By: Carona S.B. No. 601 A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to certain investments and rate reductions by insurance 1-3 companies and related organizations; providing an administrative 1-4 penalty. 1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-6 SECTION 1. Chapter 4, Insurance Code, is amended by adding 1-7 Subchapter B to read as follows: 1-8 SUBCHAPTER B. PREMIUM TAX CREDIT FOR INVESTMENT IN 1-9 CERTIFIED CAPITAL COMPANY 1-10 Art. 4.51. DEFINITIONS. In this subchapter: 1-11 (1) "Affiliate" of another person means: 1-12 (A) a person who is an affiliate for purposes of 1-13 Section 2, Article 21.49-1 of this code; 1-14 (B) a person who directly or indirectly: 1-15 (i) beneficially owns 10 percent or more 1-16 of the outstanding voting securities or other ownership interests 1-17 of the other person, whether through rights, options, convertible 1-18 interests, or otherwise; or 1-19 (ii) controls or holds power to vote 10 1-20 percent or more of the outstanding voting securities or other 1-21 ownership interests of the other person; 1-22 (C) a person 10 percent or more of the 1-23 outstanding voting securities or other ownership interests of which 1-24 are directly or indirectly: 1-25 (i) beneficially owned by the other 2-1 person, whether through rights, options, convertible interests, or 2-2 otherwise; or 2-3 (ii) controlled or held with power to vote 2-4 by the other person; 2-5 (D) a partnership in which the other person is a 2-6 general partner; or 2-7 (E) an officer, director, employee, or agent of 2-8 the other person, or an immediate family member of the officer, 2-9 director, employee, or agent. 2-10 (2) "Allocation date" means the date on which the 2-11 certified investors of a certified capital company are allocated 2-12 certified capital by the comptroller under this subchapter. 2-13 (3) "Certified capital" means an investment of cash by 2-14 a certified investor in a certified capital company that fully 2-15 funds the purchase price of an equity interest in the company or a 2-16 qualified debt instrument issued by the certified capital company. 2-17 (4) "Certified capital company" means a partnership, 2-18 corporation, or trust or limited liability company, whether 2-19 organized on a profit or not-for-profit basis, that has as its 2-20 primary business activity the investment of cash in qualified 2-21 businesses and that is certified as meeting the criteria of this 2-22 subchapter. 2-23 (5) "Certified investor" means an insurance company or 2-24 other person that has state premium tax liability, other than a 2-25 title insurance company, that contributes certified capital 2-26 pursuant to an allocation of premium tax credits under this 3-1 subchapter. 3-2 (6) "Early stage business" means a qualified business 3-3 that satisfies at least one of the following criteria: 3-4 (A) is involved, at the time of a certified 3-5 capital company's first investment, in activities related to the 3-6 development of initial product or service offerings, such as 3-7 prototype development or establishment of initial production or 3-8 service processes; 3-9 (B) was initially organized less than two years 3-10 before the date of the certified capital company's first 3-11 investment; or 3-12 (C) during the fiscal year immediately preceding 3-13 the year of the certified capital company's first investment had, 3-14 on a consolidated basis with its affiliates, gross revenues of not 3-15 more than $2 million as determined in accordance with generally 3-16 accepted accounting principles. 3-17 (7) "Person" means a natural person or entity, 3-18 including a corporation, general or limited partnership, or trust 3-19 or limited liability company. 3-20 (8) "Premium tax credit allocation claim" means a 3-21 claim for allocation of premium tax credits. 3-22 (9) "Qualified business" means a business that, at the 3-23 time of a certified capital company's first investment in the 3-24 business: 3-25 (A) is headquartered in this state and intends 3-26 to remain in this state after receipt of the investment by the 4-1 certified capital company; 4-2 (B) has its principal business operations 4-3 located in this state and intends to maintain business operations 4-4 in this state after receipt of the investment by the certified 4-5 capital company; 4-6 (C) has agreed to use the qualified investment 4-7 primarily to: 4-8 (i) support business operations, other 4-9 than advertising, promotion, and sales operations, in this state; 4-10 or 4-11 (ii) in the case of a start-up company, 4-12 establish and support business operations, other than advertising, 4-13 promotion, and sales operations, in this state; 4-14 (D) has not more than 100 employees and: 4-15 (i) employs at least 80 percent of its 4-16 employees in this state; or 4-17 (ii) pays 80 percent of its payroll to 4-18 employees in this state; 4-19 (E) is primarily engaged in: 4-20 (i) manufacturing, processing, or 4-21 assembling products; 4-22 (ii) conducting research and development; 4-23 or 4-24 (iii) providing services; and 4-25 (F) is not primarily engaged in: 4-26 (i) retail sales; 5-1 (ii) real estate development; 5-2 (iii) the business of insurance, banking, 5-3 or lending; or 5-4 (iv) the provision of professional 5-5 services provided by accountants, attorneys, or physicians. 5-6 (10) "Qualified debt instrument" means a debt 5-7 instrument issued by a certified capital company, at par value or a 5-8 premium, that: 5-9 (A) has an original maturity date of at least 5-10 five years after the date of issuance; 5-11 (B) has a repayment schedule that is not faster 5-12 than a level principal amortization over five years; and 5-13 (C) has no interest, distribution, or payment 5-14 features that are related to the profitability of the certified 5-15 capital company or the performance of the certified capital 5-16 company's investment portfolio. 5-17 (11) "Qualified distribution" means any distribution 5-18 or payment from certified capital by a certified capital company in 5-19 connection with: 5-20 (A) the reasonable costs and expenses of 5-21 forming, syndicating, managing, and operating the company, provided 5-22 that the distribution or payment is not made directly or indirectly 5-23 to a certified investor, including: 5-24 (i) reasonable and necessary fees paid for 5-25 professional services, including legal and accounting services, 5-26 related to the formation and operation of the company; and 6-1 (ii) an annual management fee in an amount 6-2 that does not exceed two and one-half percent of the certified 6-3 capital of the company; and 6-4 (B) any projected increase in federal or state 6-5 taxes, including penalties and interest related to state and 6-6 federal income taxes, of the equity owners of the company resulting 6-7 from the earnings or other tax liability of the company to the 6-8 extent that the increase is related to the ownership, management, 6-9 or operation of the company. 6-10 (12) "Qualified investment" means the investment of 6-11 cash by a certified capital company in a qualified business for the 6-12 purchase of any debt, debt participation, equity, or hybrid 6-13 security of any nature or description, including a debt instrument 6-14 or security that has the characteristics of debt but that provides 6-15 for conversion into equity or equity participation instruments such 6-16 as options or warrants. 6-17 (13) "State premium tax liability" means: 6-18 (A) any liability incurred by any person under 6-19 Subchapter A of this chapter; or 6-20 (B) if the tax liability imposed under 6-21 Subchapter A of this chapter on January 1, 2001, is eliminated or 6-22 reduced, any tax liability imposed on an insurance company or other 6-23 person that had premium tax liability under Subchapter A of this 6-24 chapter on that date. 6-25 Art. 4.52. DUTIES OF COMPTROLLER; RULES. The comptroller 6-26 shall administer this subchapter and may adopt rules and forms as 7-1 necessary to implement this subchapter. 7-2 Art. 4.53. CERTIFICATION. (a) The comptroller by rule 7-3 shall establish the application procedures for certified capital 7-4 companies. 7-5 (b) An applicant must file an application in the form 7-6 prescribed by the comptroller accompanied by a nonrefundable 7-7 application fee of $7,500. The application must include an audited 7-8 balance sheet of the applicant, with an unqualified opinion from an 7-9 independent certified public accountant, as of a date not more than 7-10 35 days before the date of the application. 7-11 (c) To qualify as a certified capital company: 7-12 (1) the applicant must have, at the time of 7-13 application for certification, an equity capitalization of at 7-14 least $500,000 in the form of unencumbered cash or cash 7-15 equivalents; 7-16 (2) at least two principals or persons employed to 7-17 manage the funds of the applicant must have at least four years of 7-18 experience in the venture capital industry; and 7-19 (3) the applicant must satisfy any additional 7-20 requirement imposed by the comptroller by rule. 7-21 (d) The comptroller shall review the application, 7-22 organizational documents, and business history of each applicant 7-23 and shall ensure that the applicant satisfies the requirements of 7-24 this subchapter. 7-25 (e) Not later than the 30th day after the date an 7-26 application is filed, the comptroller shall: 8-1 (1) issue the certification; or 8-2 (2) refuse to issue the certification and communicate 8-3 in detail to the applicant the grounds for the refusal, including 8-4 suggestions for the removal of those grounds. 8-5 Art. 4.54. MANAGEMENT BY CERTAIN ENTITIES PROHIBITED. 8-6 (a) An insurance company, group of insurance companies, or other 8-7 persons who may have state premium tax liability or the affiliates 8-8 of the insurance companies or other persons may not, directly or 8-9 indirectly: 8-10 (1) manage a certified capital company; 8-11 (2) beneficially own, whether through rights, options, 8-12 convertible interests, or otherwise, more than 10 percent of the 8-13 outstanding voting securities of a certified capital company; or 8-14 (3) control the direction of investments for a 8-15 certified capital company. 8-16 (b) Not more than one affiliate of the certified investors 8-17 in any certified capital company may provide a guaranty, indemnity, 8-18 bond, insurance policy, or other payment undertaking in favor of 8-19 all of the certified investors of the certified capital company and 8-20 its affiliates. 8-21 (c) Subsection (a) of this article applies without regard to 8-22 whether the insurance company or other person or the affiliate of 8-23 the insurance company or other person is licensed by or transacts 8-24 business in this state. 8-25 (d) This article does not preclude a certified investor, an 8-26 insurance company, or any other party from exercising its legal 9-1 rights and remedies, including interim management of a certified 9-2 capital company, if authorized by law, with respect to a certified 9-3 capital company that is in default of its statutory or contractual 9-4 obligations to the certified investor, insurance company, or other 9-5 party. 9-6 Art. 4.55. OFFERING MATERIAL USED BY CERTIFIED CAPITAL 9-7 COMPANY. Any offering material involving the sale of securities of 9-8 the certified capital company must include the following statement: 9-9 By authorizing the formation of a certified capital 9-10 company, the State of Texas does not endorse the 9-11 quality of management or the potential for earnings of 9-12 the company and is not liable for damages or losses to 9-13 a certified investor in the company. Use of the word 9-14 "certified" in an offering does not constitute a 9-15 recommendation or endorsement of the investment by the 9-16 comptroller of public accounts. If applicable 9-17 provisions of law are violated, the State of Texas may 9-18 require forfeiture of unused premium tax credits and 9-19 repayments of used premium tax credits. 9-20 Art. 4.56. REQUIREMENTS FOR CONTINUANCE OF CERTIFICATION. 9-21 (a) To continue to be certified, a certified capital company 9-22 shall make qualified investments according to the following 9-23 schedule: 9-24 (1) before the third anniversary of its allocation 9-25 date, a company must have made qualified investments in an amount 9-26 cumulatively equal to at least 30 percent of its certified capital; 10-1 and 10-2 (2) before the fifth anniversary of its allocation 10-3 date, a company must have made qualified investments in an amount 10-4 cumulatively equal to at least 50 percent of its certified capital, 10-5 subject to Subsection (b) of this article. 10-6 (b) At least 50 percent of the amount of qualified 10-7 investments required by Subsections (a)(1) and (2) of this article 10-8 must be placed in early stage businesses. 10-9 (c) The aggregate cumulative amount of all qualified 10-10 investments made by the certified capital company after its 10-11 allocation date shall be considered in the computation of the 10-12 percentage requirements under this subchapter. Any proceeds 10-13 received from a qualified investment may be invested in another 10-14 qualified investment and count toward any requirement in this 10-15 subchapter with respect to investments of certified capital. 10-16 (d) A business that is classified as a qualified business at 10-17 the time of the first investment in the business by a certified 10-18 capital company remains classified as a qualified business and may 10-19 receive follow-on investments from any certified capital company. 10-20 Except as provided by this subsection, a follow-on investment made 10-21 under this subsection is a qualified investment even though the 10-22 business may not meet the definition of a qualified business at the 10-23 time of the follow-on investment. A follow-on investment does not 10-24 qualify as a qualified investment if, at the time of the follow-on 10-25 investment, the qualified business no longer has its principal 10-26 business operations in this state. 11-1 (e) A qualified investment may not be made at a cost to a 11-2 certified capital company greater than 15 percent of the total 11-3 certified capital of the company at the time of investment. 11-4 (f) If, before the 90th day after the date that a certified 11-5 capital company makes an investment in a qualified business, the 11-6 qualified business moves its principal business operations from 11-7 this state, the investment may not be considered a qualified 11-8 investment for purposes of the percentage requirements under this 11-9 subchapter. 11-10 (g) A certified capital company shall invest any certified 11-11 capital not invested in qualified investments only in the 11-12 following: 11-13 (1) cash deposited with a federally insured financial 11-14 institution; 11-15 (2) certificates of deposit in a federally insured 11-16 financial institution; 11-17 (3) investment securities that are obligations of the 11-18 United States or its agencies or instrumentalities or obligations 11-19 that are guaranteed fully as to principal and interest by the 11-20 United States; 11-21 (4) debt instruments rated at least "A" or its 11-22 equivalent by a nationally recognized credit rating organization, 11-23 or issued by, or guaranteed with respect to payment by, an entity 11-24 whose unsecured indebtedness is rated at least "A" or its 11-25 equivalent by a nationally recognized credit rating organization, 11-26 and which indebtedness is not subordinated to other unsecured 12-1 indebtedness of the issuer or the guarantor; 12-2 (5) obligations of this state or any municipality or 12-3 political subdivision of this state; or 12-4 (6) any other investments approved in advance and in 12-5 writing by the comptroller. 12-6 Art. 4.57. EVALUATION OF BUSINESS BY COMPTROLLER. (a) A 12-7 certified capital company may, before making an investment in a 12-8 business, request from the comptroller a written opinion as to 12-9 whether the business in which it proposes to invest is a qualified 12-10 business or an early stage business. 12-11 (b) The comptroller shall, not later than the 15th business 12-12 day after the date of the receipt of a request under Subsection (a) 12-13 of this article, determine whether the business meets the 12-14 definition of a qualified business or an early stage business, as 12-15 applicable, and notify the certified capital company of the 12-16 determination and an explanation of its determination or notify the 12-17 certified capital company that an additional 15 days will be needed 12-18 to review and make the determination. 12-19 (c) If the comptroller fails to notify the certified capital 12-20 company with respect to the proposed investment within the period 12-21 specified by Subsection (b) of this article, the business in which 12-22 the company proposes to invest is considered to be a qualified 12-23 business or early stage business, as appropriate. 12-24 Art. 4.58. REPORTS TO COMPTROLLER; AUDITED FINANCIAL 12-25 STATEMENT. (a) Each certified capital company shall report to the 12-26 comptroller as soon as practicable after the receipt of certified 13-1 capital: 13-2 (1) the name of each certified investor from whom the 13-3 certified capital was received, including the certified investor's 13-4 insurance premium tax identification number; 13-5 (2) the amount of each certified investor's investment 13-6 of certified capital and premium tax credits; and 13-7 (3) the date on which the certified capital was 13-8 received. 13-9 (b) Not later than January 31 of each year, each certified 13-10 capital company shall report to the comptroller: 13-11 (1) the amount of the company's certified capital at 13-12 the end of the preceding year; 13-13 (2) whether or not the company has invested more than 13-14 15 percent of its total certified capital in any one business; 13-15 (3) each qualified investment that the company made 13-16 during the preceding year and, with respect to each qualified 13-17 investment, the number of employees of the qualified business at 13-18 the time the qualified investment was made; and 13-19 (4) any other information required by the comptroller, 13-20 including any information required by the comptroller to comply 13-21 with Article 4.74 of this code. 13-22 (c) Not later than April 1 of each year, the company shall 13-23 provide to the comptroller an annual audited financial statement 13-24 that includes the opinion of an independent certified public 13-25 accountant. The audit shall address the methods of operation and 13-26 conduct of the business of the company to determine whether: 14-1 (1) the company is complying with this subchapter and 14-2 the rules adopted under this subchapter; 14-3 (2) the funds received by the company have been 14-4 invested as required within the time provided by Article 4.56(a) of 14-5 this code; and 14-6 (3) the company has invested the funds in qualified 14-7 businesses. 14-8 Art. 4.59. RENEWAL. (a) Not later than January 31 of each 14-9 year, each certified capital company shall pay a nonrefundable 14-10 renewal fee of $5,000 to the comptroller. If a certified capital 14-11 company fails to pay its renewal fee on or before that date, the 14-12 company must pay, in addition to the renewal fee, a late fee of 14-13 $5,000 to continue its certification. 14-14 (b) Notwithstanding Subsection (a) of this article, a 14-15 renewal fee is not required within six months of the date on which 14-16 the company's certification is issued under Article 4.53 of this 14-17 code. 14-18 Art. 4.60. DISTRIBUTIONS; REPAYMENT OF DEBT. (a) A 14-19 certified capital company may make a qualified distribution at any 14-20 time. To make a distribution or payment, other than a qualified 14-21 distribution, a company must have made qualified investments in an 14-22 amount cumulatively equal to 100 percent of its certified capital. 14-23 (b) Notwithstanding Subsection (a) of this article, a 14-24 company may make repayments of principal and interest on its 14-25 indebtedness without any restriction, including repayments of 14-26 indebtedness of the company on which certified investors earned 15-1 premium tax credits. 15-2 Art. 4.61. ANNUAL REVIEW; DECERTIFICATION. (a) The 15-3 comptroller shall conduct an annual review of each certified 15-4 capital company to: 15-5 (1) ensure that the company continues to satisfy the 15-6 requirements of this subchapter and that the company has not made 15-7 any investment in violation of this subchapter; and 15-8 (2) determine the eligibility status of its qualified 15-9 investments. 15-10 (b) The cost of the annual review shall be paid by each 15-11 certified capital company according to a reasonable fee schedule 15-12 adopted by the comptroller. 15-13 (c) A material violation of Article 4.56, 4.58, or 4.59 of 15-14 this code is grounds for decertification of the certified capital 15-15 company. If the comptroller determines that a company is not in 15-16 compliance with Article 4.56, 4.58, or 4.59 of this code, the 15-17 comptroller shall notify the officers of the company in writing 15-18 that the company may be subject to decertification after the 120th 15-19 day after the date of mailing of the notice, unless the 15-20 deficiencies are corrected and the company returns to compliance 15-21 with those articles. 15-22 (d) The comptroller may decertify a certified capital 15-23 company, after opportunity for hearing, if the comptroller finds 15-24 that the company is not in compliance with Article 4.56, 4.58, or 15-25 4.59 of this code at the end of the period established by 15-26 Subsection (c) of this article. Decertification under this 16-1 subsection is effective on receipt of notice of decertification by 16-2 the company. The comptroller shall notify any appropriate state 16-3 agency of the decertification. 16-4 Art. 4.62. ADMINISTRATIVE PENALTY. (a) The comptroller may 16-5 impose an administrative penalty on a certified capital company 16-6 that violates this subchapter. 16-7 (b) The amount of the penalty may not exceed $25,000, and 16-8 each day a violation continues or occurs is a separate violation 16-9 for the purpose of imposing a penalty. The amount of the penalty 16-10 shall be based on: 16-11 (1) the seriousness of the violation, including the 16-12 nature, circumstances, extent, and gravity of the violation; 16-13 (2) the economic harm caused by the violation; 16-14 (3) the history of previous violations; 16-15 (4) the amount necessary to deter a future violation; 16-16 (5) efforts to correct the violation; and 16-17 (6) any other matter that justice may require. 16-18 (c) Certified capital companies assessed penalties under 16-19 this subchapter may request a redetermination as provided in 16-20 Chapter 111, Tax Code. 16-21 (d) The attorney general may sue to collect the penalty. 16-22 (e) A proceeding to impose the penalty is considered to be a 16-23 contested case under Chapter 2001, Government Code. 16-24 Art. 4.63. RECAPTURE AND FORFEITURE OF PREMIUM TAX CREDITS: 16-25 DECERTIFICATION OF COMPANY. (a) Decertification of a certified 16-26 capital company may cause the recapture of premium tax credits 17-1 previously claimed and the forfeiture of future premium tax credits 17-2 to be claimed by certified investors with respect to the company, 17-3 as follows: 17-4 (1) decertification of a company on or before the 17-5 third anniversary of its allocation date causes the recapture of 17-6 any premium tax credit previously claimed and the forfeiture of any 17-7 future premium tax credit to be claimed by a certified investor 17-8 with respect to the company; 17-9 (2) for a company that meets the requirements for 17-10 continued certification under Article 4.56(a)(1) of this code and 17-11 subsequently fails to meet the requirements for continued 17-12 certification under Article 4.56(a)(2) of this code, any premium 17-13 tax credit that has been or will be taken by a certified investor 17-14 on or before the third anniversary of the allocation date is not 17-15 subject to recapture or forfeiture, but any premium tax credit that 17-16 has been or will be taken by a certified investor after the third 17-17 anniversary of the allocation date of the company is subject to 17-18 recapture or forfeiture; 17-19 (3) for a company that has met the requirements for 17-20 continued certification under Articles 4.56(a)(1) and (2) of this 17-21 code and is subsequently decertified, any premium tax credit that 17-22 has been or will be taken by a certified investor on or before the 17-23 fifth anniversary of the allocation date is not subject to 17-24 recapture or forfeiture, but any premium tax credit to be taken 17-25 after the fifth anniversary of the allocation date is subject to 17-26 forfeiture only if the company is decertified on or before the 18-1 fifth anniversary of its allocation date; and 18-2 (4) for a company that has invested an amount 18-3 cumulatively equal to 100 percent of its certified capital in 18-4 qualified investments, any premium tax credit claimed or to be 18-5 claimed by a certified investor is not subject to recapture or 18-6 forfeiture under this article. 18-7 (b) The comptroller shall send written notice to the address 18-8 of each certified investor whose premium tax credit is subject to 18-9 recapture or forfeiture, using the address shown on the last 18-10 premium tax filing. 18-11 Art. 4.64. PENALTY IF QUALIFIED BUSINESS LEAVES STATE. In 18-12 the event that a business in which a qualified investment is made 18-13 relocates its principal business operations to another state during 18-14 the term of the certified capital company's investment in such 18-15 business, the cumulative amount of qualified investments made by 18-16 the certified capital company for purposes of satisfying the 18-17 requirements set forth in Article 4.60(a) of this code shall be 18-18 reduced by the amount of the certified capital company's investment 18-19 in the business that has relocated, unless the business 18-20 demonstrates that it has returned its principal business operations 18-21 to this state within three months of such relocation. 18-22 Art. 4.65. INDEMNITY AGREEMENTS AND INSURANCE AUTHORIZED. A 18-23 certified capital company may agree to indemnify, or purchase 18-24 insurance for the benefit of, a certified investor for losses 18-25 resulting from the recapture or forfeiture of premium tax credits 18-26 under Article 4.63 of this code. 19-1 Art. 4.66. PREMIUM TAX CREDIT. (a) A certified investor 19-2 who makes an investment of certified capital shall in the year of 19-3 investment earn a vested credit against state premium tax liability 19-4 equal to 100 percent of the certified investor's investment of 19-5 certified capital, subject to the limits imposed by this 19-6 subchapter. A certified investor may take up to 10 percent of the 19-7 vested premium tax credit in any taxable year of the certified 19-8 investor. 19-9 (b) The credit to be applied against state premium tax 19-10 liability in any one year may not exceed the state premium tax 19-11 liability of the certified investor for the taxable year. Any 19-12 unused credit against state premium tax liability may be carried 19-13 forward indefinitely until the premium tax credits are used. 19-14 (c) A certified investor claiming a credit against state 19-15 premium tax liability earned through an investment in a company is 19-16 not required to pay any additional retaliatory tax levied under 19-17 Article 21.46 of this code as a result of claiming that credit. An 19-18 investment made under this subchapter is a "Texas investment" for 19-19 purposes of Subchapter A of this chapter. 19-20 Art. 4.67. PREMIUM TAX CREDIT ALLOCATION CLAIM FORM. (a) A 19-21 premium tax credit allocation claim must be prepared and executed 19-22 by a certified investor on a form provided by the comptroller. The 19-23 certified capital company must file the claim with the comptroller 19-24 not later than February 15, 2002. The premium tax credit 19-25 allocation claim form must include an affidavit of the certified 19-26 investor under which the certified investor becomes legally bound 20-1 and irrevocably committed to make an investment of certified 20-2 capital in a certified capital company in the amount allocated even 20-3 if the amount allocated is less than the amount of the claim, 20-4 subject only to the receipt of an allocation under Article 4.69 of 20-5 this code. 20-6 (b) A certified investor may not claim a premium tax credit 20-7 under Article 4.66 of this code for an investment that has not been 20-8 funded, even if the certified investor has committed to fund the 20-9 investment. 20-10 Art. 4.68. TOTAL LIMIT ON CREDITS. (a) The total amount of 20-11 certified capital for which premium tax credits may be allowed 20-12 under this subchapter for all years in which premium tax credits 20-13 are allowed is $200 million. 20-14 (b) The total amount of certified capital for which premium 20-15 tax credits may be allowed for all certified investors under this 20-16 subchapter may not exceed the amount that would entitle all 20-17 certified investors in certified capital companies to take total 20-18 credits of $20 million in a year. 20-19 (c) A certified capital company and its affiliates may not 20-20 file premium tax credit allocation claims in excess of the maximum 20-21 amount of certified capital for which premium tax credits may be 20-22 allowed as provided in this article. 20-23 Art. 4.69. PRO RATA ALLOCATION OF CREDITS. (a) If the 20-24 total premium tax credits claimed by all certified investors 20-25 exceeds the total limits on premium tax credits established by 20-26 Article 4.68(a) of this code, the comptroller shall allocate the 21-1 total amount of premium tax credits allowed under this subchapter 21-2 to certified investors in certified capital companies on a pro rata 21-3 basis in accordance with this article. 21-4 (b) The pro rata allocation for each certified investor 21-5 shall be the product of: 21-6 (1) a fraction, the numerator of which is the amount 21-7 of the premium tax credit allocation claim filed on behalf of the 21-8 investor and the denominator of which is the total amount of all 21-9 premium tax credit allocation claims filed on behalf of all 21-10 certified investors; and 21-11 (2) the total amount of certified capital for which 21-12 premium tax credits may be allowed under this subchapter. 21-13 (c) Not later than March 1, 2002, the comptroller shall 21-14 notify each certified capital company of the amount of tax credits 21-15 allocated to each certified investor. Each certified capital 21-16 company shall notify each certified investor of their premium tax 21-17 credit allocation. 21-18 (d) If a certified capital company does not receive an 21-19 investment of certified capital equaling the amount of premium tax 21-20 credits allocated to a certified investor for which it filed a 21-21 premium tax credit allocation claim before the end of the 10th 21-22 business day after the date of receipt of notice of allocation, the 21-23 company shall notify the comptroller by overnight common carrier 21-24 delivery service and that portion of capital allocated to the 21-25 certified investor shall be forfeited. The comptroller shall 21-26 reallocate the forfeited capital among the certified investors in 22-1 the other certified capital companies that originally received an 22-2 allocation so that the result after reallocation is the same as if 22-3 the initial allocation under this article had been performed 22-4 without considering the premium tax credit allocation claims that 22-5 were subsequently forfeited. 22-6 (e) The maximum amount of certified capital for which 22-7 premium tax credit allocation claims may be filed on behalf of any 22-8 one certified investor and its affiliates, whether by one or more 22-9 certified capital companies, may not exceed the greater of: 22-10 (1) $10 million; or 22-11 (2) 15 percent of the maximum aggregate amount 22-12 available under Article 4.68(a) of this code. 22-13 Art. 4.70. TREATMENT OF CREDITS AND CAPITAL. In any case 22-14 under this code or another insurance law of this state in which the 22-15 assets of a certified investor are examined or considered, the 22-16 certified capital may be treated as an admitted asset, subject to 22-17 the applicable statutory valuation procedures. 22-18 Art. 4.71. IMPACT OF TAX CREDITS CLAIMED BY A CERTIFIED 22-19 INVESTOR ON INSURANCE RATES. A certified investor is not required 22-20 to reduce the amount of premium tax included by the investor in 22-21 connection with ratemaking for any insurance contract written in 22-22 this state because of a reduction in the investor's Texas premium 22-23 tax derived from the credit granted under this subchapter. 22-24 Art. 4.72. TRANSFERABILITY OF CREDIT. (a) The comptroller 22-25 shall adopt rules to facilitate the transfer or assignment of 22-26 premium tax credits by certified investors. A certified investor 23-1 may transfer or assign premium tax credits only in compliance with 23-2 the rules adopted under this subsection. 23-3 (b) The transfer or assignment of a premium tax credit does 23-4 not affect the schedule for taking the premium tax credit under 23-5 this subchapter. 23-6 Art. 4.73. PROMOTION. The Texas Department of Economic 23-7 Development shall promote the program established under this 23-8 subchapter in the Texas Business and Community Economic Development 23-9 Clearinghouse. 23-10 Art. 4.74. REPORT TO LEGISLATURE. (a) The comptroller 23-11 shall prepare a biennial report with respect to results of the 23-12 implementation of this subchapter. The report must include: 23-13 (1) the number of certified capital companies holding 23-14 certified capital; 23-15 (2) the amount of certified capital invested in each 23-16 certified capital company; 23-17 (3) the amount of certified capital the certified 23-18 capital company has invested in qualified businesses as of January 23-19 1, 2004, and the cumulative total for each subsequent year; 23-20 (4) the total amount of tax credits granted under this 23-21 subchapter for each year that credits have been granted; 23-22 (5) the performance of each certified capital company 23-23 with respect to renewal and reporting requirements imposed under 23-24 this subchapter; 23-25 (6) with respect to the qualified businesses in which 23-26 certified capital companies have invested: 24-1 (A) the classification of the qualified 24-2 businesses according to the industrial sector and the size of the 24-3 business; 24-4 (B) the total number of jobs created by the 24-5 investment and the average wages paid for the jobs; and 24-6 (C) the total number of jobs retained as a 24-7 result of the investment and the average wages paid for the jobs; 24-8 and 24-9 (7) the certified capital companies that have been 24-10 decertified or that have failed to renew the certification and the 24-11 reason for any decertification. 24-12 (b) The comptroller shall file the report with the governor, 24-13 the lieutenant governor, and the speaker of the house of 24-14 representatives not later than December 15 of each even-numbered 24-15 year. 24-16 Art. 4.75. IMPLEMENTATION SUBJECT TO AVAILABLE REVENUE. 24-17 (a) Notwithstanding any other provision of this subchapter, the 24-18 comptroller may implement this subchapter only if the comptroller 24-19 determines, on the basis of a revenue estimate made after the 24-20 adjournment sine die of the regular session of the 77th 24-21 Legislature, that revenues are anticipated in amounts sufficient to 24-22 finance all appropriations made during the regular session of the 24-23 77th Legislature, after making deductions for all reductions in 24-24 taxes, including the reduction in premium tax through premium tax 24-25 credits authorized under this subchapter. 24-26 (b) If the comptroller determines under Subsection (a) of 25-1 this article that revenues are anticipated to support a part, but 25-2 less than all, of the premium tax credits authorized under Article 25-3 4.68 of this code, the comptroller shall: 25-4 (1) reduce the total amount of premium tax credits 25-5 allowed under that article in the amount necessary to comply with 25-6 Subsection (a) of this article; and 25-7 (2) adopt rules as necessary to implement this 25-8 subchapter after the reduction made under Subdivision (1) of this 25-9 subsection. 25-10 (c) Rules adopted under Subsection (b)(2) of this article 25-11 may adjust any deadline or other date established by this 25-12 subchapter as necessary to implement this subchapter as limited by 25-13 this article. 25-14 (d) The comptroller shall notify the governor, lieutenant 25-15 governor, and speaker of the house of representatives of the 25-16 determination made under Subsection (a) of this article. 25-17 SECTION 2. Articles 4.01 through 4.08, 4.10, 4.11, 4.11A, 25-18 4.11B, 4.11C, 4.12, and 4.17, 4.18, and 4.19, Insurance Code, are 25-19 redesignated as Subchapter A, Chapter 4, Insurance Code, and a 25-20 subchapter heading is added to read as follows: 25-21 SUBCHAPTER A. IMPOSITION AND COLLECTION OF TAXES AND FEES 25-22 SECTION 3. (a) Subject to Article 4.75, Insurance Code, as 25-23 added by this Act, the comptroller of public accounts shall, not 25-24 later than the 60th day after the effective date of this Act, adopt 25-25 rules necessary to implement Subchapter B, Chapter 4, Insurance 25-26 Code, as added by this Act. The comptroller shall begin accepting 26-1 applications for certification as a certified capital company under 26-2 that subchapter on November 1, 2001. 26-3 (b) A certified investor may not make an investment with a 26-4 certified capital company under Subchapter B, Chapter 4, Insurance 26-5 Code, as added by this Act, before February 15, 2002. 26-6 SECTION 4. This Act takes effect immediately if it receives 26-7 a vote of two-thirds of all the members elected to each house, as 26-8 provided by Section 39, Article III, Texas Constitution. If this 26-9 Act does not receive the vote necessary for immediate effect, this 26-10 Act takes effect September 1, 2001.