N.Y. Tax Law Section 11
Certified capital companies


(a)

Definitions. For the purpose of this section the following terms shall mean:

(1)

“Certification date” - the date on which a certified capital company is so designated by the department for a specific certified capital company program.

(2)

“Certified capital” - an investment of cash by a certified investor in a certified capital company which fully funds the purchase price of either or both its equity interest in the certified capital company or a qualified debt instrument issued by the certified capital company. Any such investment shall be subject to the provisions of article fourteen of the insurance law.

(3)

“Certified capital company” - a partnership, corporation, trust or limited liability company, organized on a for-profit basis that is located, headquartered and licensed or registered to conduct business in New York, that has as its primary business activity the investment of cash in qualified businesses and that is certified by the department as meeting the criteria set forth in subdivision (b) of this section.

(4)

“Certified investor” - any insurance company that contributes certified capital.

(5)

“Department” - the department of financial services; provided, however, that “department” shall mean the department of economic development with regard to any application, certification, report, submission, filing or other action required or governed by this section occurring on or after August first, two thousand eleven.

(6)

“Net profits on certified investments” - the amount of money returned to the certified capital company in repayment of or exchange for the certified capital company’s qualified investment or investments in the qualified business in excess of the amount of such qualified investment or investments. Such number shall aggregate all of the certified capital company’s qualified investments where gains on qualified investments are netted against losses on qualified investments.

(7)

“Qualified business” - an independently owned and operated business that meets all of the following conditions as of the time of the first investment in the business: (A) It is headquartered in New York state, and its principal business operations are located in New York state, and the qualified investment it receives is used solely to support its business operations in the state, except for advertising, promotions and sales purposes. In cases where the qualified investment is made in a start-up company such capital must be used solely to establish and support its business operations in New York state, except for advertising, promotions and sales purposes. (B) It has either (i) no more than one hundred employees, at least eighty percent of whom are employed in New York state or, (ii) no more than two hundred employees, at least eighty percent of whom are employed in this state, and during the fiscal year immediately preceding the qualified investment it had, together with its affiliates, gross revenues of no more than five million dollars, on a consolidated basis as determined in accordance with generally accepted accounting principles, except that, with respect to certified capital company program three and certified capital company program four and certified capital company program five, in the case of a company located in an empire zone established pursuant to article eighteen-B of the general municipal law such gross revenues shall not exceed eight million dollars. (C) It is involved in commerce for the purpose of developing and manufacturing products and systems, including but not limited to high technology products and systems such as computers, computer software, medical equipment, biotechnology, telecommunications equipment and products, processing or assembling all types of products, conducting research and development on all types of products or providing services, but excluding real estate, real estate development, insurance and businesses predominantly engaged in professional services provided by accountants, lawyers or physicians. (D) The business was not organized by a certified capital company or an affiliate of a certified capital company, but this paragraph shall not prohibit a certified capital company from providing financial, technical or similar advice to a business before making an investment in such business. (E) The business does not have a financial relationship, such as an ownership interest, investment interest, or compensation agreement, with a certified capital company or any affiliate of a certified capital company before the date on which a certified capital company makes its first investment in the business, but this paragraph shall not prohibit a certified capital company from providing financial, technical or similar advice to a business before making an investment in such business. (F) For purposes of this paragraph, the term “independently owned and operated business” means (i) in the case of a corporation or limited liability company, a corporation where no more than fifty percent of the voting stock of the corporation or limited liability company is owned or controlled, directly or indirectly, by a single corporation, a single partnership or a single limited liability company, and

(ii)

in the case of a partnership, association, or other entity, a partnership, association or other entity where no more than fifty percent of the capital, profits or other beneficial interest in such partnership, association or other entity is owned or controlled, directly or indirectly, by a single corporation, a single partnership or a single limited liability company; provided, however, that the term shall include, as a single “independently owned and operated business,” parent and subsidiary or affiliated corporations or limited liability companies (i) that are engaged in an integrated for-profit business enterprise, and

(ii)

in which at least eighty percent of the voting stock or membership interests of all of the corporations or limited liability companies is owned or controlled, directly or indirectly, by a common group of shareholders or members, and no more than fifty percent of the voting stock or membership interests of all of the corporations or limited liability companies is owned or controlled, directly or indirectly, by a single corporation, single partnership, or single limited liability company that is not part of such group or parent company or affiliated corporations or limited liability companies.

(8)

“Qualified debt instrument” - 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 from date of issuance, a repayment schedule which is not faster than a level principal amortization, and interest, distribution or payment features which are not related to the profitability of the certified capital company or the performance of the certified capital company’s investment portfolio.

(9)

“Qualified distribution” - any distribution or payment by a certified capital company in connection with the following: (A) Reasonable costs and expenses of such equity holders incurred by such equity holders in connection with forming, syndicating, managing and operating the certified capital company, including (i) an annual management fee in an amount that does not exceed two and one-half percent of the certified capital of the certified capital company with respect to a particular certified capital company program;

(ii)

the reasonable and necessary fees paid for professional services (such as legal and accounting services) related to the operation of the certified capital company;

(iii)

with respect to program four and any subsequent program, all payments by the certified capital company in satisfaction of its indebtedness to its certified investors, provided that no more than thirty-five percent of such certified capital company’s certified capital may be used to purchase U.S. treasury securities, other investment-grade securities, a guaranty, indemnity, bond, insurance policy or other payment undertaking, or any combination thereof; and provided further, that nothing in this provision shall be construed to limit a certified capital company from expending non-certified capital in satisfaction of such indebtedness; and

(iv)

with respect to program four and any subsequent program, the reasonable costs and expenses of forming, syndicating, or organizing the certified capital company, separate from the costs of insuring or defeasing the obligations of the certified capital company, provided, however, that such costs and expenses shall not exceed five percent of the certified capital company’s certified capital; and (B) Any increase or projected increase in federal or state taxes, including penalties and interest related to state and federal income taxes, of the equity owners of a certified capital company resulting from the earnings or other tax liability of the certified capital company to the extent that the increase is related to the ownership, management or operation of a certified capital company.

(10)

“Qualified investment” - the investment of cash by a certified capital company in a qualified business for the purchase of any debt, equity or hybrid security, of any nature and description whatever, including a debt instrument or security which has the characteristics of debt but which provides for conversion into equity or equity participation instruments such as options or warrants, provided however, in the case of certified capital programs three, four and five, that any such debt instrument have a maturity of at least twenty-four months from the date such debt is incurred; and further provided that a certified capital company, after the investment and assuming full conversion and exercise of any equity participation instruments, shall not own more than fifty percent of the voting equity of the qualified business, except in the case of a follow-on investment where a specific exemption is granted by the department under subparagraph (D) of paragraph one of subdivision (c) of this section. Furthermore, except in the case of a follow-on investment, if a certified capital company owns more than fifteen percent of the equity in a company or has a seat on the board of directors of such company, then a certified capital company cannot invest in such company unless the following conditions are met:

(i)

at least one other investor who is not an affiliate of the certified capital company participates in the same round of investment on the same terms and conditions as the certified capital company; and

(ii)

the certified capital company and its affiliates invest no more than fifty percent of the total investment made in that round of investment.

(11)

“Early stage business” - a qualified business which is involved, at the time of investment, in activities related to the development of initial product or service offerings, such as prototype development or establishment of initial production or service processes, or, which is less than two years old and during the fiscal year immediately preceding the qualified investment had, together with its affiliates, gross revenues of no more than two million dollars, on a consolidated basis as determined in accordance with generally accepted accounting principles.

(12)

“Superintendent” - the superintendent of financial services; provided, however, that “superintendent” shall mean the commissioner of economic development with regard to any application, certification, report, submission, filing or other action required or governed by this section occurring on or after August first, two thousand eleven.

(13)

“Certified capital company program” - a calendar year or years for which taxpayers may be allocated and allowed credits pursuant to this section and subdivision (k) of § 1511 (Credits)section fifteen hundred eleven of this chapter and delineated as a separate program by this section.

(14)

“Starting date” - the date on which a certified capital company is allocated certified capital for a specific certified capital company program pursuant to subdivision (b) of this section.

(15)

“Underserved area” - a county, including a county wholly within a city, in which, as of January first, two thousand, less than twenty-five percent of the qualified investments in qualified businesses were made by certified capital companies under certified capital company program one. The superintendent shall prepare a list of such counties by July first, two thousand.

(16)

“Start-up business” - a qualified business which is involved, at the time of investment, in activities related to the development of initial product or service offerings, such as prototype development or establishment of initial production or service processes, or, which is less than two years old and during the fiscal year immediately preceding the qualified investment had, together with its affiliates, gross revenues of no more than two million dollars, on a consolidated basis as determined in accordance with generally accepted accounting principles and has fewer than twenty employees at the time of the investment; and, in addition, which has emerged within the year prior to the date of investment or is emerging from, or utilizes a technology transferred from, a university or college research facility located in New York state, a not-for-profit research facility located in New York state, or an industrial research facility located in New York state, or which is conducting research in conjunction with or in the research facilities of a university or college located in New York state, or which is located in or has emerged within the year prior to the date of investment or is emerging from an incubator facility located in New York state.

(b)

Certification.

(1)

The superintendent shall establish by rule or regulation the procedures for making an application to become a certified capital company. The applicant shall pay a non-refundable application fee of five hundred dollars at the time of filing the application with the department.

(2)

The superintendent may certify partnerships, corporations, trusts or limited liability companies, organized on a for profit basis, which submit an application to be designated as a certified capital company if such applicant is located, headquartered and licensed or registered to conduct business in New York, has as its primary business activity the investment of cash in qualified businesses and meets the other criteria set forth in this subdivision.

(3)

A certified capital company’s initial capitalization, at the time of seeking certification, must be five hundred thousand dollars or more.

(4)

The superintendent shall review the organizational documents of each applicant for certification and the business history of the applicant, determine that the applicant’s cash, marketable securities and other liquid assets are at least five hundred thousand dollars, and determine that the officers and the board of directors, general partners, trustees, managers, or members are trustworthy and are thoroughly acquainted with the requirements of this subdivision.

(5)

The superintendent shall verify that at least two principals of the certified capital company or any manager of the certified capital company each have no less than five years of experience in the venture capital or a venture capital-related industry.

(6)

Any offering material involving the sale of securities of the certified capital company shall include the following statement: "Authorizing the formation of a Certified Capital Company does not constitute the endorsement of the state of New York as to either the quality of management or the potential for earnings of such company and the state of New York 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 New York. Investments in a prospective Certified Capital Company prior to the time such company is certified with respect to a certified capital company program are not eligible for tax credits. In the event certain statutory provisions (as specified in Tax Law § 11 (Certified capital companies)section 11 of the Tax Law) are violated, the state of New York may require forfeiture of unused tax credits and repayment of used tax credits." (7) Within sixty days of application, the superintendent shall issue the certification or shall refuse the certification and communicate in detail to the applicant the grounds for the refusal, including suggestions for the removal of those grounds.

(8)

The superintendent may certify any previously certified capital company which has remained in compliance with the requirements of this section upon the application of such company to be designated a certified capital company for a certified capital company program for which it is not so designated. Such new certification shall be considered a separate certification from any other such certification under this section and investments in and by such company shall be considered separately for purposes of subdivisions (c) and (d) of this section.

(9)

The superintendent shall start accepting applications to become a certified capital company in certified capital company program two by November first, nineteen hundred ninety-nine, and shall start accepting applications to become a certified capital company in certified capital company program three by August first, two thousand, and shall begin accepting applications to become a certified capital company in certified capital company program four by the later of August first, two thousand four or not more than sixty days after the effective date of section one of part D of chapter fifty-nine of the laws of two thousand four and shall begin accepting applications to become a certified capital company in certified capital company program five by the later of July first, two thousand five or not more than sixty days after the effective date of the chapter of the laws of two thousand five which amended this paragraph.

(10)

A certified capital company may obtain a guaranty, indemnity, bond, insurance policy and/or other payment undertaking for the benefit of its certified investors from any entity; provided, however, that, in no case shall more than one certified investor of such certified capital company or affiliates of such certified investor be entitled to provide such guaranty, indemnity, bond, insurance policy and/or other payment undertaking in favor of the certified investors of the certified capital company and its affiliates in this state.

(c)

Requirements for continuance of certification.

(1)

To continue to be certified with respect to a particular certified capital company program, a certified capital company must make qualified investments according to the following schedule: (A) Within two years after the starting date of a specific certified capital company program of a certified capital company, at least twenty-five percent of its certified capital allocable to such certified capital company program must be placed in qualified investments. (B) Within three years after the starting date of a specific certified capital company program of a certified capital company, at least forty percent of its certified capital allocable to such certified capital company program must be placed in qualified investments. (C) Within four years after the starting date of a specific certified capital company program of a certified capital company, at least fifty percent of its certified capital allocable to such certified capital company program must be placed in qualified investments, at least fifty percent of which must have been placed in early stage businesses, except that in the case of program four and any subsequent program, at least twenty-five percent of which must have been placed in early stage businesses and an additional twenty-five percent of which must have been placed in start-up businesses, and except that in the case of qualified investments made in qualified businesses located in empire zones established pursuant to article eighteen-B of the general municipal law under the provisions of certified capital company program three, program four and program five from allocations of certified capital made specifically for such targeted investments in such zones, the requirement for qualified investments in early stage and start-up businesses shall not apply. (D) A certified capital company, at least fifteen working days prior to making a proposed investment in a specific business, shall certify in writing to the superintendent that (i) the business in which it proposes to invest meets the definition of a qualified business as set forth in subdivision (a) of this section or, in the case of a follow-on investment, that such business continues to meet the requirements set forth in subparagraphs (A) and (C) of paragraph seven of subdivision (a) of this section and, in either case, an explanation of its determination that the business meets such requirements, and

(ii)

with respect to certified capital company program three, program four and program five, whether or not such business is located in an empire zone established pursuant to article eighteen-B of the general municipal law or in an underserved area outside an empire zone. The certification to the superintendent shall include a sworn statement from the business in which the certified capital company proposes to invest, which statement shall evidence the intention of the business to maintain its headquarters in New York and conduct its primary business operations in the state of New York after its receipt of the investment by the certified capital company. If the superintendent determines that the business does not meet the definition of a qualified business, or, in the case of a follow-on investment, that such business does not meet the requirements set forth in subparagraphs (A) and (C) of paragraph seven of subdivision (a) of this section, then it shall, within the fifteen working day period prior to the making of the proposed investment, notify the certified capital company of its determination and provide an explanation thereof, provided, however, that the department may, upon written request of a certified capital company and at the discretion of the department, grant, in writing, an exemption to the percentage limitations of paragraph ten of subdivision (a) of this section. (E) All certified capital not placed in qualified investments by the certified capital company may be held or invested in such manner as the certified capital company, in its discretion, deems appropriate. The proceeds of all certified capital returned to a certified capital company after being originally placed in qualified investments may be placed again in qualified investments and shall count toward any requirement in this subdivision with respect to placing certified capital in qualified investments. (F) If within ten years after the starting date of certified capital company program four or program five, and within twelve years after the starting date of certified capital company programs one, two, and three, one hundred percent of the certified capital allocable to a certified capital company participating in such program has not been placed in qualified investments, the specific certified capital company shall no longer be permitted to receive management fees; provided that such restriction shall not apply (i) with respect to certified capital company programs one, two, and three, to any certified capital company that has not, prior to October thirty-first, two thousand four, received, as opposed to accrued, any management fees, or

(ii)

with respect to any certified capital company program, to a certified capital company in which at least fifty percent of the voting stock, capital, membership interests, or other beneficial ownership interests, as the case may be, are owned by an entity that is managed, directly or indirectly, by a non-profit corporation.

(2)

Any business which is classified as a qualified business at the time of the first investment in said business by a certified capital company shall remain classified as a qualified business and may receive follow-on investments from any certified capital company, and such follow-on investments shall be qualified investments even though such business may not meet the definition of a qualified business at the time of such follow-on investments, provided, however, that such business continues to meet the requirements set forth in subparagraphs (A) and (C) of paragraph seven of subdivision (a) of this section, and such business reaffirms its intention to maintain its headquarters in New York and conduct its primary business operations in the state of New York as required in subparagraph (D) of paragraph one of this subdivision.

(3)

No qualified investment may be made by a certified capital company to the extent such investment would cause the company’s total qualified investment outstanding with respect to the qualified business receiving such investment to exceed fifteen percent of the total certified capital of the certified capital company at the time of such investment.

(4)

Documents and other materials submitted by certified capital companies or by businesses for purposes of the continuance of certification shall not be public records if such records are determined by the superintendent to be trade or business secrets and shall be maintained in a confidential manner by the superintendent.

(5)

The aggregate cumulative amount of all qualified investments made by the certified capital company for a certified capital company program from its starting date for such program will be considered in the calculation of the percentage requirements under subparagraphs (A), (B) and (C) of paragraph one of this subdivision, provided, however, that any amounts received by a certified capital company from a qualified business as (i) commitment fees, closing fees, or other similar fees (excluding reimbursement of out-of-pocket expenses, including legal fees and accounting fees) in excess of one percent of the certified capital company’s investment in the qualified business or (ii) license fees, royalties, or similar charges shall not be considered in any of the percentage calculations under this section.

(6)

Each certified capital company shall report the following to the superintendent: (A) As soon as practicable after the receipt of certified capital or an irrevocable funding commitment subject only to the receipt of an allocation pursuant to subdivision (h) of this section, (i) the name of each certified investor from which the certified capital was received, including such certified investor’s insurance tax identification number;

(ii)

the amount of each certified investor’s investment of certified capital; and

(iii)

the date on which the certified capital was received. Provided, however, that requests for allocation of tax credits with respect to certified capital company program two by certified capital companies on behalf of their certified investors which are received by the superintendent on or before March first, two thousand shall be treated as having been received on March first, two thousand for tax credits to be utilized in two thousand one, and if satisfactory, shall be given equal priority for allocation, and provided, however, that requests for allocation of tax credits with respect to certified capital company program three by certified capital companies on behalf of their certified investors which are received by the superintendent on or before December first, two thousand shall be treated as having been received on December first, two thousand for tax credits to be utilized in two thousand two, and if satisfactory, shall be given equal priority for allocation, and provided, however, that requests for allocation of tax credits with respect to certified capital company program four by certified capital companies on behalf of their certified investors which are received by the superintendent on or before December first, two thousand four shall be treated as having been received on December first, two thousand four for tax credits to be utilized in two thousand six, and if satisfactory, shall be given equal priority for allocation, and provided, however, that requests for allocation of tax credits with respect to certified capital company program five by certified capital companies on behalf of their certified investors which are received by the superintendent on or before the later of (i) November first, two thousand five and (ii) the one hundred twentieth day after the date on which the superintendent began accepting applications for certification in connection with certified capital company program five pursuant to paragraph nine of subdivision (b) of this section shall be treated as having been received on such later date for tax credits to be utilized in two thousand seven, and if satisfactory, shall be given equal priority for allocation. (B) On an annual basis, on or before January thirty-first of each year, (i) the amount of the certified capital company’s certified capital at the end of the immediately preceding year;

(ii)

whether or not the certified capital company has invested more than fifteen percent of its total certified capital in any one business;

(iii)

all qualified investments that the certified capital company made during the previous calendar year, including the number of employees of each qualified business in which it has made investments at the time of such investment and as of December first of the preceding calendar year. For any qualified business where the certified capital company no longer has an investment, the certified capital company shall provide employment figures for such company as of the last day before the investment was terminated. Such report shall provide a separate accounting by each certified capital company program; and

(iv)

all qualified investments made in empire zones and underserved areas outside such empire zones as required under certified capital company program three, certified capital company program four and certified capital company program five. (C) Each certified capital company shall provide to the superintendent annual audited financial statements, which shall include the opinion of an independent certified public accountant, within ninety days of the close of its fiscal year. The audit shall address whether the funds received by the certified capital company have been invested as required under subparagraphs (A), (B) and (C) of paragraph one of this subdivision. Upon receiving notification and documentation by a certified capital company that it has satisfied the requirements of subparagraph (C) of paragraph one of this subdivision that it has invested fifty percent of its certified capital, the department shall have sixty days to notify such certified capital company that it has or has not met such requirement, with a reason for such determination if it has not, in the judgment of the department, met such requirement. If the department does not provide such notification within sixty days, the certified capital company shall then be deemed to have met such requirement. (D) On or before April first of each year, each certified capital company shall pay an annual, non-refundable certification fee of five hundred dollars to the superintendent; provided that no such fee shall be required within six months of the initial certification date of a certified capital company. (E)(1) Within thirty days of the decision on an application for certification pursuant to subdivision (b) of this section, the superintendent shall submit a copy of such application and the related decision to the department of taxation and finance. The superintendent shall submit a copy of all filings of certifications pursuant to subparagraph (D) of paragraph one of this subdivision and any determination made thereon within fifteen days of such filing.

(2)

The superintendent shall annually, by March first, submit to the department of taxation and finance a list of persons who may claim the tax credit for the previous taxable year and any other information necessary to assist the department of taxation and finance to determine eligibility for such tax credit.

(d)

Distributions.

(1)

A certified capital company may make qualified distributions at any time. In order for a certified capital company to make a distribution other than a qualified distribution from a certified capital company program, to its equity holders, either (A) the aggregate cumulative amount of all qualified investments for such program must equal or exceed one hundred percent of its certified capital allocable to such certified capital company program, or (B) it must have received written authorization to make such distribution from the superintendent. In no event, however, shall any such distribution to its equity holders, other than a qualified distribution, be made by a certified capital company from a certified capital company program unless an amount equal cumulatively to at least ninety percent of its certified capital of such program is invested in companies that conduct their principal business operations in New York state.

(2)

In the event that a business in which a qualified investment is made relocates its principal business operations to another state during such investment, or within three months after the termination of such investment, the cumulative amount of qualified investment shall be reduced by the amount of such qualified investment, for the purposes of this subdivision only, unless (A) the certified capital company invests an amount at least equal to the investment of certified capital in the relocated business in a qualified business located in New York state within six months of the relocation or (B) unless the business demonstrates that it has returned its principal business operations to New York state within three months of such relocation. A business shall be deemed to have relocated its principal business operations outside New York state if the primary workplace of more than fifty percent of the employees of such business within the state is relocated to another state.

(3)

In the event that a business in which a qualified investment is made under certified capital company program three, certified capital company program four or certified capital company program five, relocates its principal business operation within the earlier of four years after the date of such qualified investment or three months after the termination of such investment, whereby the requirements of paragraph three of subdivision (h) of this section to make qualified investments in qualified businesses located in empire zones established pursuant to article eighteen-B of the general municipal law or in underserved areas outside such empire zones no longer are satisfied, the cumulative amount of qualified investment shall be reduced by the amount of such qualified investment, for the purposes of this subdivision only, unless (A) the certified capital company invests an amount at least equal to the investment of certified capital in the relocated business in a qualified business located in either an empire zone or in an underserved area outside an empire zone so that the requirements of paragraph three of subdivision (h) of this section are again satisfied within six months of such relocation, unless the certified capital company certifies to the superintendent that a good faith effort was made to make additional qualifying investments under the requirements of paragraph three of subdivision (h) of this section, or (B) the business demonstrates that it has returned its principal business operation to New York state in either an empire zone or in an underserved area outside an empire zone within three months of such relocation, or (C) the business demonstrates that it had a valid business purpose for relocating its principal business operation. A business shall be deemed to have relocated its principal business operations outside of an empire zone or an underserved area outside an empire zone if the primary workplace of more than fifty percent of the employees of such business within an empire zone or an underserved area outside an empire zone is relocated to an area outside the state or outside an empire zone or an underserved area outside an empire zone.

(4)

Payments to debt holders of a certified capital company may be made without restriction with respect to repayments of principal and interest on indebtedness owed to them by a certified capital company, including indebtedness of the certified capital company on which certified investors earned tax credits. A debt holder that is also a certified investor or equity holder of a certified capital company may receive payments with respect to such debt without any restriction whatsoever.

(5)

A certified capital company that receives certified capital investments under program four and any subsequent program shall pay to the department for deposit in the general fund an amount equal to thirty percent of the net profits on qualified investments. A certified capital company shall make all payments required under this paragraph concurrently with and pro rata to distributions of profits and gains to its equity owners; however, nothing contained in this paragraph shall be construed to affect qualified distributions.

(6)

The amount of any payment required under paragraph five of this subdivision shall be reduced to fifteen percent of such net profits on qualified investments if, at the time of such net profits distribution, such certified capital company irrevocably commits to both: (A) re-invest the remaining fifteen percent of such net profits not being paid to the general fund under paragraph five of this subdivision into qualified businesses, and (B) invest an additional amount equal to at least fifteen percent of such net profits distribution into qualified businesses which additional amount shall come from a separate pool of venture capital that is controlled by the certified capital company but that does not contain certified capital. In making investments from funds established under this paragraph, the certified capital company shall follow the requirements set forth in subparagraph (D) of paragraph one of subdivision (c) of this section pertaining to obtaining approval of the investment being in a qualified business, except that requirements pertaining to empire zones and underserved areas requirements shall not apply. Once qualified investments in qualified businesses have been made pursuant to this paragraph equal to thirty percent of the net profits on qualified investments, then the requirements under this subdivision shall have been satisfied and the proceeds from such qualified businesses may be distributed without restriction.

(e)

Decertification.

(1)

The superintendent shall conduct an annual review of each certified capital company to determine if the certified capital company is abiding by the requirements of certification, to advise the certified capital company as to the eligibility status of its qualified investments, and to ensure that no investment has been made in violation of this subdivision. The cost of the annual review shall be paid by each certified capital company according to a reasonable fee schedule adopted by the superintendent.

(2)

Any material violation of subdivision (c) of this section with respect to a particular certified capital company program shall be grounds for decertification of the certified capital company with respect to such program. If the superintendent determines that a certified capital company is not in compliance with the requirements of subdivision (c) of this section with respect to a particular certified capital company program, it shall, by written notice, inform the officers of the certified capital company that the certified capital company will be subject to decertification with respect to such program in one hundred twenty days from the date of mailing of the notice, unless the deficiencies are corrected and the certified capital company is again in compliance with all requirements for certification.

(3)

At the end of the one hundred twenty day grace period, if the certified capital company is still not in compliance with subdivision (c) of this section with respect to a particular certified capital company program, the superintendent shall send a notice of decertification to the certified capital company with respect to such program and to all other appropriate state agencies.

(4)

Notwithstanding the provisions of paragraphs two and three of this subdivision, if a certified capital company in certified capital company programs three, four and five fails to satisfy the requirement in subparagraph (B) of paragraph one of subdivision (c) of this section because it has been unable to make a sufficient amount of qualified investments in qualified businesses located either in empire zones established pursuant to article eighteen-B of the general municipal law or in underserved areas outside such empire zones, such certified capital company shall not be subject to decertification at that time. However, if such certified capital company fails to satisfy the requirement in subparagraph (C) of paragraph one of subdivision (c) of this section because it has been unable to make a sufficient amount of qualified investments in qualified businesses located either in such empire zones or in underserved areas outside such empire zones, but certifies to the superintendent that it had made a good faith effort to make such investments, such certified capital company shall be allowed two additional years to satisfy the requirement in such subparagraph (C). If, after the conclusion of such two year period, the certified capital company still has not been able to satisfy the requirement to make such investments, and such certified capital company certifies to the superintendent that it had made a good faith effort to make such investments, the requirement in paragraphs three, four and five of subdivision (h) of this section to make qualified investments in qualified businesses located in empire zones or in underserved areas shall be waived. Such certified capital company shall then be allowed one additional year to satisfy the requirement in such subparagraph (C), and if, at the conclusion of that additional one year period, such requirement is still not satisfied, such certified capital company shall be subject to decertification and the provisions of paragraphs two and three of this subdivision shall apply.

(5)

Once a certified capital company has invested an amount cumulatively equal to one hundred percent of its certified capital with respect to a particular certified capital company program in qualified investments and has met all other requirements under this subdivision, the certified capital company shall no longer be subject to regulation by the superintendent and shall no longer be subject to the requirements of subdivision (c) of this section with respect to such program. Upon receiving documented certification by a certified capital company that it has invested an amount equal to one hundred percent of its certified capital, the department shall have sixty days to notify such certified capital company that it has or has not met such requirement with a reason for such determination if it has not, in the judgment of the department, met such requirement. If the department does not provide such notification within sixty days, the certified capital company shall then be deemed to have met such requirement.

(6)

The superintendent shall send written notice of such decertification to the address of each certified investor whose tax credit has been subject to recapture or forfeiture, using the address shown on the last filing submitted to the superintendent.

(f)

Revocation of certification. The superintendent may revoke the certification of a certified capital company, or, at the discretion of the superintendent, the certification of a certified capital company with respect to a particular certified capital company program only, if any material representation to the superintendent in connection with the application process proves to have been falsely made or if the application materially violates any requirement established by the superintendent pursuant to this subdivision. In addition, the superintendent may revoke the certification of a certified capital company if such certified capital company (i) falsely certified, pursuant to paragraph three of subdivision (d) of this section that a good faith effort was made to make additional qualifying investments under the requirements of paragraph three of subdivision (h) of this section, or

(ii)

falsely certified, pursuant to paragraph four of subdivision (e) of this section, that it had made a good faith effort to make a sufficient amount of qualifying investments in qualifying businesses located in empire zones established pursuant to article eighteen-B of the general municipal law or in underserved areas outside such empire zones.

(g)

Registration requirements. All investments for which tax credits are allowable under the provisions of subdivision (k) of § 1511 (Credits)section fifteen hundred eleven of this chapter shall satisfy the conditions of being registered or specifically exempt from registration by provisions or regulations under sections three hundred fifty-nine-e through three hundred fifty-nine-ff of the general business law.

(h)

Maximum permitted credits.

(1)

Certified capital company program one. The aggregate amount of certified capital for which taxpayers may be allocated and allowed tax credits pursuant to this paragraph and subdivision (k) of § 1511 (Credits)section fifteen hundred eleven of this chapter may not exceed fifty million dollars for calendar year nineteen hundred ninety-nine, which certified capital may be invested in certified capital companies beginning in calendar year nineteen hundred ninety-eight. In calendar year two thousand or thereafter, tax credits may be allowed pursuant to this paragraph and such subdivision (k) for an additional fifty million dollars of certified capital, which certified capital may be invested in certified capital companies beginning in calendar year nineteen hundred ninety-nine, if not allocated to calendar year nineteen hundred ninety-eight in accordance with this paragraph. Therefore, the total amount of certified capital for which tax credits may be allowed pursuant to this paragraph and such subdivision (k) shall be one hundred million dollars. During any calendar year in which the limitation described in this paragraph will limit the amount of certified capital, certified capital will be allocated in order of priority based upon the date of filing of information described in subparagraph (A) of paragraph six of subdivision (c) of this section. Certified capital limited in any calendar year by the application of the provisions of this paragraph shall be allowed and allocated in the immediately succeeding calendar year in order of priority set forth in this paragraph. The superintendent shall advise any certified capital company in writing within fifteen days after receiving such filing, whether the limitations of this paragraph then in effect will be applicable with respect to the investments and credits described in such filing with the superintendent. Certified capital may be raised by each certified capital company with respect to certified capital company program one at any time subsequent to its certification date, and credits shall be allocated to and vested in certified investors at the time of each such investment as provided in this paragraph, although such credits shall not be first allowed or incurred for state tax purposes, until, at the earliest, tax years beginning in nineteen hundred ninety-nine with respect to the first fifty million dollars of credits and tax years beginning in two thousand with respect to the next such fifty million dollars of credits.

(2)

Certified capital company program two. The aggregate amount of certified capital for which taxpayers may be allocated and allowed tax credits pursuant to this paragraph and subdivision (k) of § 1511 (Credits)section fifteen hundred eleven of this chapter may not exceed thirty million dollars for calendar year two thousand one, which certified capital may be invested in certified capital companies beginning in calendar year nineteen hundred ninety-nine. During any calendar year in which the limitation described in this paragraph will limit the amount of certified capital, certified capital will be allocated in order of priority based upon the date of filing of information described in subparagraph (A) of paragraph six of subdivision (c) of this section. The superintendent shall advise any certified capital company in writing, within fifteen days after receiving such filing, whether the limitations of this paragraph then in effect will be applicable with respect to the investments and credits described in such filing with the superintendent. Certified capital may be raised by each certified capital company with respect to certified capital company program two at any time subsequent to its certification date, and credits shall be allocated to and vested in certified investors at the time of each such investment as provided in this paragraph, although such credits shall not be first allowed or incurred for state tax purposes, until, at the earliest, tax years beginning in two thousand one.

(3)

Certified capital company program three. The aggregate amount of certified capital for which taxpayers may be allocated and allowed tax credits pursuant to this paragraph and subdivision (k) of § 1511 (Credits)section fifteen hundred eleven of this chapter may not exceed one hundred fifty million dollars for calendar year two thousand two, which certified capital may be invested in certified capital companies beginning in calendar year two thousand. During any calendar year in which the limitation described in this paragraph will limit the amount of certified capital, certified capital will be allocated in order of priority based upon the date of filing of information described in subparagraph (A) of paragraph six of subdivision (c) of this section. The superintendent shall advise any certified capital company in writing, within fifteen days after receiving such filing, whether the limitations of this paragraph then in effect will be applicable with respect to the investments and credits described in such filing with the superintendent. Certified capital may be raised by each certified capital company with respect to certified capital company program three at any time subsequent to its certification date, and credits shall be allocated to and vested in certified investors at the time of each such investment as provided in this paragraph, although such credits shall not be first allowed or incurred for state tax purposes, until, at the earliest, tax years beginning in two thousand two. One-third of the certified capital raised by each certified capital company with respect to certified capital company program three shall be used to make qualified investments in qualified businesses located in empire zones established pursuant to article eighteen-B of the general municipal law, and one-third of such certified capital shall be used to make qualified investments in qualified businesses located in underserved areas outside such empire zones.

(4)

Certified capital company program four. The aggregate amount of certified capital for which taxpayers may be allocated and allowed tax credits pursuant to this paragraph and subdivision (k) of § 1511 (Credits)section fifteen hundred eleven of this chapter may not exceed sixty million dollars for calendar year two thousand six, which certified capital may be invested in certified capital companies beginning in calendar year two thousand four. During any calendar year in which the limitation described in this paragraph will limit the amount of certified capital, certified capital will be allocated in order of priority based upon the date of filing of information described in subparagraph (A) of paragraph six of subdivision (c) of this section. The superintendent shall advise any certified capital company in writing, within fifteen days after receiving such filing, whether the limitations of this paragraph then in effect will be applicable with respect to the investments and credits described in such filing with the superintendent. Certified capital may be raised by each certified capital company with respect to certified capital company program four at any time subsequent to its certification date, and credits shall be allocated to and vested in certified investors at the time of each such investment as provided in this paragraph, although such credits shall not be first allowed or incurred for state tax purposes, until, at the earliest, tax years beginning in two thousand six. One-third of the certified capital raised by each certified capital company with respect to certified capital company program four shall be used to make qualified investments in qualified businesses located in empire zones established pursuant to article eighteen-B of the general municipal law, and one-third of such certified capital shall be used to make qualified investments in qualified businesses located in underserved areas outside such empire zones, provided, however, that in the case of an investment made by a certified capital company in an empire zone located in an underserved area, the certified capital company making such an investment may choose to designate such investment as an investment in an underserved area but not as an investment in an empire zone for the purpose of meeting the requirements of this paragraph. Fifty percent of the total amount of capital invested by a certified capital company at the time of one hundred percent investment of funds shall be invested in qualified businesses that are involved in commerce for the primary purpose of developing and manufacturing products and systems covered by the activities set forth in paragraph (b) of subdivision one of Public Authorities Law § 3102-E (Emerging technology industrial classifications)section thirty-one hundred two-e of the public authorities law and have a ratio of research and development expenditures to net sales which equals or exceeds six percent during the fiscal year immediately preceding the qualified investment.

(5)

Certified capital company program five. The aggregate amount of certified capital for which taxpayers may be allocated and allowed tax credits pursuant to this paragraph and subdivision (k) of § 1511 (Credits)section fifteen hundred eleven of this chapter may not exceed sixty million dollars for calendar year two thousand seven, which certified capital may be invested in certified capital companies beginning in calendar year two thousand five. During any calendar year in which the limitation described in this paragraph will limit the amount of certified capital, certified capital will be allocated in order of priority based upon the date of filing of information described in subparagraph (A) of paragraph six of subdivision (c) of this section. The superintendent shall advise any certified capital company in writing, within fifteen days after receiving such filing, whether the limitations of this paragraph then in effect will be applicable with respect to the investments and credits described in such filing with the superintendent. Certified capital may be raised by each certified capital company with respect to certified capital company program five at any time subsequent to its certification date, and credits shall be allocated to and vested in certified investors at the time of each such investment as provided in this paragraph, although such credits shall not be first allowed or incurred for state tax purposes, until, at the earliest, tax years beginning in two thousand seven. One-third of the certified capital raised by each certified capital company with respect to certified capital company program five shall be used to make qualified investments in qualified businesses located in empire zones established pursuant to article eighteen-B of the general municipal law, and one-third of such certified capital shall be used to make qualified investments in qualified businesses located in underserved areas outside such empire zones, provided, however, that in the case of an investment made by a certified capital company in an empire zone located in an underserved area, the certified capital company making such an investment may chose to designate such investment as an investment in an underserved area but not as an investment in an empire zone for the purpose of meeting the requirements of this paragraph. Fifty percent of the total amount of capital invested by a certified capital company at the time of one hundred percent investment of funds shall be invested in qualified businesses that are involved in commerce for the primary purpose of developing and manufacturing products and systems covered by the activities set forth in paragraph (b) of subdivision one of Public Authorities Law § 3102-E (Emerging technology industrial classifications)section thirty-one hundred two-e of the public authorities law and have a ratio of research and development expenditures to net sales which equals or exceeds six percent during the fiscal year immediately preceding the qualified investment.

(i)

Maximum certified capital. The maximum amount of certified capital per certified capital company program invested in one or more certified capital companies allowed in any one year to any one certified investor shall not exceed ten million dollars for certified capital company programs one and three, and eight million dollars for certified capital company programs two, four and five for such year, provided, however, that if the aggregate amount of certified capital for such year, as set forth in subdivision (h) of this section, has not been reached sixty days prior to the end of the year to which such aggregate amount applies, the provisions of this subdivision shall cease to apply for the remainder of such year. In addition, the aggregate amount of tax credits allowed in any taxable year to any affiliated group of taxpayers in relation to certified capital may not exceed such maximum amount, whether or not such taxpayers file a combined return pursuant to subdivision (f) of § 1515 (Returns)section fifteen hundred fifteen of this chapter. For purposes of the preceding sentence, the term “affiliated group” shall have the same meaning as described in section 1504 of the internal revenue code, except that the references to “at least eighty percent” in such section 1504 shall be read as “more than fifty percent”.

(k)

Rules and regulations. The superintendent, in consultation with the department of taxation and finance, shall prescribe such rules and regulations as he or she shall deem necessary in order to implement the provisions of this section within one hundred twenty days of the effective date of this section.

(l)

For the purposes of this section, the term “empire zone” shall also include, in relation to investments made by a certified capital company in which at least fifty percent of the voting stock, capital, and membership interests, as the case may be, are owned by an entity that is managed directly or indirectly, by a non-profit corporation, the liberty zone as defined in section one of part AA of chapter three hundred eighty-three of the laws of two thousand one, the resurgence zone as defined in section one of part A of chapter three hundred eighty-three of the laws of two thousand one and a federal empowerment zone designated pursuant to section 1391 of the internal revenue code.

Source: Section 11 — Certified capital companies, https://www.­nysenate.­gov/legislation/laws/TAX/11 (updated Sep. 22, 2014; accessed Jul. 20, 2024).

1
Short title
2
Definitions
3
Exemption from certain taxes granted to certain corporations engaged in the operation of vessels in foreign commerce
4
Exemption from certain excise and sales taxes granted to the United Nations
5
Obtaining and furnishing taxpayer identification information
5‑A
Certification of registration to collect sales and compensating use taxes by certain contractors, affiliates and subcontractors
6
Filing of warrants in the department of state
7
Inapplicability of certain money judgment enforcement procedures
8
Exemption from taxes granted to REMICs
9
Electronic funds transfer by certain taxpayers remitting withholding taxes
10
Electronic funds transfer by certain taxpayers remitting sales and compensating use taxes, prepaid sales and compensating use taxes on mo...
11
Certified capital companies
12
Internet
13
Exemption from taxation for victims or targets of Nazi persecution
14
Empire zones program
14‑A
IMB credit for energy taxes
15
QEZE credit for real property taxes
16
QEZE tax reduction credit
17
Empire zones tax benefits report
18
Low-income housing credit
19
Green building credit
20
Credit for transportation improvement contributions
21
Brownfield redevelopment tax credit
21*2
Disclosure of taxpayer information in cases involving abandoned property
22
Tax credit for remediated brownfields
23
Environmental remediation insurance credit
24
Empire state film production credit
24‑A
Musical and theatrical production credit
24‑B
Television writers’ and directors’ fees and salaries credit
24‑C
New York city musical and theatrical production tax credit
25
Disclosure of certain transactions and related information
26
Security training tax credit
27
Suspension of tax-exempt status of terrorist organizations
28
Empire state commercial production credit
28*2
Biofuel production credit
29
Mandatory electronic filing and payment
30
Bad check or failed electronic funds withdrawal fee
31
Excelsior jobs program credit
31*2
Empire state film post production credit
32
Registration of tax return preparers
33
Correction periods for electronic tax documents and payments
33*2
Temporary deferral of certain tax credits
34
Tax return preparers and software companies not to charge separately for New York e-file services
34*2
Temporary deferral payout credits
35
Use of electronic means of communication
35*2
Economic transformation and facility redevelopment program tax credit
36
Empire state jobs retention program credit
37
Alcoholic beverage production credit
38
New York innovation hot spot program tax benefits
38*2
Minimum wage reimbursement credit
39
Tax benefits for businesses located in tax-free NY areas and employees of such businesses
39‑A
Penalties for fraud in the START-UP NY program
40
The tax-free NY area tax elimination credit
41
Limitations on tax credit eligibility
42
Farm workforce retention credit
42‑A
Farm employer overtime credit
43
Life sciences research and development tax credit
43*2
Single member limited liability companies and eligibility for tax credits
44
Employer-provided child care credit
45
Empire state digital gaming media production credit
46
Restaurant return-to-work tax credit
46‑A
Additional restaurant return-to-work tax credit
47
COVID-19 capital costs tax credit
47*2
Grade no
47*3
Suspension of certain taxes on motor fuel and Diesel motor fuel
48
Child care creation and expansion tax credit
49
Newspaper and broadcast media jobs tax credit
49*2
Commercial security tax credit

Accessed:
Jul. 20, 2024

Last modified:
Sep. 22, 2014

§ 11’s source at nysenate​.gov

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