Provides a tax credit for certain investments in certified bank capital companies to provide venture capital for certain small business enterprises

Summary of provisions

§ 1- Statement of legislative intent.

§ 2- Amends § 1456 of the Tax Law by adding a new subsection (x). The new subsection permits a taxpayer (defined in section 1452(a) as a banking corporation) to take a tax credit equal to one hundred percent of an investment made in a Certified Bank Capital Company (BANCAPCO), at a rate of ten percent a year. If a BANCAPCO is decertified for not complying with the requirements of the bill, some or all of the credits can be recaptured. Tax credits earned through an investment in a Certified Bank Capital Company are not subject to a retaliatory tax which would otherwise be imposed as a result of obtaining the credit.

§ 3- Amends the Tax Law by adding a new § 35. This section establishes the requirements for a venture capital firm to be certified by the state for the purpose of receiving investments from certified Investors, defined as banking corporations. It defines the types of businesses qualified to receive venture capital investments from BANCAPCOs based on size (fewer than 100 employees) or annual gross ($5 million, but not to exceed 200 employees). No more than 14% of BANCAPCOs funds may be invested in anyone company. The bill sets the amount of certified capital that is eligible for tax credits at $50 million for calendar year 2008, and $100 million thereafter.

Businesses receiving BANCAPCO funds are required to state their intention to conduct their business operations in New York State. In addition, BANCAPCOs are required to maintain at least 90% of their investment portfolios in in-state firms despite any relocations of businesses that might occur. If firm relocations occur which bring a BANCAPCO's portfolio below that level, the BANCAPCO is required to make a compensating investment in an in-state company of equal amount to that invested in the relocated firm.

To ensure diversity and increase the likelihood that several venture capital funds will be established, the bill limits the amount that any certified investor can invest to $10 million in anyone year in which such an investment can be made. Therefore, no one investor can invest more than $20 million of the authorized $100 million. However, if the total amount authorized has not been invested 60 days prior to the end of each year, the limitation ceases to be in effect so that the total amount can be invested. Affiliated banking companies are considered to be one taxpayer and investor.

A BANCAPCO must invest its certified funds in qualified businesses at a specific rate (25% within 2 years, 40% within 3 years, and 50% within 5 years). Before a BANCAPCO can make a distribution to its equity holders, it must invest 100% of its certified capital. If a BANCAPCO fails to meet specified requirements, it can be decertified, and some or all of the tax credits available to its investors can be recaptured and/or revoked, depending at what point in time decertification occurs.

Each BANCAPCO is required to provide to the Department of Taxation and Finance an audited financial statement annually, which must include the opinion of an independent certified public accountant. The Department is charged with conducting an annual review of the BANCAPCOs to determine if they are abiding by the requirements of the statute.

An applicant seeking to become a BANCAPCO is charged a fee of $500 to file an application with the Department. It is also charged an annual certification fee of $500. The department is required to promulgate rules and regulations within 120 days of implementation of this act.

§ 4- Effective Date.

Justification

New York State has not attracted an amount of national venture capital commitments commensurate with its economic size. Venture investments continue to be concentrated in California and Massachusetts. California, Colorado, Massachusetts, Texas, and Washington are the only states that have finished in the top ten in attracting venture investments in each of the past five years.

In 1997-1998, New York State developed a new vehicle, the Certified Capital Company, to provide insurance companies the incentives for the creation of state venture capital funds directed to the formation of new, and expansion of existing, businesses which create jobs, with an emphasis on the smaller, earlier-stage deals that have difficulty in attracting institutional venture capital. The creation of a Certified Bank Capital Company to provide banking corporations the incentive for the creation of another state venture capital fund in New York can further help to fill the venture capital gap that currently exists in the State and promote economic development.

From a "present value" basis (using the prime rate of interest for discounting), because investors must invest all of their money up front, while credits are earned over a ten year period, the BANCAPCO credit is closer to 65% of the funds invested, not 100%.

Legislative history

2009-2010: A.2817 2007-2008: A.4548/S.4683 2005-2006: A.3669-A/S.4037-A 2003-2004: A.3400/S.2614 2001-2002: A.950/S.3741 1999-2000: A.6628/S.5387

Fiscal implications

FY: 2010-2011 - None FY: 2011-2012 - $5 Million FY: 2012-2013 - $10 Million

Effective date

This act shall take effect immediately.