H. B. 2881


(By Delegates Cann, Frederick, Coleman,
Perry, Martin, Webb and Caputo)
[Introduced March 16, 2001; referred to the
Committee on Industry and Labor, Economic Development and Small Business then Finance.]



A BILL to amend and reenact sections six, eight and ten, article one, chapter five-e of the code of West Virginia, one thousand nine hundred thirty-one, as amended, all relating to the West Virginia Capital Company Act; requiring reports on the use of funds and the economic effect of their use; providing that a West Virginia capital company will not qualify for certification unless it is licensed under the Federal Small Business Investment Act by the 110th day of the fiscal year; lowering the total available credits per year from ten to two million dollars; and allowing that tax credits may be divided between pass-through entities.

Be it enacted by the Legislature of West Virginia:
That sections six, eight and ten, article one, chapter five-e of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended and reenacted, all to read as follows:
ARTICLE 1. WEST VIRGINIA CAPITAL COMPANY ACT.

 §5E-1-6. Qualification of West Virginia capital companies.
(a) The authority shall qualify West Virginia capital companies commencing after the effective date of this article. A company seeking to be qualified as a 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 ten 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 certify West Virginia capital companies in existence after the first day of July, one thousand nine hundred eighty-six.
(d) An applicant shall establish an escrow account located in West Virginia, into which funds invested in the applicant shall be deposited and held for the period of time between their receipt by the applicant and the designation of the applicant as a qualified company. The funds shall may not be invested by the applicant until it is designated by the authority as a qualified company. Provided, That, in addition to the minimum standards set forth in section seven of this article, no applicant may be designated a qualified company without providing sufficient proof to the authority that the proposed project will sufficiently promote the purpose of providing employment in accordance with the provisions of section three, article fifteen, chapter thirty-one of this code. In the event the authority does not designate the applicant a qualified company, such the funds shall be returned to the investors, if requested by the investors.
(e) A West Virginia capital company may not qualify or be issued a certification under this article unless the company holds a valid business registration certificate issued pursuant to article twelve, chapter eleven of this code. A company exempt from registration under article twelve may qualify and be certified under this article upon proof of its exemption.
(f) Beginning on the first day of July, two thousand one, a West Virginia capital company may not qualify or be issued a certification under this article unless the company, on or before the two hundred tenth day of the fiscal year, is licensed by the Federal Small Business Investment Act of 15 U.S.C. §§661 et seq., as amended, and provides sufficient evidence of licensure to the authority.
(g) The West Virginia economic development authority shall report annually to the Legislature concerning the applications made to the fund and the payments made from the fund and the impact of the payments on job creation in the state. The authority shall also report quarterly to the joint committee on government and finance and the legislative auditor on the use of the moneys in the fund, including information regarding to whom payments were made, in what amounts, and for what purposes.
§5E-1-8. Tax credits.
(a) The total amount of tax credits authorized for a single qualified company may not exceed two million dollars. Capitalization of the company may be increased pursuant to rule of the authority.
(b) (1) The total credits authorized by the authority for all companies may not exceed a total of ten two million dollars each fiscal year: Provided, That for the fiscal year beginning on the first day of July, one thousand nine hundred ninety-nine, the total credits authorized for all companies may not exceed a total of six million dollars: Provided, however, That for the fiscal year beginning on the first day of July, two thousand, the total credits authorized for all companies may not exceed a total of four million dollars: Provided further, That the capital base of any such qualified company shall be invested in accordance with the provisions of this article. The authority shall allocate these credits to qualified companies in the order that the companies are qualified.
(2) Not more than one million seven hundred fifty thousand dollars of the credits allowed under subdivision (1) of this subsection may be allocated by the authority during each fiscal year to one or more small business investment companies described in this subdivision: Provided, That for the fiscal year beginning on the first day of July, two thousand, two million dollars of the credits allowed under subdivision (1) of this subsection shall be allocated by the authority during that fiscal year to one or more small business investment companies described in this subdivision. The remainder of the tax credits allowed during the fiscal year shall be allocated to qualified companies other than those small business investment companies. The portion of the tax credits allowed for small business investment companies described in this subdivision shall be allowed only if allocated by the authority during the first ninety days of the fiscal year, and may only be allocated to companies that: (A) Were organized on or after the first day of January, one thousand nine hundred ninety-nine; (B) have registered for licensure by the small business administration as a small business investment company under the small business investment act; and (C) have certified in writing to the authority on the application for credits under this act that the company will diligently seek to obtain and thereafter diligently seek to invest leverage available to such small business investment companies under the small business investment act. These credits shall be allocated by the authority in the order that the companies are qualified. Any credits which have not been allocated to qualified companies meeting the requirements of section six, article one chapter five-e, this subdivision relating to small business investment companies during the first ninety two hundred forty days of the fiscal year shall be made available and allocated to other qualified companies in the manner prescribed in this section for qualified companies generally for allocation in accordance with article two of this chapter.
(c) Any investor, including an individual, partnership, limited liability company, or corporation or other entity who makes a capital investment in a qualified West Virginia capital company, is entitled to a tax credit equal to fifty percent of the investment, except as otherwise provided in this section or in this article. 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), inclusive, section five, article thirteen-c, chapter eleven of this code. The credit for investments by a partnership, a limited liability company, or by a corporation electing to be treated as a Subchapter S corporation or any other entity which is treated as a pass through entity under federal and state income tax laws may be divided pursuant to election of partners, members, or shareholders or owners.
(d) 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 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 forfeited.
(e) The tax credit provided for in this section is available only to those taxpayers whose investment in a qualified West Virginia capital company occurs after the first day of July, one thousand nine hundred eighty-six.
(f) The tax credit allowed under this section may not be used against any liability the taxpayer may have for interest, penalties or additions to tax.
(g) Notwithstanding any provision in this code to the contrary, the tax commissioner shall publish in the state register the name and address of every taxpayer, and the amount, by category, of any credit asserted under this article. The categories by dollar amount of credit received are as follows:
(1) More than $1.00, but not more than $50,000;
(2) More than $50,000, but not more than $100,000;
(3) More than $100,000, but not more than $250,000;
(4) More than $250,000, but not more than $500,000;
(5) More than $500,000, but not more than $1,000,000;
(6) More than $1,000,000.
§5E-1-10. Application requirements.

(a) 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. Such disclosure shall clearly set forth that no tax credit will be available until the qualification of said company shall be granted by the authority and the disclosure of immunity of the state for damages is provided to said 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 capital company by the authority;
(6) Evidence that the capital company has applied for licensure by the United States small business administration under the Federal Small Business Investment Act of 1958, 15 U.S.C. §§661, et seq., as amended; and
(7) That the capital company shall diligently seek to obtain and thereafter diligently seek to invest leverage available to small business investment companies licensed as such by the United States small business administration under the Federal Small Business Investment Act of 1958, U.S.C. §§661, et seq., as amended.
(b) An application submitted pursuant to this section shall be continually supplemented by the applicant if any material fact contained in the application changes, and whether the change constitutes an amendment requiring the consent of the authority pursuant to subsection (c) of this section shall be determined by the authority.
(c) An application submitted pursuant to this section may not be amended without the written consent of the authority on good cause shown.

NOTE: The purpose of this bill is to reformulate what capital companies are and how they can best be utilized to aid the West Virginia economy.

Strike-throughs indicate language that would be stricken from the present law, and underscoring indicates new language that would be added.