Senate Bill No. 428
(By Senator Wiedebusch)
[Introduced February 16, 1996; referred to the Committee
Small Business; and then to the Committee on Finance.]
A BILL to amend chapter five-e of the code of West Virginia, one
thousand nine hundred thirty-one, as amended, by adding
thereto a new article, designated article two, relating to
venture capital; creating the targeted West Virginia capital
company act; providing a short title; declaring policy and
purposes; defining terms; requiring promulgation of rules;
setting forth qualifications of targeted West Virginia
capital companies; providing tax credits for investments in
such companies; providing a civil penalty for unqualified
investments by the companies; establishing application
requirements for the companies; disclaiming liability of the
state; designating qualified investments by such companies; placing certain restrictions on investments and investors;
proscribing certain conflicts of interest; requiring
investment reporting and recordkeeping; requiring annual
audit examinations; and setting forth consequences of
noncompliance with the act.
Be it enacted by the Legislature of West Virginia:
That chapter five-e of the code of West Virginia, one
thousand nine hundred thirty-one, as amended, be amended by
adding thereto a new article, designated article two, to read as
ARTICLE 2. TARGETED WEST VIRGINIA CAPITAL COMPANY ACT.
§5E-2-1. Short title.
The article may be cited as the "Targeted West Virginia
Capital Company Act."
§5E-2-2. Declaration of policy.
There exists within the state of West Virginia a potential
pool of investment funds which, under proper circumstances, can
be available for economic development.
These potential funds are owned by West Virginia residents
and businesses who have a genuine interest in developing a
positive and constantly improving economy.
They are, however, of a more conservative nature and not inclined to be interested in "venture capital" investment.
This act is designed to encourage investment of these funds
under the following scenario:
(a) A business plan is developed and presented to potential
(b) The investors then place their funds into an escrow
(c) Proof of the escrow account and the business plan is
submitted to the West Virginia economic development authority
(d) The business is put in place and begins paying all
appropriate West Virginia taxes;
(e) Beginning in the next fiscal year through the eighth
year after the targeted business is operational, West Virginia
tax credits shall be allowed based on a percentage of withheld
personal income tax received by the tax department.
State revenues shall always be received before any tax
credits are issued and shall always be greater than the tax
The existing West Virginia capital company act, article one,
chapter five-e of this code, limits the amount of individual project investment from a certified capital company's total fund.
Recognizing the cost of starting a new business and the need
to simplify the total financial package, the Legislature believes
this targeted venture capital act to be a much needed vehicle to
accelerate economic developments.
This act will provide for single source equity financing and
should significantly reduce the necessity of seeking low interest
loans from public sources.
(a) The purpose of this article is to promote the
development of the human resources and the diversification of the
economy of West Virginia. The targeted West Virginia capital
company generated by this article must be used to encourage and
assist the strengthening of the economy through loans, equity
investments and other business transactions for purposes of
developing new business and industry in West Virginia,
rehabilitating existing business and industry, and stimulating
and assisting in the expansion of business activities that
promote and maintain the economic stability of this state by
providing maximum opportunities for employment of West Virginians
and improving the standard of living of the people of this state.
(b) This article is aimed at:
(1) Increasing the availability of venture capital in order
to encourage and assist in the creation, development and
expansion of businesses based in West Virginia;
(2) Developing, preserving, diversifying, expanding and
strengthening the agricultural, industrial and business base of
West Virginia's economy, particularly for those businesses
utilizing this state's technical, managerial and research
resources in domestic and international markets; and
(3) Providing the residents of West Virginia with greater
opportunities to invest and participate in the economic
development and potential of this state.
As used in this article, the following terms have the
meanings ascribed to them in this section, unless the context
in which the term is used clearly requires another meaning or a
specific different definition is provided.
(a) "Authority" means the West Virginia economic development
authority, provided for in article fifteen, chapter thirty-one of
(b) "Capital base" means equity capital or net worth.
(c) "Certified West Virginia capital company" means:
(1) A West Virginia business development corporation created
pursuant to article fourteen, chapter thirty-one of this code; or
(2) A profit or nonprofit entity organized and existing
under the laws of this state, created for the purpose of making
venture or risk capital available to qualified investments, that
has been certified by the authority.
(d) "Qualified investment" means a debt or equity financing
of a West Virginia business but only if the business is engaged
in one or more of the following activities: Manufacturing;
agricultural production or processing; forestry production or
processing; mineral production or processing, except for
conventional oil and gas exploration; service industry;
transportation; research and development of products or processes
associated with any of the activities previously enumerated
above; tourism; and wholesale or retail distribution activities
within the state, all subject to the provisions of section eleven
of this article.
(e) "Qualified targeted West Virginia capital company" means
a targeted West Virginia capital company that has been designated
by the authority as a qualified targeted capital company under the provisions of section six of this article.
(f) "State" means the state of West Virginia.
The authority shall promulgate rules in accordance with
article three, chapter twenty-nine-a of this code, to carry out
the policy and purposes of this article. The rules shall set
forth application procedures and qualification requirements for
companies seeking to qualify as targeted West Virginia capital
§5E-2-6. Qualification of targeted West Virginia capital
(a) The authority shall qualify targeted West Virginia
capital companies commencing after the effective date of this
article. A company seeking to be qualified as a targeted West
Virginia capital company shall make written application to the
authority on forms provided by the authority. The application
shall contain the information required by section nine of this
article. Further, the application shall specify the level of
capitalization of the company.
(b) The application shall set forth the applicant's purpose.
(c) The authority may qualify a West Virginia capital company that came into existence after the first day of July, one
thousand nine hundred eighty-six, as a targeted West Virginia
capital company: Provided, That the company satisfies all
requirements set forth in this article for qualification as a
targeted capital company.
§5E-2-7. Tax credits.
(a) Any investor, including an individual, partnership or
corporation who makes a capital investment in a qualified
targeted West Virginia capital company, is entitled to a tax
credit not to exceed one hundred percent of initial investment as
Beginning in the second West Virginia fiscal year through
the eighth fiscal year, a West Virginia tax credit equal to
sixty-five percent of personal income tax received by the state
from employees of the initially funded business shall be allowed.
The credit allowed by this article shall be taken after all
other credits allowed by chapter eleven of this code. It shall
be taken against the same taxes and in the same order as set
forth in subsections (c) through (i), section five, article
thirteen-c, chapter eleven of this code. The credit for
investments by a partnership or by a corporation electing to be treated as a Subchapter S corporation may be divided pursuant to
election of partners or shareholders.
(b) The tax credit allowed under this section is to be
credited against the taxpayer's tax liability for the taxable
year in which the investment in a qualified targeted West
Virginia capital company is made. If the amount of the tax credit
exceeds the taxpayer's tax liability for the taxable year, the
amount of the credit which exceeds the tax liability for the
taxable year may be carried to succeeding taxable years until
used in full, or until forfeited: Provided, That: (i) Tax
credits may not be carried forward beyond fifteen years; and (ii)
tax credits may not be carried back to prior taxable years. Any
tax credit remaining after the fifteenth taxable year is
(c) The tax credit provided for in this section is available
only to those taxpayers whose investment in a qualified targeted
West Virginia capital company occurs after the first day of July,
one thousand nine hundred ninety-six.
§5E-2-8. Recaptures; unqualified investments.
If the amount invested by a taxpayer in a qualified targeted
West Virginia capital company is not used by the company for qualified investments, as provided in section eleven of this
article, the taxpayer is not subject to a recapture provision for
any credit claimed by the taxpayer but the company is subject to
the civil penalty provided for in subsection (d), section eleven
of this article.
§5E-2-9. Application requirements.
Each company shall make application to the authority on
forms provided therefor, which shall set forth:
(1) Capitalization level of capital company;
(2) Purpose of the company;
(3) Names of investors;
(4) A process for disclosing to investors the tax credit
available pursuant to this article. The disclosure shall clearly
set forth that no tax credit will be available until the
qualification of the company is granted by the authority and the
disclosure of immunity of the state for damages is provided to
the investors; and
(5) The location of the escrow account which has been
established for investors for the period of time between the
investment and the qualification of the targeted West Virginia
capital company by the authority.
§5E-2-10. Disclaimer of liability of the state.
The state of West Virginia is not liable to any investor or
qualified targeted West Virginia capital company as a result of
this article or any of the activities authorized herein by any
court of law.
§5E-2-11. Qualified investments.
(a) A retail facility established as part of a manufacturing
facility to retail products manufactured on-site is considered a
qualified investment by a qualified targeted West Virginia
(b) A qualified targeted West Virginia capital company shall
use its capital base to make qualified investments according to
the following schedule:
(1) At least twenty-five percent of its capital base within
the first year of the date on which the capital company was
designated as qualified by the authority;
(2) At least forty percent of its capital base within two
years of the date on which the capital company was designated as
qualified by the authority; and
(3) At least seventy-five percent of its capital base within
three years of the date on which the capital company was designated as qualified by the authority.
(c) The authority shall annually audit the certified audit
of each qualified company, as required by section fifteen of this
article, and the results of the audit shall be used to notify the
tax commissioner of any companies that are not in compliance with
(d) A qualified targeted West Virginia capital company that
fails to make qualified investments pursuant to subsection (a) of
this section shall pay to the tax commissioner a penalty equal to
all of the tax credits allowed to the taxpayers investing in the
company with interest at the rate of one and one-half percent per
month, compounded monthly, from the date the tax credits were
certified as allocated to the qualified targeted West Virginia
capital company. The tax commissioner shall give notice to the
company of any penalties under this section. The tax
commissioner may abate the penalties upon written request if the
capital company establishes reasonable cause for the failure to
make qualified investments. The tax commissioner shall deposit
any amounts received under this subsection in the state general
§5E-2-12. Restrictions on investments and investors.
(a) No portion of the equity funding raised pursuant to this
article may be invested in a business other than the originally
(b) No investor and no immediate family member (spouse,
parent, child or stepchild) of an investor in a qualified
targeted West Virginia capital company may be employed by a
targeted business in which the capital company has invested,
absent the approval of the authority.
§5E-2-13. Conflict of interest.
No officer, member or employee of the authority may be
financially interested, directly or indirectly, in any qualified
targeted West Virginia capital company.
§5E-2-14. Investment reporting and record keeping.
(a) Each qualified targeted West Virginia capital company
shall report to the tax commissioner and the authority on a
(1) The name of each investor in the qualified targeted West
Virginia capital company who has applied for a tax credit;
(2) The amount of each investor's investment;
(3) The amount of the tax credit allowed to the investor and
the date on which the investment was made; and
(4) All qualified investments the company has made.
(b) The company shall provide each investor in a qualified
targeted West Virginia capital company with a certificate
authorizing the tax credits. A true copy of the certificate
shall be submitted with each taxpayer's tax return requesting a
credit under section seven of this article.
(a) Annually each qualified targeted West Virginia capital
company shall cause its books and records to be audited by an
independent certified public accountant in accordance with
generally accepted auditing and accounting principles. In
addition to the performance of a financial audit, the audit shall
address the methods of operation and conduct of the business of
the qualified targeted West Virginia capital company to determine
compliance with this article and that the funds received by the
company have been invested within the time limits required by
this article. Upon completion, a copy of the audit report shall
be certified and sent to the authority.
(b) The authority may examine, under oath, any of the
officers, directors, agents, employees or investors of a
qualified targeted West Virginia capital company regarding the affairs and business of the company. The authority may issue
subpoenas and subpoenas duces tecum and administer oaths.
Refusal to obey a subpoena or subpoena duces tecum may at once be
reported to the circuit court of the county in which the company
is located or the person subpoenaed resides. The circuit court
shall enforce obedience to the subpoena or subpoena duces tecum
in the manner provided by law for compliance with a subpoena or
subpoena duces tecum issued by a circuit court of this state.
(a) If the examination conducted pursuant to section fifteen
of this article discloses that a qualified targeted West Virginia
capital company is not in compliance with provisions of the
article, the authority may exercise any of the powers necessary
and appropriate to protect the authority's interest.
(b) The authority shall give a targeted West Virginia
capital company written notice of any inadequacies in its
compliance with the provisions of this article, and specify a
period of time the company has to redress the inadequacies.
Failure within the time period to make corrections will result
in further action by the authority pursuant to this section.
NOTE: The purpose of this bill is to create the "Targeted
West Virginia Capital Company Act" to facilitate economic
development throughout the state.
This article is new; therefore, strike-throughs and
underscoring have been omitted.