.T.I.C. Art. 4.61, Secs. (c), (d).)

Source Law

(c)  A material violation of Article 4.56, 4.58, or 4.59 of this code is grounds for decertification of the certified capital company.  If the comptroller determines that a company is not in compliance with Article 4.56, 4.58, or 4.59 of this code, the comptroller shall notify the officers of the company in writing that the company may be subject to decertification after the 120th day after the date of mailing of the notice, unless the deficiencies are corrected and the company returns to compliance with those articles.

(d)  The comptroller may decertify a certified capital company, after opportunity for hearing, if the comptroller finds that the company is not in compliance with Article 4.56, 4.58, or 4.59 of this code at the end of the period established by Subsection (c) of this article.  Decertification under this subsection is effective on receipt of notice of decertification by the company.  The comptroller shall notify any appropriate state agency of the decertification.

Revisor's Note

Sections (c) and (d), V.T.I.C. Article 4.61, refer to compliance with V.T.I.C. Articles 4.56, 4.58, and 4.59.  Those articles are revised in this chapter as Sections 228.103(d), 228.105-228.107, 228.151-228.156, 228.202, and 228.204.  The revised law omits the reference to Section 228.103(d) because that is not a provision with respect to which compliance is required.  Sections 228.152 and 228.153 are derived from portions of Article 4.51 as well as Article 4.56.  The revised law references Sections 228.152 and 228.153 in their entirety because the portions of those sections derived from Article 4.51 are definitions that do not require compliance.

Revised Law

Sec. 228.303.  ADMINISTRATIVE PENALTY.  (a)  The comptroller may impose an administrative penalty on a certified capital company that violates this chapter.

(b)  The amount of the penalty may not exceed $25,000. Each day a violation continues or occurs is a separate violation for the purpose of imposing the penalty.  The amount of the penalty shall be based on:

(1)  the seriousness of the violation, including the nature, circumstances, extent, and gravity of the violation;

(2)  the economic harm caused by the violation;

(3)  the history of previous violations;

(4)  the amount necessary to deter a future violation;

(5)  efforts to correct the violation; and

(6)  any other matter that justice may require.

(c)  A certified capital company assessed a penalty under this chapter may request a redetermination as provided by Chapter 111, Tax Code.

(d)  The attorney general may sue to collect the penalty.

(e)  A proceeding to impose the penalty is a contested case under Chapter 2001, Government Code.  (V.T.I.C. Art. 4.62.)

Source Law

Art. 4.62.  (a)  The comptroller may impose an administrative penalty on a certified capital company that violates this subchapter.

(b)  The amount of the penalty may not exceed $25,000, and each day a violation continues or occurs is a separate violation for the purpose of imposing a penalty.  The amount of the penalty shall be based on:

(1)  the seriousness of the violation, including the nature, circumstances, extent, and gravity of the violation;

(2)  the economic harm caused by the violation;

(3)  the history of previous violations;

(4)  the amount necessary to deter a future violation;

(5)  efforts to correct the violation; and

(6)  any other matter that justice may require.

(c)  Certified capital companies assessed penalties under this subchapter may request a redetermination as provided in Chapter 111, Tax Code.

(d)  The attorney general may sue to collect the penalty.

(e)  A proceeding to impose the penalty is considered to be a contested case under Chapter 2001, Government Code.

[Sections 228.304-228.350 reserved for expansion]

SUBCHAPTER H.  RECAPTURE AND FORFEITURE OF PREMIUM TAX CREDITS

Revised Law

Sec. 228.351.  RECAPTURE AND FORFEITURE OF PREMIUM TAX CREDIT FOLLOWING DECERTIFICATION.  (a)  Decertification of a certified capital company may, in accordance with this section, cause:

(1)  the recapture of premium tax credits previously claimed by the company's certified investors; and

(2)  the forfeiture of future premium tax credits to be claimed by the investors.

(b)  Decertification of a certified capital company on or before the third anniversary of the company's allocation date causes the recapture of any premium tax credits previously claimed and the forfeiture of any future premium tax credits to be claimed by a certified investor with respect to the company.

(c)  For a certified capital company that meets the requirements for continued certification under Section 228.151(a) and subsequently fails to meet the requirements for continued certification under Subsection (b) of that section:

(1)  any premium tax credit that has been or will be taken by a certified investor on or before the third anniversary of the allocation date is not subject to recapture or forfeiture; and

(2)  any premium tax credit that has been or will be taken by a certified investor after the third anniversary of the company's allocation date is subject to recapture or forfeiture.

(d)  For a certified capital company that has met the requirements for continued certification under Section 228.151 and is subsequently decertified:

(1)  any premium tax credit that has been or will be taken by a certified investor on or before the fifth anniversary of the allocation date is not subject to recapture or forfeiture; and

(2)  any premium tax credit to be taken after the fifth anniversary of the allocation date is subject to forfeiture only if the company is decertified on or before the fifth anniversary of the company's allocation date.

(e)  For a certified capital company that has invested an amount cumulatively equal to 100 percent of the company's certified capital in qualified investments, any premium tax credit claimed or to be claimed by a certified investor is not subject to recapture or forfeiture under this section.  (V.T.I.C. Art. 4.63, Sec. (a).)

Source Law

Art. 4.63.  (a)  Decertification of a certified capital company may cause the recapture of premium tax credits previously claimed and the forfeiture of future premium tax credits to be claimed by certified investors with respect to the company, as follows:

(1)  decertification of a company on or before the third anniversary of its allocation date causes the recapture of any premium tax credit previously claimed and the forfeiture of any future premium tax credit to be claimed by a certified investor with respect to the company;

(2)  for a company that meets the requirements for continued certification under Article 4.56(a)(1) of this code and subsequently fails to meet the requirements for continued certification under Article 4.56(a)(2) of this code, any premium tax credit that has been or will be taken by a certified investor on or before the third anniversary of the allocation date is not subject to recapture or forfeiture, but any premium tax credit that has been or will be taken by a certified investor after the third anniversary of the allocation date of the company is subject to recapture or forfeiture;

(3)  for a company that has met the requirements for continued certification under Articles 4.56(a)(1) and (2) of this code and is subsequently decertified, any premium tax credit that has been or will be taken by a certified investor on or before the fifth anniversary of the allocation date is not subject to recapture or forfeiture, but any premium tax credit to be taken after the fifth anniversary of the allocation date is subject to forfeiture only if the company is decertified on or before the fifth anniversary of its allocation date; and

(4)  for a company that has invested an amount cumulatively equal to 100 percent of its certified capital in qualified investments, any premium tax credit claimed or to be claimed by a certified investor is not subject to recapture or forfeiture under this article.

Revised Law

Sec. 228.352.  NOTICE OF RECAPTURE AND FORFEITURE OF PREMIUM TAX CREDIT.  The comptroller shall send written notice to the address of each certified investor whose premium tax credit is subject to recapture or forfeiture, using the address shown on the investor's last premium tax filing.  (V.T.I.C. Art. 4.63, Sec. (b).)

Source Law

(b)  The comptroller shall send written notice to the address of each certified investor whose premium tax credit is subject to recapture or forfeiture, using the address shown on the last premium tax filing.

Revised Law

Sec. 228.353.  INDEMNITY AGREEMENTS AND INSURANCE AUTHORIZED. (a)  A certified capital company may agree to indemnify, or purchase insurance for the benefit of, a certified investor for losses resulting from the recapture or forfeiture of premium tax credits under Section 228.351.

(b)  Any guaranty, indemnity, bond, insurance policy, or other payment undertaking made under this section may not be provided by more than one certified investor of the certified capital company or affiliate of the certified investor.  (V.T.I.C. Art. 4.64.)

Source Law

Art. 4.64.  A certified capital company may agree to indemnify, or purchase insurance for the benefit of, a certified investor for losses resulting from the recapture or forfeiture of premium tax credits under Article 4.63 of this code.  Any guaranty, indemnity, bond, insurance policy, or other payment undertaking made under this article may not be provided by more than one certified investor of the certified capital company or affiliate of the certified investor.

Revisor's Note

V.T.I.C. Article 4.64 refers to "the recapture or forfeiture of premium tax credits under Article 4.63 of this code."  The relevant portion of V.T.I.C. Article 4.63 is revised in this chapter as Section 228.351 and the revised law is drafted accordingly.