GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1995

S	2 

SENATE BILL 1049
Finance Committee Substitute Adopted 6/6/95

Short Title:  Clarify Investment Tax Credit.	(Public)

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Sponsors:

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Referred to:  

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May 4, 1995

A BILL TO BE ENTITLED
AN ACT TO CLARIFY THE QUALIFIED BUSINESS TAX CREDIT TO ELIMINATE AN UNINTENDED LOOPHOLE THAT ALLOWS DOUBLE CREDITS FOR THE SAME INVESTMENT AND TO LIMIT CREDITS FOR INVESTMENTS IN CERTAIN INVESTMENT BUSINESSES.
The General Assembly of North Carolina enacts:
Section 1.  G.S. 105-163.011 reads as rewritten:
"§ 105-163.011.  (Repealed effective for investments made on or after January 1, 1999) Tax credits allowed.
	(a)	Corporations. – Subject to the limitations contained in G.S. 105-163.012, a corporation that purchases the equity securities of a North Carolina Enterprise Corporation directly from the Enterprise Corporation is allowed as a credit for the taxable year an amount equal to twenty-five percent (25%) of the amount invested.  The aggregate amount of credit allowed a corporation for one or more investments in a single taxable year under this Division, whether directly or indirectly as owner of a pass-through entity, may not exceed seven hundred fifty thousand dollars ($750,000).  The credit is allowed against one or more of the following taxes:
(1)	The income tax imposed by Division I of this Article.
(2)	The franchise tax imposed by G.S. 105-116, 105-120.2, and 105-122.
(3)	The gross premiums tax imposed by G.S. 105-228.5 and G.S. 105-228.8.
The credit may not be taken for the year in which the investment is made but shall be taken for the taxable year beginning during the calendar year in which the application for the credit becomes effective as provided in subsection (c)	of this section.  This subsection does not apply to a corporation that is also a pass-through entity.
(b)	Individuals. – Subject to the limitations contained in G.S. 105-163.012, an individual who purchases the equity securities or subordinated debt of (i) a qualified business venture, (ii) a qualified grantee business, or (iii) a North Carolina Enterprise Corporation directly from that entity is allowed as a credit against the tax imposed by Division II of this Article for the taxable year an amount equal to twenty-five percent (25%) of the amount invested.  The aggregate amount of credit allowed an individual for one or more investments in a single taxable year under this Division, whether directly or indirectly as owner of a pass-through entity, may not exceed fifty thousand dollars ($50,000).  
The credit may not be taken for the year in which the investment is made but shall be taken for the taxable year beginning during the calendar year in which the application for the credit becomes effective as provided in subsection (c)	of this section.  For the purpose of this Article, an investment in a qualified grantee business that is an investment business, as provided in G.S. 105-163.013(c), has not been made unless and until the grantee business reinvests the investment in a qualified business venture or a qualified grantee business that is not an investment business.
(b1)	Pass-Through Entities. – This subsection does not apply to a pass-through entity that is a qualified grantee business, a qualified business venture, or a North Carolina Enterprise Corporation.  Subject to the limitations provided in G.S. 105-163.012, a pass-through entity that purchases the equity securities or subordinated debt of a qualified grantee business, a qualified business venture, or a North Carolina Enterprise Corporation directly from the business or Corporation is eligible for a tax credit equal to twenty-five percent (25%) of the amount invested.  The aggregate amount of credit allowed a pass-through entity for one or more investments in a single taxable year under this Division, whether directly or indirectly as owner of another pass-through entity, may not exceed seven hundred fifty thousand dollars ($750,000).  The pass-through entity is not eligible for the credit for the year in which the investment by the pass-through entity is made but shall be eligible for the credit for the taxable year beginning during the calendar year in which the application for the credit becomes effective as provided in subsection (c) of this section.
Each individual who is an owner of a pass-through entity is allowed as a credit against the tax imposed by Division II of this Article for the taxable year an amount equal to the owner's allocated share of the credits for which the pass-through entity is eligible under this subsection.  The aggregate amount of credit allowed an individual for one or more investments in a single taxable year under this Division, whether directly or indirectly as owner of a pass-through entity, may not exceed fifty thousand dollars ($50,000).
Each corporation that is an owner of a pass-through entity is allowed as a credit for the taxable year an amount equal to the corporation's allocated share of the tax credits for which the pass-through entity is eligible under this subsection as a result of the pass-through entity's investment in equity securities of a North Carolina Enterprise Corporation.  The credit is allowed against one or more of the following taxes:
(1)	The income tax imposed by Division I of this Article.
(2)	The franchise tax imposed by G.S. 105-116, 105-120.2, and 105-122.
(3)	The gross premiums tax imposed by G.S. 105-228.5 and G.S. 105-228.8.
The aggregate amount of credit allowed a corporation for one or more investments in a single taxable year under this Division, whether directly or indirectly as owner of a pass-through entity, may not exceed seven hundred fifty thousand dollars ($750,000).
If an owner's share of the pass-through entity's credit is limited due to the maximum allowable credit under this section for a taxable year or if a corporate owner is not eligible for the credit because the investment was not made in a North Carolina Enterprise Corporation, the pass-through entity and its owners may not reallocate the unused credit among the other owners.
(c)	Application. – To be eligible for the tax credit provided in this section, the taxpayer must file an application for the credit with the Secretary on or before April 15 of the year following the calendar year in which the investment was made.  The Secretary may grant extensions of this deadline, as the Secretary finds appropriate, upon the request of the taxpayer, except that the application may not be filed after September 15 of the year following the calendar year in which the investment was made.  An application is effective for the year in which it is timely filed.  The application shall be on a form prescribed by the Secretary and shall include any supporting documentation that the Secretary may require.  If an investment for which a credit is applied for was paid for other than in money, the taxpayer shall include with the application a certified appraisal of the value of the property used to pay for the investment.  If the investment for which a credit is applied for was made in a qualified grantee business that is an investment business, as provided in G.S. 105-163.013(c), the taxpayer shall include with the application the certification of the grantee business that it has reinvested the investment in a qualified business venture or in a qualified grantee business that is not an investment business.  The application for a credit for an investment made by a pass-through entity must be filed by the pass-through entity.
(d)	Penalties. – The penalties provided in G.S. 105-236 apply in this Division. "
Sec. 2.  G.S. 105-163.013(c) reads as rewritten:
"(c)	Qualified Grantee Businesses. – In order to qualify as a qualified grantee business under this Division, a business must be registered with the Securities Division of the Department of the Secretary of State. To register, the business must file with the Secretary of State an application and any supporting documents the Secretary of State may require from time to time to determine that the business meets the requirements for registration as a qualified grantee business. A business meets the requirements for registration as a qualified grantee business if all of the following are true as of the date the business files the required application:
(1)	Its headquarters and principal business operations are in North Carolina or it has, as a condition to approval of the registration, agreed to establish its headquarters and principal business operations in North Carolina within three months after the date the first investment eligible for a credit under this Division is made.
(2)	It has, as a condition to approval of the registration, agreed to retain its headquarters and principal business operations in North Carolina for at least three years after the date the last investment eligible for a credit under this Division is made.
(3)	It has received during the preceding three years a grant or other funding from the North Carolina Technological Development Authority, the North Carolina Technological Development Authority, Inc., North Carolina First Flight, Inc., the North Carolina Biotechnology Center, the Microelectronics Center of North Carolina, or the Federal Small Business Innovation Research Program.
(4)	Whether it is an investment business.  A qualified grantee business is an investment business if it engages or is organized to engage as a substantial part of its business in the purchase, sale, or development, or purchasing, selling, or holding for investment of commercial paper, notes, other indebtedness, financial instruments, securities, or real property, or in otherwise making investments.
The effective date of registration for a qualified grantee business whose application is accepted for registration is the filing date of its application. No credit is allowed under this Division for an investment made before the effective date of the registration or after the registration is revoked.
A qualified grantee business that is an investment business must place in a trust account all investments made in it by individuals.  Funds in the trust account may be invested only in qualified business ventures and qualified grantee businesses that are not investment businesses.  When the qualified grantee business reinvests an individual investor's funds, it shall provide the investor with a statement certifying that the grantee business has reinvested the investment in a qualified business venture or in a qualified grantee business that is not an investment business.
To remain qualified as a qualified grantee business, the business must renew its registration annually as prescribed by rule by filing an application for renewal in which the business certifies the facts listed in this subsection.  In the case of a qualified grantee business that is an investment business, the application must include an accounting of credits and debits to its trust account composed of investments made in it by individuals."
Sec. 3.  This act is effective for taxable years beginning on or after January 1, 1995, but does not apply to investments and commitments to invest made before July 1, 1995.