2015 -- H 5797

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LC001513

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2015

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A N   A C T

RELATING TO TAXATION

     Introduced By: Representatives Ucci, Winfield, Costantino, Blazejewski, and Kazarian

     Date Introduced: March 05, 2015

     Referred To: House Finance

     It is enacted by the General Assembly as follows:

     SECTION 1. Title 44 of the General Laws entitled "TAXATION" is hereby amended by

adding thereto the following chapter:

CHAPTER 70

ANGEL INVESTOR TAX CREDIT

     44-70-1. Angel Investment – Tax credit. – (a) As used in this section:

     (1) "Advanced materials" means developing, formulating or manufacturing advanced

alloys, coatings, lubricants, refrigerants, surfactants, emulsifiers or substrates;

     (2) "Angel investor" means an accredited investor, as defined by the Securities and

Exchange Commission, or network of accredited investors who review new or proposed

businesses for potential investment and who may seek active involvement, such as consulting and

mentoring, in a Rhode Island business, but "angel investor" does not include:

     (i) A person controlling fifty percent (50%) or more of the Rhode Island business

invested in by the angel investor;

     (ii) A venture capital company; or

     (iii) Any bank, bank and trust company, insurance company, trust company, national

bank, savings association or building and loan association for activities that are a part of its

normal course of business;

     (3) "Bioscience" means manufacturing pharmaceuticals, medicines, medical equipment

or medical devices and analytical laboratory instruments, operating medical or diagnostic testing

laboratories, or conducting pure research and development in life sciences;

     (4) "Cash investment" means the contribution of cash, at a risk of loss, to a qualified

Rhode Island business in exchange for qualified securities;

     (5) "Clean technology" means the production, manufacture, design, research or

development of clean energy, green buildings, smart grid, high-efficiency transportation vehicles

and alternative fuels, environmental products, environmental remediation and pollution

prevention;

     (6) "Information technology" means software publishing, motion picture and video

production, teleproduction and postproduction services, telecommunications, data processing,

hosting and related services, custom computer programming services, computer system design,

computer facilities management services, other computer-related services and computer training;

     (7) "Photonics" means generation, emission, transmission, modulation, signal processing,

switching, amplification, detection and sensing of light from ultraviolet to infrared and the

manufacture, research or development of opto-electronic devices, including, but not limited to,

lasers, masers, fiber optic devices, quantum devices, holographic devices and related

technologies;

     (8) "Qualified securities" means any form of equity, including a general or limited

partnership interest, common stock, preferred stock, with or without voting rights, without regard

to seniority position that must be convertible into common stock;

     (9) "Rhode Island business" means any business with its principal place of business in

Rhode Island that is engaged in bioscience, advanced materials, photonics, information

technology, clean technology or any other emerging technology as determined by the Rhode

Island commerce corporation; and

      (b) There shall be allowed a credit against the tax imposed under this chapter for a cash

investment of not less than twenty-five thousand dollars in the qualified securities of a Rhode

Island business by an angel investor. The credit shall be in an amount equal to twenty-five

percent (25%) of such investor's cash investment, provided the total tax credits allowed to any

angel investor shall not exceed two hundred fifty thousand dollars ($250,000). The credit shall be

claimed in the taxable year in which such cash investment is made by the angel investor and shall

not be transferable.

     (c) To qualify for a tax credit pursuant to this section, a cash investment shall be in a

Rhode Island business that:

     (1) Has been approved as a qualified Rhode Island business pursuant to subsection (d) of

this section;

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     (2) Had annual gross revenues of less than one million dollars ($1,000,000) in the most

recent income year of such business;

     (3) Has fewer than twenty-five (25) employees, not less than seventy-five percent (75%)

of who reside in this state;

     (4) Has been operating in this state for less than seven (7) consecutive years;

     (5) Is primarily owned by the management of the business and their families; and

     (6) Received less than two million dollars ($2,000,000) in cash investments eligible for

the tax credits provided by this section.

     (d)(1) A Rhode Island business may apply to the Rhode Island commerce corporation for

approval as a Rhode Island business qualified to receive cash investments eligible for a tax credit

pursuant to this chapter. The application shall include:

     (i) The name of the business and a copy of the organizational documents of such

business;

     (ii) A business plan, including a description of the business and the management, product,

market and financial plan of the business;

     (iii) A description of the businesses innovative technology, product or service;

     (iv) A statement of the potential economic impact of the business, including the number,

location and types of jobs expected to be created;

     (v) A description of the qualified securities to be issued and the amount of cash

investment sought by the qualified Rhode Island business;

     (vi) A statement of the amount, timing and projected use of the proceeds to be raised

from the proposed sale of qualified securities; and

     (vii) Such other information as the secretary of commerce may require.

     (2) The secretary of commerce shall, on a monthly basis, compile a list of approved

applications, categorized by the cash investments being sought by the qualified Rhode Island

business and type of qualified securities offered.

     (e)(1) Any angel investor that intends to make a cash investment in a business on such list

may apply to the Rhode Island commerce corporation to reserve a tax credit in the amount

indicated by such investor. The aggregate amount of all tax credits under this section that may be

reserved by the Rhode Island commerce corporation, shall not exceed three million dollars

($3,000,000) annually for the fiscal years commencing July 1, 2016.

     (2) The amount of the credit allowed to any investor pursuant to this chapter shall not

exceed the amount of tax due from such investor under this chapter with respect to such taxable

year. Any tax credit that is claimed by the angel investor, but not applied against the tax due

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under this chapter, may be carried forward for the five (5) immediately succeeding taxable years

until the full credit has been applied.

     (f) If the angel investor is an S corporation or an entity treated as a partnership for federal

income tax purposes, the tax credit may be claimed by the shareholders or partners of the angel

investor. If the angel investor is a single member limited liability company that is disregarded as

an entity separate from its owner, the tax credit may be claimed by such limited liability

company's owner, provided such owner is a person subject to the tax imposed under this chapter.

     (g) A review of the cumulative effectiveness of the credit under this section shall be

conducted by the Rhode Island commerce corporation, by July 1, 2017, and by July 1 annually

thereafter. Such review shall include, but need not be limited to, the number and type of Rhode

Island businesses that received angel investments, the number of angel investors and the

aggregate amount of cash investments, the current status of each Rhode Island business that

received angel investments, the number of employees employed in each year following the year

in which such Rhode Island business received the angel investment, and the economic impact in

the state, of the Rhode Island business that received the angel investment. Such review shall be

submitted to the house finance committee and senate finance committee.

     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO TAXATION

***

     This act would establish an angel investor tax credit for investors in Rhode Island

businesses engaged in bioscience, advanced materials, photonics, information technology or any

other emerging technology as determined by the commerce corporation.

     This act would take effect upon passage.

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