Relates to the qualified emerging technology company capital tax credit; repealer

Title of bill

An act to amend the tax law, in relation to the qualified emerging technology company capital tax credit, to repeal certain provisions of such law relating thereto; and providing for the repeal of such provisions upon expiration thereof

Purpose or general idea of bill

This legislation would increase the tax credit for equity investments in small companies engaged in high-technology fields and would extend the credit to investments in venture capital funds that invest in such companies.

Summary of specific provisions

The existing credit for equity investments in qualified emerging technology companies (subdivision 12-F of Section 210 and subsection (r) of section 606) is amended to:

* Increase the existing credit from ten percent for investments held for five years and twenty percent for investments held for ten years to twenty percent for investments held for three years, with half of the credit allowed during the taxable year the investment was made and one quarter of the credit allowed during each of the next two years;

* Allow a twenty percent credit over three years for investments in venture capital funds that make equity investments in qualified emerging technology companies;

* Allow a forty percent credit over three years for "seed" equity investments, with seed investments defined as investments "in a start-up company or a company that may not yet have fully established commercial operations to enable such company to conduct research to prove a concept;

* Allow a twenty percent credit over three years for investments in seed capital funds that make seed capital investments, as determined by the empire state development corporation.

* Increase the total amount of credits available to a taxpayer from $150,000 (for five-year investments) and $300,000 (for ten-year investments) to $300,000 (regular and fund investments) and $600,000 (seed investments);

Justification

The accelerated growth of companies in emerging technology fields is critical to ensuring future economic prosperity in New York State. The State has recently invested millions of dollars in university/industry research and development with the intent that this R&D would lead to new products being commercialized in the State and, thus, be a significant source of quality jobs. However, entrepreneurs and start-up companies that are key players in translating R&D into commercial products require large amounts of outside equity and seed capital to prove a new concept and to fuel their growth. Testimony received over the past few years from venture firms, companies, and economic developers in emerging technology fields has identified a gap in seed funding for entrepreneurs and new companies. Seed funds account for less than two percent of all venture capital investments. The largest source of seed funds is from angel investors, wealthy individuals willing to invest in new companies and new ideas, yet there has been a recent decline in the percentage of angel investments going to seed and start-up deals. The tax credit enhancement provided by this legislation would encourage such investments and lead to the commercialization of new products by entrepreneurs and small companies. PRIOR LEGISLATIVE HISTORY : A.10460 of 2006 A.2400 of 2007/2008 Passed Assembly (2007)

Fiscal implications

Estimated tax expenditures for this program are $1.6 million in fiscal year 2006-2007 and $3.2 million when fully implemented.

Effective date

The act would take effect immediately and would apply to taxable years beginning on and after January 1, 2010. The act would sunset on December 31, 2015.