1-1 By: Carona S.B. No. 601 1-2 (In the Senate - Filed February 8, 2001; February 12, 2001, 1-3 read first time and referred to Committee on Business and Commerce; 1-4 April 2, 2001, reported adversely, with favorable Committee 1-5 Substitute by the following vote: Yeas 5, Nays 1; April 2, 2001, 1-6 sent to printer.) 1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 601 By: Carona 1-8 A BILL TO BE ENTITLED 1-9 AN ACT 1-10 relating to certain investments and rate reductions by insurance 1-11 companies and related organizations; providing an administrative 1-12 penalty. 1-13 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-14 SECTION 1. Chapter 4, Insurance Code, is amended by adding 1-15 Subchapter B to read as follows: 1-16 SUBCHAPTER B. PREMIUM TAX CREDIT FOR INVESTMENT IN 1-17 CERTIFIED CAPITAL COMPANY 1-18 Art. 4.51. DEFINITIONS. In this subchapter: 1-19 (1) "Affiliate" of another person means: 1-20 (A) a person who is an affiliate for purposes of 1-21 Section 2, Article 21.49-1 of this code; 1-22 (B) a person who directly or indirectly: 1-23 (i) beneficially owns 10 percent or more 1-24 of the outstanding voting securities or other ownership interests 1-25 of the other person, whether through rights, options, convertible 1-26 interests, or otherwise; or 1-27 (ii) controls or holds power to vote 10 1-28 percent or more of the outstanding voting securities or other 1-29 ownership interests of the other person; 1-30 (C) a person 10 percent or more of the 1-31 outstanding voting securities or other ownership interests of which 1-32 are directly or indirectly: 1-33 (i) beneficially owned by the other 1-34 person, whether through rights, options, convertible interests, or 1-35 otherwise; or 1-36 (ii) controlled or held with power to vote 1-37 by the other person; 1-38 (D) a partnership in which the other person is a 1-39 general partner; or 1-40 (E) an officer, director, employee, or agent of 1-41 the other person, or an immediate family member of the officer, 1-42 director, employee, or agent. 1-43 (2) "Allocation date" means the date on which the 1-44 certified investors of a certified capital company are allocated 1-45 certified capital by the comptroller under this subchapter. 1-46 (3) "Certified capital" means an investment of cash by 1-47 a certified investor in a certified capital company that fully 1-48 funds the purchase price of an equity interest in the company or a 1-49 qualified debt instrument issued by the certified capital company. 1-50 (4) "Certified capital company" means a partnership, 1-51 corporation, or trust or limited liability company, whether 1-52 organized on a profit or not-for-profit basis, that has as its 1-53 primary business activity the investment of cash in qualified 1-54 businesses and that is certified as meeting the criteria of this 1-55 subchapter. 1-56 (5) "Certified investor" means an insurance company or 1-57 other person that has state premium tax liability, other than a 1-58 title insurance company, that contributes certified capital 1-59 pursuant to an allocation of premium tax credits under this 1-60 subchapter. 1-61 (6) "Early stage business" means a qualified business 1-62 that satisfies at least one of the following criteria: 1-63 (A) is involved, at the time of a certified 1-64 capital company's first investment, in activities related to the 2-1 development of initial product or service offerings, such as 2-2 prototype development or establishment of initial production or 2-3 service processes; 2-4 (B) was initially organized less than two years 2-5 before the date of the certified capital company's first 2-6 investment; or 2-7 (C) during the fiscal year immediately preceding 2-8 the year of the certified capital company's first investment had, 2-9 on a consolidated basis with its affiliates, gross revenues of not 2-10 more than $2 million as determined in accordance with generally 2-11 accepted accounting principles. 2-12 (7) "Person" means a natural person or entity, 2-13 including a corporation, general or limited partnership, or trust 2-14 or limited liability company. 2-15 (8) "Premium tax credit allocation claim" means a 2-16 claim for allocation of premium tax credits. 2-17 (9) "Qualified business" means a business that, at the 2-18 time of a certified capital company's first investment in the 2-19 business: 2-20 (A) is headquartered in this state and intends 2-21 to remain in this state after receipt of the investment by the 2-22 certified capital company; 2-23 (B) has its principal business operations 2-24 located in this state and intends to maintain business operations 2-25 in this state after receipt of the investment by the certified 2-26 capital company; 2-27 (C) has agreed to use the qualified investment 2-28 primarily to: 2-29 (i) support business operations, other 2-30 than advertising, promotion, and sales operations, in this state; 2-31 or 2-32 (ii) in the case of a start-up company, 2-33 establish and support business operations, other than advertising, 2-34 promotion, and sales operations, in this state; 2-35 (D) has not more than 100 employees and: 2-36 (i) employs at least 80 percent of its 2-37 employees in this state; or 2-38 (ii) pays 80 percent of its payroll to 2-39 employees in this state; 2-40 (E) is primarily engaged in: 2-41 (i) manufacturing, processing, or 2-42 assembling products; 2-43 (ii) conducting research and development; 2-44 or 2-45 (iii) providing services; and 2-46 (F) is not primarily engaged in: 2-47 (i) retail sales; 2-48 (ii) real estate development; 2-49 (iii) the business of insurance, banking, 2-50 or lending; or 2-51 (iv) the provision of professional 2-52 services provided by accountants, attorneys, or physicians. 2-53 (10) "Qualified debt instrument" means a debt 2-54 instrument issued by a certified capital company, at par value or a 2-55 premium, that: 2-56 (A) has an original maturity date of at least 2-57 five years after the date of issuance; 2-58 (B) has a repayment schedule that is not faster 2-59 than a level principal amortization over five years; and 2-60 (C) has no interest, distribution, or payment 2-61 features that are related to the profitability of the certified 2-62 capital company or the performance of the certified capital 2-63 company's investment portfolio. 2-64 (11) "Qualified distribution" means any distribution 2-65 or payment from certified capital by a certified capital company in 2-66 connection with: 2-67 (A) the reasonable costs and expenses of 2-68 forming, syndicating, managing, and operating the company, provided 2-69 that the distribution or payment is not made directly or indirectly 3-1 to a certified investor, including: 3-2 (i) reasonable and necessary fees paid for 3-3 professional services, including legal and accounting services, 3-4 related to the formation and operation of the company; and 3-5 (ii) an annual management fee in an amount 3-6 that does not exceed two and one-half percent of the certified 3-7 capital of the company; and 3-8 (B) any projected increase in federal or state 3-9 taxes, including penalties and interest related to state and 3-10 federal income taxes, of the equity owners of the company resulting 3-11 from the earnings or other tax liability of the company to the 3-12 extent that the increase is related to the ownership, management, 3-13 or operation of the company. 3-14 (12) "Qualified investment" means the investment of 3-15 cash by a certified capital company in a qualified business for the 3-16 purchase of any debt, debt participation, equity, or hybrid 3-17 security of any nature or description, including a debt instrument 3-18 or security that has the characteristics of debt but that provides 3-19 for conversion into equity or equity participation instruments such 3-20 as options or warrants. 3-21 (13) "State premium tax liability" means: 3-22 (A) any liability incurred by any person under 3-23 Subchapter A of this chapter; or 3-24 (B) if the tax liability imposed under 3-25 Subchapter A of this chapter on January 1, 2001, is eliminated or 3-26 reduced, any tax liability imposed on an insurance company or other 3-27 person that had premium tax liability under Subchapter A of this 3-28 chapter on that date. 3-29 Art. 4.52. DUTIES OF COMPTROLLER; RULES. The comptroller 3-30 shall administer this subchapter and may adopt rules and forms as 3-31 necessary to implement this subchapter. 3-32 Art. 4.53. CERTIFICATION. (a) The comptroller by rule 3-33 shall establish the application procedures for certified capital 3-34 companies. 3-35 (b) An applicant must file an application in the form 3-36 prescribed by the comptroller accompanied by a nonrefundable 3-37 application fee of $7,500. The application must include an audited 3-38 balance sheet of the applicant, with an unqualified opinion from an 3-39 independent certified public accountant, as of a date not more than 3-40 35 days before the date of the application. 3-41 (c) To qualify as a certified capital company: 3-42 (1) the applicant must have, at the time of 3-43 application for certification, an equity capitalization of at 3-44 least $500,000 in the form of unencumbered cash or cash 3-45 equivalents; 3-46 (2) at least two principals or persons employed to 3-47 manage the funds of the applicant must have at least four years of 3-48 experience in the venture capital industry; and 3-49 (3) the applicant must satisfy any additional 3-50 requirement imposed by the comptroller by rule. 3-51 (d) The comptroller shall review the application, 3-52 organizational documents, and business history of each applicant 3-53 and shall ensure that the applicant satisfies the requirements of 3-54 this subchapter. 3-55 (e) Not later than the 30th day after the date an 3-56 application is filed, the comptroller shall: 3-57 (1) issue the certification; or 3-58 (2) refuse to issue the certification and communicate 3-59 in detail to the applicant the grounds for the refusal, including 3-60 suggestions for the removal of those grounds. 3-61 Art. 4.54. MANAGEMENT BY CERTAIN ENTITIES PROHIBITED. 3-62 (a) An insurance company, group of insurance companies, or other 3-63 persons who may have state premium tax liability or the affiliates 3-64 of the insurance companies or other persons may not, directly or 3-65 indirectly: 3-66 (1) manage a certified capital company; 3-67 (2) beneficially own, whether through rights, options, 3-68 convertible interests, or otherwise, more than 10 percent of the 3-69 outstanding voting securities of a certified capital company; or 4-1 (3) control the direction of investments for a 4-2 certified capital company. 4-3 (b) Not more than one affiliate of the certified investors 4-4 in any certified capital company may provide a guaranty, indemnity, 4-5 bond, insurance policy, or other payment undertaking in favor of 4-6 all of the certified investors of the certified capital company and 4-7 its affiliates. 4-8 (c) Subsection (a) of this article applies without regard to 4-9 whether the insurance company or other person or the affiliate of 4-10 the insurance company or other person is licensed by or transacts 4-11 business in this state. 4-12 (d) This article does not preclude a certified investor, an 4-13 insurance company, or any other party from exercising its legal 4-14 rights and remedies, including interim management of a certified 4-15 capital company, if authorized by law, with respect to a certified 4-16 capital company that is in default of its statutory or contractual 4-17 obligations to the certified investor, insurance company, or other 4-18 party. 4-19 Art. 4.55. OFFERING MATERIAL USED BY CERTIFIED CAPITAL 4-20 COMPANY. Any offering material involving the sale of securities of 4-21 the certified capital company must include the following statement: 4-22 By authorizing the formation of a certified capital 4-23 company, the State of Texas does not endorse the 4-24 quality of management or the potential for earnings of 4-25 the company and is not liable for damages or losses to 4-26 a certified investor in the company. Use of the word 4-27 "certified" in an offering does not constitute a 4-28 recommendation or endorsement of the investment by the 4-29 comptroller of public accounts. If applicable 4-30 provisions of law are violated, the State of Texas may 4-31 require forfeiture of unused premium tax credits and 4-32 repayments of used premium tax credits. 4-33 Art. 4.56. REQUIREMENTS FOR CONTINUANCE OF CERTIFICATION. 4-34 (a) To continue to be certified, a certified capital company 4-35 shall make qualified investments according to the following 4-36 schedule: 4-37 (1) before the third anniversary of its allocation 4-38 date, a company must have made qualified investments in an amount 4-39 cumulatively equal to at least 30 percent of its certified capital; 4-40 and 4-41 (2) before the fifth anniversary of its allocation 4-42 date, a company must have made qualified investments in an amount 4-43 cumulatively equal to at least 50 percent of its certified capital, 4-44 subject to Subsection (b) of this article. 4-45 (b) At least 50 percent of the amount of qualified 4-46 investments required by Subsections (a)(1) and (2) of this article 4-47 must be placed in early stage businesses. 4-48 (c) The aggregate cumulative amount of all qualified 4-49 investments made by the certified capital company after its 4-50 allocation date shall be considered in the computation of the 4-51 percentage requirements under this subchapter. Any proceeds 4-52 received from a qualified investment may be invested in another 4-53 qualified investment and count toward any requirement in this 4-54 subchapter with respect to investments of certified capital. 4-55 (d) A business that is classified as a qualified business at 4-56 the time of the first investment in the business by a certified 4-57 capital company remains classified as a qualified business and may 4-58 receive follow-on investments from any certified capital company. 4-59 Except as provided by this subsection, a follow-on investment made 4-60 under this subsection is a qualified investment even though the 4-61 business may not meet the definition of a qualified business at the 4-62 time of the follow-on investment. A follow-on investment does not 4-63 qualify as a qualified investment if, at the time of the follow-on 4-64 investment, the qualified business no longer has its principal 4-65 business operations in this state. 4-66 (e) A qualified investment may not be made at a cost to a 4-67 certified capital company greater than 15 percent of the total 4-68 certified capital of the company at the time of investment. 4-69 (f) If, before the 90th day after the date that a certified 5-1 capital company makes an investment in a qualified business, the 5-2 qualified business moves its principal business operations from 5-3 this state, the investment may not be considered a qualified 5-4 investment for purposes of the percentage requirements under this 5-5 subchapter. 5-6 (g) A certified capital company shall invest any certified 5-7 capital not invested in qualified investments only in the 5-8 following: 5-9 (1) cash deposited with a federally insured financial 5-10 institution; 5-11 (2) certificates of deposit in a federally insured 5-12 financial institution; 5-13 (3) investment securities that are obligations of the 5-14 United States or its agencies or instrumentalities or obligations 5-15 that are guaranteed fully as to principal and interest by the 5-16 United States; 5-17 (4) debt instruments rated at least "A" or its 5-18 equivalent by a nationally recognized credit rating organization, 5-19 or issued by, or guaranteed with respect to payment by, an entity 5-20 whose unsecured indebtedness is rated at least "A" or its 5-21 equivalent by a nationally recognized credit rating organization, 5-22 and which indebtedness is not subordinated to other unsecured 5-23 indebtedness of the issuer or the guarantor; 5-24 (5) obligations of this state or any municipality or 5-25 political subdivision of this state; or 5-26 (6) any other investments approved in advance and in 5-27 writing by the comptroller. 5-28 Art. 4.57. EVALUATION OF BUSINESS BY COMPTROLLER. (a) A 5-29 certified capital company may, before making an investment in a 5-30 business, request from the comptroller a written opinion as to 5-31 whether the business in which it proposes to invest is a qualified 5-32 business or an early stage business. 5-33 (b) The comptroller shall, not later than the 15th business 5-34 day after the date of the receipt of a request under Subsection (a) 5-35 of this article, determine whether the business meets the 5-36 definition of a qualified business or an early stage business, as 5-37 applicable, and notify the certified capital company of the 5-38 determination and an explanation of its determination or notify the 5-39 certified capital company that an additional 15 days will be needed 5-40 to review and make the determination. 5-41 (c) If the comptroller fails to notify the certified capital 5-42 company with respect to the proposed investment within the period 5-43 specified by Subsection (b) of this article, the business in which 5-44 the company proposes to invest is considered to be a qualified 5-45 business or early stage business, as appropriate. 5-46 Art. 4.58. REPORTS TO COMPTROLLER; AUDITED FINANCIAL 5-47 STATEMENT. (a) Each certified capital company shall report to the 5-48 comptroller as soon as practicable after the receipt of certified 5-49 capital: 5-50 (1) the name of each certified investor from whom the 5-51 certified capital was received, including the certified investor's 5-52 insurance premium tax identification number; 5-53 (2) the amount of each certified investor's investment 5-54 of certified capital and premium tax credits; and 5-55 (3) the date on which the certified capital was 5-56 received. 5-57 (b) Not later than January 31 of each year, each certified 5-58 capital company shall report to the comptroller: 5-59 (1) the amount of the company's certified capital at 5-60 the end of the preceding year; 5-61 (2) whether or not the company has invested more than 5-62 15 percent of its total certified capital in any one business; 5-63 (3) each qualified investment that the company made 5-64 during the preceding year and, with respect to each qualified 5-65 investment, the number of employees of the qualified business at 5-66 the time the qualified investment was made; and 5-67 (4) any other information required by the comptroller, 5-68 including any information required by the comptroller to comply 5-69 with Article 4.74 of this code. 6-1 (c) Not later than April 1 of each year, the company shall 6-2 provide to the comptroller an annual audited financial statement 6-3 that includes the opinion of an independent certified public 6-4 accountant. The audit shall address the methods of operation and 6-5 conduct of the business of the company to determine whether: 6-6 (1) the company is complying with this subchapter and 6-7 the rules adopted under this subchapter; 6-8 (2) the funds received by the company have been 6-9 invested as required within the time provided by Article 4.56(a) of 6-10 this code; and 6-11 (3) the company has invested the funds in qualified 6-12 businesses. 6-13 Art. 4.59. RENEWAL. (a) Not later than January 31 of each 6-14 year, each certified capital company shall pay a nonrefundable 6-15 renewal fee of $5,000 to the comptroller. If a certified capital 6-16 company fails to pay its renewal fee on or before that date, the 6-17 company must pay, in addition to the renewal fee, a late fee of 6-18 $5,000 to continue its certification. 6-19 (b) Notwithstanding Subsection (a) of this article, a 6-20 renewal fee is not required within six months of the date on which 6-21 the company's certification is issued under Article 4.53 of this 6-22 code. 6-23 Art. 4.60. DISTRIBUTIONS; REPAYMENT OF DEBT. (a) A 6-24 certified capital company may make a qualified distribution at any 6-25 time. To make a distribution or payment, other than a qualified 6-26 distribution, a company must have made qualified investments in an 6-27 amount cumulatively equal to 100 percent of its certified capital. 6-28 (b) Notwithstanding Subsection (a) of this article, a 6-29 company may make repayments of principal and interest on its 6-30 indebtedness without any restriction, including repayments of 6-31 indebtedness of the company on which certified investors earned 6-32 premium tax credits. 6-33 Art. 4.61. ANNUAL REVIEW; DECERTIFICATION. (a) The 6-34 comptroller shall conduct an annual review of each certified 6-35 capital company to: 6-36 (1) ensure that the company continues to satisfy the 6-37 requirements of this subchapter and that the company has not made 6-38 any investment in violation of this subchapter; and 6-39 (2) determine the eligibility status of its qualified 6-40 investments. 6-41 (b) The cost of the annual review shall be paid by each 6-42 certified capital company according to a reasonable fee schedule 6-43 adopted by the comptroller. 6-44 (c) A material violation of Article 4.56, 4.58, or 4.59 of 6-45 this code is grounds for decertification of the certified capital 6-46 company. If the comptroller determines that a company is not in 6-47 compliance with Article 4.56, 4.58, or 4.59 of this code, the 6-48 comptroller shall notify the officers of the company in writing 6-49 that the company may be subject to decertification after the 120th 6-50 day after the date of mailing of the notice, unless the 6-51 deficiencies are corrected and the company returns to compliance 6-52 with those articles. 6-53 (d) The comptroller may decertify a certified capital 6-54 company, after opportunity for hearing, if the comptroller finds 6-55 that the company is not in compliance with Article 4.56, 4.58, or 6-56 4.59 of this code at the end of the period established by 6-57 Subsection (c) of this article. Decertification under this 6-58 subsection is effective on receipt of notice of decertification by 6-59 the company. The comptroller shall notify any appropriate state 6-60 agency of the decertification. 6-61 Art. 4.62. ADMINISTRATIVE PENALTY. (a) The comptroller may 6-62 impose an administrative penalty on a certified capital company 6-63 that violates this subchapter. 6-64 (b) The amount of the penalty may not exceed $25,000, and 6-65 each day a violation continues or occurs is a separate violation 6-66 for the purpose of imposing a penalty. The amount of the penalty 6-67 shall be based on: 6-68 (1) the seriousness of the violation, including the 6-69 nature, circumstances, extent, and gravity of the violation; 7-1 (2) the economic harm caused by the violation; 7-2 (3) the history of previous violations; 7-3 (4) the amount necessary to deter a future violation; 7-4 (5) efforts to correct the violation; and 7-5 (6) any other matter that justice may require. 7-6 (c) Certified capital companies assessed penalties under 7-7 this subchapter may request a redetermination as provided in 7-8 Chapter 111, Tax Code. 7-9 (d) The attorney general may sue to collect the penalty. 7-10 (e) A proceeding to impose the penalty is considered to be a 7-11 contested case under Chapter 2001, Government Code. 7-12 Art. 4.63. RECAPTURE AND FORFEITURE OF PREMIUM TAX CREDITS: 7-13 DECERTIFICATION OF COMPANY. (a) Decertification of a certified 7-14 capital company may cause the recapture of premium tax credits 7-15 previously claimed and the forfeiture of future premium tax credits 7-16 to be claimed by certified investors with respect to the company, 7-17 as follows: 7-18 (1) decertification of a company on or before the 7-19 third anniversary of its allocation date causes the recapture of 7-20 any premium tax credit previously claimed and the forfeiture of any 7-21 future premium tax credit to be claimed by a certified investor 7-22 with respect to the company; 7-23 (2) for a company that meets the requirements for 7-24 continued certification under Article 4.56(a)(1) of this code and 7-25 subsequently fails to meet the requirements for continued 7-26 certification under Article 4.56(a)(2) of this code, any premium 7-27 tax credit that has been or will be taken by a certified investor 7-28 on or before the third anniversary of the allocation date is not 7-29 subject to recapture or forfeiture, but any premium tax credit that 7-30 has been or will be taken by a certified investor after the third 7-31 anniversary of the allocation date of the company is subject to 7-32 recapture or forfeiture; 7-33 (3) for a company that has met the requirements for 7-34 continued certification under Articles 4.56(a)(1) and (2) of this 7-35 code and is subsequently decertified, any premium tax credit that 7-36 has been or will be taken by a certified investor on or before the 7-37 fifth anniversary of the allocation date is not subject to 7-38 recapture or forfeiture, but any premium tax credit to be taken 7-39 after the fifth anniversary of the allocation date is subject to 7-40 forfeiture only if the company is decertified on or before the 7-41 fifth anniversary of its allocation date; and 7-42 (4) for a company that has invested an amount 7-43 cumulatively equal to 100 percent of its certified capital in 7-44 qualified investments, any premium tax credit claimed or to be 7-45 claimed by a certified investor is not subject to recapture or 7-46 forfeiture under this article. 7-47 (b) The comptroller shall send written notice to the address 7-48 of each certified investor whose premium tax credit is subject to 7-49 recapture or forfeiture, using the address shown on the last 7-50 premium tax filing. 7-51 Art. 4.64. PENALTY IF QUALIFIED BUSINESS LEAVES STATE. In 7-52 the event that a business in which a qualified investment is made 7-53 relocates its principal business operations to another state during 7-54 the term of the certified capital company's investment in such 7-55 business, the cumulative amount of qualified investments made by 7-56 the certified capital company for purposes of satisfying the 7-57 requirements set forth in Article 4.60(a) of this code shall be 7-58 reduced by the amount of the certified capital company's investment 7-59 in the business that has relocated, unless the business 7-60 demonstrates that it has returned its principal business operations 7-61 to this state within three months of such relocation. 7-62 Art. 4.65. INDEMNITY AGREEMENTS AND INSURANCE AUTHORIZED. A 7-63 certified capital company may agree to indemnify, or purchase 7-64 insurance for the benefit of, a certified investor for losses 7-65 resulting from the recapture or forfeiture of premium tax credits 7-66 under Article 4.63 of this code. 7-67 Art. 4.66. PREMIUM TAX CREDIT. (a) A certified investor 7-68 who makes an investment of certified capital shall in the year of 7-69 investment earn a vested credit against state premium tax liability 8-1 equal to 100 percent of the certified investor's investment of 8-2 certified capital, subject to the limits imposed by this 8-3 subchapter. A certified investor may take up to 10 percent of the 8-4 vested premium tax credit in any taxable year of the certified 8-5 investor. 8-6 (b) The credit to be applied against state premium tax 8-7 liability in any one year may not exceed the state premium tax 8-8 liability of the certified investor for the taxable year. Any 8-9 unused credit against state premium tax liability may be carried 8-10 forward indefinitely until the premium tax credits are used. 8-11 (c) A certified investor claiming a credit against state 8-12 premium tax liability earned through an investment in a company is 8-13 not required to pay any additional retaliatory tax levied under 8-14 Article 21.46 of this code as a result of claiming that credit. An 8-15 investment made under this subchapter is a "Texas investment" for 8-16 purposes of Subchapter A of this chapter. 8-17 Art. 4.67. PREMIUM TAX CREDIT ALLOCATION CLAIM FORM. (a) A 8-18 premium tax credit allocation claim must be prepared and executed 8-19 by a certified investor on a form provided by the comptroller. The 8-20 certified capital company must file the claim with the comptroller 8-21 not later than February 15, 2002. The premium tax credit 8-22 allocation claim form must include an affidavit of the certified 8-23 investor under which the certified investor becomes legally bound 8-24 and irrevocably committed to make an investment of certified 8-25 capital in a certified capital company in the amount allocated even 8-26 if the amount allocated is less than the amount of the claim, 8-27 subject only to the receipt of an allocation under Article 4.69 of 8-28 this code. 8-29 (b) A certified investor may not claim a premium tax credit 8-30 under Article 4.66 of this code for an investment that has not been 8-31 funded, even if the certified investor has committed to fund the 8-32 investment. 8-33 Art. 4.68. TOTAL LIMIT ON CREDITS. (a) The total amount of 8-34 certified capital for which premium tax credits may be allowed 8-35 under this subchapter for all years in which premium tax credits 8-36 are allowed is $200 million. 8-37 (b) The total amount of certified capital for which premium 8-38 tax credits may be allowed for all certified investors under this 8-39 subchapter may not exceed the amount that would entitle all 8-40 certified investors in certified capital companies to take total 8-41 credits of $20 million in a year. 8-42 (c) A certified capital company and its affiliates may not 8-43 file premium tax credit allocation claims in excess of the maximum 8-44 amount of certified capital for which premium tax credits may be 8-45 allowed as provided in this article. 8-46 Art. 4.69. PRO RATA ALLOCATION OF CREDITS. (a) If the 8-47 total premium tax credits claimed by all certified investors 8-48 exceeds the total limits on premium tax credits established by 8-49 Article 4.68(a) of this code, the comptroller shall allocate the 8-50 total amount of premium tax credits allowed under this subchapter 8-51 to certified investors in certified capital companies on a pro rata 8-52 basis in accordance with this article. 8-53 (b) The pro rata allocation for each certified investor 8-54 shall be the product of: 8-55 (1) a fraction, the numerator of which is the amount 8-56 of the premium tax credit allocation claim filed on behalf of the 8-57 investor and the denominator of which is the total amount of all 8-58 premium tax credit allocation claims filed on behalf of all 8-59 certified investors; and 8-60 (2) the total amount of certified capital for which 8-61 premium tax credits may be allowed under this subchapter. 8-62 (c) Not later than March 1, 2002, the comptroller shall 8-63 notify each certified capital company of the amount of tax credits 8-64 allocated to each certified investor. Each certified capital 8-65 company shall notify each certified investor of their premium tax 8-66 credit allocation. 8-67 (d) If a certified capital company does not receive an 8-68 investment of certified capital equaling the amount of premium tax 8-69 credits allocated to a certified investor for which it filed a 9-1 premium tax credit allocation claim before the end of the 10th 9-2 business day after the date of receipt of notice of allocation, the 9-3 company shall notify the comptroller by overnight common carrier 9-4 delivery service and that portion of capital allocated to the 9-5 certified investor shall be forfeited. The comptroller shall 9-6 reallocate the forfeited capital among the certified investors in 9-7 the other certified capital companies that originally received an 9-8 allocation so that the result after reallocation is the same as if 9-9 the initial allocation under this article had been performed 9-10 without considering the premium tax credit allocation claims that 9-11 were subsequently forfeited. 9-12 (e) The maximum amount of certified capital for which 9-13 premium tax credit allocation claims may be filed on behalf of any 9-14 one certified investor and its affiliates, whether by one or more 9-15 certified capital companies, may not exceed the greater of: 9-16 (1) $10 million; or 9-17 (2) 15 percent of the maximum aggregate amount 9-18 available under Article 4.68(a) of this code. 9-19 Art. 4.70. TREATMENT OF CREDITS AND CAPITAL. In any case 9-20 under this code or another insurance law of this state in which the 9-21 assets of a certified investor are examined or considered, the 9-22 certified capital may be treated as an admitted asset, subject to 9-23 the applicable statutory valuation procedures. 9-24 Art 4.71. IMPACT OF TAX CREDITS CLAIMED BY A CERTIFIED 9-25 INVESTOR ON INSURANCE RATES. A certified investor is not required 9-26 to reduce the amount of premium tax included by the investor in 9-27 connection with ratemaking for any insurance contract written in 9-28 this state because of a reduction in the investor's Texas premium 9-29 tax derived from the credit granted under this subchapter. 9-30 Art. 4.72. TRANSFERABILITY OF CREDIT. (a) The comptroller 9-31 shall adopt rules to facilitate the transfer or assignment of 9-32 premium tax credits by certified investors. A certified investor 9-33 may transfer or assign premium tax credits only in compliance with 9-34 the rules adopted under this subsection. 9-35 (b) The transfer or assignment of a premium tax credit does 9-36 not affect the schedule for taking the premium tax credit under 9-37 this subchapter. 9-38 Art. 4.73. PROMOTION. The Texas Department of Economic 9-39 Development shall promote the program established under this 9-40 subchapter in the Texas Business and Community Economic Development 9-41 Clearinghouse. 9-42 Art. 4.74. REPORT TO LEGISLATURE. (a) The comptroller 9-43 shall prepare a biennial report with respect to results of the 9-44 implementation of this subchapter. The report must include: 9-45 (1) the number of certified capital companies holding 9-46 certified capital; 9-47 (2) the amount of certified capital invested in each 9-48 certified capital company; 9-49 (3) the amount of certified capital the certified 9-50 capital company has invested in qualified businesses as of January 9-51 1, 2004, and the cumulative total for each subsequent year; 9-52 (4) the total amount of tax credits granted under this 9-53 subchapter for each year that credits have been granted; 9-54 (5) the performance of each certified capital company 9-55 with respect to renewal and reporting requirements imposed under 9-56 this subchapter; 9-57 (6) with respect to the qualified businesses in which 9-58 certified capital companies have invested: 9-59 (A) the classification of the qualified 9-60 businesses according to the industrial sector and the size of the 9-61 business; 9-62 (B) the total number of jobs created by the 9-63 investment and the average wages paid for the jobs; and 9-64 (C) the total number of jobs retained as a 9-65 result of the investment and the average wages paid for the jobs; 9-66 and 9-67 (7) the certified capital companies that have been 9-68 decertified or that have failed to renew the certification and the 9-69 reason for any decertification. 10-1 (b) The comptroller shall file the report with the governor, 10-2 the lieutenant governor, and the speaker of the house of 10-3 representatives not later than December 15 of each even-numbered 10-4 year. 10-5 Art. 4.75. IMPLEMENTATION SUBJECT TO AVAILABLE REVENUE. 10-6 (a) Notwithstanding any other provision of this subchapter, the 10-7 comptroller may implement this subchapter only if the comptroller 10-8 determines, on the basis of a revenue estimate made after the 10-9 adjournment sine die of the regular session of the 77th 10-10 Legislature, that revenues are anticipated in amounts sufficient to 10-11 finance all appropriations made during the regular session of the 10-12 77th Legislature, after making deductions for all reductions in 10-13 taxes, including the reduction in premium tax through premium tax 10-14 credits authorized under this subchapter. 10-15 (b) If the comptroller determines under Subsection (a) of 10-16 this article that revenues are anticipated to support a part, but 10-17 less than all, of the premium tax credits authorized under Article 10-18 4.68 of this code, the comptroller shall: 10-19 (1) reduce the total amount of premium tax credits 10-20 allowed under that article in the amount necessary to comply with 10-21 Subsection (a) of this article; and 10-22 (2) adopt rules as necessary to implement this 10-23 subchapter after the reduction made under Subdivision (1) of this 10-24 subsection. 10-25 (c) Rules adopted under Subsection (b)(2) of this article 10-26 may adjust any deadline or other date established by this 10-27 subchapter as necessary to implement this subchapter as limited by 10-28 this article. 10-29 (d) The comptroller shall notify the governor, lieutenant 10-30 governor, and speaker of the house of representatives of the 10-31 determination made under Subsection (a) of this article. 10-32 SECTION 2. Articles 4.01 through 4.08, 4.10, 4.11, 4.11A, 10-33 4.11B, 4.11C, 4.12, and 4.17, 4.18, and 4.19, Insurance Code, are 10-34 redesignated as Subchapter A, Chapter 4, Insurance Code, and a 10-35 subchapter heading is added to read as follows: 10-36 SUBCHAPTER A. IMPOSITION AND COLLECTION OF TAXES AND FEES 10-37 SECTION 3. (a) Subject to Article 4.75, Insurance Code, as 10-38 added by this Act, the comptroller of public accounts shall, not 10-39 later than the 60th day after the effective date of this Act, adopt 10-40 rules necessary to implement Subchapter B, Chapter 4, Insurance 10-41 Code, as added by this Act. The comptroller shall begin accepting 10-42 applications for certification as a certified capital company under 10-43 that subchapter on November 1, 2001. 10-44 (b) A certified investor may not make an investment with a 10-45 certified capital company under Subchapter B, Chapter 4, Insurance 10-46 Code, as added by this Act, before February 15, 2002. 10-47 SECTION 4. This Act takes effect immediately if it receives 10-48 a vote of two-thirds of all the members elected to each house, as 10-49 provided by Section 39, Article III, Texas Constitution. If this 10-50 Act does not receive the vote necessary for immediate effect, this 10-51 Act takes effect September 1, 2001. 10-52 * * * * *