2015 -- H 5858

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LC002056

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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, Blazejewski, Kazarian, and Newberry

     Date Introduced: March 12, 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

VENTURE CAPITAL INVESTMENT TAX CREDIT

     44-70-1. Definitions. -- As used in this chapter: (1) "Pass through entity" means:

     (i) A corporation that is exempt from income tax under title 44;

     (ii) A partnership;

     (iii) A limited liability company; or

     (iv) A limited liability partnership.

     (2) "Qualified Rhode Island business" means an independently owned and operated

business that is certified as a qualified Rhode Island business by the Rhode Island commerce

corporation.

     (3) "Qualified investment capital" means debt or equity capital that is provided to a

qualified Rhode Island business after December 31, 2015. However, the term does not include

debt that:

     (i) Is provided by a financial institution, as defined in chapter 1 of title 19, after May 15,

2017; and

     (ii) Is secured by a valid mortgage, security agreement, or other agreement or document

that establishes a collateral or security position for the financial institution that is senior to all

collateral or security interests of other taxpayers that provide debt or equity capital to the

qualified Rhode Island business.

     (4) "State tax liability" means a taxpayer's total tax liability that is incurred under

chapters 11, 14, 17 and 30 of this title, as computed after the application of the credits that under

title 44 are to be applied before the credit provided by this chapter.

     (5) "Taxpayer" means an individual or entity, including a pass through entity, that has

any state tax liability.

     44-70-2. Credit -- Eligibility. -- A taxpayer that:

     (1) Provides qualified investment capital to a qualified Rhode Island business; and

     (2) Fulfills the requirements of the Rhode Island commerce corporation, is entitled to a

credit against the person's state tax liability in a taxable year equal to the amount specified in §

44-70-10.

     44-70-3. Certification of qualified Rhode Island business -- Forms -- Fee. -- (a) The

Rhode Island commerce corporation shall certify that a business is a qualified Rhode Island

business if the corporation determines that the business:

     (1) Has its headquarters in Rhode Island;

     (2) Is primarily focused on the commercialization of research and development,

technology transfers, or the application of new technology, or is determined by the Rhode Island

commerce corporation to have significant potential to:

     (i) Bring substantial capital into Rhode Island;

     (ii) Create jobs;

     (iii) Diversify the business base of Rhode Island; or

     (iv) Significantly promote the purposes of this chapter in any other way.

     (3) Has had average annual revenues of less than ten million dollars ($10,000,000) in the

two (2) years preceding the year in which the business received qualified investment capital from

a taxpayer claiming a credit under this chapter;

     (4) Has:

     (i) At least fifty percent (50%) of its employees residing in Rhode Island; or

     (ii) At least seventy-five percent (75%) of its assets are located in Rhode Island; and

     (5) Is not engaged in a business involving:

     (i) Real estate;

     (ii) Real estate development;

     (iii) Insurance;

     (iv) Professional services provided by an accountant, a lawyer, or a physician;

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     (v) Retail sales, except when the primary purpose of the business is the development or

support of electronic commerce using the Internet; or

     (vi) Oil and gas exploration.

     (b) A business shall apply to be certified as a qualified Rhode Island business on a form

prescribed by the Rhode Island commerce corporation.

     (c) If a business is certified as a qualified Rhode Island business under this section, the

Rhode Island commerce corporation shall provide a copy of the certification to the investors in

the qualified Rhode Island business for inclusion in tax filings.

     (d) The Rhode Island commerce corporation may impose an application fee of not more

than two hundred dollars ($200).

     44-70-4. Maximum allowable credit notice to investors. -- (a) A certification provided

under § 44-70-3 must include notice to the investors of the maximum amount of tax credits

available under this chapter for the provision of qualified investment capital to the qualified

Rhode Island business.

     (b) The maximum amount of tax credits available under this chapter for the provision of

qualified investment capital to a particular qualified Rhode Island business shall equal the lesser

of:

     (1) The total amount of qualified investment capital provided to the qualified Rhode

Island business in the calendar year, multiplied by twenty percent (20%); or

     (2) Five hundred thousand dollars ($500,000).

     44-70-5. Maximum annual statewide allowance for credits -- Treatment of credit

carryovers -- Program expiration. -- (a) The total amount of tax credits that may be allowed

under this chapter in a particular calendar year for qualified investment capital provided during

that calendar year may not exceed twelve million five hundred thousand dollars ($12,500,000).

The Rhode Island commerce corporation may not certify a proposed investment plan under § 44-

70-9 if the proposed investment would result in the total amount of the tax credits certified for the

calendar year exceeding twelve million five hundred thousand dollars ($12,500,000). The amount

of an unused credit carried over by a taxpayer from a previous calendar year may not be

considered in determining the amount of proposed investments that the Rhode Island commerce

corporation may certify under this chapter.

     (b) Notwithstanding any provisions of this chapter to the contrary, a taxpayer is not

entitled to a credit for providing qualified investment capital to a qualified Rhode Island business

after December 31, 2015. However, this subsection may not be construed to prevent a taxpayer

from carrying over to a taxable year beginning after December 31, 2015, an unused tax credit

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attributable to an investment occurring before January 1, 2016.

     44-70-6. Credit -- Calculation. -- Subject to §§ 44-70-4 and 44-70-10, the amount of the

credit to which a taxpayer is entitled under § 44-70-2, shall equal the product of:

     (1) Twenty percent (20%); multiplied by

     (2) The amount of the qualified investment capital provided to a qualified Rhode Island

business by the taxpayer in the taxable year.

     44-70-7. Pass through entity -- Eligibility of owners, shareholders, or members for

credit. -- If a pass through entity is entitled to a credit under § 44-70-2 but does not have state tax

liability against which the tax credit may be applied, a shareholder, partner, or member of the

pass through entity is entitled to a tax credit equal to:

     (1) The tax credit determined for the pass through entity for the taxable year; multiplied

by;

     (2) The percentage of the pass through entity's distributive income to which the

shareholder, partner, or member is entitled.

     44-70-8. Carryover -- Unused tax credit. -- If the amount of the credit determined

under § 44-70-6 for a taxpayer in a taxable year exceeds the taxpayer's state tax liability for that

taxable year, the taxpayer may carry the excess credit over for a period not to exceed the

taxpayer's following five (5) taxable years. The amount of the credit carryover from a taxable

year shall be reduced to the extent that the carryover is used by the taxpayer to obtain a credit

under this chapter for any subsequent taxable year. A taxpayer is not entitled to a carryback or a

refund of any unused credit amount.

     44-70-9. Certification of investment plan -- Application -- Proof of investment within

two (2) years. -- (a) A taxpayer wishing to obtain a credit under this chapter must apply to the

Rhode Island commerce corporation for a certification that the taxpayer's proposed investment

plan would qualify for a credit under this chapter.

     (b) The application required under subsection (a) of this section must include:

     (1) The name and address of the taxpayer;

     (2) The name and address of each proposed recipient of the taxpayer's proposed

investment;

     (3) The amount of the proposed investment;

     (4) A copy of the certification issued under § 44-70-3 that the proposed recipient is a

qualified Rhode Island business; and

     (5) Any other information required by the Rhode Island commerce corporation.

     (c) If the Rhode Island commerce corporation shall certify the taxpayer's proposed

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investment plan if the corporation determines that:

     (1) The proposed investment would qualify the taxpayer for a credit under this chapter;

and

     (2) The amount of the proposed investment would not result in the total amount of tax

credits certified for the calendar year exceeding twelve million five hundred thousand dollars

($12,500,000).

     (d) To receive a credit under this chapter, the taxpayer must provide qualified investment

capital to a qualified Rhode Island business according to the taxpayer's certified investment plan

within two (2) years after the date on which the Rhode Island commerce corporation certifies the

investment plan.

     (e) Upon making the investment required under subsection (d) of this section, the

taxpayer shall provide proof of the investment to the Rhode Island commerce corporation.

     (f) Upon receiving proof of a taxpayer's investment under subsection (e) of this section,

the Rhode Island commerce corporation shall issue the taxpayer a certificate indicating that the

taxpayer has fulfilled the requirements of the corporation and that the taxpayer is entitled to a

credit under this chapter.

     (g) A taxpayer forfeits the right to a tax credit attributable to an investment certified

under subsection (c) of this section if the taxpayer fails to make the proposed investment within

the period required under subsection (d) of this section.

     44-70-10. Returns -- Submission of certificates from Rhode Island commerce

corporation. -- To receive the credit provided by this chapter, a taxpayer must claim the credit on

the taxpayer's state tax return or returns in the manner prescribed by the department of revenue.

The taxpayer shall submit to the department of revenue, along with the taxpayer's state tax return

or returns, a copy of the certificate issued by the Rhode Island commerce corporation to the

taxpayer under § 44-70-9 and all information that the department of revenue determines is

necessary for the calculation of the credit provided by this chapter.

     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 a venture capital investment tax credit to qualified Rhode Island

businesses and the credit would be available to businesses certified by the Rhode Island

commerce corporation as meeting certain set requirements.

     This act would take effect upon passage.

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