Bill Text: OR HB3227 | 2011 | Regular Session | Introduced

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Bill Title: Relating to certified capital companies; prescribing an effective date.

Sponsorship: Slight Partisan Bill (Democrat 3-1)

Status: (Failed) 2011-06-30 - In committee upon adjournment. [HB3227 Detail]

Download: Oregon-2011-HB3227-Introduced.html

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     76th OREGON LEGISLATIVE ASSEMBLY--2011 Regular Session

NOTE:  Matter within  { +  braces and plus signs + } in an
amended section is new. Matter within  { -  braces and minus
signs - } is existing law to be omitted. New sections are within
 { +  braces and plus signs + } .

LC 1869

                         House Bill 3227

Sponsored by Representatives BAILEY, READ; Representatives
  BARNHART, BREWER

                             SUMMARY

The following summary is not prepared by the sponsors of the
measure and is not a part of the body thereof subject to
consideration by the Legislative Assembly. It is an editor's
brief statement of the essential features of the measure as
introduced.

  Creates Certified Capital Company Act.
  Requires certified capital company to be certified by Oregon
Business Development Department. Permits investments by certified
capital companies in qualified businesses that are Oregon green
energy and conservation businesses. Establishes minimum amounts
of qualified investments as percentage of certified capital
invested in certified capital company.
  Allows tax credits to certified investors. Limits total tax
credits allowed to $30 million per year.
  Requires department to make biennial report to Legislative
Assembly. Requires department to adopt rules to implement Act.
  Takes effect on 91st day following adjournment sine die.

                        A BILL FOR AN ACT
Relating to certified capital companies; creating new provisions;
  amending ORS 314.752 and 318.031; and prescribing an effective
  date.
Be It Enacted by the People of the State of Oregon:
  SECTION 1.  { + Sections 2 to 10 of this 2011 Act shall be
known and may be cited as the 'Certified Capital Company
Act.' + }
  SECTION 2.  { + As used in sections 2 to 10 of this 2011 Act:
  (1) 'Affiliate' means:
  (a) Any person who, directly or indirectly, controls, is
controlled by or is under common control with a certified capital
company or an insurance company;
  (b) A partnership in which a certified capital company or an
insurance company is a general partner; or
  (c) Any person who is an officer, director, manager, employee
or agent of a certified capital company or an insurance company,
or an immediate family member of an officer, director, manager,
employee or agent of a certified capital company or an insurance
company.
  (2) 'Certified capital' means cash invested by a certified
investor in a certified capital company that fully funds the
purchase price of the investor's equity interest in a certified
capital company or a qualified debt instrument issued by a
certified capital company, or both.
  (3) 'Certified capital company' means a corporation,
partnership or limited liability company that:
  (a) Is certified by the Oregon Business Development Department
under section 3 of this 2011 Act;
  (b) Receives investments of certified capital from two or more
certified investors; and
  (c) Has as its primary activity the making of qualified
investments.
  (4) 'Certified investor' means an insurance company subject to
corporate tax liability under ORS chapter 317 or 318 that invests
certified capital.
  (5) 'Green energy' means a technology, product, process or
innovation that involves solar energy, green building products
and services, biofuels, biomass energy, bio-based products or
other renewable and sustainable energy as defined by the Oregon
Business Development Department by rule.
  (6) 'Insurance company' means an association, corporation,
fraternal or mutual benefit organization, whether or not for
profit, that is engaged in providing insurance coverage,
including accident, burial, casualty, workers' compensation,
credit life, contract performance, dental, fidelity, fire,
health, hospitalization, illness, life (including endowments and
annuities), malpractice, marine, mortgage, surety and wage
protection insurance.
  (7) 'Oregon green energy and conservation business' means a
business composed of an individual, association of individuals,
joint venture, partnership, limited liability company, nonprofit
entity, corporation, firm, association or other entity, that has
the capacity, upon obtaining appropriate capital, to generate
significant high skill, high wage employment and that provides a
service or produces a product that:
  (a) Increases energy efficiency and conservation;
  (b) Uses or produces green energy;
  (c) Stimulates research and development in green energy;
  (d) Prevents, reduces or mitigates environmental degradation;
  (e) Cleans up and restores the natural environment; or
  (f) Provides education, consultation, policy promotion,
accreditation, trading and offsets or similar supporting services
for any of the activities identified in this subsection.
  (8)(a) 'Qualified business' means an Oregon green energy and
conservation business that meets the following criteria:
  (A) Has its principal place of business and principal business
operations located in this state;
  (B) Intends to keep its principal place of business and
principal business operations in this state after receipt of a
certified capital company's investment;
  (C) Has 500 or fewer employees and:
  (i) Employs at least 80 percent of its employees in this state;
or
  (ii) Pays 80 percent of its payroll to employees in this state;
and
  (D) Is unable to obtain or cannot reasonably be expected to
qualify for financing from a commercial or private lender.
  (b) 'Qualified business' does not include a business that is
predominantly engaged in:
  (A) Retail sales, real estate development, insurance, banking,
lending or oil and gas exploration; or
  (B) Professional services provided by accountants, lawyers or
physicians.
  (9) 'Qualified debt instrument' means a debt instrument issued
by a certified capital company at par value or a premium with an
original maturity date of at least five years after the date of
issuance, a repayment schedule that is no faster than a level
principal amortization over five years, and interest,
distribution or payment features that are not related to the
profitability of a certified capital company or the performance
of a certified capital company's investment portfolio.

  (10) 'Qualified investment' means the investment of cash by a
certified capital company in a qualified business for the
purchase of any debt, debt participation, equity or hybrid
security of any kind, including a debt instrument or security
that has the characteristics of debt but that provides for
conversion into equity or equity participation instruments such
as options or warrants. + }
  SECTION 3.  { + (1) A certified capital company must be
certified by the Oregon Business Development Department as
provided in this section and in rules adopted by the department.
  (2) An applicant for certification must file an application in
the form prescribed by the department accompanied by a
nonrefundable application fee of $7,500. The application must
include, at a minimum:
  (a) The name of the applicant and the addresses of its
principal place of business, principal business operations and
any other office located in this or any other state;
  (b) The applicant's relevant organizational documents and
bylaws, and amendments thereto;
  (c) Documents evidencing the applicant's financial condition
and history, including an audit report on the company's financial
statements prepared in accordance with generally accepted
accounting principles; and
  (d) Copies of any offering material used or proposed to be used
by the applicant in soliciting investments of certified capital
from certified investors.
  (3) To qualify as a certified capital company, the applicant
must have, at the time of application for certification:
  (a) An equity capitalization of at least $500,000 in
unencumbered cash, marketable securities or other liquid assets;
  (b) At least two principals or two managers employed with the
applicant who each have at least two years of money management
experience in the venture capital industry, with at least one
full-time principal or manager located in an office of the
applicant that is located in this state; and
  (c) The ability to satisfy any additional requirement imposed
by the department by rule.
  (4) As part of the certification process, the department shall
certify in writing the amount of tax credits to be allowed to the
certified investors of the company upon certification as provided
in section 12 of this 2011 Act.
  (5) Within 60 days after receipt of an application under this
section, the department shall grant or deny certification of the
applicant as a certified capital company and provide the
applicant with information regarding the grounds for any denial
of certification, including suggestions for correcting the
grounds for the denial.
  (6) Upon certification, any offering material involving the
sale of securities of the certified capital company shall include
the following statement: 'By certifying a certified capital
company, the State of Oregon does not endorse the quality of
management or the potential for earnings of the company and is
not liable for damages or losses to a certified investor in the
company. Use of the word 'certified' in an offering does not
constitute a recommendation or endorsement of the investment by
the State of Oregon. Investments in a certified capital company
prior to the time a company is certified are not eligible for tax
credits under section 12 of this 2011 Act. If applicable
provisions of sections 2 to 10 of this 2011 Act are violated, the
state may require forfeiture of unused tax credits and repayment
of used tax credits by the certified investor. '
  (7) Except as provided in this subsection, not later than
December 31 of each year, each certified capital company shall
pay a nonrefundable renewal fee of $5,000 to the department. If a
certified capital company fails to pay the renewal fee on or
before December 31, the company must pay, in addition to the
renewal fee, a late fee of $5,000 on or before January 31 of the
succeeding year in order to continue the company's certification.
No renewal fees are required to be paid within six months after
the date of initial certification of a certified capital company.
  (8) The department may deny certification or decertify a
certified capital company if:
  (a) The grounds for denial or decertification are not corrected
within 90 days after notice of the denial or decertification is
received by the company;
  (b) The company fails to maintain common stock or paid-in
capital of at least $500,000; or
  (c) The department determines that the company, or any
principal, director or manager of the company:
  (A) Has violated any provision of sections 2 to 10 of this 2011
Act;
  (B) Has made a material misrepresentation or false statement or
concealed any essential or material fact during the application
process or with respect to information and reports required of
certified capital companies under sections 2 to 10 of this 2011
Act;
  (C) Has been convicted of, or entered a plea of guilty or nolo
contendere to, a crime against the laws of this state or any
other state or of the United States or any other country,
including a fraudulent act in connection with the operation of a
certified capital company or in connection with the performance
of fiduciary duties in another capacity;
  (D) Has been adjudicated liable in a civil action on grounds of
fraud, embezzlement, misrepresentation or deceit; or
  (E) Has been the subject of:
  (i) Any adverse decision, finding, injunction, suspension,
prohibition, revocation, denial, judgment or administrative order
by any court of competent jurisdiction, administrative law judge,
any state or federal agency or any national securities,
commodities or option exchange; or
  (ii) Any injunction or adverse administrative order by a state
or federal agency regulating banking, insurance, finance or small
loan companies, real estate, mortgage brokers or other related or
similar industries.
  (9)(a) Upon decertification of a certified capital company
under subsection (8) of this section, the Oregon Business
Development Department shall determine the tax liability of the
certified investors due by reason of the decertification and send
notice of the decertification and tax liability to the Department
of Revenue and the certified capital company. The decertified
company shall provide notice of the decertification and the
requirement for repayment of used tax credits by certified
investors of the company within 30 days after receiving notice of
decertification.
  (b) Thirty days after receipt of notice of the decertification
and tax liability from the Oregon Business Development Department
under this subsection, the Department of Revenue shall begin
collection of any taxes due by reason of the decertification. No
assessment of taxes is necessary and no statute of limitations
precludes the collection of taxes due under this section.
  (10) For a certified capital company that has made qualified
investments in an amount that is cumulatively equal to 100
percent of the total certified capital invested in the company,
any tax credit claimed or to be claimed by a certified investor
is not subject to repayment or forfeiture under this section. + }
  SECTION 4.  { + (1) An insurance company or any affiliate of an
insurance company may not, directly or indirectly, own, whether
through rights, options, convertible interests or otherwise, 15
percent or more of the voting equity interests of, or manage or
control the direction of investments of a certified capital
company. This prohibition does not preclude a certified investor,
insurance company or any other party from exercising its legal
rights and remedies, which may include interim management of a
certified capital company, if a certified capital company is in
default of its obligation under law or its contractual
obligations to the certified investor, insurance company or other
party.
  (2) Nothing in this section limits an insurance company's
ownership of nonvoting equity interests in a certified capital
company. + }
  SECTION 5.  { + If a qualified business moves its principal
place of business or principal business operations from this
state within 90 days after the date a certified capital company
makes an investment in the business, the investment may not be
considered a qualified investment for purposes of sections 2 to
10 of this 2011 Act. + }
  SECTION 6.  { + (1) Before the third anniversary of the date of
certification of a certified capital company under section 3 of
this 2011 Act, the company must make qualified investments in an
amount cumulatively equal to at least 25 percent of the total
certified capital invested in the company.
  (2) Before the fifth anniversary of the date of certification
of a certified capital company under section 3 of this 2011 Act,
the company must make qualified investments in an amount
cumulatively equal to at least 50 percent of the total certified
capital invested in the company.
  (3) Capital of a certified capital company that is not invested
in qualified investments may only be invested in:
  (a) Cash deposited with a federally insured financial
institution;
  (b) Certificates of deposit in a federally insured financial
institution;
  (c) Investment securities that are:
  (A) Obligations of the United States or agencies or
instrumentalities of the United States; or
  (B) Obligations that are guaranteed fully as to principal and
interest by the United States;
  (d) Debt instruments rated at least 'A' or the equivalent by a
nationally recognized credit rating organization, or issued by,
or guaranteed with respect to payment by, an entity whose
unsecured indebtedness is rated at least 'A' or the equivalent by
a nationally recognized credit rating organization, and which
indebtedness is not subordinated to other unsecured indebtedness
of the issuer or the guarantor;
  (e) Obligations of this state or a municipality or other
political subdivision of this state; or
  (f) Any other investment approved by rule adopted by the Oregon
Business Development Department.
  (4) A certified capital company may not make a qualified
investment at a cost to the company that is greater than 15
percent of the total certified capital invested in the company at
the time of investment. + }
  SECTION 7.  { + (1) As used in this section, 'qualified
distribution' means:
  (a) The reasonable costs and expenses of forming a certified
capital company, including reasonable and necessary fees paid for
professional services, including but not limited to legal and
accounting services related to the formation of the company and
the cost of financing and insuring the obligations of the
company;
  (b) The reasonable costs and expenses of managing and operating
a certified capital company, including an annual management fee
in an amount that does not exceed two and one-half percent of
certified capital invested in the company, except that:
  (A) Costs or expenses may not be paid to a certified investor
or an affiliate of a certified investor;
  (B) Costs or expenses may not be paid for federal or state
taxes, including penalties and interest related to state and
federal income taxes, of the equity owners of the certified
capital company resulting from a tax liability of the certified
capital company; and
  (C) Costs and expenses in the aggregate may not exceed five
percent of certified capital invested in the company in any one
year; and
  (c) Reasonable and necessary fees paid for professional
services, including but not limited to legal and accounting
services related to the operation of a certified capital company.
  (2) A certified capital company may make a qualified
distribution at any time.
  (3) To make a distribution to its equity holders other than a
qualified distribution, a certified capital company must have
made qualified investments in an amount that is cumulatively
equal to 100 percent of the total certified capital invested in
the company.
  (4) Payments to creditors of a certified capital company may be
made without restriction for the repayment of principal and
interest on indebtedness owed to the creditors by the company,
including indebtedness of the company on which certified
investors earned tax credits. A creditor that is also a certified
investor or equity holder of the certified capital company may
receive payments with respect to such debt without restrictions.
  (5) The Oregon Business Development Department may direct that
an audit of a certified capital company be conducted, at the
expense of the company, by a nationally recognized certified
public accounting firm acceptable to the department. The audit
shall determine whether aggregate cumulative distributions made
by the certified capital company to its certified investors and
equity holders, other than qualified distributions, have equaled
or exceeded the sum of the certified capital invested in the
company and any additional capital contributions to the company.
If at the time of any distribution made by the certified capital
company, a distribution taken together with all other
distributions made by the company, other than qualified
distributions, exceeds in the aggregate the sum of the certified
capital invested in the company and any additional capital
contributions to the company, as determined by the audit, the
company shall pay to the Department of Revenue 10 percent of the
portion of the distribution in excess of the aggregate amount.
Payments to the Department of Revenue by a certified capital
company under this subsection may not exceed the aggregate amount
of tax credits claimed by all certified investors in the
company. + }
  SECTION 8.  { + The Oregon Business Development Department
shall conduct an annual review of each certified capital company
to determine whether the company is complying with the
requirements of sections 2 to 10 of this 2011 Act, to advise the
company as to the eligibility status of its qualified investments
and to ensure that no investment has been made in violation of
sections 2 to 10 of this 2011 Act. The cost of the annual review
shall be paid by the certified capital company. + }
  SECTION 9.  { + The Oregon Business Development Department
shall prepare a biennial report to an appropriate committee of
the Legislative Assembly regarding the results of the
implementation of sections 2 to 10 of this 2011 Act. The report
must include:
  (1) The number of certified capital companies holding certified
capital;
  (2) The amount of certified capital invested in each certified
capital company;
  (3) The amount of certified capital each certified capital
company invested in qualified businesses each year and the
cumulative total amount of qualified investments.
  (4) The total amount of tax credits granted under section 12 of
this 2011 Act for each year that credits have been granted;
  (5) The performance of each certified capital company with
respect to renewal and reporting requirements imposed under
sections 2 to 10 of this 2011 Act;
  (6) With respect to the qualified businesses in which certified
capital companies have invested:
  (a) The classification of each qualified business according to
the industrial sector and size of the business;
  (b) The total number of jobs created by the qualified
investments in the business and the average wage paid for the
jobs; and
  (c) The total number of jobs retained as a result of the
qualified investments in the business and the average wage paid
for the jobs;
  (7) A list of the certified capital companies that have been
decertified or that have failed to renew the certification and
the reason for any decertification; and
  (8) The total amount of tax credits that have been recaptured
or forfeited under section 3 of this 2011 Act. + }
  SECTION 10.  { + (1) The Oregon Business Development Department
shall adopt rules to implement the provisions of sections 2 to 10
of this 2011 Act.
  (2) The Department of Revenue shall adopt rules to implement
the provisions of sections 3, 7 and 12 of this 2011 Act. + }
  SECTION 11.  { + Section 12 of this 2011 Act is added to and
made a part of ORS chapter 315. + }
  SECTION 12.  { + (1) A credit against the taxes otherwise due
under ORS chapter 317 or 318 shall be allowed during the tax year
to a certified investor that makes an investment of certified
capital.
  (2) The total amount of tax credit allowed under this section
each tax year shall be certified in writing by the Oregon
Business Development Department as provided in subsection (3) of
this section and in rules adopted by the department.
  (3) The total amount certified for tax credit under this
section for the tax year, when added to all amounts previously
certified for tax credit under this section, may not exceed the
amount that would entitle all certified investors in all
certified capital companies to take total credits of $30 million
for the tax year in which certification of the tax credit is
made.
  (4)(a) A tax credit claimed under this section may not exceed
the tax liability of the taxpayer.
  (b) Any tax credit otherwise allowable under this section that
is not used by the taxpayer in a particular tax year may be
carried forward and offset against the taxpayer's tax liability
for the next succeeding tax year continuing thereafter for 10
years from the date on which the credit may first be taken.
  (5) A taxpayer that has received a tax credit certificate under
this section may sell the certificate to another taxpayer.  The
sale is effective only if a notice of tax credit certificate sale
is filed with the Department of Revenue. The notice must be
filed, on a form prescribed by the department, on or before the
date on which the buyer's income or corporate excise tax return
for the first year for which the credit could be claimed is filed
or due, whichever is earlier. The notice form shall include the
following information:
  (a) The name and taxpayer identification number of the seller;
  (b) The name and taxpayer identification number of the buyer;
  (c) The amount of the tax credit certificate that is being sold
to the buyer;
  (d) The amount of the tax credit certificate that is being
retained by the seller; and
  (e) Any other information required by the department.
  (6) If requested by the Department of Revenue, the Oregon
Business Development Department shall supply a list of taxpayers
that have obtained tax credit certification under this section
and for each listed taxpayer disclose the amount of certified
capital invested by the taxpayer and the amount certified for tax
credit under this section.
  (7) If the amount of certified capital for which a tax credit
is claimed is allowed as a deduction for federal tax purposes,
the amount of the credit shall be added to federal taxable income
for Oregon tax purposes.
  (8) As used in this section, 'certified capital, ' ' certified
capital company' and 'certified investor' have the meaning given
those terms in section 2 of this 2011 Act. + }
  SECTION 13. ORS 314.752, as amended by section 26, chapter 76,
Oregon Laws 2010, is amended to read:
  314.752. (1) Except as provided in ORS 314.740 (5)(b), the tax
credits allowed or allowable to a C corporation for purposes of
ORS chapter 317 or 318 shall not be allowed to an S corporation.
The business tax credits allowed or allowable for purposes of ORS
chapter 316 shall be allowed or are allowable to the shareholders
of the S corporation.
  (2) In determining the tax imposed under ORS chapter 316, as
provided under ORS 314.734, on income of the shareholder of an S
corporation, there shall be taken into account the shareholder's
pro rata share of business tax credit (or item thereof) that
would be allowed to the corporation (but for subsection (1) of
this section) or recapture or recovery thereof. The credit (or
item thereof), recapture or recovery shall be passed through to
shareholders in pro rata shares as determined in the manner
prescribed under section 1377(a) of the Internal Revenue Code.
  (3) The character of any item included in a shareholder's pro
rata share under subsection (2) of this section shall be
determined as if such item were realized directly from the source
from which realized by the corporation, or incurred in the same
manner as incurred by the corporation.
  (4) If the shareholder is a nonresident and there is a
requirement applicable for the business tax credit that in the
case of a nonresident the credit be allowed in the proportion
provided in ORS 316.117, then that provision shall apply to the
nonresident shareholder.
  (5) As used in this section, 'business tax credit' means a tax
credit granted to personal income taxpayers to encourage certain
investment, to create employment, economic opportunity or
incentive or for charitable, educational, scientific, literary or
public purposes that is listed under this subsection as a
business tax credit or is designated as a business tax credit by
law or by the Department of Revenue by rule and includes but is
not limited to the following credits: ORS 285C.309 (tribal taxes
on reservation enterprise zones and reservation partnership
zones), ORS 315.104 (forestation and reforestation), ORS 315.134
(fish habitat improvement), ORS 315.138 (fish screening, by-pass
devices, fishways), ORS 315.156 (crop gleaning), ORS 315.164 and
315.169 (farmworker housing), ORS 315.204 (dependent care
assistance), ORS 315.208 (dependent care facilities), ORS 315.213
(contributions for child care), ORS 315.304 (pollution control
facility), ORS 315.324 (plastics recycling), ORS 315.354 and
469.207 (energy conservation facilities), ORS 315.507 (electronic
commerce), ORS 315.511 (advanced telecommunications facilities),
ORS 315.604 (bone marrow transplant expenses), ORS 317.115
(fueling stations necessary to operate an alternative fuel
vehicle) and ORS 315.141 (biomass production for biofuel) { +
and section 12 of this 2011 Act (investments of certified capital
by certified investors of certified capital company) + }.
  SECTION 14. ORS 318.031 is amended to read:
  318.031. It being the intention of the Legislative Assembly
that this chapter and ORS chapter 317 shall be administered as
uniformly as possible (allowance being made for the difference in
imposition of the taxes), ORS 305.140 and 305.150, ORS chapter
314 and the following sections are incorporated into and made a
part of this chapter: ORS 285C.309, 315.104, 315.134, 315.141,
315.156, 315.204, 315.208, 315.213, 315.304, 315.507, 315.511 and
315.604  { +  and section 12 of this 2011 Act + } (all only to
the extent applicable to a corporation) and ORS chapter 317.
  SECTION 15.  { + Notwithstanding ORS 315.050, section 12 of
this 2011 Act applies to tax years beginning on or after January
1, 2011. + }
  SECTION 16.  { + This 2011 Act takes effect on the 91st day
after the date on which the Seventy-sixth Legislative Assembly
adjourns sine die. + }
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