34 TAC §3.833
The Comptroller of Public Accounts adopts on an emergency
basis a new §3.833, concerning the creation of certified capital companies
and premium tax credits by insurers and other persons that invest in them.
This new section is the result of Insurance Code, new Subchapter B, Articles
4.51 - 4.74. This section provides guidelines for investments of certified
capital in certified capital companies by certified investors. It describes
the procedure by which an entity makes application to the Comptroller of Public
Accounts to be certified as a certified capital company and the requirements
for maintaining its status as a certified capital company and the process
for decertification for failure to comply with requirements. It provides for
premium tax credits for insurance companies to promote investment in certified
capital companies that fund qualified businesses, early stage businesses or
strategic investment businesses and describes the methods for claiming tax
credits. It details the annual review conducted by the comptroller and the
required reports certified capital companies must file with the comptroller.
The section implements Senate Bill 601 passed by the 77th Legislature, 2001.
A company may qualify for a premium tax credit for investments made after
February 15, 2002. However, under the terms of Senate Bill 601, implementation
of this program is contingent upon certification by the Comptroller of Public
Accounts that revenue will be available to fund these credits in addition
to other appropriations of revenue. For specific information see Insurance
Code, Article 4.74. As of the date this section is submitted to the Texas
Register, that requirement has not been satisfied and the date of implementation
of this program cannot be determined.
Senate Bill 601, §3, requires that the Texas Comptroller adopt rules
implementing this act within 60 days of the effective date of the legislation.
The Governor signed the legislation on May 28, 2001, therefore requiring the
adoption of this rule on an emergency basis by July 27, 2001.
James LeBas, Chief Revenue Estimator, has determined that, for the first
five-year period the rule will be in effect, the rule will have no significant
revenue impact on the state or local government.
Mr. LeBas also has determined that, for each year of the first five years
the rule is in effect, the public benefit anticipated as a result of enforcing
the rule will be in providing guidance to insurers investing in certified
capital companies with respect to a premium tax credit. This rule is adopted
under the Tax Code, Title 2, and does not require a statement of fiscal implications
for small businesses. There is no significant anticipated economic cost to
individuals who are required to comply with the proposed rule.
This new section is adopted under Tax Code, §111.002, which
provides the comptroller with the authority to prescribe, adopt, and enforce
rules relating to the administration and enforcement of the provisions of
Tax Code, Title 2.
The new section implements Insurance Code, Articles 4.51 - 4.74, as added
by Senate Bill 601, 77th Legislature (2001).
§3.833.Certified Capital Companies and Certified Investor Premium Tax Credits.
(a)
Definitions. The following words and terms, when used in
this section, shall have the following meanings, unless the context clearly
indicates otherwise.
(1)
Affiliate means:
(A)
a person who is an affiliate for purposes of Insurance
Code, §2, Article 21.49-1 that directly or indirectly, through one or
more intermediaries, controls, or is controlled by, or is under common control
with the insurance company or insurance affiliated group;
(B)
a person who directly or indirectly:
(i)
owns 10% or more of the outstanding voting securities or
other voting or management interests of another person, whether through rights,
options, convertible interests, or otherwise; or
(ii)
controls or holds power to vote 10% or more of the outstanding
voting securities or other voting or management interests of the other person;
(C)
a person who directly or indirectly owns 10% 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
of the other person.
(2)
Allocation date means the date on which the comptroller
allocates certified capital to certified investors of a certified capital
company under this subchapter, except that in the case of a pro rata reallocation
pursuant to subsection (f)(4)(B)(ii) of this section, the allocation date
shall be the date of the reallocation.
(3)
CAPCO means the same as a certified capital company as
defined herein.
(4)
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.
(5)
Certified capital company means a partnership, corporation,
trust, or limited liability company, whether organized on a profit or not-for-profit
basis, that is in good standing with the State of Texas, is headquartered
in this state, and has as its primary business activity the investment of
cash in qualified businesses and that is certified as meeting the criteria
of this section.
(6)
Certified investor means an insurance company or health
maintenance organization licensed by the Texas Department of Insurance or
other person that has state premium tax liability, other than a title insurance
company subject to Insurance Code, Chapter 9, that invests certified capital
pursuant to an allocation of premium tax credits under this section.
(7)
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.
(8)
Headquartered in this state means the following requirements,
at a minimum, are met with respect to Texas CAPCOs:
(A)
The CAPCO has its principal office in Texas for operations
covered under this section, in which the main investment and administrative
functions of the CAPCO are conducted;
(B)
the original principal books and records of the CAPCO are
maintained in Texas; and
(C)
a minimum of 40% of the CAPCO expenses are spent in Texas,
but for the purposes of this subparagraph such expenses do not include underwriting
fees, closing cost, and those expenses that the CAPCO demonstrates cannot
be reasonably obtained in this state.
(9)
Initially organized means the date that an entity's organizational
documents were first accepted as filed by the appropriate official in the
state of its incorporation or organization, as applicable, or, in the case
of an entity that is not required to file its organizational documents with
any state official, the date on which its members, partners, or owners, as
applicable, originally executed such entity's organizational documents.
(10)
Person means a natural person or entity, including a corporation,
general or limited partnership, trust, or limited liability company.
(11)
Premium tax credit allocation claim means a claim for
allocation of Texas premium tax credits on a form provided by the comptroller.
(12)
Primarily under this section means at least 80%.
(13)
Principal Office means the workplace of a majority of
employees of the CAPCO.
(14)
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 or relocates its headquarters
and principal business operations to this state within 90 days, and based
on a copy of its business plan, intends to remain in this state after receipt
of an investment by the certified capital company;
(B)
has its principal business operations in this state and
intends to maintain business operations in this state after receipt of an
investment by the certified capital company;
(C)
has agreed to use the qualified investment primarily:
(i)
to 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, to 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% of its employees in this state; or
(ii)
pays 80% 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;
(F)
does not incur more than 20% of its expenses and receive
more than 20% of its income from:
(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; and
(G)
meets the qualifications as a qualified business but if
subsequently acquired by or merged into an entity headquartered outside of
Texas, the business continues to operate within the remaining guidelines for
a qualified business as stated in this subsection.
(15)
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.
(16)
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, during a calendar year, 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 according
to the following schedule:
(I)
beginning with the year certified capital is received and
continuing through the end of the third calendar year of the program, the
annual management fee is 2.5% of the certified capital, or as provided in
subclause (IV) of this clause;
(II)
beginning with the fourth year and continuing through
the end of the fifth calendar year of the program, the annual management fee
is 2.0% of the certified capital, or as provided in subclause (IV) of this
clause;
(III)
beginning with the sixth year and continuing through
the end of the tenth calendar year of the program, the annual management fee
is 1.5% of the certified capital, or as provided in subclause (IV) of this
clause; however
(IV)
the management fee shall not apply in any year after the
year in which qualified investments equal 100% of the total certified capital.
(B)
any projected increase in federal income or state taxes
based on income, including penalties and interest related to those 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 in this state.
(17)
Qualified investment means the investment of cash by a
certified capital company in a qualified business for a minimum period of
one year 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.
(18)
State premium tax liability means:
(A)
any gross insurance premium tax or health maintenance organization
gross receipts tax liability incurred by any person under the Insurance Code;
or
(B)
if the premium tax liability imposed under the Insurance
Code on January 1, 2001 is eliminated or reduced, any substitute tax liability
imposed on an insurance company or other person that had premium tax liability
or health maintenance organization gross receipts tax liability under the
Insurance Code on that date.
(19)
Strategic investment area means an area of this state
that qualifies as a strategic investment area under Tax Code, Subchapter O,
Chapter 171, or, after the expiration of that subchapter, an area that qualified
as a strategic investment area under that subchapter immediately before its
expiration.
(20)
Strategic investment business means a qualified business
that has its principal business operations located in one or more strategic
investment areas and otherwise intends to maintain business operations in
the strategic investment areas after receipt of an investment by the certified
capital company as documented in the business plan or other business records
that were generated at or before the time of the investment.
(b)
Application Process. Any entity that seeks to operate in
Texas as a CAPCO under the provisions of the Insurance Code shall comply with
the application procedures set forth in this section. The comptroller will
begin accepting applications for certification as a CAPCO on November 1, 2001,
except as provided by subsection (k) of this section.
(1)
An applicant must file with the comptroller the following:
(A)
a completed Application for Certification on a form provided
by the comptroller,
(B)
a nonrefundable application fee of $7,500;
(C)
an audited balance sheet with an unqualified opinion from
an independent certified public accountant, as of a date not more than 35
days before the date of application;
(D)
evidence of an equity capitalization of at least $500,000
in the form of unencumbered cash or cash equivalents;
(E)
evidence that at least two principals or persons employed
or engaged to manage the funds of the applicant have at least four years of
experience in the venture capital industry;
(F)
a commitment that if certified, the CAPCO will establish
in Texas its principal office for CAPCO operations within 60 days of certification;
and
(G)
biographical, financial, investment, and historical data
for each manager, principal, and the entity itself that provides the following,
as applicable:
(i)
information on prior venture capital firms with which the
manager or principal was employed that specifically includes detail on:
(I)
the valuation of portfolio investments, including the manager
or principal's ability to structure and execute timely and effective exits
from portfolio investments;
(II)
historical investment performance of prior firms managed
by the same managers or principals;
(III)
historical performance of the CAPCO and each of its managers
or principals relating to investments in early stage businesses;
(IV)
the investment philosophy of the firm;
(V)
the firm's history and strategy of obtaining investors
and making investments, particularly in the targeted areas of early stage
businesses and strategic investment businesses;
(VI)
disclosure of any fines, penalties, or other sanctions
or actions by any state, federal, or other regulatory entity, including the
Securities and Exchange Commission, relating to violations of any type; and
(ii)
any other information that the comptroller may later request
to determine the quality of the firm's management, reputation, investment
strategy and practices.
(2)
The date of receipt of an application is the postmark date
or the date of the independent delivery receipt.
(3)
The comptroller shall review the application and all required
documents to ensure that the applicant satisfies the requirements for certification
as a CAPCO. Within 30 days of the date of receipt of an application, the comptroller
shall:
(A)
issue the certification; or
(B)
refuse to issue the certification and provide to the applicant
the grounds for the refusal.
(c)
Requirements for renewal and continuance of certification.
A CAPCO must comply with the requirements for renewal and continuance of certification
set forth in this section.
(1)
Each CAPCO shall pay a nonrefundable renewal fee of $5,000
to the comptroller not later than January 31 of each year, except that a renewal
fee is not required within six months of the date on which the certification
is issued.
(2)
If a CAPCO fails to pay its renewal fee on or before January
31 of each year, the company must pay, in addition to the renewal fee, a late
fee of $5,000 to continue its certification.
(3)
If a CAPCO fails to pay the renewal fee and late fee as
stated in paragraph (2) of this subsection within 60 days after January 31,
the certified capital company shall be subject to decertification.
(4)
To continue to be certified, a CAPCO must make qualified
investments of certified capital received from certified investors according
to the following schedule.
(A)
Before the third anniversary of its allocation date, a
CAPCO must have made qualified investments in an amount cumulatively equal
to at least 30% of its certified capital; and
(B)
before the fifth anniversary of its allocation date, a
CAPCO must have made qualified investments in an amount cumulatively equal
to at least 50% of its certified capital, subject to the following:
(i)
at least 50% of the dollar amount of qualified investments
required in paragraph (4)(B) of this subsection must be placed in early stage
businesses;
(ii)
at least 30% of the dollar amount of qualified investments
required in paragraphs (4)(A) and (4)(B) of this subsection must be placed
in strategic investment businesses.
(5)
The aggregate cumulative amount of all qualified investments
made by the CAPCO after its allocation date shall be considered in the computation
of the percentage requirements in paragraph (4) of this subsection and subsection
(a)(16)(A)(ii) of this section. Any proceeds received by the CAPCO from a
qualified investment may be invested in another qualified investment and count
toward any requirement in this section with respect to investments of certified
capital.
(6)
A business that is classified as a qualified business at
the time that the CAPCO first invests in the business remains classified as
a qualified business and may receive follow-on investments from any certified
capital company, even though the qualified business may not meet the definition
of a qualified business at the time of the follow-on investment, unless the
qualified business no longer has its principal business operations in this
state.
(7)
A CAPCO may not make a qualified investment greater than
15% of the total certified capital of the CAPCO at the time of investment.
(8)
A CAPCO shall invest any certified capital not invested
in qualified investments only in the following:
(A)
cash deposited with a federally insured financial institution
located in this state that is not affiliated with the CAPCO;
(B)
certificates of deposit in a federally insured financial
institution located in this state that is not affiliated with the CAPCO;
(C)
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, provided that the
investment securities are not procured through a financial institution affiliated
with the CAPCO;
(D)
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 provided that the debt instruments are not
procured through a financial institution affiliated with the CAPCO;
(E)
obligations of this state or any municipality or political
subdivision of this state provided that such obligations are not procured
through a financial institution affiliated with the CAPCO;
(F)
a mutual fund consisting of any combination of investments
permitted in subparagraphs (A)-(E) of this subsection, provided that such
mutual funds are not procured through a financial institution affiliated with
the CAPCO; or
(G)
any other investments approved in advance and in writing
by the comptroller.
(9)
If a qualified business moves its principal business operations
outside Texas before the 90th day after a certified capital company makes
an investment in it, the investment is not considered a qualified investment
for the purposes of the percentage requirements in paragraph (4) of this subsection
and subsection (a)(16)(A)(ii) of this section.
(d)
Annual review. Each CAPCO is subject to review as specified
in this section to determine compliance with rules and statutes.
(1)
The comptroller shall conduct an annual review of each
CAPCO to:
(A)
ensure that the CAPCO continues to satisfy the requirements
of this section and Insurance Code, Articles 4.51 - 4.74;
(B)
ensure that the CAPCO has not made any investment in violation
of this section and Insurance Code, Articles 4.51 - 4.74; and
(C)
determine the eligibility status of its qualified investments.
(2)
Each CAPCO shall pay the cost of the annual review to be
billed by the comptroller or, if the review is conducted by an independent
examiner under the authority of the comptroller, the CAPCO shall pay the cost
of the annual review directly to the independent examiner.
(e)
Decertification. A CAPCO may be decertified for violations
of this section or the Insurance Code, and premium tax credits may be recaptured
and forfeited to the extent expressly set forth in this section or in the
Insurance Code.
(1)
A material violation of Insurance Code, Articles 4.56,
4.58, or 4.59, may result in decertification of a CAPCO. The comptroller will
notify the officers of the CAPCO in writing of the violations and that the
company may be decertified after 120 days from the date on which the notice
is mailed, unless the violations are corrected as determined by the comptroller.
A hearing is available to a CAPCO as provided in the §§1.1-1.42
of this title (relating to Rules of Practice & Procedure).
(2)
After the expiration of 120 days after the comptroller
mails the notice of violations, the comptroller may decertify a CAPCO if the
violations have not been corrected.
(3)
Decertification is effective on the date on which the company
receives notice of decertification from the comptroller.
(4)
Premium tax credits previously claimed shall be recaptured
and future premium tax credits shall be forfeited following decertification
of a CAPCO as follows:
(A)
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;
(B)
for a company that meets the requirements for continued
certification under subsection (c)(4)(A) of this section but fails to meet
the requirements for continued certification under subsection (c)(4)(B) of
this section, 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 is subject to recapture or forfeiture;
(C)
for a company that meets the requirements for continued
certification under subsections (c)(4)(A) and (c)(4)(B) of this section but
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 by a certified investor after the fifth anniversary
of the allocation date is subject to recapture or forfeiture only if the company
is decertified on or before the fifth anniversary of its allocation date;
(D)
for a CAPCO that has invested an amount equal to 100% 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.
(5)
The comptroller will send a written notice to each certified
investor whose tax credit is subject to recapture or forfeiture for failure
of the certified capital company to maintain certification eligibility.
(6)
The comptroller may impose an administrative penalty on
a CAPCO that violates the provisions of this section. Each day a violation
continues or occurs is a separate violation. The maximum penalty may not exceed
$25,000 for each violation.
(A)
Each of the following is a separate violation that is subject
to a penalty of $5,000, which may be doubled if not corrected within 30 days:
(i)
failure to file annual reports by January 31;
(ii)
failure to maintain in the principal office in this state
all financial, administrative, management and investment records, including
details of both qualified investments and unqualified investments;
(iii)
failure to report names and addresses of certified investors,
including the date and amount of investments;
(iv)
failure to file an audited financial statement by April
1; and
(v)
failure to provide detailed financial and investment information
that supports each annual report.
(B)
Each of the following is a separate violation that is subject
to a penalty of $10,000, which may be doubled if the violation is not corrected
within 30 days:
(i)
failure to maintain the primary CAPCO office in this state;
(ii)
investment in a business that is found to be unqualified,
without first requesting from the comptroller an evaluation of the business
as provided under subsection (g) of this section; and
(iii)
failure to provide information about the CAPCO's operation
within 30 days after the comptroller requests the information.
(f)
Premium Tax Credits. A certified investor who makes an
investment of certified capital shall, in the year of the investment, earn
a premium tax credit that is equal to the amount of the investment, subject
to the other provisions in this section. A maximum of 10% of these tax credits
may be taken each year, beginning in the year of the investment, until all
credits have been used.
(1)
A premium tax credit allocation claim form for certified
investors must be prepared and executed by each CAPCO receiving an investment
commitment, on a form provided by the comptroller. Such form shall include
an affidavit of the certified investor which legally binds the investor to
make an investment of certified capital in an amount allocated by the comptroller.
The forms are due from each CAPCO by February 15, 2002, or such other date
as may be required under subsection (k) of this section.
(2)
A certified investor's tax credits are limited to the amount
of certified capital as allocated or as subsequently reallocated by the comptroller
and funded by the certified investor. The maximum investment for which a premium
tax credit may be allocated or reallocated to any one individual certified
investor and its affiliates may not exceed the greater of:
(A)
$10 million; or
(B)
15% of the aggregate amount of annual premium tax credits,
multiplied by 10, that are allocated under paragraph (3) of this subsection,
or reallocated under paragraph (4) of this subsection.
(3)
The total amount of credits that this subsection allows
is $200 million for all years. Total annual credits are limited to the lesser
of $20 million per year, or 10% of the total amount of investment under this
subsection.
(4)
Pro rata allocation of credits.
(A)
The comptroller shall perform a pro rata allocation of
the total amount of premium tax credits under this subsection if:
(i)
the total amount of certified capital under paragraph (1)
of this subsection exceeds the total limit on credits under paragraph (3)
of this subsection; or
(ii)
if an allocation of credits under subparagraph (A)(i)
of this paragraph has occurred and a CAPCO notifies the comptroller that it
did not receive an investment of certified capital equal to the amount of
the investment commitment from one or more investors, as provided on the premium
tax credit allocation form that is filed under paragraph (1) of this subsection.
(B)
the pro rata allocation for each certified investor shall
be computed as follows:
(i)
for an allocation under paragraph (4)(A)(i) of this subsection,
a fraction, the numerator of which is the value determined in paragraph (1)
of this subsection for each certified investor and the denominator of which
is the total amount of all premium tax credit allocation claims that are filed
under paragraph (1) of this subsection, for all certified investors, multiplied
by the total limit on credits of $200 million as provided by paragraph (3)
of this subsection.
(ii)
for a reallocation under paragraph (4)(A)(ii) of this
subsection, the comptroller shall reallocate the forfeited capital investment
allocation among the other certified investors in all CAPCOs that originally
received an allocation, in such amounts as will ensure that the result after
reallocation is to be the same as if the original allocation under this subsection
had been fully funded.
(5)
Tax credits under this subsection may be transferred as
provided by rules of the comptroller.
(6)
If a CAPCO is decertified, the comptroller will adjust
any tax report records that are impacted by the recapture or forfeiture of
premium tax credits and will enforce the collection of additional premium
taxes as a result of the recapture or forfeiture. For purposes of this section
in the recapture of tax credits taken, the provisions of Tax Code, §111.207
shall apply as if the limitation period had been tolled before the end of
the limitation under Tax Code, §111.204. These provisions shall apply
to all insurers and persons, including those who received a transfer or assignment
of the credits to be adjusted or recaptured.
(g)
Evaluation of Business. Before it makes an investment,
a CAPCO may request that the comptroller determine whether the business is
a qualified business, an early stage business, or a strategic investment business.
The CAPCO shall provide all information it has gathered on such business,
including its plan of operation and plans for future expansion.
(1)
Not later than 15 business days following receipt of a
request, the comptroller shall issue a determination of whether the business
meets the definition of a qualified business, early stage business or strategic
investment business.
(2)
The comptroller may notify the CAPCO that an additional
15 days will be needed to review and make the determination.
(3)
If the comptroller fails to notify the CAPCO as provided
under either paragraph (1) or (2) of this subsection, the business is considered
to be a qualified business, early stage business, or a strategic investment
business, as appropriate.
(h)
Qualified distributions; repayment of debt. A CAPCO may
make a qualified distribution at any time. A CAPCO may make a distribution
or payment that is not a qualified distribution only if the CAPCO has made
original, non-duplicative, qualified investments in an amount cumulatively
equal to 100% of its certified capital.
(1)
A CAPCO may make repayments of principal and interest on
its indebtedness without regard to subsection (h) of this section and without
restriction, including repayments of indebtedness of the CAPCO on which certified
investors earned premium tax credits. Such repayment does not relieve the
CAPCO of the requirements for renewal and continuance of certification under
subsection (c) of this section.
(2)
If a business in which a qualified investment has been
made, relocates its principal business operations outside this state during
the term of the CAPCOs investment in the business, the cumulative amount of
qualified investments made by the CAPCO for purposes of satisfying the requirements
of subsection (h) of this section, is reduced by the amount of the CAPCOs
qualified investments in this business. This provision shall not apply if
the business demonstrates that it has returned its principal business operations
to this state not later than 90 days after the date of its relocation.
(i)
Required reports. Each CAPCO shall report to the comptroller:
(1)
as soon as practicable after receipt of certified capital,
but not to exceed 45 days
(A)
the certified investors name, address and taxpayer identification
number, and
(B)
the date of and amount of investment received by the CAPCO.
(2)
an annual report due each January 31 that contains:
(A)
the amount of the CAPCO's certified capital, including
details of all investments, at the end of the preceding year;
(B)
a detailed listing of investment violations under this
section;
(C)
each qualified investment that the CAPCO 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;
(D)
a copy of the business plan or plan of operation for each
of the qualified businesses in which the CAPCO has invested; and
(E)
any other information the comptroller requires by notification
or instructions to each CAPCO.
(3)
an annual audited financial statement by April 1 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:
(A)
the company is complying with the Insurance Code with respect
to the CAPCO requirements and the rules adopted in this section;
(B)
the funds received by the company have been invested as
required within the time provided by Insurance Code, Article 4.56(a); and
(C)
the company has invested the funds in qualified businesses.
(j)
Report to the Legislature. The comptroller shall prepare
a biennial report to the Legislature with respect to results of implementation
of this section. This report shall be filed with the governor, the lieutenant
governor, and the speaker of the house of representatives not later than December
15 of each even-numbered year. Such report shall include:
(1)
the names and number of CAPCOs holding certified capital;
(2)
the amount of certified capital invested in each CAPCO;
(3)
the amount of certified capital the CAPCO has invested
in qualified business, including the names and locations of such businesses,
as of January 1, 2004 and each subsequent year;
(4)
the amount of tax credits granted based on certified investments
along with the tax credits taken by year;
(5)
the performance of each CAPCO under this section for each
year a tax credit was granted;
(6)
concerning qualified businesses in which CAPCOs have invested;
(A)
the classification of the businesses, along with the industrial
sector and size of each 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)
a list of the CAPCOs that have been decertified or that
have failed to renew the certification and the reason for any decertification.
(k)
Delay in implementation. If the comptroller has not certified
that revenues are available for the implementation of this section before
October 1, 2001, the application process under subsection (b) of this section
will be delayed and will begin 60 days following the certification, provided
that the certification is complete before January 15, 2002. If the certification
is not made before January 15, 2002, this section will not be implemented.
(1)
The allocation claim form date shall be on the first of
the month next following the third month after the start of the application
process.
(2)
As applicable, the pro rata allocation of credits shall
be completed the first of the month next following the allocation claim form
date.
(l)
Certification of partial credits. If the comptroller determines
before the implementation of this section that revenues are anticipated to
support a part, but not all, of the premium tax credits authorized under Insurance
Code, Article 4.67, the comptroller shall reduce the total amount of tax credits
allowed in the amount necessary to comply with certification. A certification
by the comptroller resulting in a reduction in the credits under this section
shall require an amendment to this section as provided by Insurance Code,
Article 4.74.
This agency hereby certifies that the emergency adoption
has been reviewed by legal counsel and found to be within the agency's legal
authority to adopt.
Filed with the Office of
the Secretary of State, on July 27, 2001.
TRD-200104382
Martin Cherry
Deputy General Counsel for Tax Policy and Agency Affairs
Comptroller of Public Accounts
Effective Date: July 27, 2001
Expiration Date: November 24, 2001
For further information, please call: (512) 463-4062