HB368 By Representative Black RFD Economic Development and Tourism Rd 1 31-MAR-15

SYNOPSIS: Under existing law, premium tax credits are authorized under the Certified Capital Company program to investors who contribute capital to certified capital companies.

This bill would create the Alabama Small Business Investment Act to replace references to certified capital companies with Alabama small business investment companies and would further define the term community outreach as it relates to these companies.

This bill would further provide for application procedures for the Alabama small business investment companies and would further provide for the decertification of an Alabama small business investment company.

This bill would also establish additional requirements for the allocation of a tax credit for these companies, provide for a third allocation of tax credits, and would require the Department of Commerce to post certain related information on its public website.

A BILL TO BE ENTITLED AN ACT

To amend Sections 40-14B-1, 40-14B-3, 40-14B-12, 40-14B-17, and 40-14B-21 of the Code of Alabama 1975, relating to tax credits; to define the term community outreach as it relates to Alabama small business investment companies; to provide for application procedures for an Alabama small business investment company; to provide for the decertification of a company; to establish additional requirements for the allocation of a tax credit for a company; to require the Department of Commerce to post certain information on its website; and to add a new Section 40-14B-23 to the Code of Alabama 1975, to provide for a third allocation of tax credits under the program.

BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:

Section 1. This act shall be known and may be cited as the Alabama Small Business Investment Act of 2015.Section 2. Sections 40-14B-1, 40-14B-3, 40-14B-12, 40-14B-17, and 40-14B-21 of the Code of Alabama 1975, are amended to read as follows:

§40-14B-1.

"As used in this chapter, the following terms shall have the following meanings:

"(1) AFFILIATE. An affiliate of another person shall include any of the following:

"a. A person who directly or indirectly either:

"1. Beneficially owns 15 percent or more of the outstanding voting securities or other voting ownership interests of the other person, whether through rights, options, convertible interests, or otherwise; or

"2. Controls or holds power to vote 15 percent or more of the outstanding voting securities or other voting ownership interests of the other person.

"b. A person owning 15 percent or more of the outstanding voting securities or other voting ownership interests of which are directly or indirectly either:

"1. Beneficially owned by the other person, whether through rights, options, convertible interests, or otherwise; or

"2. Controlled or held with power to vote by the other person.

"c. A partnership or limited liability company in which the other person is a general partner, managing member or manager, as the case may be.

"d. An officer, director, employee, or agent of the other person, or an immediate family member of the officer, director, employee, or agent.

"(4) (2) CERTIFIED CAPITAL ALABAMA SMALL BUSINESS INVESTMENT COMPANY. 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 technology businesses and that is certified as meeting the criteria of this chapter.

"(2) (3) ALLOCATION DATE. The date on which the certified investors of a certified capital an Alabama small business investment company are allocated certified capital by the Alabama Development Office under this chapter.

"(3) (4) CERTIFIED CAPITAL. An investment of cash by a certified investor in a certified capital an Alabama small business investment 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.

"(5) CERTIFIED INVESTOR. An insurance company or other person that has state premium tax liability, that contributes certified capital pursuant to an allocation of premium tax credits under this chapter.

"(6) COMMUNITY OUTREACH. An Alabama small business investment company's involvement in the entrepreneurial communities of the state, including mentoring in technology transfer offices at the various universities of the state, hosting business plan and networking events for incubators, and other activities that act to engage the entrepreneurs of this state to promote their growth and success.

"(6) (7) PERSON. A natural person or entity, including a corporation, general or limited partnership, or trust or limited liability company.

"(7) (8) PREMIUM TAX CREDIT ALLOCATION CLAIM. A claim for allocation of premium tax credits.

"(8) (9) QUALIFIED DEBT INSTRUMENT. A debt instrument issued by a certified capital an Alabama small business investment 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.

"c. Has no interest, distribution, or payment features that are related to the profitability of the certified capital Alabama small business investment company or the performance of the certified capital Alabama small business investment company's investment portfolio.

"(9) (10) QUALIFIED DISTRIBUTION. Any distribution or payment from certified capital by a certified capital an Alabama small business investment company in connection with the following:

"a. The reasonable costs and expenses of forming, syndicating, managing, and operating the company, including reasonable and necessary fees paid for professional services, including legal and accounting services, related to the formation and operation of the company, and an annual management fee in an amount that does not exceed two and one-half percent of the certified capital of the company; provided that no distribution or payment authorized by this paragraph a. be made directly or indirectly to a certified investor, except for distributions or payments made in consideration for a guaranty, indemnity, bond, insurance policy, or other payment undertaking described by subsection (b) of Section 40-14B-4.

"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.

"(10) (11) QUALIFIED INVESTMENT. The investment of cash by a certified capital an Alabama small business investment company in a qualified technology 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) (12) QUALIFIED TECHNOLOGY BUSINESS. A business that, at the time of a certified capital an Alabama small business investment 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 Alabama small business investment company, or is headquartered in another state and intends to relocate its headquarters to 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 Alabama small business investment company, or has its principal business operations located in another state, and intends to relocate business operations to this state within 90 days after receipt of investment by the certified capital Alabama small business investment company.

"c. Has agreed to use the qualified investment primarily to either support business operations in this state, or in the case of a start-up company, establish and support business operations in this state, except in each case, advertising, sales and promotional operations which may be conducted outside of this state.

"d. Has not more than 100 employees and either employs at least 80 percent of its employees in this state, or pays at least 80 percent of its payroll to employees in this state.

"e. Is primarily engaged in any of the following:

"1. Manufacturing, processing, or assembling products.

"2. Conducting research and development.

"3. Providing services.

"f. Is not primarily engaged in any of the following:

"1. Retail sales.

"2. Real estate development.

"3. The business of insurance, banking, or lending.

"4. The provision of professional services provided by accountants, attorneys, or physicians.

"(12) (13) STATE PREMIUM TAX LIABILITY. Includes:

"a. Any liability incurred by any person under Chapter 4A of Title 27, the Alabama Insurance Code.

"b. If the tax liability imposed under Chapter 4A of Title 27, the Alabama Insurance Code, on January 1, 2002, is eliminated or reduced, any tax liability imposed on an insurance company or other person that had premium tax liability under Chapter 4A of Title 27, the Alabama Insurance Code, on that date.

§40-14B-3.

"(a) The Director of the Alabama Development Office Secretary of the Department of Commerce by rule shall establish the application procedures for certified capital Alabama small business investment companies.

"(b) An applicant must file an application in the form prescribed by the Alabama Development Office Department of Commerce accompanied by a nonrefundable application fee of seven thousand five hundred dollars ($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.

"(c) To qualify as a certified capital an Alabama small business investment company, all of the following must apply:

"(1) The applicant must have, at the time of application for certification, an equity capitalization of at least five hundred thousand dollars ($500,000) in the form of cash or cash equivalents. The applicant must maintain this equity capitalization until it receives an allocation of certified capital pursuant to Section 40-14B-17.

"(2) At least two principals or persons employed or engaged to manage the funds of the applicant must have at least four years of experience making venture capital investments in small businesses on behalf of or as an institutional or accredited investor.

"(3) The applicant must satisfy any additional reasonable informational requirement imposed by the Alabama Development Office by rule.

"(4) The applicant must have incorporated or organized within the State of Alabama no later than 15 days before applying for certification.

"(5) The applicant must have established an office within the State of Alabama before or within 60 days of certification.

"(6) For the third allocation of the program, the applicant must provide a portfolio business plan that includes a. the industry segments listed by the North American Industrial Classification System code and percentage of certified capital in which the applicant will invest; b. the number of jobs that will be created or retained as a result of the applicant's qualified investments; and c. a revenue impact assessment prepared by a nationally recognized third-party independent economic forecasting firm utilizing the Regional Economics Model, Inc., or MIG, Inc., model that demonstrates that the applicant's portfolio business plan will have a revenue positive impact on the state over 10 years against the aggregate tax credit utilization over the same period.

"(d) The Director of the Alabama Development Office Secretary of the Department of Commerce shall review the application, organizational documents, and business history of each applicant and shall ensure that the applicant satisfies the requirements of this chapter.

"(e) Not later than the 30th day after the date an application is filed, the Director of the Alabama Development Office Secretary of the Department of Commerce shall either issue the certification or refuse to issue the certification and communicate in detail to the applicant the grounds for the refusal, including suggestions for the removal of these grounds. If an applicant submits an amended application within 15 days of receipt of refusal from the office, the office shall have 15 days from the receipt of such amended application by which to communicate its approval or refusal of such amended application to the applicant. The office shall review and approve or reject applications in the order submitted, and in the event more than one application is received by the office on any date, all such applications shall be reviewed and approved simultaneously, except in the case of incomplete applications or applications for which additional information is requested by the office and is not supplied by the applicant within the allowable time limits established by the office.

§40-14B-12.

"(a) Decertification of a certified capital an Alabama small business investment 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) Except as set forth in subdivision (2), 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 subdivision (1) of subsection (a) of Section 40-14B-6 and subsequently fails to meet the requirements for continued certification under subdivision (2) of subsection (a) of Section 40-14B-6, 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 subdivisions (1) and (2) of subsection (a) of Section 40-14B-6 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.

"(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 chapter.

"(5) To be decertified from the third allocation of the program, an Alabama small business investment company shall have made qualified investments equal to at least 25 percent of its total certified capital in equity or equity-like instruments. For the purposes of this requirement, an investment in a qualified technology business located in the Black Belt counties of Alabama or if such business' majority ownership is held by a veteran or veterans, shall satisfy this requirement regardless of the type of qualified investment.

"(b) The Alabama Development Office Department of Commerce 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.

§40-14B-17.

"(a) If the total premium tax credits claimed by all certified investors exceeds the total limits on premium tax credits established by subsection (a) of Section 40-14B-16, the Alabama Development Office Department of Commerce 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 chapter.

"(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.

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

"(c) On October 15, 2002, the Alabama Development Office Department of Commerce shall notify each certified capital Alabama small business investment 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 an Alabama small business investment 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 Alabama Development Office Department of Commerce by overnight common carrier delivery service and that portion of capital allocated to the certified investor shall be forfeited. The Alabama Development Office Department of Commerce 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 chapter had been performed without considering the premium tax credit allocation claims that were subsequently forfeited.

"(e) For the third allocation of the program, the Alabama small business investment company shall have received an equity investment of capital other than certified capital equal to at least 10 percent of the certified capital set forth in the notice provided pursuant to subsection (c) inclusive of the capitalization required by Section 40-14B-3(c)(1). Such equity investment must be received within the 10-business-day period set forth in subsection (d).

§40-14B-21.

"(a) The Alabama Development Office Department of Commerce shall prepare a biennial report with respect to results of the implementation of this chapter. The report must include all of the following:

"(1) The number of certified capital Alabama small business investment companies holding certified capital.

"(2) The amount of certified capital invested in each certified capital Alabama small business investment company.

"(3) The amount of certified capital the certified capital Alabama small business investment company has invested in qualified technology businesses as of January 1, 2004, 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 Alabama small business investment company with respect to renewal and reporting requirements imposed under this chapter.

"(6) With respect to the qualified technology businesses in which capital Alabama small business investment companies have invested all of the following:

"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.

"c. The total number of jobs retained as a result of the investment and the average wages paid for the jobs.

"(7) The certified capital Alabama small business investment companies that have been decertified or that have failed to renew the certification and the reason for any decertification.

"(b) The Alabama Development Office Department of Commerce 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. The office shall post information on a website maintained by the Department of Commerce that will list the following information for each qualified investment: Date, amount, and the name and location of each qualified technology business in which Alabama small business investment companies invest.

"(c) For the third allocation of the program, the report in subsection (b) shall be submitted every six months and shall also include a listing of community outreach activity of each Alabama small business investment company for the prior six-month period."

Section 3. Section 40-14B-23 is added to the Code of Alabama 1975, to read as follows:

§40-14B-23.

(a) Subject to, and in accordance with, the provisions of this chapter, there shall be a third allocation of premium tax credits to investors who contribute certified capital after June 14, 2015, to Alabama small business investment companies in an amount equal to one-half of the total pool of tax credits allocated pursuant to this chapter prior to June 14, 2015. Any limitations on the amount of certified capital that may be requested by a certified investor contained in this chapter shall be calculated with respect to this allocation without regard to any certified capital requested or invested by such investor prior to June 14, 2015. The Department of Commerce shall promulgate rules to insure the Alabama small business investment program shall be inclusive and reflect the racial, gender, geographic, urban/rural, and economic diversity of the state.

(b) A certified investor who contributes certified capital in connection with the third allocation may take up to 12.5 percent of the vested premium tax credit against its tax liability for any tax year of the certified investor, beginning in the second tax year after the investment until the tax credits taken by such investor equal 100 percent of the certified investor's certified capital.

(c) The Alabama Department of Commerce shall administer this chapter and shall adopt such rules as necessary to implement this chapter, including the third allocation provided in subsection (a), no later than the 90th day after June 14, 2015, and shall begin accepting applications with respect to the additional allocation of certified capital no later than 90 days thereafter. The requirements of Section 40-14B-3(c)(5) shall not apply to applicants whose affiliates have invested at least thirty million dollars ($30,000,000) in Alabama businesses since January 1, 2004.

(d) Notwithstanding any provision of this section to the contrary, to the extent any credits are used against insurance premium tax liability, the Department of Finance shall promulgate rules to ensure that the credit would reduce the distribution for the Education Trust Fund in an amount equal to the credits used in any fiscal year.

Section 4. (a) Any reference to "capital investment company" in Chapter 14B, Title 40, Code of Alabama 1975, shall be deemed a reference to an "Alabama small business investment company."

(b) The Code Commissioner shall conform references to a "capital investment company" in Chapter 14B, Title 40, Code of Alabama 1975, as provided in this act. Code changes shall be made at a time determined to be appropriate by the Code Commissioner.

Section 5. This act shall become effective on the first day of the third month following its passage and approval by the Governor, or its otherwise becoming law.

Alabama Development Office

Certified Captial Company

Business and Commerce

Taxation

Tax Credits

Economic Development

Investments

Code Added

Code Amended