Bill Text: NC H1118 | 2011-2012 | Regular Session | Amended
Bill Title: Small Business Start-Up Tax Relief
Spectrum: Partisan Bill (Democrat 22-1)
Status: (Introduced - Dead) 2012-05-24 - Ref to the Com on Commerce and Job Development, if favorable, Finance [H1118 Detail]
Download: North_Carolina-2011-H1118-Amended.html
GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2011
H 1
HOUSE BILL 1118
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Short Title: Small Business Start‑Up Tax Relief. |
(Public) |
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Sponsors: |
Representatives Wray, Tolson, Lucas, and Wainwright (Primary Sponsors). For a complete list of Sponsors, see Bill Information on the NCGA Web Site. |
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Referred to: |
Commerce and Job Development, if favorable, Finance. |
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May 24, 2012
A BILL TO BE ENTITLED
AN ACT to provide tax relief for small start-up businesses.
The General Assembly of North Carolina enacts:
SECTION 1. G.S. 105‑134.6(b) is amended by adding a new subdivision to read:
"(b) Other Deductions. – In calculating North Carolina taxable income, a taxpayer may deduct any of the following items to the extent those items are included in the taxpayer's adjusted gross income.
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(23) The amount of the exclusion of gain for qualified businesses allowed under Part 5 of this Article, plus an amount equal to the amount of the credits recaptured pursuant to G.S. 105‑163.021."
SECTION 2. G.S. 105‑163.013 and G.S. 105‑163.015 are recodified as G.S. 105‑163.010A and G.S. 105‑163.010B, respectively.
SECTION 3. Part 5 of Article 4 of Chapter 105 of the General Statutes reads as rewritten:
"Part 5. Tax Credits Incentives for Qualified
Business Investments.
"Subpart 1. General Provisions.
"§ 105‑163.010. Definitions.
The following definitions apply in this Part:
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(4) Equity security. – Common stock, preferred stock,
or an interest in a partnership,partnership or limited liability
company, or subordinated debt that is convertible into, or entitles the
holder to receive upon its exercise, common stock, preferred stock, or an
interest in a partnership.partnership or limited liability company.
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(8) Qualified business venture. – A business that (i)
engages primarily in manufacturing, processing, warehousing, wholesaling,
research and development, or a service‑related industry, and (ii) is
registered with the Secretary of State under G.S. 105‑163.013.105‑163.010A.
(9) Qualified grantee business. – A business that (i)
is registered with the Secretary of State under G.S. 105‑163.013,105‑163.010A,
and (ii) has received during the current year or any of the preceding three
years a grant, an investment, or other funding from a federal agency under the
Small Business Innovation Research Program administered by the United States
Small Business Administration or from a granting entity as defined in this section.
(9a) Qualified licensee business. – A business that meets all of the following conditions:
a. It is registered with the Secretary of State under G.S. 105‑163.013.
105‑163.010A.
b. During its most recent fiscal year before filing an
application for registration under G.S. 105‑163.013, G.S. 105‑163.010A,
it had gross revenues, as determined in accordance with generally accepted
accounting principles, of one million dollars ($1,000,000) or less on a
consolidated basis.
c. It has been certified by a constituent institution of The University of North Carolina or a research university as currently performing under a licensing agreement with the institution or university for the purpose of commercializing technology developed at the institution or university. For the purpose of this section, a research university is an institution of higher education classified as a Doctoral/Research University, Extensive or Intensive, in the most recent edition of "A Classification of Institutions of Higher Education", the official report of The Carnegie Foundation for the Advancement of Teaching.
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(13) Service‑related industry. – A business is
engaged in a service‑related industry, whether or not it also sells a
product, if it provides services to customers or clients and does not as a
substantial part of its business engage in a business described in 105‑163.013(b)(4).G.S. 105‑163.010A(b)(4).
A business is engaged as a substantial part of its business in an activity
described in G.S. 105‑163.013(b)(4) G.S. 105‑163.010A(b)(4)
if (i) its gross revenues derived from all activities described in that
subdivision exceed twenty‑five percent (25%) of its gross revenues in any
fiscal year or (ii) it is established as one of its primary purposes to engage
in any activities described in that subdivision, whether or not its purposes
were stated in its articles of incorporation or similar organization documents.
(14) Subordinated debt. – Indebtedness that is not
secured and is subordinated to all other indebtedness of the issuer issued or to
be issued to a financial institution other than a financial institution
described in subdivisions (5)(ii) through (5)(v) of this section. Except For
the purposes of Subpart 2 of this Part only, except as provided in G.S. 105‑163.014(d1),
any portion of indebtedness that matures earlier than five years after its
issuance is not subordinated debt.
"§ 105‑163.010A. Registration.
(a) Repealed by Session Laws 1993, c. 443, s. 4.
(b) Qualified Business Ventures. – In order to qualify as a qualified business venture under this Part, 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 business venture. A business meets the requirements for registration as a qualified business venture if all of the following are true as of the date the business files the required application:
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(4) It does not engage as a substantial part of its business in any of the following:
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d. The purchase, sale, or development, or
purchasing,Purchasing, developing, selling, or holding for investment
of commercial paper, notes, other indebtedness, financial instruments,
securities, or real property, or otherwise make making investments.
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(5) It was not formed for the primary purpose of
acquiring all or part of the stock stock, other ownership interest, or
assets of one or more existing businesses.
(6) It is not a real estate‑related business.
The effective date of registration for a qualified business venture whose application is accepted for registration is 60 days before the date its application is filed. No credit or exclusion of gain is allowed under this Part for an investment made before the effective date of the registration or after the registration is revoked. For the purpose of this Article, if a taxpayer's investment is placed initially in escrow conditioned upon other investors' commitment of additional funds, the date of the investment is the date escrowed funds are transferred to the qualified business venture free of the condition.
To remain qualified as a qualified business venture, the business must renew its registration annually as prescribed by rule by filing a financial statement for the most recent fiscal year showing gross revenues, as determined in accordance with generally accepted accounting principles, of five million dollars ($5,000,000) or less on a consolidated basis and an application for renewal in which the business certifies the facts required in the original application.
Failure of a qualified business venture to renew its
registration by the applicable deadline shall resultresults in
revocation of its registration effective as of the next day after the renewal
deadline, but shall does not result in forfeiture of tax credits
previously allowed to taxpayers who invested in the business except as provided
in G.S. 105‑163.014. The Secretary of State shall send the qualified
business venture notice of revocation within 60 days after the renewal
deadline. A qualified business venture may apply to have its registration
reinstated by the Secretary of State by filing an application for
reinstatement, accompanied by the reinstatement application fee and a late
filing penalty of one thousand dollars ($1,000), within 30 days after receipt
of the revocation notice from the Secretary of State. A business that seeks
approval of a new application for registration after its registration has been
revoked must also pay a penalty of one thousand dollars ($1,000). A
registration that has been reinstated is treated as if it had not been revoked.
If the gross revenues of a qualified business venture exceed five million dollars ($5,000,000) in a fiscal year, the business must notify the Secretary of State in writing of this fact by filing a financial statement showing the revenues of the business for that year.
(b1) Qualified Licensee Businesses. – In order to qualify as a qualified licensee business under this Part, 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 licensee business. The requirements for registration as a qualified licensee business are set out in G.S. 105‑163.010.
The effective date of registration for a qualified licensee business whose application is accepted for registration is the filing date of its application. No credit or exclusion of gain is allowed under this Part for an investment made before the effective date of the registration or after the registration is revoked.
To remain qualified as a qualified licensee business, the business must renew its registration annually as prescribed by rule by filing a financial statement for the most recent fiscal year showing gross revenues, as determined in accordance with generally accepted accounting principles, of one million dollars ($1,000,000) or less on a consolidated basis and an application for renewal in which the business certifies the facts required in the original application.
Failure of a qualified licensee venture business to
renew its registration by the applicable deadline results in revocation of its
registration effective as of the next day after the renewal deadline, but does
not result in forfeiture of tax credits previously allowed to taxpayers who
invested in the business except as provided in G.S. 105‑163.014. The
Secretary of State shall send the qualified licensee business notice of
revocation within 60 days after the renewal deadline. A qualified licensee
business may apply to have its registration reinstated by the Secretary of
State by filing an application for reinstatement, accompanied by the
reinstatement application fee and a late filing penalty of one thousand dollars
($1,000), within 30 days after receipt of the revocation notice from the
Secretary of State. A business that seeks approval of a new application for
registration after its registration has been revoked must also pay a penalty of
one thousand dollars ($1,000). A registration that has been reinstated is
treated as if it had not been revoked.
If the gross revenues of a qualified licensee business
venture exceed one million dollars ($1,000,000) in a fiscal year, the
business must notify the Secretary of State in writing of this fact by filing a
financial statement showing the revenues of the business for that year.
(c) Qualified Grantee Businesses. – In order to qualify as a qualified grantee business under this Part, 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. The requirements for registration as a qualified grantee business are set out in G.S. 105‑163.010.
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 or exclusion of gain is allowed under this Part for an investment made before the effective date of the registration or after the registration is revoked.
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 demonstrating that it continues to meet the applicable requirements for qualification.
(d) Application Forms; Rules; Fees. – Applications for
registration, renewal of registration, and reinstatement of registration under
this section shall be in the form required by the Secretary of State. The
Secretary of State may, by rule, require applicants to furnish supporting
information in addition to the information required by subsections (b), (b1),
and (c) of this section. The Secretary of State may adopt rules in accordance
with Chapter 150B of the General Statutes that are needed to carry out the
Secretary's responsibilities under this Part. The Secretary of State shall
prepare blank forms for the applications and shall distribute them throughout
the State and furnish them on request. Each application shall be signed by the owners
of the business or, in the case of a corporation, by its president, vice‑president,
treasurer, or secretary.owners, a manager, or an executive officer of
the business. There shall be annexed to the application the affirmation of
the person making the application in the following form: "Under penalties
prescribed by law, I certify and affirm that to the best of my knowledge and
belief this application is true and complete." A person who submits a
false application is guilty of a Class 1 misdemeanor.
The fee for filing an application for registration under this section is one hundred dollars ($100.00). The fee for filing an application for renewal of registration under this section is fifty dollars ($50.00). The fee for filing an application for reinstatement of registration under this section is fifty dollars ($50.00).
An application for renewal of registration under this section must indicate whether the applicant is a minority business, as defined in G.S. 143‑128, and include a report of the number of jobs the business created during the preceding year that are attributable to investments that qualify under this section for a tax credit and the average wages paid by each job. An application that does not contain this information is incomplete and the applicant's registration may not be renewed until the information is provided.
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"§ 105‑163.010B. Sunset.
This Part is repealed effective for investments made on or
after January 1, 2013.2016.
"Subpart 2. Tax Credits for Qualified Business Investments.
"§ 105‑163.011. Tax credits allowed.
...
"§ 105‑163.012. Limit; carry‑over; ceiling; reduction in basis.
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(b) The total amount of all tax credits allowed to
taxpayers under G.S. 105‑163.011 for investments made in a calendar
year may not exceed seven ten million five hundred thousand dollars
($7,500,000).($10,000,000). The Secretary of Revenue shall
calculate the total amount of tax credits claimed from the applications filed
pursuant to G.S. 105‑163.011(c). If the total amount of tax credits
claimed for investments made in a calendar year exceeds this maximum amount,
the Secretary shall allow a portion of the credits claimed by allocating the
maximum amount in tax credits in proportion to the size of the credit claimed
by each taxpayer.
...
"§ 105‑163.014. Forfeiture of credit.
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"Subpart 3. Exclusion of Gain on Qualified Business Investment.
"§ 105‑163.020. Exclusion of gain allowed.
(a) Individuals. – An individual may elect to exclude from the individual's income taxable under this Article any gain or other taxable income recognized for federal income tax purposes from the sale or exchange of qualified securities.
(b) Gain Recognized on Sales by Pass‑Through Entities. – This subsection does not apply to a pass‑through entity that has committed capital under management in excess of five million dollars ($5,000,000) or to a pass‑through entity that is a qualified business or a North Carolina Enterprise Corporation. Each individual that is an owner of a pass‑through entity may elect to exclude from the individual's income taxable under this Article an amount equal to the individual's allocated share of the exclusion for which the pass‑through entity would be eligible under subsection (a) of this section if the pass‑through entity were an individual .
(c) Gain Recognized on Sale of Pass‑Through Entities. – This subjection does not apply to a pass‑through entity that has committed capital under management in excess of five million dollars ($5,000,000) or to a pass‑through entity that is a qualified business or a North Carolina Enterprise Corporation. An individual may exclude from the individual's income taxable under this Article a portion of the gain or other taxable income recognized as a result of the individual's sale or exchange of an ownership interest in the pass‑through entity that invested in qualified securities. The portion of the gain or other taxable income that may be excluded from income taxable under this Article is the gain or other taxable income recognized as a result of the sale or exchange of an ownership interest in the pass‑through entity multiplied by a fraction, the numerator of which is the total amount invested by the pass‑through entity in qualified securities and the denominator of which is the total amount invested by the pass‑through entity. For purposes of this subsection, the amounts invested by a pass‑through entity shall be the amounts invested at the time of the pass‑through entity's sale or exchange.
(d) Election Irrevocable. – A taxpayer's election as to whether to exclude gain from taxable income becomes irrevocable upon filing the taxpayer's income tax return for the taxable year.
"§ 105‑163.021. Recapture of credit.
If a taxpayer claims an exclusion of gain from income pursuant to G.S. 105‑163.020, the income tax liability of the taxpayer for the tax year for which the exclusion is claimed shall be increased by the amount of all credits previously claimed by the taxpayer pursuant to G.S. 105‑163.011 with respect to qualified securities that (i) have been sold or exchanged and (ii) the gain from which has been excluded pursuant to G.S. 105‑163.020.
"§ 105‑163.022. Qualified securities.
(a) Qualified Security. – Except as otherwise provided in this section, any equity security or subordinated debt instrument issued by a qualified business is a qualified security if it satisfies all of the following conditions:
(1) It is originally issued by the business on or after January 1, 2012.
(2) As of the date of issuance, the issuing business is a qualified business.
(3) The security or instrument is acquired by the taxpayer at its original issue in exchange for any tangible or intangible property or benefit to the business, including cash, promissory notes, services performed, contracts for services to be performed, or other equity securities of the business.
(4) It is held by the taxpayer for a continuous period of more than one year.
(5) No broker's fee or commission or other similar remuneration is paid or given directly or indirectly for soliciting the purchase.
(6) If the security or instrument was purchased by a pass‑through entity, the entity met the requirements of G.S. 105‑163.011(bl) at the time of purchase.
(b) Registration. – Securities of a qualified business acquired before the effective date of its registration are not qualified securities. Revocation of the registration of a qualified business pursuant to G.S. 105‑163.010A does not affect the exclusion of gain from qualified securities acquired while the registration was in effect if all conditions for registration are satisfied.
(c) Effect of Redemptions and Other Distributions. – An equity security or subordinated debt instrument is not a qualified security to the extent the taxpayer purchased it with the proceeds of a redemption, dividend, or distribution made by the business that issued the security or instrument. For the purpose of this subsection, when a business makes a redemption, dividend, or distribution during the four‑year period beginning two years before the issuance of securities or instruments to a taxpayer, the taxpayer is considered to have used the proceeds of the redemption, dividend, or distribution toward the purchase of the securities or instruments. A redemption, dividend, or distribution occurs when the business issuing the security or instrument does either of the following:
(1) Purchases, directly or indirectly, any of its outstanding equity securities or subordinated debt, other than qualified securities, from the taxpayer or a related person.
(2) Declares a dividend or makes a distribution with respect to any of its outstanding equity securities or subordinated debt, other than qualified securities, to the taxpayer or a related person. This subdivision does not apply, however, to a distribution in connection with one of the following:
a. The reimbursement to the taxpayer of the reasonable costs of forming, syndicating, managing, and operating the business.
b. An increase in the taxpayer's taxes, penalties, or interest to the extent the increase is caused by the allocation to the taxpayer of income of the business. The repayment of principal on subordinated debt is a purchase of the debt except to the extent the repayment is repayment of principal due on the subordinated debt at its maturity pursuant to the terms of the subordinated debt instrument. If a transaction is treated under section 304(a) of the Code as a distribution in redemption of the equity securities of a business, that business has, for the purpose of this subsection, purchased an amount of its equity securities equal to the amount treated as such a distribution under section 304(a) of the Code.
(d) Exception for Certain Transactions. – The following transactions are not treated as a redemption or distribution for the purposes of subsection (c) of this section:
(1) Any deemed liquidation of a business pursuant to section 708(b)(1)(A) of the Code by reason of the business becoming a disregarded entity for federal tax purposes, to the extent there is no actual distribution of money or other property to the taxpayer or a related person.
(2) Any deemed distribution or redemption by reason of a technical termination of a business pursuant to section 708(b)(1)(B) of the Code, to the extent there is no actual distribution of money or other property to the taxpayer or a related person.
(e) Conversion of Other Securities. – Any equity security or subordinated debt instrument issued by a business and acquired by the taxpayer solely through the conversion of another equity security or subordinated debt instrument that was issued by the business and was a qualified security in the hands of the taxpayer is considered, for the purpose of this section, a qualified security in the hands of the taxpayer and acquired by the taxpayer on the date the taxpayer acquired the converted qualified security.
(f) Transfers. – In the case of a transfer by gift, by death, or from a pass‑through entity to one of its owners, the transferee is considered, for the purpose of this section, to have acquired the qualified security in the same manner as the transferor and to have held it during any continuous period immediately preceding the transfer during which it was held or treated as held by the transferor. In the case of a transaction described in section 351 or 721 of the Code or a reorganization described in section 368 of the Code, if qualified securities are exchanged for other securities, the other securities are considered, for the purpose of this section, qualified securities acquired on the date the exchanged qualified securities were acquired. In the case of a transaction described in section 351 or 721 of the Code, the newly acquired securities are considered qualified securities, however, only if, immediately after the transaction, the business issuing the securities owns, directly or indirectly, securities representing control, within the meaning of section 368(c) of the Code, of the business whose securities were exchanged.
"§ 105‑163.023. Limitations.
(a) Contributions and Exchanges of Property. – In the case of a transaction described in section 351 or 721 of the Code or a reorganization described in section 368 of the Code, if a taxpayer contributes property to or exchanges property with a qualified business, the following rules apply:
(1) Qualified securities exchanged for property. – Except as otherwise provided in subdivision (3) of this subsection, a taxpayer who transfers property to a business in exchange for qualified securities in the business must, for purposes of determining North Carolina taxable income, recognize gain equal to the amount by which the fair market value of the property exceeded the taxpayer's basis in the property on the date the property was exchanged for the qualified securities. This gain must be recognized for the years for which the taxpayer claims an exclusion of gain under this Part with respect to the disposition of qualified securities received in exchange for the property.
(2) Contributions to capital. – Except as otherwise provided in subdivision (3) of this subsection, if the adjusted basis of a qualified security is adjusted due to a contribution to capital after the date the qualified security was issued originally, for purposes of determining North Carolina taxable income, the taxpayer must recognize gain equal to the amount by which the fair market value of the contributed property exceeded the taxpayer's basis in the property on the date the property was contributed. This gain must be recognized for the years for which the taxpayer claims an exclusion of gain under this Part with respect to the disposition of the qualified securities.
(3) Disposition of contributed property. – If a qualified business disposes of property contributed to it, the disposition occurs before the taxpayer who contributed the property claims an exclusion of gain pursuant to this Part with respect to qualified securities affected by the contribution, and the taxpayer recognizes gain from the disposition, for purposes of subdivisions (1) and (2) of this subsection, the taxpayer's basis in the contributed property is increased by any gain the taxpayer recognized from the disposition.
(b) Transactions That Substantially Reduce the Risk of Loss. – If a taxpayer has entered into any transaction that substantially reduces the risk of loss from holding the qualified securities, there is no exclusion of gain under this Part from the sale or exchange of the qualified securities unless the taxpayer entered into the transaction on or after January 1, 2012, and elects to recognize gain as if the qualified securities were sold at fair market value on the date the taxpayer first entered into that transaction. The following are examples of a transaction that substantially reduces the risk of loss from holding the qualified securities:
(1) The taxpayer or a related person has made a short sale of substantially identical property.
(2) The taxpayer or a related person has acquired an option to sell substantially identical property at a fixed price."
SECTION 4. This act is effective for taxable years beginning on or after January 1, 2012.
