By: Madla S.B. No. 1491
A BILL TO BE ENTITLED
AN ACT
relating to a franchise tax credit for certain investors that
provide venture capital financing.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle F, Title 4, Government Code, is amended
by adding Chapter 483 to read as follows:
CHAPTER 483. VENTURE CAPITAL INVESTMENT
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 483.001. DEFINITIONS. In this chapter:
(1) "Business entity" means a sole proprietorship, a
partnership, a corporation, a limited liability company, or any
other similar organization engaged in a business activity.
(2) "Committee" means a committee of five members
appointed by the Governor. Such members shall be selected based on
their knowledge and leadership, and shall possess experience in the
management of investments similar in nature and in value to those of
the fund.
(3) "Comptroller" means the Comptroller Public
Accounts.
(4) "Designated investor" means the investor selected
by the Comptroller under Section 483.052.
(5) "Equity capital" means capital invested in common
or preferred stock, a royalty right, a limited partnership
interest, a limited liability company interest, or any other
security or right that evidences ownership in a business entity.
(6) "Fund" means the private revolving fund to be
established by the designed investor pursuant to Section 483.053.
(7) "Investor" means an individual, corporation,
partnership, limited liability company, or other lawfully
organized entity, or a group of any of these persons in the business
of making investments in venture capital partnerships or other
business investment entities.
(8) "Near equity capital" means capital invested in
unsecured or underscored subordinated or convertible loans or debt
securities.
Sec. 483.002. APPLICABILITY. This chapter applies only to
a designated investor.
[Sections 483.003-483.050 reserved for expansion]
SUBCHAPTER B. VENTURE CAPITAL INVESTMENT
Sec. 483.051. VENTURE CAPITAL INVESTMENT PLAN. (a) An
investor, in accordance with rules adopted by the comptroller under
Section 483.056, may develop and submit to the comptroller a
venture capital investment plan.
(b) The plan must state in detail the manner in which:
(1) the investor will raise up to $200 million to
finance the plan; and
(2) the money raised will be used for investment in
venture capital partnerships or other business investment entities
that help build the venture capital industry in this state and
support investment in new and developing business entities that aid
economic growth and development in this state.
(c) The plan must include:
(1) information concerning the investor's:
(A) level of experience;
(B) quality of management;
(C) investment philosophy and process;
(D) probability of success in fund-raising; and
(E) plan for achieving the purpose of the act.
(2) other information required by the comptroller.
Sec. 483.052. SELECTION OF DESIGNATED INVESTOR. The
comptroller shall solicit venture capital investment plans from
investors and shall select one designated investor based on:
(1) the information provided by investors in the plans
submitted under Section 483.051; and
(2) the comptroller's determination that the plan of
the investor selected is the most likely to:
(a) successfully contribute to the growth of a
profitable, merit-based venture capital industry across this
state;
(b) mobilize a wide variety of equity and
near-equity capital to serve the needs of entrepreneurs in this
state; and
(c) successfully provide entrepreneurs and
developing business entities in this state with needed funding;
(d) generate economic development and growth;
and
(e) help build a significant, permanent
revolving resource available to support the future capital needs of
business in this state; and
(f) accomplish all these benefits in a way that
minimizes the use of tax credits.
(3) Once the comptroller has selected the designated
investor and approved the venture capital investment plan, the plan
will be binding on the comptroller and the State of Texas, and once
the designated investor has invested monies into the fund, the tax
credits provided for herein may not be modified, terminated or
rescinded.
(4) The comptroller shall convene the committee to
solicit advice and counsel on the merits of venture capital
investment plans.
Sec. 483.053. FUND. The designated investor shall raise
commitments of up to $200 million to capitalize a private revolving
fund established by the designated investor as provided by the plan
and comptroller rules. The designated investor shall invest money
in the fund in venture capital partnerships or other business
investment entities in accordance with the plan.
Sec. 483.054. ANNUAL REPORT. (a) During each year of
operation of the plan, the designated investor shall prepare a
report that:
(1) describes the investment activities of the fund;
(2) includes the results of an audit of the fund
conducted within the year preceding the date of the report;
(3) states a schedule of anticipated returns for
investments made;
(4) reviews the progress of the designated investor in
implementing the venture capital investment plan; and
(5) describes any use of tax credits.
(b) The designated investor shall submit the annual report
to the comptroller, the governor, the lieutenant governor, and the
speaker of the house of representatives.
Sec. 483.055. TAX CREDIT. For the designated investor to be
eligible for a credit under Subchapter V, Chapter 171, Tax Code, the
comptroller must certify that the designated investor incurred a
loss for a reporting period of an amount equal to the unrealized
anticipated returns of capital and returns on capital for that
reporting period on investments made by the fund.
Sec. 843.056. RULEMAKING AUTHORITY. The comptroller shall
adopt policies and rules as necessary to implement this chapter,
including policies and rules that:
(1) create specific guidelines and procedures for the
submission to the comptroller of a venture capital plan;
(2) explain the procedure for selecting the designated
investor;
(3) create a certification process by which the
designated investor qualifies for a credit provided by Subchapter
V, Chapter 171, Tax Code;
(4) set standards that the designated investor must
follow in choosing investments for the fund and achieving
diversification within the fund;
(5) state the manner in which funds must be deposited
and maintained;
(6) explain the manner in which funds may be raised;
(7) state the sources from which funds may be raised;
(8) state the agreements that the designated investor
may enter into with funding sources to secure an investment from a
source; and
(9) state the forms of securities that may be
purchased by the fund.
SECTION 2. Chapter 171, Tax Code, is amended by adding
Subchapter V to read as follows:
SUBCHAPTER V. TAX CREDIT FOR VENTURE CAPITAL INVESTMENT
Sec. 171.901. DEFINITIONS. In this subchapter:
(1) "Venture capital investment" means an investment
made by the designated investor under Chapter 483, Government Code.
Sec. 171.902. APPLICATION OF SUBCHAPTER. This subchapter
applies only to a designed investor that has incurred a loss
certified by the comptroller under Chapter 483, Government Code,
and any corporation to which credits are transferred.
Sec. 171.903. CREDIT. (a) A designated investor that
meets the eligibility requirements under this subchapter is
entitled to a credit in the amount allowed by this subchapter
against the tax imposed under this chapter.
(b) Subject to Section 171.851, the amount of the credit is
equal to the loss certified under Chapter 483, Government Code, for
that reporting period and any carryforward credit under Section
171.904.
(c) The credit allowed or transferred pursuant to this
section, upon election by a recipient or transferee at utilization,
will be treated as a payment or prepayment in lieu of tax imposed
under this chapter.
(d) The credits allowed or transferred pursuant to this
section shall not be considered securities under Texas Statutes.
Sec. 171.904. CARRYFORWARD. If a corporation is eligible
for a credit that exceeds the amount of tax due for the report, the
corporation may carry the unused credit forward for not more than
five consecutive reports.
Sec. 171.905. APPLICATION FOR CREDIT. (a) A designated
investor or a corporation must apply for a credit under this
subchapter on or with the tax report for the period for which the
credit is claimed.
(b) The comptroller shall adopt a form for the application
for the credit. A designated investor or a corporation must use the
form in applying for the credit.
Sec. 171.906. SALE OF UNUSED CREDIT. (a) A designated
investor or a corporation that has an unused credit or anticipates
having an unused credit under this subchapter may apply to the
comptroller to sell the credit to another corporation.
(b) The comptroller shall review applications under this
section and shall approve the sale or purchase of an unused credit
under this subchapter unless the comptroller determines that the
credit is not being purchased for money in an amount equal to at
least 95 percent of its value.
Sec. 171.907. RULES. The comptroller shall adopt rules
necessary to implement this subchapter.
SECTION 3. (a) This Act takes effect immediately if it
receives a vote of two-thirds of all the members elected to each
house, as provided by Section 39, Article III, Texas Constitution.
If this Act does not receive the vote necessary for immediate
effect, this Act takes effect September 1, 2003.
(b) A designated investor or corporation may claim a credit
under Subchapter V, Chapter 171, Tax Code, as added by this Act,
only for a certified loss incurred on or after January 1, 2007.
(c) Not later than October 1, 2004, the Comptroller of
Public Accounts or any successor to the comptroller's duties shall
adopt rules under Chapter 483, Government Code, as added by this
Act.
(d) Before November 1, 2004, the Comptroller of Public
Accounts or any successor to the comptroller's duties shall solicit
venture capital investment plans from investors as required by
Section 483.052, Government Code, as added by this Act. Not later
than February 1, 2005, the Comptroller of Public Accounts or any
successor to the comptroller's duties shall select a designated
investor as required by Section 483.052, Government Code, as added
by this Act.