41-1518

41-1518. Capital investment incentives;
evaluation; certification; definitions

A. Beginning July 1, 2006, the department of commerce shall receive and evaluate
applications that are submitted by qualified investors to receive a tax credit pursuant
to section 43-1074.02 for qualified investments made in a qualified small business and
certify to the department of revenue the names, amounts and other relevant information
relating to the applicants.

B. To be eligible for a tax credit pursuant to this section and section 43-1074.02,
a qualified investor shall file an application with the department of commerce within
thirty days after making a qualified investment. The application, on a form prescribed by
the department of commerce, shall include:

1. The name, address and federal income tax identification number of the applicant.

2. The name and federal employer identification number of the qualified small
business that received a qualified investment made by the applicant.

3. The date the qualified investment was made.

4. Any additional information that the department of commerce requires.

C. As part of the application, the applicant and the qualified small business that
receives the investment shall each provide written authorization pursuant to section
42-2003 designating the department of commerce as eligible to receive tax information
from the department of revenue for the purpose of determining if any misrepresentations
exist on the application. The authorization shall limit disclosure to income tax
information for the latest two years for which returns were filed with the department of
revenue preceding the date the application is filed and for all tax years through the
year in which the investment was made for which a return was not filed as of the date of
the application. The applicant shall also provide in the written authorization income tax
information for all tax years in which the applicant could claim or carry forward the
credit pursuant to this section, but limited to the tax years in which the applicant
actually claims a credit or carries forward a credit on a return filed with the
department of revenue. An applicant who has an individual ownership interest as a
co-owner of a business who may be entitled to a pro rata share of the credit pursuant to
section 43-1074.02, subsection E shall provide a written authorization with content
similar to the authorization, and in the same manner as, any other applicant is required
to provide.

D. The department of commerce shall review and make a determination with respect to
each application within ninety days after receiving the application. The department of
commerce may request additional information from the applicant in order to make an
informed decision regarding the eligibility of the qualified investor or qualified small
business.

E. Subject to subsection F of this section, the department of commerce shall
authorize tax credits for each qualified investor who makes a qualified investment in a
qualified small business. The amount of the credit shall be:

1. If the qualified investment is made in a qualified small business that maintains
its principal place of business in a rural county of this state or is a bioscience
enterprise, twelve per cent of the amount of the investment per year for the first and
second taxable years after the investment is made and eleven per cent of the amount of
the investment for the third taxable year after the year in which the investment is made.

2. If the qualified investment is made in a qualified small business other than a
business described in paragraph 1 of this subsection, ten per cent of the amount of the
investment for each of the three taxable years after the year in which the investment is
made.

F. The department of commerce shall not authorize tax credits under this section
after June 30, 2011. The department of commerce shall not certify tax credits under this
section exceeding twenty million dollars. Tax credits that expire after certification or
that are otherwise not timely used by the qualified investor for whom they were
originally authorized shall be included in the twenty million dollar limitation. If
qualifying applications exceed twenty million dollars, the department of commerce shall
authorize credits in the order of the date and time that the applications are received by
the department of commerce, as evidenced by the time and date stamped on the application
when received by the department. All applications shall be filed in person at the
department of commerce. If an application is received that, if authorized, would require
the department of commerce to exceed the twenty million dollar limit, the department of
commerce shall only grant the applicant the remaining amount of tax credits that would
not exceed the twenty million dollar limit. After the department of commerce authorizes
twenty million dollars in tax credits, the department of commerce shall deny any
subsequent applications that are received. The department of commerce shall certify to
the qualified investor and to the department of revenue the amount of the tax credit that
is authorized for purposes of section 43-1074.02 for each taxable year described in
subsection E of this section.

G. The total of all qualified investments in any calendar year by a qualified
investor and its affiliates in qualified small businesses that are eligible for a tax
credit pursuant to this section and section 43-1074.02 shall not exceed two hundred fifty
thousand dollars. The maximum amount of qualified investments in a single qualified small
business for which the department of commerce may authorize tax credits under this
section shall not exceed an aggregate of two million dollars in investments for all
taxable years. If applications for tax credits are received for investments that exceed
the limits prescribed by this subsection for any qualified small business, the department
of commerce shall authorize credits in the order of the date and time that the
applications are received by the department of commerce. If an application is received
that, if authorized, would require the department of commerce to authorize tax credits
for any investment in a qualified small business that would cause the total qualified
investments in the business to exceed the limits prescribed by this subsection, the
department of commerce shall only grant the applicant the remaining amount of tax credits
that would not exceed the limits prescribed by this subsection.

H. The qualified investor shall file a return claiming the tax credit with the
department of revenue for application against income tax pursuant to section 43-1074.02
by the due date of the return, including extensions, for the tax year in which the credit
is available. If the qualified investor fails to timely file a return claiming the credit
for a taxable year, the credit expires for that taxable year and there shall be no
carryforward of the expired credit. If a qualified investor includes co-owners of a
business who qualify for individual pro rata shares of the credit pursuant to section
43-1074.02, subsection E, each individual owner shall file a return claiming the tax
credit with the department of revenue by the due date of the return, including
extensions, for the tax year in which the credit is available. If an individual co-owner
fails to timely file a return claiming the credit for a taxable year, the credit expires
for that taxable year and there shall be no carryforward of the expired credit. Credits
that expire or that otherwise are not timely used by the qualified investor or by the
individual co-owner of a business for whom the credits were originally authorized shall
not be reissued.

I. On receiving an application for a tax credit from a qualified investor, or a
written request for certification as a qualified small business from a corporation,
limited liability company, partnership or other business entity, the department of
commerce shall determine whether the corporation, limited liability company, partnership
or other business entity that is named in the application or written request is a
qualified small business. The department of commerce shall determine if the business is a
bioscience enterprise and if the business maintains its principal place of business in a
rural county in this state. After determining the qualifications, the department of
commerce shall certify the qualified small business as being eligible to receive
qualified investments for purposes of this section. The certification is valid for one
year, but the department of commerce may revoke the certification at any time or refuse
to renew the certification if the business fails to maintain the required qualifications.
If a qualified small business fails to maintain the qualifications, the business shall
notify the department of commerce within five business days of failing to meet the
qualifications. The department of commerce shall revoke the certification of the business
and may assess a penalty against the business entity equal to the amount of the tax
credits authorized after the business failed to meet the qualifications. The penalty
shall be deposited into the state general fund. If the certification is revoked or
expires, subsequent investments in the business do not qualify for a tax credit pursuant
to this section and section 43-1074.02. All tax credits that are issued before any
expiration or revocation of the certification shall remain valid. Any application for a
tax credit shall not be denied on the basis of the expiration or revocation of the
certification if the investment was made before the date of the expiration or revocation.

J. The department of commerce shall provide to the department of revenue necessary
information required to administer this section and section 43-1074.02. If the
department of commerce subsequently discovers that an applicant who received a tax credit
misrepresented information on the application, the department of commerce shall
immediately notify the department of revenue and provide the department of revenue all
information that relates to that applicant. If the department of revenue determines that
there has been a misrepresentation on the application, the department of revenue shall
deny the credit if the misrepresentation relates to whether the applicant was a qualified
investor or made a qualified investment. If the misrepresentation relates to whether the
investment was made to:

1. A qualified small business, the department of revenue shall deny the credit only
if the applicant knew or should have known at any time before the certification that the
representation was false.

2. A bioscience enterprise or a business that maintains its principal place of
business in a rural county in this state, the department of revenue shall decrease the
amount of the credit that would have been allowed under subsection E, paragraph 1 of this
section to the amount allowed under subsection E, paragraph 2 of this section only if the
applicant knew or should have known at any time before the certification that the
representation was false.

K. For the purposes of this section:

1. "Affiliate" means any person or entity that controls, that is controlled by or
that is under common control with another person or entity. For the purposes of this
paragraph, "control" means the power to determine the policies of an entity whether
through ownership of voting securities, by contract or otherwise.

2. "Asset" means any owned property that has value including financial assets and
physical assets. Intellectual property shall not be included when determining total
assets.

3. "Bioscience enterprise" means a business whose activity is related to bioscience
as determined by the department of commerce or any corporation, partnership, limited
liability company or other business entity that is primarily engaged in a business that
conducts research, development, manufacture, marketing, sale and licensing of products,
services and solutions relating to either of the following:

(a) Medical, pharmaceutical, nutraceutical, bioengineering, biomechanical,
bioinformatics or other life-science based applications.

(b) Applications of modern biological, bioengineering, biomechanical or
bioinformatics technologies in the fields of human, plant or animal health, agriculture,
defense, homeland security or the environment.

4. "Qualified investment" means an investment in an equity security that meets all
of the following requirements:

(a) The equity security shall be common stock, preferred stock, an interest in a
partnership or limited liability company, a security that is convertible into an equity
security or other equity security as determined by the department of commerce.

(b) The investment shall be at least twenty-five thousand dollars.

(c) The qualified investor and its affiliates do not hold, of record or
beneficially, immediately before making an investment, equity securities possessing more
than thirty per cent of the total voting power of all equity securities of the qualified
small business.

5. "Qualified investor" means an individual, limited liability company,
partnership, S corporation as defined in section 1361 of the internal revenue code or
other business entity that makes a qualified investment in a qualified small business.
Qualified investor does not mean a corporation that is subject to tax under title 43,
chapter 11.

6. "Qualified small business" means a corporation, limited liability company,
partnership or other business entity that:

(a) Maintains at least a portion of its operations at an office or manufacturing or
research facility located in this state.

(b) Has at least two principal full-time equivalent employees who are residents in
this state. For the purposes of this subdivision, "principal" means a person whose sole
responsibility is not administrative.

(i) Sales or distribution of retail goods or food or restaurant services.

(ii) Development, sale, leasing, rental or operation of or investment in, real
estate.

(iii) Providing professional services, except for professional services for
hardware or software licensed or sold by the provider of such services.

(iv) Providing health care services to patients, except for services provided in
connection with research, development, clinical trials and marketing activities by
bioscience enterprises.

(v) Providing banking, brokerage, insurance or other financial or investment
services.

(vi) Providing personal services.

(vii) Operating mining, forestry and other natural resource exploitation or
extraction businesses, except for research and development in these businesses.

(viii) Agricultural operations, except for research and development in these
businesses.

(ix) Operating an investment company or fund.

(x) Any other business activity that the department of commerce determines by rule
to be unsuited to fulfill the purposes of this section.

(d) Does not engage in any activities that involve human cloning or embryonic stem
cell research.

(e) Has total assets not exceeding two million dollars, excluding any investment
made under this section.

(f) Has not exceeded the limitation on qualified investments prescribed by
subsection G of this section.

7. "Rural county" means a county that has a population of four hundred thousand or
fewer persons.