BILL ANALYSIS

C.S.H.B. 2780

By: Elkins

Technology

Committee Report (Substituted)

BACKGROUND AND PURPOSE

Interested parties report that Texas has fallen in rank with respect to venture funding for startups, with many startups relocating from Texas to other states for funding. Such parties assert that, although Texas has a positive business climate and considerable resources, the state could cultivate more startups by providing certain incentives. C.S.H.B. 2780 seeks to create an incentive for research technology ventures by providing institutions of higher education the authority to commercialize technologies owned by the institutions through special-purpose corporations.

RULEMAKING AUTHORITY

It is the committee's opinion that rulemaking authority is expressly granted to the comptroller of public accounts in SECTION 1 of this bill.

ANALYSIS

C.S.H.B. 2780 amends the Education Code to authorize a public institution of higher education or private or independent institution of higher education to create a special-purpose corporation for the exclusive purpose of supporting development and commercialization of technologies owned wholly or partly by the institution.  The bill establishes that such a corporation that engages in other purposes that are not incidental to that authorized purpose is not entitled to the benefits of the bill's provisions, including any special tax treatment. The bill sets out requirements for a certificate of formation of a corporation created under the bill's provisions and establishes that such a corporation is governed by statutory provisions relating to for-profit corporations except as otherwise provided.

C.S.H.B. 2780 provides for a board of directors of the special-purpose corporation and requires the creating institution at all times to be a shareholder in the corporation.  The bill requires the creating institution to be issued shares in such a corporation when the corporation is created as agreed on by the organizers of the corporation according to any contribution of the institution, and authorizes the creating institution to be issued shares in the corporation in exchange for the contribution of rights in the technology of the institution or of other contractual obligations as agreed on by the board of directors.

C.S.H.B. 2780 authorizes the creating institution to license to the special-purpose corporation any technology owned by the institution. The bill requires the principal offices of the corporation to be located in Texas and requires the majority of any goods or services produced by the corporation to be produced in Texas. The bill limits the corporation's duration to 15 years, and authorizes the corporation, at the expiration of that period, to file a restated and amended certificate of formation under which the special-purpose corporation becomes a for-profit corporation governed by applicable Business Organizations Code provisions. The bill establishes that its provisions relating to the duration of such a corporation do not limit the time or manner in which the corporation may be terminated as otherwise provided by law.

C.S.H.B. 2780 authorizes the creating institution to establish a research and development authority to act on behalf of the institution to support the special-purpose corporation, requires the creating institution to appoint a director or board of directors to manage the authority on the institution's behalf, and authorizes the creating institution to adopt any procedures necessary for the administration of the authority. The bill specifies that such an authority established by a public institution of higher education is an instrumentality of the state and of the creating institution, and requires an authority established by a private or independent institution of higher education to be organized as a nonprofit organization and specifies that the authority is considered to be acting for educational and charitable purposes. The bill authorizes such an authority to acquire, own, hold title to, lease, or operate real property and facilities.  The bill authorizes the corporation to transfer real property, facilities, or other assets of the corporation to the authority for any consideration to which the corporation agrees. The bill authorizes the corporation by lease or other agreement with the authority to conduct any activities of the corporation on real property or facilities owned by the authority. The bill specifies that the real property and facilities of the authority, including those used by the corporation for purposes of research, development, or other commercialization of technology owned by a public institution of higher education, are considered to be used for public, educational, and charitable purposes, and are exempt from property taxation by any taxing unit as long as the property and facilities are used for those purposes or are under active construction or improvement to make the property and facilities suitable to be used for those purposes.

C.S.H.B. 2780 exempts a corporation created under its provisions from franchise taxes, and from other taxation by the state or a political subdivision of the state to the same extent that the creating institution is exempt from that taxation. The bill establishes that its provisions relating to the tax exempt status of such a corporation do not limit the eligibility of the corporation for any other available tax benefit.

C.S.H.B. 2780 makes a special-purpose corporation created under the bill's provisions that relocates its operations so that the corporation does not remain in compliance with requirements regarding the location of its principal offices or the majority of its production activities liable to the state for a penalty in an amount equal to any taxes, including property taxes, for which the corporation received an applicable exemption, or for which an authority established under the bill's provisions received an applicable exemption in connection with the activities of the corporation, for the five calendar years preceding the year of relocation. The bill requires the comptroller of public accounts to determine the corporation's liability for the penalty and assess the amount owed. The bill specifies that an assessed penalty is due on the date designated by the comptroller, not later than the 90th day after the date assessed, and requires the penalty to be collected in the same manner as a state tax. The bill establishes that a lien exists on any property of the corporation to secure the payment of any amount assessed.  The bill requires the comptroller of public accounts by rule to establish the methods of payment and adopt other rules necessary to administer and enforce the bill's provisions relating to sanctions for relocation. The bill requires amounts received under such provisions to be deposited in the state treasury to the credit of the general revenue fund.

EFFECTIVE DATE

September 1, 2013.

COMPARISON OF ORIGINAL AND SUBSTITUTE

While C.S.H.B. 2780 may differ from the original in minor or nonsubstantive ways, the following comparison is organized and highlighted in a manner that indicates the substantial differences between the introduced and committee substitute versions of the bill.

INTRODUCED	HOUSE COMMITTEE SUBSTITUTE
SECTION 1.  Subtitle H, Title 3, Education Code, is amended by adding Chapter 157 to read as follows: CHAPTER 157.  UNIVERSITY RESEARCH TECHNOLOGY CORPORATIONS. Sec. 157.001.  DEFINITIONS.  In this chapter, "institution of higher education" has the meaning assigned by Section 61.003.	SECTION 1.  Subtitle H, Title 3, Education Code, is amended by adding Chapter 157 to read as follows: CHAPTER 157.  UNIVERSITY RESEARCH TECHNOLOGY CORPORATIONS Sec. 157.001.  PURPOSE AND FINDINGS.  The legislature finds that the development and commercialization of technology by public and private institutions of higher education are critical components of the educational and research missions of those institutions and key contributors to the economic development and well-being of this state.  The activities authorized by this chapter directly support those important public purposes. Sec. 157.002.  DEFINITIONS.  In this chapter: (1)  "Creating institution" means an institution of higher education or private or independent institution of higher education that creates a corporation under this chapter. (2)  "Institution of higher education" and "private or independent institution of higher education" have the meanings assigned by Section 61.003. (3)  "Technology" means the application of scientific knowledge for practical purposes and includes inventions, discoveries, trade secrets, copyrighted materials, tools, machines, materials, processes to do work, processes to produce goods, processes to perform services, processes to carry out other useful activities, trademarks, and computer software.
Sec. 157.002.  AUTHORITY TO CREATE CORPORATIONS.  An institution of higher education may create a special purpose corporation for the exclusive purpose of commercializing technologies owned by the institution. Sec. 157.003.  CERTIFICATE OF FORMATION; POWERS.  (a) The certificate of formation must state name of the corporation, the purposes of the corporation, and other information required by law. The corporation has the powers provided by Chapter 21, Business Organizations Code.	Sec. 157.003.  CREATION OF CORPORATION.  (a) An institution of higher education or private or independent institution of higher education may create a special-purpose corporation for the exclusive purpose of supporting development and commercialization of technologies owned wholly or partly by the institution.  A corporation created under this chapter that engages in other purposes that are not incidental to that authorized purpose is not entitled to the benefits of this chapter, including any special tax treatment. (b)  The certificate of formation of a corporation created under this chapter must state that the corporation is governed by this chapter and state the name and purposes of the corporation and other information required by law.  Except as otherwise provided by this chapter, a corporation created under this chapter is governed by Chapter 21, Business Organizations Code.
Sec. 157.004.  MANAGEMENT.  (a) The institution of higher education shall name the persons constituting the initial board of directors of the corporation. Directors other than the initial directors shall be named at an annual meeting of the corporation. (b)  The board of directors shall appoint a president, treasurer, and other officers considered necessary. Sec. 157.005.  MEMBERS; CAPITAL CONTRIBUTIONS.  (a) The corporation shall have members. (b)  Any person admitted as member of the corporation must make a capital contribution to the corporation in an amount set by the board of directors. The institution of higher education is a member of the corporation, but is not required to make a capital contribution. (c)  The corporation shall apportion voting rights to members in proportion to the member's capital contribution.	Sec. 157.004.  MANAGEMENT OF CORPORATION; RIGHTS OF CREATING INSTITUTION.  (a) The creating institution shall name the persons constituting the initial board of directors of the corporation. Directors other than the initial directors shall be determined as otherwise provided by this chapter and Chapter 21, Business Organizations Code. (b)  The creating institution must at all times be a shareholder in the corporation.  The creating institution shall be issued shares in the corporation when the corporation is created as agreed on by the organizers of the corporation according to any contribution of the institution. (c)  The creating institution may be issued shares in the corporation in exchange for the contribution of rights in the technology of the institution or of other contractual obligations, as agreed on by the board of directors.
Sec. 157.006.  TECHNOLOGY LICENSING.	Sec. 157.005. Substantially the same as the introduced version.
Sec. 157.007.  REQUIRED OPERATIONS IN TEXAS.  The principal offices of the corporation must be in this state and the majority of any products manufactured by or under contract with the corporation must be manufactured in this state. Sec. 157.008.  DURATION.  The corporation is limited in duration to 15 years. On expiration of the corporation, the corporation may file a restated and amended certificate of formation under which the corporation becomes a for-profit corporation governed by Chapter 21, Business Organizations Code.	Sec. 157.006.  REQUIRED OPERATIONS IN TEXAS.  The principal offices of the corporation must be located in this state and the majority of any goods or services produced by the corporation must be produced in this state. Sec. 157.007.  DURATION.  (a)  A corporation created under this chapter is limited in duration to 15 years.  At the expiration of that period, the corporation may file a restated and amended certificate of formation under which the corporation becomes a for-profit corporation governed by Chapter 21, Business Organizations Code. (b)  Subsection (a) does not limit the time or manner in which the corporation may be terminated as otherwise provided by law.
No equivalent provision	Sec. 157.008.  RESEARCH AND DEVELOPMENT AUTHORITY.  (a)  The creating institution may establish a research and development authority to act on behalf of the institution to support the corporation.  The creating institution shall appoint a director or board of directors to manage the authority on the institution's behalf and may adopt any procedures necessary for the administration of the authority. (b)  An authority established under this section by an institution of higher education is an instrumentality of this state and of the creating institution.  An authority established under this section by a private or independent institution of higher education shall be organized as a nonprofit organization and is considered to be acting for educational and charitable purposes. (c)  An authority may acquire, own, hold title to, lease, or operate real property and facilities.  The corporation may transfer real property, facilities, or other assets of the corporation to the authority for any consideration to which the corporation agrees, including: (1)  in exchange for a license, right, or other interest in any technology of the creating institution; (2)  a charge against the creating institution's share of any anticipated future earnings or increase in capital; or (3)  other consideration, including a contribution of research or other services to the corporation. (d)  The corporation by lease or other agreement with the authority may conduct any activities of the corporation on real property or facilities owned by the authority. (e)  The real property and facilities of an authority, including those used by the corporation for purposes of research, development, or other commercialization of technology owned by an institution of higher education, are considered to be used for public, educational, and charitable purposes and are exempt from ad valorem taxation by any taxing unit as long as the property and facilities are used for those purposes or are under active construction or improvement to make the property and facilities suitable to be used for those purposes.
Sec. 157.009.  TAX EXEMPT.  (a) The corporation is exempt from taxation under the laws of this state to the same extent that the organizing institution is exempt. (b)  In the event that, under a restated certificate of formation under Section 1571.008, the corporation relocates its principal offices or the majority of manufacturing operations outside this state, the corporation is liable to the state for an amount equal to the any taxes, including property taxes or business taxes, for which the corporation would have been liable for the five years preceding the relocation. The comptroller of public accounts shall determine the corporation's liability and assess the amount owed. Amounts received under this section shall be deposited in the state treasury to the credit of the general revenue fund.	Sec. 157.009.   TAX EXEMPT STATUS OF CORPORATION.  (a) A corporation created under this chapter is exempt from taxation under Chapter 171, Tax Code. (b)  The corporation is exempt from other taxation by this state or a political subdivision of this state to the same extent that the creating institution is exempt from that taxation. (c)  This section does not limit the eligibility of the corporation for any other available tax benefit, including under Chapter 312 or 313, Tax Code. Sec. 157.010.  SANCTIONS FOR RELOCATION.  (a) If a corporation created under this chapter relocates its operations so that the corporation does not remain in compliance with Section 157.006 regarding the location of its principal offices or the majority of its production activities, the corporation is liable to this state for a penalty in an amount equal to any taxes, including property taxes, for which the corporation received an exemption under Section 157.009, or for which an authority received an exemption under Section 157.008 in connection with the activities of the corporation, for the five calendar years preceding the year of relocation.  The comptroller shall determine the corporation's liability for the penalty and assess the amount owed. (b)  A penalty assessed under this section is due on the date designated by the comptroller, not later than the 90th day after the date assessed, and shall be collected in the same manner as a state tax.  A lien exists on any property of the corporation to secure the payment of any amount assessed under this section.  The comptroller by rule shall establish the methods of payment and shall adopt other rules necessary to administer and enforce this section. (c)  Amounts received under this section shall be deposited in the state treasury to the credit of the general revenue fund.
SECTION 2.  This Act takes effect immediately if it receives the 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, 2013.	SECTION 2.  This Act takes effect September 1, 2013.